And They’re Off! The Race To The Bottom Gains Speed

Image by USDA
Image by USDA

Image by USDA

It is widely known that workers wages have been stagnant for decades thus leading to the vast income inequality we are seeing today throughout our great nation.  Many workers have seen little if any pay raise for years, and they are the lucky ones.  Workers have seen their wages slashed as their jobs are being contracted out, or outsourced, to low bid government contractors.

Government offices at the federal level all the way down to the local school board are fueling this race to the bottom. This week, In The Public Interest published a biting report about how outsourcing jobs is hurting our communities.

The battle to cut the budget has produced some previously unforeseen and disastrous circumstances.  Budgets writers in the past few decades looked to government contractors as way to reduce their budgets, when in reality they are merely shifting costs from one line of the budget to another.

“By slashing labor costs, a company may be able to show a city or state cost savings on paper,” the ITPI report states. “However, low wages often mean that the number of Americans on public assistance rolls increases and these supplemental income and healthcare costs, instead of being the contracting employer’s responsibility, are merely shifted onto other parts of the government budget.”

To budget writers this seems like a golden opportunity, cut labor costs and absolve themselves of the responsibility to provide healthcare or any retirement program.  This is troubling as we have seen more and more employers making reductions to retirement plans, failing to offer any paid time off, and declining number of employers to even offer healthcare to workers. 99% of all government workers are offered healthcare and retirement options.

The percent of workers offered healthcare (from the Bureau of Labor Statistics):

  • 57% of Full-Time workers in companies with less than 100 employees
  • 85% of Full-Time workers in companies with more than 100 employees
  • 24% of Part-Time workers

The percent of workers who are offered retirement options:

  • 42% of Full-Time workers in small companies
  • 82% of Full-Time workers in large companies
  • 37% of Part-Time workers

The cutting of healthcare and retirement plans is only one way that contractors appear to save the local government money by contracting their services.  We all know that the cost of labor is one of the largest pieces of the fiscal pie.  For contractors, slashing wages is the fastest way to meet a new lower bottom line.

“Contractors, including Aramark, Sodexo, and Compass, cut cafeteria workers’ wages by $4-6 an hour following the privatization of food service. As one of the workers interviewed for the report explained, “When [a private contractor] took over, it was $8 an hour to start… 10 years [later] and it’s still only $8/hour.”

In Massachusetts, “Wages were slashed as the contractor reduced the pay of custodial jobs that paid an average of $19 per hour as public jobs to between $8.25 and $8.75 per hour. Employees like Rick Thorne, who had worked for the school system for 22 years, and made $20 per hour as a custodian, couldn’t afford to take the new poverty-wage positions with Aramark.” (ITPI)

NBC News also reported on a similar trend they called “domestic outsourcing.” NBC told the story of bus drivers in the greater Memphis area.  After the school year concluded, the bus drivers were gathered and told they were all fired.  Graciously the drivers were allowed to apply for the same job they previously held with a new contractor. Debbie DeCrow, an 18 year veteran of the school district was making over $15 per hour, now her new employer offered he a starting wage of “$10 per hour with no sick days or paid vacation.

It is obvious that contractors are reaping the benefits by pushing workers further down.

On paper this all seems like a great way for local budget writers to save taxpayer money, until you add in the fact that by pushing workers wages down results in more of them being forced onto government assistance programs.

“Researchers found that school cafeteria workers working for contractors in California received an average of $1,743 annually in public assistance because of their low pay.” (ITPI)

When workers have less money that means they spend less in local stores.  This is another problem for the local community. As spending at local businesses reduce, this means less business tax revenue for the states and municipalities.  ITPI also notes that states have seen a reduction in income tax revenues as wages decline.

While the taxpayers thought they were saving money by reducing labor costs in their budgets, in fact they are subsiding the contractor’s profits with additional spending in low-wage assistance programs.

“When contractors fail to provide health insurance for their employees, or if the cost of buying into the employer’s plan is too expensive, workers and their families are forced to enroll in public programs, such as Medicaid or the state Children’s Health Insurance Program (CHIP), or simply rely on emergency room visits which are very costly for the public.”  (ITPI)

The report concludes by sharing policy recommendations for reversing this dangerous trend, including:

  • Requiring contractors to show that cost savings derive from increased efficiencies and innovation, not a decrease in compensation
  • Requiring contractors to pay a living wage and provide health and other important benefits.
  • Requiring transparency measures, such as tracking how much state and local governments are spending on private contracts, how many workers are employed by those contracts, and worker wage rates.
  • Requiring governments to conduct a social and economic impact analysis before outsourcing

This report from In The Public Interest is just another example of how outsourcing jobs to low-wage contractors hurts the workers and the community.

Lets pull out the checkered flag and end this race to the bottom. 

Senators Push The Race To The Bottom With Legislation To End Federal Defined Benefits

tom-coburn-1
tom-coburn-1

Senator Tom Coburn (R-OK)

Federal workers have been the redheaded stepchildren to the GOP in Congress for many years.  First there was the Sequester that forced hundreds of thousands of federal worker to endure unpaid furloughs.  Then federal workers had to endure the forced government shutdown caused by extremists in the House of Representatives in opposition to the Affordable Care Act.

Now Senators want to kick federal workers once again.

Senators Richard Burr (R-NC), Tom Coburn (R-OK), and Saxby Chambliss (R-GA) have reintroduced legislation that would end the defined benefit pension portion of the Federal Employee Retirement System (FERS) for new federal government hires starting six months after enactment.” (FedSmith.com)

Say what? This group of Senators wants to completely end the defined benefit portion of federal workers retirement.  The bill named the Public-Private Employee Retirement Parity Act is being pushed as a way to cut costs.

Once again Republican are trying to balance their budgets on the backs of the dedicated federal workers.  This is a monsters push in the race to the bottom.

The reason they say that federal workers should not be getting a defined pension plan is because the average worker does not have a defined pension plan anymore.  The Senators explained in their press release.

Federal workers enjoy both a defined benefit pension and a Thrift Savings Plan (equivalent to a 401(k)) with up to a 5% match, paid for by the taxpayers. The average private sector employee gets a 401(k) with a 3% employer match and no pension.”

Senator Burr said, “We cannot ask taxpayers to continue to foot the bill for public employee benefits that are far more generous than their own.”

What they should be asking is, why doesn’t the private sector have what federal employees have?  For too long the GOP has pushed this idea that because you a private sector worker got screwed out of your pension it is not fair for anyone else to have one.
If I cannot have it, nobody can.

The Senators are correct that the private sector has continued to reduce pensions plans over the last 30 years.

Hedrick Smith, noted author and journalist, explained the decline in pension plans in a recent lecture in New Hampshire.

“By 1980, 84% of all companies with 100+ employees had a full pension for their retired workers; 70% of them had full healthcare coverage for retirees as well.

Now that ‘retirement security’ has all but disappeared.  Only 30% of companies with 100+ employees offer a pension; and only 18% offer retiree healthcare.  Those numbers go down every year, as workers who retired with these ‘outdated’ pensions are passing away.”

Workers have been shifted from a defined benefit plan to a 401(k) style plan. This puts their entire retirement in the hands of Wall Street gamblers.  This has created many other problems.

Many workers lost their defined pension plan for a 401(k) when they were within a few years of retirement.  This does not leave workers any time to build up their retirement savings plan to have adequate funds to retire.  Others lost their entire retirement when their employer filed for bankruptcy, ie ENRON, even through workers retirements are supposed to be protected.

All of this is making retirees more and more dependent on Social Security.

The Social Security Administration released some staggering facts about how much seniors rely on Social Security.

  • Among elderly Social Security beneficiaries, 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
  • Among elderly Social Security beneficiaries, 23% of married couples and about 46% of unmarried persons rely on Social Security for 90% or more of their income.

With proposed cuts to Social Security the need for a defined pension becomes even more important.  With less money from retirements and less money in Social Security benefits that forces more seniors to live in poverty.

What’s next, cuts to food assistance programs? Oh wait they already did that!

 

Race to the Bottom: another view of what “cheap labor” looks like

Patients working in a compound at the Kunming Municipal Compulsory Rehabilitation Center in China Photo: GETTY
Patients working in a compound at the Kunming Municipal Compulsory Rehabilitation Center in China Photo: GETTY

Patients working in a compound at the Kunming Municipal Compulsory Rehabilitation Center in China Photo: GETTY

Today’s New York Times has another tale of “cheap labor” in China:

The cry for help, a neatly folded letter stuffed inside a package of Halloween decorations sold at Kmart, traveled 5,000 miles from China into the hands of a mother of two in Oregon.  Scrawling in wobbly English on a sheet of onionskin paper, the writer said he was imprisoned at a labor camp in this northeastern Chinese town, where he said inmates toiled seven days a week, their 15-hour days haunted by sadistic guards.

[Prison officials] buy small-time offenders from other cities on a sliding scale that begins at 800 renminbi, or about $130, for six months of labor.

Do the math.  The Chinese prison buys their labor for $5 a week.  And those inmates are working 105 hours a week.

How on earth can US workers compete with that?

The really bad news is: prison labor isn’t just a problem in China.  It’s a problem here in the US, too.  Read “The Hidden History of ALEC and Prison Labor” in The Nation here.

Just one example:  Arizona inmates working for private agricultural companies are paid a “whopping fee” of “more than 50 cents an hour.”  Read “How US prison labour pads corporate profits at taxpayers’ expense” in The Guardian here.

How on earth can US workers compete with that?

America’s “Race to the Bottom”: Boeing is still outsourcing

Boeing Dreamliner

Boeing DreamlinerYesterday, the Boeing Company announced it would “create engineering centers for future work in South Carolina and possibly in Kiev, Ukraine.”

The perspective from Seattle, Washington:

The engineering union here — the Society of Professional Engineering Employees in Aerospace (SPEEA), which represents nearly 26,400 engineers and technical staff — has long decried Boeing’s outsourcing of engineering work to its design center in Moscow.

Boeing internal documents obtained by The Seattle Times in 2004 after the Moscow center was set up show the company could employ high-quality Russian engineers there at ‘approximately 1/3 to 1/5 of the U.S. cost.’

Remember, this is the Boeing Company – manufacturer of the problem-plagued Dreamliner 787. Read “Boeing Learns the Hard Way that Outsourcing Hurts in the Long Run” here.

Most of us would think that “lessons learned the hard way” would maybe change a corporation’s modus operandi.

Most of us would think that maintaining – or restoring? – a reputation for quality workmanship would be particularly important to an airplane manufacturer.

But right now, the American economy is caught in a race to the bottom. These days, CEOs aren’t interested in long-term corporate reputations. They’re interested in profits. And Boeing’s executives have been producing good profits – despite the Dreamliner mess, and despite lower sales.

How? They’ve been so very, very proficient at “controlling costs” – costs such as engineering and skilled manufacturing labor. Read “Boeing profit beats estimates despite 787 problems” here.

And Boeing has rewarded its executives handsomely for their ability to “control costs”. Last year, “key executive” compensation was up almost 55%. And the guy at the top? CEO Jim McNerney received almost $27.5 million. One person. One year. Almost $27.5 million.

(And that doesn’t even include what McNerney receives in Boeing corporate dividends. According to SEC filings, McNerney owns a few hundred thousand shares of Boeing stock, mostly received as part of his executive compensation. That means McNerney receives almost another quarter-million dollars, every time Boeing issues quarterly dividends. And guess what? Those dividends are taxed at a much lower rate than ordinary wages and salaries.)

So yes, America’s economy is still racing toward the bottom. Boeing is hiring engineers at 20 cents on the dollar — and planning even more outsourcing.

How much lower can we go?

————-

More on McNerney’s dividends:

Not that long ago, dividends were taxed as ordinary income. It didn’t matter whether someone’s income came from wages or stock holdings, it was still taxed the same.

One of the many “Bush tax cuts” changed that – and now, stock dividends are taxed at roughly half the rate as CEOs’ salaries.

This morning, I finally added it all up. According to Congress’ Joint Committee on Taxation, over the past decade the “reduced rates of tax on dividends and long-term capital gains” have cost the federal government more than a trillion dollars in revenue ($1,020 billion, since FY2004).

That means almost 6% of the country’s total federal debt is directly attributable to this bizarre tax preference for unearned income.

Now that the stock market is booming, the impact is even greater: expect another $1.3 trillion loss of federal revenue over the next 10 years. And according to the Congressional Budget Office, the top 1% of taxpayers receive almost 70% of the benefit of this tax preference for unearned income.

The rest of us in the 99% get…?

 

Granite State Progress Testimony Against HB 323 RIGHT TO WORK for Less

Testimony in Opposition to HB 323: An Attempt to Pass Right to Work for Less
January 30th, 2013

My name is Caitlin Rollo and I’m the political director of Granite State Progress, a multi-issue advocacy organization working on issues of immediate state and local concern.

I am here, yet again, to testify against Rep. O’Brien’s on-going attempt to undermine the rights or workers in New Hampshire. After countless hours spent in the last two years debating this measure, we are back again today to repeat what we’ve said before, what the people of New Hampshire expressed with the results of last Fall’s election, what Gov. Lynch and Gov. Hassan have repeatedly said, and what, ultimately, the House and Senate decided. This bill would do nothing to drive economic development; it would interfere in employee-employer agreements. It is still, after countless hours of protest, testimony, conflict, and chanting, terrible public policy and should, still, be voted down.

To briefly recap how we got to this point, I think, will illustrate that this bill has never enjoyed the support of the citizens of New Hampshire and should be dismissed with as little fanfare as possible. This legislation, then number HB 474 was introduced in the NH House on January 6, 2011. It passed the House on February 15, 2011 by a roll call vote of 221-131. The NH Senate then passed it by a margin of 16-8 on April 20, 2011. Democratic Governor John Lynch vetoed the bill on May 11, 2011. Then-speaker O’Brien publicly announced that the NH House would vote on whether to override or sustain the Governor’s veto on Wednesday, May 25th.

On the anticipated day of the veto vote, O’Brien belatedly realized he did not actually have the votes to override the Governor’s veto. The Speaker decided to postpone it rather than face the rejection of his extreme agenda. It was a miscalculation that would follow him for the next 8 months, over a span of 7 House Sessions. Then, refusing to name when the veto vote will be taken, O’Brien called the House back into special session three times in a legislative maneuver to get the right vote count in the room. The November 30th special House session fell during a National Council of State Legislator’s conference, causing several pro-worker representatives to cancel flights or miss the vote.

The reality is Right to Work for Less is based on model legislation from the American Legislative Exchange Council, which allows corporations to draft bills that are then introduced in State Houses across the country. You can see a side by side comparison of the ALEC model legislation and the bill before you on the Granite State Progress website.

Let’s not again tread the road of this divisive and anti-worker legislation. I’m sure others will lay out, again, the economic reasons why this legislation is still a bad idea so I won’t repeat them here. But New Hampshire has taken the measure of this legislation – and it’s sponsor – and rejected it. Granite State Progress urges you to do the same.