Friday, September 20, 2019

Economic inequality, gigs without benefits, and the nature of work in the service economy

Payscale.com reports the yearly median Chief Executive Officer (CEO) Salary to be $158,193. I computed the hourly rate assuming a 40-hour work week and 52 week per year: $76.05. But this by far understates CEO compensation. For that research on CEO compensation I turned to a recent report from the Economic Policy Institute (EPI).

Using the stock-options-granted measure, the average compensation for CEOs of the 350 largest U.S. firms was $14.0 million in 2018, up 9.9% from $12.7 million in 2017 and up 29.4% since the recovery began in 2009. Growth of CEO compensation (1978–2018). Aug 14, 2019

So, making the same assumptions (52 weeks, 40 hours/week) I compute the average hourly pay of these CEOs to be $6,730.77. Another way of putting it is that the average CEO’s pay for just four hours exceeds the pay for a waitress for an entire year!

Here is the summary of the EPI study.

What this report finds: The increased focus on growing inequality has led to an increased focus on CEO pay. Corporate boards running America’s largest public firms are giving top executives outsize compensation packages. Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure. (Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.”) CEO compensation is very high relative to typical worker compensation (by a ratio of 278-to–1 or 221-to–1). In contrast, the CEO-to-typical-worker compensation ratio (options realized) was 20-to–1 in 1965 and 58-to–1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.

Why it matters: Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or taxed more).

How we can solve the problem: We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

I suspect that the current crop of Democratic candidates would agree with part, if not all, of those solutions. Elizabeth Warren, for example, has proposed taxing the very richest by a small percentage and using the resulting funds to address some of our pressing needs.

But the EPI report focuses on the remarkable economic inequality fueled partly by CEO compensation. What is missing from these analyses is what is happening to those at the bottom. In this post I will focus on three examples of lives of the un-rich - those who are fighting for tips, those who are fighting for employee benefits, and those who are fighting to share in the corporate profits in the last decade.

Gig economy
Working for tips in the "gig economy" doesn't work

Why working for tips is not working

Time magazine published this exposé about life on the edge in America’s new economy: Low Wages, Sexual Harassment and Unreliable Tips. This Is Life in America’s Booming Service Industry. (by Alana Semuels and Malcolm Burnley) (h/t to Mrs. Scriber for this one.) Excerpts follow.

The decade-long economic expansion has been a boon to those at the top of the economic ladder. But it left millions of workers behind, particularly the 4.4 million workers who rely on tips to earn a living, fully two-thirds of them women. Even as wages have crept up–if slowly–in other sectors of the economy, the minimum wage for waitresses and other tipped workers hasn’t budged since 1991. Indeed, there is an entirely separate federal minimum wage for those who live on tips. It varies by state from as low as $2.13 (the federal tipped minimum wage) in 17 states including Texas, Nebraska and Virginia, up to $9.35 in Hawaii. In 36 states, the tipped minimum wage is under $5 an hour. Legally, employers are supposed to make up the difference when tips don’t get servers to the minimum wage, but some restaurants don’t track this closely and the law is rarely enforced.

Waitresses are emblematic of the type of job expected to grow most in the American economy in the next decade–low-wage service work with no guaranteed hours or income. Though high-paying service jobs have been growing quickly in recent months, middle-wage jobs are growing more slowly and could decline sharply in the event of a recession, says Mark Zandi, chief economist with Moody’s Analytics. Those who lose their jobs in a recession usually move down, not up, the pay scale. Jobs like personal-care aide (median annual wage $24,020), food-prep worker ($21,250) and waitstaff ($21,780) are among the fastest-growing occupations in America, according to the Bureau of Labor Statistics (BLS). They have much in common with the burgeoning gig economy, in which people turn to apps in the hope of getting shifts delivering food, driving passengers and cleaning houses.

Remember the hourly pay of the CEOs in the EPI report: $6,730.77.

This “sometimes” work has put the stress of earning a weekly wage, paying for health insurance and saving for retirement squarely on the shoulders of workers. [Christina] Munce [a waitress] is on food stamps and Medicaid, and many days doesn’t make it to the federal minimum wage of $7.25 an hour. One of her recent paychecks read $58.67 for 49 hours worked. Add in the $245 she took home in tips, and she made about $6.20 an hour. She wants to work 40-hour weeks, but some days the diner is slow and she gets sent home early. “I don’t drink, I don’t smoke, all I do is save money,” Munce says.

Because their pay is so unpredictable, the women at Broad Street Diner [where Munce is employed] sometimes have to pull double or triple shifts when they’re short on cash.

[Munce] hopes she can give her daughter a better life than she had growing up. Her dad served in Vietnam and her mom always scraped by on odd jobs, she says, but it’s harder to string together a living these days. She lives a couple of miles from where she grew up. Is she really doing better than they did? She tells her daughter that education is the most important thing, that she needs to get good grades, no matter what. “I say, ‘I just want you to be better than me,’” she says. Not that she’d steer her daughter away from waitressing, necessarily. If you’re a people person, Munce says, it can be fun to talk to strangers all day. Depending on them for tips, though, is something else.

Tipped workers have always been an underclass in America. The concept was popularized in 1865, when some formerly enslaved people found employment as waiters, barbers and porters; still seen as a servant class, they were hired to serve. Many employers refused to pay them, instead suggesting that patrons tip for their service. A 1966 law tried to bring some measure of security to these jobs, requiring employers to pay a small base wage that would bring tipped workers up to the federal minimum wage when combined with their tips. In 1991, the tipped minimum wage was equal to 50% of the value of the overall minimum wage, but it’s stayed at $2.13 since then, as the minimum wage has nearly doubled. In 1996, President Bill Clinton signed legislation that froze the wage for tipped workers at that amount. It hasn’t changed since.

Half a century ago, people like Munce without a college education could expect to make a middle-class wage. But in recent years, as male-dominated manufacturing jobs have been outsourced or automated, women are contributing more to their families’ paychecks, and more of the 40% of Americans with no more than a high school education are being pushed into the service sector–as waitresses, domestic workers, hairdressers and Uber drivers.

And with that we can follow another exemplary thread showcasing life in the gig economy, Uber drivers.

Driving for dollars: Paid employees vs. outside contractors

My source for the second example is Judd Legum’s Subscribers Post, The future of work. Below are some excerpts.

The economy of 2019 is a paradox. Unemployment, which stands at 3.7%, is historically low. Gross Domestic Product is growing steadily. This should result in substantially higher compensation for workers. But that is not happening. Real median household income hasn’t budged under Trump.

But this is not just a Republican problem. Real median household income has remained the same for the last twenty years, through Democratic and Republican administrations.

Scriber notes that the increases in income inequality over the last 40 years has plowed ahead regardless of which party was in the White House and regardless of which party controlled Congress.

So what explains this? How do we have a growing economy and a tight labor market, but workers seeing little, if any, improvement in their financial condition?

One reason is that companies are creating jobs that disempower workers and deny them basic protections and benefits. This is called “the gig economy.”

On Wednesday, California took a step to level the playing field. Governor Gavin Newsom (D) signed AB5, a bill intended to force companies like [Uber] to stop misclassifying their employees as “independent contractors.”

“The hollowing out of our middle-class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action,” Newsom wrote in a letter explaining his decision to sign AB5 into law.

Under the law, which goes into effect next year, ride-share drivers and other gig workers would be “entitled to benefits such as minimum wage, workers’ compensation, unemployment insurance, expense reimbursement, paid sick leave and paid family leave.”

It’s a small step, but one that companies like Uber, Lyft, and DoorDash find intolerable. They intend to do anything and everything possible to derail the law.

So what does AB5 do? … Notably, it “empowers the attorney general, city attorneys in large cities, and local prosecutors to sue companies over violations.” The city attorneys in Los Angeles and San Francisco have indicated they are ready to act.

Uber and Lyft view AB5 as an existential threat to their companies. According to Barclays, “reclassifying workers could cost Uber and Lyft an additional $3,625 per driver in California.” That’s about a 30% increase in the companies’ labor costs. This is bad news for companies that are already hemorrhaging money. Last quarter, Uber lost $5.2 billion, and Lyft lost $650 million. And while AB5 applies only in California, it could quickly be duplicated in other states.

Still, early investors have made billions off of Uber and Lyft from their successful IPOs. They are getting richer off a business model that stiffs workers and the government.

Uber and Lyft, which lobbied ferociously against AB5, don’t plan on complying with the law. Rather, the companies claim that driving people places is not a core part of their business. This is not a joke. …

Instead of complying with the law voluntarily, they will force the issue to be litigated in court. Even if Uber and Lyft lose, which seems very likely, it will buy them additional time. A lawsuit could take years to resolve.

Newsom isn’t done either

In his letter, Newsom said that AB5 was just the first step. Next, Newsom wants to give gig workers the right to “form a union, collectively bargain to earn more, and have a stronger voice at work.” Newsom said he will “convene leaders from the legislature, the labor movement, and the business community to support innovation and a more inclusive economy by stepping in where the federal government has fallen short and granting workers excluded from the National Labor Relations Act the right to organize and collectively bargain.”

Uber and Lyft are trying to head this off as well by “forming a new driver association, in partnership with state lawmakers and labor groups, to represent drivers’ interests and administer the sorts of benefits that meet their highly individual needs.” This has been derided as an effort to derail actual unionization and a throwback to the (now illegal) “company unions” of the 1920s.

When Uber first started, tips were not encouraged (or even accepted, in my experience). Now, however, the company itself encourages tipping - see [How it works][ubsertips]. That puts Uber drivers in the same situation as the waitress mentioned above. “This “sometimes” work has put the stress of earning a weekly wage, paying for health insurance and saving for retirement squarely on the shoulders of workers.” Companies like Uber are “creating jobs that disempower workers and deny them basic protections and benefits.”

Auto workers demand share of GM profits

Democracy Now reports the UAW Strike Enters Day 3 as 50,000 Workers Demand GM to Share Its Billions in Profits.

As members of the United Auto Workers head into their third day of a nationwide strike, General Motors has cut off health insurance for the nearly 50,000 people on picket lines across the country demanding better working conditions and fair pay. The workers say GM continues to deny employees’ demands for better conditions and compensation despite leading the company to record profits following bankruptcy and a federal bailout. It’s the first company-wide strike against GM in 12 years. UAW had sought to have GM cover striking workers’ health insurance through the end of the month. In New York City, we speak with Steven Greenhouse, veteran labor reporter formerly with The New York Times. His latest book is titled “Beaten Down, Worked Up: The Past, Present, and Future of American Labor.” His recent op-ed in The New York Times is headlined “The Autoworkers Strike Is Bigger Than G.M.”

Here are snippets from Greenhouse’s op-ed in the NY Times: The Autoworkers Strike Is Bigger Than G.M.. How teachers, hotel workers and supermarket cashiers inspired 50,000 General Motors workers to go on strike.

Successful strikes beget more strikes. When nearly 50,000 General Motors workers walked out at 11:59 p.m. Sunday, it was just the latest in the largest burst of strikes in decades. … The teachers’ unions felt unusually robust public support, as parents and students marched with them. … [hotel] workers trumpeted a message that resonated far beyond their industry: that their pay increases were not nearly keeping up with soaring housing costs, so they could not survive on one job. … The hotel workers’ success in turn helped inspire the strike by 30,000 Stop & Shop workers in New England in April. Union leaders there were surprised by the deep community support the grocery workers received …

The strong public opinion behind these strikes can be tied to Americans’ widespread dismay with wage stagnation and income inequality, even as corporate profits are flying high. While job numbers and economic growth are strong, many American are barely getting by: 40 percent of households say they don’t have the money to pay an unanticipated $400 expense, according to a recent report from the Federal Reserve Board.

All this might help explain why a recent Gallup poll found that public approval for unions has climbed to 64 percent, up from 48 percent a decade ago and near its highest level in 50 years. An M.I.T. study last year found that nearly 50 percent of nonunion workers say they would vote to join a union if they could, up from 32 percent in 1995.

From the moment the G.M. walkout started, union leaders said the strike was bigger than just G.M. “Today, we stand strong and say with one voice, we are standing up for our members and for the fundamental rights of working-class people in this nation,” Terry Dittes, a United Automobile Workers vice president, said. The autoworkers are taking a page from the teachers, who made it clear that they were striking not just because they were tired of pay freezes but also to help their students, by increasing education budgets, reducing class sizes and replacing obsolete textbooks.

With many Americans angry about factories moving overseas, the autoworkers union also wants G.M. to reopen its giant plant in Lordstown, Ohio. The company closed the plant because demand for Chevy Cruzes had declined, even as it has kept open its plant in Mexico that makes the same car. And with many workers upset about the increased instability and precariousness of their jobs, the union is also pressing G.M. to stop using so many temps — they represent 7 percent of the company’s work force and make just $15 an hour.

Donald Trump won the 2016 election partly because many workers thought the system was rigged against them. That sentiment is also fueling the G.M. strike. The company had $8.1 billion in profits worldwide last year and $35 billion in North America over the last three years, so workers are resentful that the company nonetheless wants to close plants — especially when union members made major concessions, like creating a two-tier wage structure at some plants, to help lift the company out of bankruptcy.

G. M. strikes have often been signal events in American history. The 1936–37 Flint sit-down strike by 2,000 workers led to the unionization of General Motors, then the world’s largest automaker, and in turn spurred a wave of mass unionization across the country. The 113-day strike by 175,000 G.M. workers in 1945–46 led to an agreement, known as the Treaty of Detroit, that provided breakthroughs on wages, health coverage and pensions, and became a model for other unions and corporations. In 1970, when the U.A.W. was near its peak membership, 400,000 of its members went on strike for two months against G.M., which was still one of the world’s largest companies. The union emerged victorious, winning a significant pay increase.

The same may happen now.

Are these the pitchforks?

Ever since I started this blog I’ve been posting about the dangers of extreme inequality. To my previous list, we can add the three examples in this post.

For background, as I did in 2016, I advise you to Read this one (again):The pitchforks are coming … and are central to the 2016 election.

They were, kind of, central in 2016 whenTrump got elected based in part on his promises about the economy. They were, kind of, central in 2018 when the House shifted to the Democrats. They will be, kind of, central in 2020, as public opinion turns against the Trump administration on grounds of corruption, chaos, and a complete lack of competence.

Politico Magazine published this special report by Nick Hanauer in 2014 - but it is even more timely today given the ever widening economic gap between rich and poor, between ultra wealthy and the vanishing middle class.

Hanauer is an entrepreneur from Seattle. Let me pause and establish his creds in his own words (speaking to his fellow billionaires).

You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor. Then I founded aQuantive, an Internet advertising company that was sold to Microsoft in 2007 for $6.4 billion. In cash.

… I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.

Hannauer went on to recommend FDR-like changes, arguing that benefitting the 99% is good for business of the 1%.

Munce’s boss at the restaurant she works in needs to step up with a minimum wage. Uber needs to treat its drivers as employees. And GM needs to do some serious profit sharing. And we need a universal health care system that would benefit those workers who are now disadvantaged by the giginess of our economy. All those things are preferable to the pitchforks.

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