Transcript We Need a Massive Living Wage Federal Jobs Program Now!

We Need a Massive Living
Wage Federal Jobs Program
Now!
Ron Baiman
Chicago Political Economy Group
and
Center for Budget and Tax Accountability
Email: [email protected]
Conference on Jobs and Future of the US Economy
Oct. 1, 2010
Howard University
Washington, D.C.
Our Opinion Makers and Political
Leaders Need to Openly Acknowledge,
Disseminate, and Acton on the
Obvious:
• Our country is facing an unprecedented economic crisis.
• This crisis will not be resolved automatically through
market forces and private sector action or moderate
public measures.
• Only the federal government has the power to implement
the kind of massive programs and fundamental policy
changes necessary to restructure and revive our
economy.
• We need to tell our countrymen and women what is
necessary, not what is currently political possible.
2
Principles of CPEG Job
Program
1. Large Scale Federal Jobs Program: The Jobs
program (CPEG, 2009) is the core of a very
large scale structural transformation of an
economy that has not been producing an
adequate growth in living wage jobs for at least
thirty years. The federal government must
directly or indirectly support the creation of at
least 20 million new jobs over the next five
years in three key areas: a) public
infrastructure, b) current social services, and c)
industries of the future.
3
CPEG Principles (Cont.)
2. Living Wage Jobs: These jobs must be
of median income ($18 an hour) or above
and provide full employee bargaining
rights.
3. Elimination of Low Wage Service
Sector: We cannot have a prosperous
economy or a democratic society with an
ever expanding low wage service sector.
Wages need to be increased and
working conditions improved or these
jobs need to be eliminated.
4
CPEG Principles (Cont.)
4. A Financial Transactions Tax will provide
generous funding for a jobs program and
reorient the economy toward productive job
creation and away from wasteful and predatory
financial speculation.
5. Permanent Economic Restructuring.
Funding of this jobs program will require a
permanent expansion of public funding in line
with the most successful mixed economies that
typically have much larger public sectors.
5
CPEG Principles (Cont.)
6. Economic Revival and industrial policy. In
addition to economic restructuring we need to
rebuild our economic capacity that has been
decimated through investment and trade
policies that have provided short-term benefits
to private investors but destroyed our economy.
We need an industrial policy that will revive
competitive manufacturing capacity so that we
can pay for our imports.
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CPEG Principles (Cont.)
7. Radical changes in trade policy. We cannot
cut our federal deficit in the long term or the
short term without reducing our trade deficit
and we cannot revive the US economy as long
we continue to out- source investment, income,
and employment. We need to invoke and
implement emergency WTO rules and industrial
policy measures to cap and gradually reduce
our trade deficit.
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1) Large Scale Federal Jobs
Program
• From the start of the recession in December 2007 to
August 2010 employment has declined by 7.2 million .
• In these 33 months, based on pre-recession Dec 06 to
Nov 07 average labor force rate (66.08%) and the
average two year 2008 to 2010 (Aug to Aug) growth in
population, there should have been 115,000 new
entrants to the labor force every month, or 3.8 million
new entrants seeking employment.
• This implies a current Great Recession employment
deficit based on official unemployment rates of 11
million.
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• Under the most optimistic scenario based on the
last private sector housing and financial bubble
(2001 to 2007 Nov to Nov) expansion,
employment would expand at the pre-recession
rate of about 142,300 a month.
• At this rate it would take 7.2 million/(142,300 –
115,000)=263 months or roughly 22 years of
continuous private sector expansion just to
get back to employment levels of Nov. 2007.
• This is basically impossible as the longest
expansion in post-war history lasted only
about 10 years (July 1990 to March 2001).
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• The CPEG (Feb. 2009) program is
designed to support the creation of 17.5
million new jobs over five years (3.5 x 5).
• At the time we used a BLS forecast of
private sector job growth of 1.5 million a
year and estimated that our wage floor
would result in the elimination of 1 million
low-wage jobs a year, resulting in total job
growth of 3.5+1.5-1=4 million a year, or 20
million over five years.
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• True
unemployment (U6) that includes
involuntary part-timers and marginally
attached to labor force was 13.4 million
in Nov 07.
• It is currently (Aug. 2010) 26.8 million.
• So we need an employment increase of
this magnitude right now.
• And for every year that it takes to ramp
up this employment we will need
employment increases of 1.38 million to
accommodate new entrants.
• If we assume the Aug 2010 number of
discouraged and involuntary part-timers of 6.083
million.
• a five year ramp-up of the employment program
with 1.38 million new entrants to the Labor Force
very year bringing the 2015 Labor Force to
161.01 million.
• The same 16.7% Aug 2010 (U6) comprehensive
unemployment rate in 2015 as a share of the LF
plus discouraged workers
(161.01+6.083=167.093)
• Total employment needs in 2015 to achieve a
job for all comes to about 28 million (16.7% of
167.093).
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• Allowing for 2% “frictional” unemployment brings
this down by about 3 million to 25 million.
• In the absence of significant private sector
employment growth over this period, this will
require a CPEG jobs program that supports 30
million jobs (to account for 5 million low wage
jobs lost).
• This is a 71% increase over the Feb. 2009
CPEG jobs program that supported 17.5 million
jobs. This can be reduced if private sector job
growth picks up.
• As will be shown below, small increases in an
FTT could provide funding for this expanded
jobs program
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2) And 3) Living Jobs and
Elimination of Low Wage Service
Sector
• A key characteristic of countries without large
low-wage service sectors is generous public
funding and high wages for “human” service
jobs in typically public and/or non-profit
sectors like: education, health care, elder
care, child care, and care for the disabled
and fewer and better paid jobs in retail, food
service, and other generally for-profit or
cooperative sectors (Hill, 2010).
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US Real Wages Compared to Other OECD
(Mostly) High Social Spending Countries
Gross
wage in
national
Exchange
currency rate to dollar
2004
6/30/2004
327.192
6.103
317.101
6.938
34.088
0.821085
4205.596
109.43
29.449
0.821085
251.282
7.525
Dollar
wage
$53.61
$45.70
$41.52
$38.43
$35.87
$34.93
$33.39
% US
Wage
153.5%
130.8%
118.8%
110.0%
102.7%
100.0%
95.6%
Denmark
Norway
Germany
Japan
Finland
US
Sweden
Source: OECD Economic Outlook December 2004.
Historic exchange rates:
http://www.x-rates.com/cgi-bin/hlookup.cgi
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• The CPEG program mandates that all
Federally supported jobs (allowing for
temporary training wages) have a wage
equal or above to the 2008 median wage
of about $ 18 an hour or $ 37,440 a year.
• We recognize that this will cause many
current lower wage jobs to disappear thus
partially reducing the level of employment
expansion.
• However we view the reduction and
ultimate elimination of low-wage
employment is an important goal of the
jobs program.
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4) Financial Transactions Tax
• We Have the Resources to Fund a Large Scale
Living Wage Federal Jobs Program
• Our country is still very wealthy, though our
industrial base has been devastated in the last
few decades.
• Our wealth however increasingly does not “lift all
boats” but rather goes to the very top of the
income scale and to most unproductive sectors
of the economy (finance, insurance, real estate
(until recently), law, and lobbying).
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A Small Financial Transactions Tax
Could Raise Trillions of dollars per
Year
• An FTT would be both highly progressive in it’s
incidence on the wealthiest income groups, and
• It would target, and reduce economic resources
going toward unproductive short-term financial
speculation
• See CPEG (Barclay, 2010) FTT estimate FTT
which I think is the most extensive, careful, and
up to date estimate out there.
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For Example:
• On August 31 2010 the WSJ reported that world
wide Currency Trading had reached $ 4 Trillion
a day (WSJ, 2010).
• If we assume 250 trading days and apply an
FTT of 0.25% per side to these trades (higher
than that used by Barclay), just cash currency
trading would result in annual world wide FTT
tax revenues of $ 1.25 Trillion.
• If we apply the conservative Barclay estimate
that only 0.25% of this (mostly London based but
almost 90% dollar denominated on one leg)
currency trading is by US firms, we get a US
take of $ 312.5 B just from cash currency
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trading.
For Example (cont.):
• Barclay’s 2007 data show that the Currency
Derivative market is about 5 times the size of
the currency Cash market. Applying the same
rate to this market would therefore net over $ 1.2
T just from a US FTT on currency trading.
• But interest rate (bond) cash and derivative
trading is, based on Barclay’s data, even larger
than currency trading and so at this rate could
add more than $ 1.2 T for a US FTT.
• And another $ 0.5 T could be raised from equity
and equity derivative trading.
• The point should be clear. Even with repression
multiple Trillions of dollars could be raised.
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5) Permanent Economic
Restructuring
• Since the jobs program would be permanent and
permanently funded, it would result in a longterm economic restructuring of the US economy
with a much expanded public sector along the
lines of the most successful OECD economies.
• This is a key goal of the program that is based
on the following principles (Baiman, 2010a) (Hill,
2010).
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1. The U.S. economy has not been generating an
adequate number of well paid jobs for many
decades.
2. As manufacturing employment declines due to
productivity increases and globalization of
production, productive work will increasingly be
in the service sector.
3. Moreover, as for-profit service sector work, for
example: in retail, and warehousing and
distribution, also becomes more efficient,
productive service sector work will increasingly
be in largely publicly funded noncommodifiable areas like health care,
education and human services, that are best
provided through direct state provision or
through non-profit providers funded directly or
indirectly by the state.
22
4. This inevitable “socialization” of the economy requires a
fundamental and long-term restructuring effort that
must be led by major increases in progressive public
taxing and spending that move the U.S. closer to a
social democratic configuration like that of the most
successful northern and western European advanced
economies which typically have a much larger share of
their economies tied to public funding.
5. In order to support a high quality education, health
care, and human service, sector, these jobs must be
professionalized and well paid. As these jobs will
inevitably make up an increasing share of all jobs they
need to be good jobs if we are to sustain an equitable
and vibrant economy.
23
6. The growth of a large and productive public services
economy must be complemented by an internationally
competitive export sector that will allow the U.S. to
finance necessary imports. Without a viable export
sector, public service sector growth will lead to a large
increase in the already unsustainable trade deficit that
the U.S. has been running since the 1970’s.
7. In the foreseeable future a large share of exports will
be tradable goods (as opposed to services), i.e.
manufacturing exports. Thus, in order to sustain an
advanced public sector service economy, we will need
to be able to produce an adequate output of highvalued added and competitive manufactured tradable
goods, as countries like Denmark or Sweden are able
to do, so as to support our imports.
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8. We need to reinvigorate the U.S.
manufacturing sector so that it regains the
ability to sustain necessary imports for an
advanced economy. This suggests that in the
short-term we need to increase manufacturing
employment that as noted above has dropped
by almost 50% in the last two decades.
9. None of this necessary long-term restructuring
can occur without large scale, and radical,
public policy efforts. In the following we outline
a proposed set of public policies that would
begin to move the U.S. economy toward a
sustainable and prosperous future.
25
Tax Revenue as a Percent of GDP
2006
US
Japan
Germany
France
Italy
UK
Canada
Denmark
Sweden
Australia
28.0%
27.9%
36.5%
44.2%
42.1%
37.1%
33.3%
49.1%
49.1%
30.6%
Source: Fletcher , Free Trade Doesn’t Work, 2009, p. 87. OECD data.
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6) Economic Revival and Industrial
Policy
• Since the 2001 recession the U.S. has lost
42,400 factories including 36% of plants
employing more than 1000 workers (which
declined from 1,479 to 947) and 38% of factories
employing between 500 and 999 workers which
declined from 3,198 to 1,972 (McCormick, 2010).
• An additional 90,000 factories are now at risk of
going out of business (McCormick, 2010).
• Manufacturing full-time equivalent employment
(FTE) has declined from 18.6 million in 1987
(19.1% of all FTE) to 13.2 million in 2008 (10.3%
of all FTE) (Baiman, 2010a).
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• Moreover, this is not just a result of productivity
improvements as manufacturing value-added as a
percentage of GDP has declined from about 17% to 12%
over the 1987 to 2007 period.
• Particularly in the last 10 years, the U.S. economy has
lost critical capacity and technological leadership in key
high-tech and emerging green technology sectors
(McCormick, 2010).
• McCormick notes that in 2007 Georgia Tech’s bi-annual
“High Tech Indicators” study found that the U.S. peaked
in 1999 at 95.4 (on scale of 100) and had fallen to 76.1.
China technological standing moved from 22.5 in 1996 to
82.7 in 2007 higher than the U.S. for the first time since
the index was created two decades ago.
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7) Radical Changes in Trade Policy
• The US has run the world’s largest and longest
trade deficit for more than three decades
(Fletcher, 2009).
• Moreover because of the identity (Baiman,
2010b):
Private deficit + Public deficit = Trade deficit
• Any attempt to reduce the federal deficit (in the
long run or the short run) without reducing the
trade deficit or running up a large private sector
deficit (like a stock market or housing bubble)
will without fundamental structural changes to
the economy cause more unemployment and
economic decline.
32
• Federal Jobs programs spending will “leak out”
and increase the trade deficit if drastic measures
that lead to a capping and gradually reduction in
the trade deficit are not undertaken.
• a cursory look at trade statistics demonstrates
decisively that for the foreseeable future a
reliance on “services” exports cannot possibly
lead to balanced trade (Baiman, 2010a).
• A indication of how far US manufacturing
capacity has fallen and how severely this
impacts the trade deficit can seen by Port Import
Export Reporting Service (PIERS) of the US
Commerce department. (McCormick, 2009)
reports that in May 2008 PIERS data showed
that:
33
• Of the top 100 U.S. exporters via container,
about 20 exported scrap paper, 20 exported bulk
food or feedstock, 15 exported bulk chemicals,
and 7 exported scrap metals. The top exporter
was a Chinese company exporting scrap
paper.Only one of the top 20 exporters was a
US based manufacturer – Procter& Gamble.
• The only US Corporations shipping
manufactured goods were:
– GE (ranked 23rd) which imported three times as
much as it exported
– Caterpillar ranked 27th behind 12 wastepaper
exporters
– GM 68th which exports little from US factories
– Deere & Co 77th
– Whirlpool 83rd
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• Imports are another matter.
• At least 35 of the top 100 importers were retail
companies led by: Wal-Mart, Target, Home
Depot, and Sears, that collectively imported as
many containers (1.8 million) than the top 21 US
exporter discussed above.
• At least 35 of the top importers were retail
companies selling manufactured consumer
goods.
• The majority of the rest were high-tech
manufacturing companies like LG Group,
Phillips, Cannon, Nike, Toyota, Samsung, Sony,
Panasonic, Michelin, Hewlett Packard, Sharp,
Toshiba, etc.
35
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References:
1. Baiman, Ron. 2010a. “Toward a New Political Economy for the U.S.,“ CPEG Working
Papers: http://www.cpegonline.org/workingpapers/CPEGWP2010-1.pdf .
2. Baiman, Ron. 2010b. “The Linkage Between the Three Types of National Economic
Deficits,” CPEG: http://www.cpegonline.org/multimedia/DeficitLinkages.ppt .
3. Barclay, William. 2010. “A Financial Transaction Tax: Revenue Potential and
Economic Impact,” CPEG Working Papers:
http://www.cpegonline.org/workingpapers/CPEGWP2010-2.pdf .
4. CPEG. 2009. “A Permanent Jobs Program for the U.S.: Economic Restructuring to
Meet Human Needs,” Ron Baiman, Bill Barclay, Sidney Hollander, Joe Persky, Elce
Redmond, Mel Rothenberg, Feb.: http://www.cpegonline.org/reports/jobs.pdf .
5. Fletcher, Ian. 2009. Free Trade Doesn’t Work: Why America Needs a Tariff. U.S.
Business and Industrial Council.
6. Hill, Steven. 2010. Europe’s Promise: Why the European Way Is the Best Hope in an
Insecure Age. University of California Press.
7. McCormick, Richard. 2009. Manufacturing A Better Future for America. Alliance for
American Manufacturing.
8. McCormick, Richard. 2010. “The Plight of American Manufacturing,” American
Prospect. Jan/Feb.
9. WSJ. 2010. “Currency Trading Soars: Market Hits $4 Trillion a Day as Investors
Chase Profit in Growing Economies, “ Tom Lauricella and Dave Kansas, Wall Street
Journal, Aug. 31.
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