Oct 21, 2015 – Arsenal For Democracy Ep. 147

Posted by Bill on behalf of the team.

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Topics: American unions for the Millennial generation; Fortune 500 tax avoidance. People: Bill, Persephone, Nate. Produced: October 18th, 2015.

Episode 147 (49 min):
AFD 147

Discussion Points:

– What is the future of American unions as Millennials come to the fore?
– Fortune 500 firms may have avoided $620B in recent taxes

Related Links

The Atlantic: “Can Millennials Save Unions?”
AFD: “Fortune 500 firms may have avoided $620B in recent taxes”
CTJ/PIRG report: “Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies”

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Key win for workers in the subcontract/franchise economy

Arsenal Bolt: Quick updates on the news stories we’re following.

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Vitally important National Labor Relations Board ruling last week — “NLRB ruling could be boost for contract and franchise employees” (Minneapolis Star Tribune):

The National Labor Relations Board on Thursday expanded its joint-employer standard, potentially making it easier for unions to organize employees of franchisees and subcontractors by dragging large corporations to the bargaining table.

The new standard is also significant because corporations could now be held legally liable for workers if franchisees or subcontractors violate labor law.

In a 3-2 decision, the five-member board said that the old standard no longer kept pace with the current workforce where the diversity of workplace arrangements has significantly expanded. For example, in 2014, 2.87 million workers were employed through temporary agencies, more than double from the 1.1 million in 1990.

 
Much more analysis on this is coming in tomorrow’s episode of the Arsenal For Democracy radio show.

The origin story of minimum wage laws, part 2

Part 2: Why did some industrialized nations wait so long to get a minimum wage? When did the UK, Germany, and France get minimum wage laws? Why do some industrialized nations still not have legal minimum wages? || This original research was produced for The Globalist Research Center and Arsenal For Democracy.

Why did some industrialized nations wait so long to get a minimum wage?

From a historical perspective, minimum wage laws were implemented first in countries where trade union movements were not strong. Countries such as the UK that traditionally had strong labor unions have tended to be late adopters on minimum wage laws.

In those countries, powerful unions were able to bargain collectively with employers to set wage floors, without needing legislative minimums.

The early gold standard guideline for government participation in wage setting was the International Labor Organization’s Convention No. 26 from 1928 – although many industrialized countries never adopted it.

The convention said that governments should create regulatory systems to set wages, unless “collective agreement” could ensure fair effective wages. This distinction acknowledged that, by 1928, there was already a major split in approaches to creating effective wage floors: leaving it to labor organizers versus using statutes and regulators.

When did the UK, Germany, and France get minimum wage laws?

Much like pioneers New Zealander and Australia, the United Kingdom did adopt “Trade Boards” as early as 1909 to try to oversee and arbitrate bargaining between labor and management. However, its coverage was far less comprehensive than Australian and New Zealand counterparts and cannot be considered a true minimum wage system. Instead, UK workers counted on labor unions to negotiate their wages for most of the 20th century.

The Labour Party introduced the UK’s first statutory minimum wage less than two decades ago, in 1998, when it took over the government following 18 years of a Conservative government that had focused on weakening British unions. The country’s current hourly minimum wage for workers aged 21 and up is £6.50 (i.e. about $8.40 in purchasing power parity terms), or about 45% of median UK wages.

Despite opposition to minimum wages in some quarters, The Economist magazine noted recently that studies consistently show that there is little impact on hiring decisions when the minimum wage level is set below 50% of median pay. Above that level, some economists believe low-level jobs would be shed or automated, but this is also not definitively proven either.

In fact, not all countries with minimum wages above that supposed 50% threshold — a list which includes at least 13 industrialized economies, according to the OECD — seem to have those hypothesized problems. True, some of them do, but that may indicate other economic factors at work.

Germany, Europe’s largest economy, only adopted a minimum wage law after the 2013 federal elections. Previously, wages had generally been set by collective bargaining between workers’ unions and companies.

As a result of the postwar occupation in the western sectors, Germany also uses the “codetermination” system of corporate management, which puts unions on the company boards directly. This too encourages amicable negotiations in wage setting, to ensure the company’s long-term health, which benefits the workers and owners alike.

The new minimum wage amounts to €8.50 per hour ($10.20 in PPP-adjusted terms), or more than 45% of median German pay.

However, in some areas of Germany, the local median is much lower. There, the minimum wage affords significantly more purchasing power. In eastern Germany, the minimum is about 60% of median wages.

In France, where unions have long had a more antagonistic relationship with management, a minimum wage law was adopted much earlier – in 1950. It is now €9.61 per hour (about $10.90 in PPP-adjusted terms), or more than 60% of median French pay.

N.B. Purchasing-power currency conversions are from 2012 local currency to 2012 international dollars rounded from UN data.

Why do some industrialized nations still not have legal minimum wages?

Because of their generous social welfare systems, one might assume that the Nordic countries were early adopters of minimum wage laws. In fact, Denmark, Sweden, Norway, Finland, and Iceland all lack a minimum wage, even today.

Instead, wages in these countries are virtually all set by collective bargaining in every sector – conducted between workers’ unions, corporations, and the state. (This is known as tripartism.) Non-union workers generally receive the same pay negotiated by the unions.

A prevailing minimum or average lower-end wage can usually be estimated, but there is no law. In U.S. dollar terms, Denmark’s approximate lowest wage level is higher than almost every minimum wage in the world. Mid-level wages are even higher. Even McDonald’s workers in Denmark reportedly make the equivalent of $20/hour.

 
Missed part one? New Zealand, Australia, Massachusetts, the New Deal, and China: How governments took an active role initially, and how they balance economic variability now.

The origin story of minimum wage laws, part 1

Part 1: New Zealand, Australia, Massachusetts, the New Deal, and China: How governments took an active role initially, and how they balance economic variability now. || This original research was produced for The Globalist Research Center and Arsenal For Democracy.

More than 150 countries have set minimum wages by law, whether nationwide or by sector. Other countries have no legal minimum, or governments play a different role in wage setting processes.

Where in the world did government-set minimum wages originate?

In 1894, over 120 years ago, New Zealand became home to the first national law creating a government role for setting a minimum wage floor – although this may not have been the initial intention.

The Industrial Conciliation and Arbitration Act established an arbitration court made up of both workers and employers. It was intended to resolve various industrial-labor relations disputes in a binding manner. The goal was to avoid all labor strikes.

The court was empowered to set wages for entire classifications of workers as part of these resolutions. It did not take long for this to evolve into a patchwork of rulings that effectively covered all workers.

Today, New Zealand’s hourly minimum wage is about equivalent in purchasing power parity (PPP-adjusted) terms to US$9.40.

Which country first adopted a living wage?

In the 1890s, neighboring Australia was still a loose collection of self-governing British colonies, rather than one country. One colony, Victoria, was inspired by New Zealand to adopt a similar board with wage-setting powers. This occurred shortly before the Australian colonies federated together in 1901 to become one country.

In 1907, Australia pioneered what is now known as a “living” wage when the country’s new national arbitration court issued a ruling in favor of a nationwide minimum wage.

That court specified that it had to be high enough to fund a worker’s “cost of living as a civilised being.” While the ruling soon ran into legal trouble from the federation’s Supreme Court, it remained a crucial precedent in future labor cases.

To this day, Australia has a generous minimum wage. The current rate is about equal to US$11.20 in PPP-adjusted terms. This represents about 55% of median pay. However, New Zealand’s minimum wage is actually proportionally higher, at 60% of median pay.

N.B. Purchasing-power currency conversions are from 2012 local currency to 2012 international dollars rounded from UN data.

Which U.S. state had the first minimum wage?

In the United States, a minimum wage mechanism was first introduced in 1912 at the state level — but specifically for female workers (and some child laborers) — in Massachusetts.

The state passed a law to create a “Minimum Wage Commission” empowered to research women’s labor conditions and pay rates, and then to set living wages by decree. For any occupation, the Commission could set up a “wage board” comprising representatives of female workers (or child workers), employers, and the public to recommend fair pay levels.

The Commission’s decreed wage had to “supply the necessary cost of living and to maintain the worker in health.”

1912, the year Massachusetts passed the law creating the commission, was part of a period of major reforms in the United States, which had become the world’s largest economy.

These changes gave government a more active legal role in economic policy. In 1913, the country adopted the Sixteenth Amendment to the U.S. constitution, which made possible a federal progressive income tax. Also in 1913, the Federal Reserve System was created.

More than a dozen U.S. states followed Massachusetts within less than a decade. However, they had to contend with frequent battles before the U.S. Supreme Court on the constitutionality of government-set minimums. Read more

Fair wages are just another operational cost to meet

There are op-ed columnists weeping about all the jobs a $15 wage floor would supposedly eliminate, as if companies couldn’t just cut executive pay and shareholder payouts. Some still insist that, to avoid spurring unemployment, it would be better to pay everyone less than they need to pay bills.

I hate to break it to them, but the first goal of paid work is to get workers enough money to survive, not to give everyone something to do. But at any rate, there’s just so much evidence that reasonable minimum wages don’t cause mass unemployment (despite what those folks seem to think).

Really, it’s all a matter of priorities. Wages are just part of the field conditions in which companies compete under a properly regulated capitalist market, along with taxes and supply costs and anything else you can imagine a company needing to pay for. We’ve decided not to properly regulate the labor market, so companies use money for other stuff (or profits), and not for wages.

As FDR argued, if your business literally can’t operate without underpaying workers, it doesn’t deserve to operate. If higher wages for low-level workers is the breaking point for your company and no internal changes can save it, your company is a disaster. A properly regulated market would adhere to the principle of corporate survival of the fittest, but “fittest” would include ability to pay fair wages without bankruptcy. Small businesses wouldn’t go bust automatically either, because all workers would be getting paid more and thus have more to spend locally.

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Mexican state of Baja Calif. to test government wage support

While far from an ideal solution, Mexico’s federal government is planning to experiment in the state of Baja California with an unprecedented program to subsidize the difference between private wages and livable incomes for some farm workers.

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If signed on June 4, this plan negotiated by the state and federal government — in an effort to prevent current labor disputes, strikes, and blockades from boiling over into wider disorder or violence — would be in lieu of setting a much higher minimum wage and attempting to compel the private industry to pay that full amount (probably to keep the companies from just moving the jobs to another state with a lower prevailing wage).

The downside of the plan (I’m guessing) is that it’s likely some companies will try to lower their wages (illegally or otherwise) to pay even less at prevailing effective wage levels, but the government says it will negotiate with the industry to come to some sort of solution so that the existence of subsidies isn’t abused. (They’ll also raise the minimum wage somewhat — just not all the way to the 200 pesos/day target. The remaining difference will then be subsidized.)

Another criticism will likely be that this is essentially a taxpayer-funded gift to the large Mexican agribusiness corporations whose representatives and allies dominate the state’s government. But more on that later.

In general, of course, this new plan is fairly strange to our eyes, because the government here (also) typically doesn’t have a direct role in subsidizing general wages, since paying workers is a role we assign entirely to the actual employers, and the government just sets the legal floor. In theory. As The Atlantic points out, that’s not actually really accurate in practice in the United States; we just obscure it better than doing direct wage subsidies:

Having the government step in to fill the gap between reality’s wages and livable wages might seem foreign to Americans, but the U.S. government in a sense already does this—just less directly. A recent study from UC Berkeley’s Labor Center found that nearly three-quarters of people participating in government programs such as Medicaid and food stamps are in families headed by workers. The authors, calling this a “hidden [cost] of low-wage work in America,” estimated that through these programs, taxpayers provide these families with about $150 billion in public support. Additionally, programs such as the Earned Income Tax Credit essentially subsidize the wages of workers whose income is below a certain level.

Shouldn’t companies be making up this difference instead of taxpayers? That’s how some state legislatures feel. Starting next year, California will publicly name any company that has more than 100 employees on Medicaid. And in Connecticut, state legislators are considering a bill that would require large employers to pay a penalty for each worker on their rolls earning less than $15 an hour.

 
And of course those various hidden costs to the government don’t even get into the actual blatant government subsidies in the U.S. for various agricultural production like dairy and corn to maintain certain production and price levels. Or the various massive tax incentives doled out to attract companies to specific states or communities (ideally only if they create a specific number of jobs, which is then essentially a wage support program in disguise).

But the Mexico experiment gets to the bigger questions: Whose job is it to ensure a livable wage in a globalized economy? And how is that goal best achieved, regardless of “moral” responsibility?

We may not instinctively like the idea of the government writing a check to make up the difference when private industry tries to tighten the screws on its workers in a loose labor market that favors employers, but what we like and how to realistically get the necessary goal accomplished may be two increasingly different answers in the 21st century.
Read more

March 18, 2015 – Arsenal For Democracy 120

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Topic: How the Shareholder Revolution is hurting America’s businesses and workers. People: Bill, Nate. Produced: March 16th, 2015.

Discussion Points:

– What happens to companies that borrow money to make shareholder payouts?
– Why aren’t American companies investing in the future as much as they used to?
– Why should American companies tie wages to increases in profits and productivity instead of focusing on dividends and stock buybacks?

Note for listeners: We’re testing a half-hour version of the show over the next few weeks. Let us know whether you prefer this format or the longer format.

Episode 120 (27 min):
AFD 120

Related Links:

AFD: Corporate borrowing diverted to shareholders, not investment
The Roosevelt Institute: Blog post on “Disgorge the Cash: The Disconnect Between Corporate Borrowing and Investment”
The Globalist: U.S. Stock Ownership: Who Owns? Who Benefits?
The Globalist: Can the United States Close the International Wage Gap?
The Globalist: Want to Fix Income Inequality? Relink Wages to Productivity

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