When I speak of gamblers I am not talking about a bet on your favorite football pool at the office or a game of cards with friends on Saturday night; that you can call entertainment and fun. What I am talking about is repeated bets in commercial casinos or state lotteries. Gamblers who gamble day after day or month after month will earn nothing at best.
Suppose you bet a dollar on the flip of a coin. For a head you win a dollar, for a tail you lose your dollar. Probably you recognize that bet as a fair bet; your chance of winning a dollar just equals your chance of losing a dollar. But suppose you play the game day after day after day. Each day your chance is the same, but after 100 days you might win 56 out of a 100 to be $6.00’s up. After another 100 days you might win 47 and be up only $3.00.
Keep playing and the laws of large numbers take over. Play the game 10 thousand times and you can only expect to win $5,000 and lose $5,000. Play the game long enough and in the parlance of chance, your expected return will be zero: nothing. Most investors will not be happy earning nothing.
What is true for a private game of coin flipping is also true for all fair bets. Parties to a fair bet will earn nothing unless one of them stops soon after they have a stretch of good luck. Now we all know the state lotteries and commercial gambling casinos are earning money. State lotteries and casinos earn money because they are allowed to tilt the odds in their favor and the laws of large numbers take over to earn them a return.
For decades gambling was discouraged or illegal and even by the late 1980’s gambling was limited to two travel locations where table gambling prevailed as the dominate wager. After twenty-five years of expansion gambling may already be available at a shopping mall near you, and it will likely be at slot machines.
A modern slot machine is a computer programmed to lure players into repeated betting, but it is not a fair bet. State gambling commissions allow them tilt the odds in favor of the house. Keep gambling and no matter how many jackpots you win and you will end with nothing.
“Real investors do not play at casinos.”
Tuesday, July 1, 2014
Friday, June 13, 2014
Flash Boys - A Review
Michael Lewis, Flash Boys: A Wall Street Revolt, (New York, NY: W.W. Norton & Co. 2014), 271 pages, $27.95
Michael Lewis is back with another book on Wall Street just four years after The Big Short, his last book on the abuses of Wall Street. Flash Boys tells the story of new abuses and how and why the old stock market has disappeared.
Back in 2002 eighty-five percent of stock trades traded on the New York Exchange with a person who processed the order. Other stocks traded at Nasdaq; no stocks traded at both. Then in 2005 the Securities and Exchange Commission responded to complaints of cronyism by allowing entry of new stock exchanges that could be corporations run for profit rather than just a club run like a public utility. Exchanges multiplied. By 2008 there were thirteen mostly in northern New Jersey: BATS, Direct Edge, Nasdaq BX, Citadel, Getco and others. The new exchanges employed programmers to program a “matching engine” for a room full of computer servers that do “electronic trading.”
Lewis tells the story of the use and abuse of electronic trading with a large caste of characters, one, the star of the show, a dozen other main characters and additional supporting characters. They are variously Canadians, Russians, Asians and some Americans. We meet the star in chapter two. He is Brad Katsuyama, a Canadian of Asian descent, who works in New York for the Royal Bank of Canada.
Katsuyama traded stocks on the New York Exchange for several years until his bosses in Canada decided their New York office should get into the new trend of electronic trading. Since they did not know how to do it, they bought an American company that did: Carlin Financial. The Carlin Financial boss turned out to be a loud and obnoxious American who walked about the office wielding a baseball bat. The new boss did not explain electronic trading but announced loudly, “It’s all about speed.”
The education of Katsuyama started when he tried to sell a million shares of a stock listed for bid on his computer screen at a price of $3.70 a share. When he clicked to sell, the offer disappeared to be replaced with a much smaller offer at a much lower price.
The plot thickens; there is mystery as well as outrage. Katsuyama begins an investigation. He calls in tech support. He says, Watch, closely.” There were a total of one hundred thousand shares of Amgen offered at $48 a share on four exchanges. He clicked to buy them all, but again, the offers disappeared and the price jumped higher. Tech support says “Wow,” but no answers.
In the old days specialist traders in one or a few stocks took customer orders with conditions or limits: sell if the stock goes up to $10 or buy if it goes down to $5. A specialist trader reading over his or her list of orders could make millions if they were allowed to front-run the market and trade for themselves. Stock market rules prohibited the practice, back then. Fast forward to a computer age and a few rule changes and the new results sound very much like the computer assisted same thing, except that multiple exchanges and universal access to computers make it necessary to have faster computers than the competition.
The Carlin financial operation was losing millions for the Royal Bank of Canada and Katsuyama begins to suspect their computers are a few micro seconds too slow to keep up with competitors. His bosses fire the Carlin Financial guy and put him in place to run electronic operations. From there the story moves along as he finds new people with various skills and experience who can turn the operation around.
His first hire is an acquaintance and former Royal Bank of Canada employee, a computer guy who can write computer code and talk to humans. Then there is the hardware guy and others with specialty skills and experience. Readers get a little bio-material about them all and should not be surprised to find them quirky and eccentric, but they do turn the operation around. Generally though they feel dissatisfied just coping; Katsuyama decides to leave his job and start his own exchange with an eye to defeating the abuses they now know so well. The rest of the story follows these efforts.
High frequency trading makes two transactions out of what should be one. When a client wants to buy a stock, the high frequency trader’s computer can find all the other offers to sell in a few milliseconds. If the computer bought the stock at the lowest price on behalf of their client, that would be one transaction. If instead the high frequency trader’s computer buys the stock for the firm and then sells it to the client, two transactions take place. As Lewis explains “In buying from every seller and selling to every buyer, it[high frequency trading] winds up: a) doubling the trades in the marketplace and b) being exactly 50 percent of the booming volume. It adds nothing to the market but at the same time might be mistaken for the central player in that market.”
In the earlier housing collapse Wall Street bought home mortgages and repackaged them into Collateral Debt Obligation bonds to resell to others, or they generated profits by inventing transactions. With High Frequency Trading Wall Street uses computer technology to get between a buyer and seller, or they generate profits by inventing transactions.
Lewis branches into several sub plots at various points in the story. The need for speed obsesses everyone in high frequency trading with hilarious results. Even though a computer signal can go from Chicago to New York and back in twelve milliseconds, a broker closer to the computer doing the trade can front run other orders farther away. Having the latest hardware and locating it in the best place is the newest problem in stocks; some argued over which side of a room their server should be.
The trials and troubles of Russian programmer, Sergey Aleynikow, made grist for another sub plot. Sergey wrote computer code for the Goldman-Sachs high frequency trading operation. He downloaded lots of open source code to reuse and adapt, but his bosses told him everything he did was their property. After he emailed some of the code to himself, Goldman-Sachs complained to the FBI. They arrested him and he was later convicted of stealing proprietary material. He served time, was released on appeal, re-arrested by the state of New York on the same charge, then denied bail as a flight risk and on and on.
The book has the plot, characters and theme I expect to find in a short story or novella. There is no index or references to other works or web sites. There is no research, nor really any argument to follow. The book is based entirely on interviews and some explanation as necessary. The book comes to an end without resolving anything, except like good fiction there is a theme: Wall Street, a bunch of self-serving pickpockets.
Michael Lewis is back with another book on Wall Street just four years after The Big Short, his last book on the abuses of Wall Street. Flash Boys tells the story of new abuses and how and why the old stock market has disappeared.
Back in 2002 eighty-five percent of stock trades traded on the New York Exchange with a person who processed the order. Other stocks traded at Nasdaq; no stocks traded at both. Then in 2005 the Securities and Exchange Commission responded to complaints of cronyism by allowing entry of new stock exchanges that could be corporations run for profit rather than just a club run like a public utility. Exchanges multiplied. By 2008 there were thirteen mostly in northern New Jersey: BATS, Direct Edge, Nasdaq BX, Citadel, Getco and others. The new exchanges employed programmers to program a “matching engine” for a room full of computer servers that do “electronic trading.”
Lewis tells the story of the use and abuse of electronic trading with a large caste of characters, one, the star of the show, a dozen other main characters and additional supporting characters. They are variously Canadians, Russians, Asians and some Americans. We meet the star in chapter two. He is Brad Katsuyama, a Canadian of Asian descent, who works in New York for the Royal Bank of Canada.
Katsuyama traded stocks on the New York Exchange for several years until his bosses in Canada decided their New York office should get into the new trend of electronic trading. Since they did not know how to do it, they bought an American company that did: Carlin Financial. The Carlin Financial boss turned out to be a loud and obnoxious American who walked about the office wielding a baseball bat. The new boss did not explain electronic trading but announced loudly, “It’s all about speed.”
The education of Katsuyama started when he tried to sell a million shares of a stock listed for bid on his computer screen at a price of $3.70 a share. When he clicked to sell, the offer disappeared to be replaced with a much smaller offer at a much lower price.
The plot thickens; there is mystery as well as outrage. Katsuyama begins an investigation. He calls in tech support. He says, Watch, closely.” There were a total of one hundred thousand shares of Amgen offered at $48 a share on four exchanges. He clicked to buy them all, but again, the offers disappeared and the price jumped higher. Tech support says “Wow,” but no answers.
In the old days specialist traders in one or a few stocks took customer orders with conditions or limits: sell if the stock goes up to $10 or buy if it goes down to $5. A specialist trader reading over his or her list of orders could make millions if they were allowed to front-run the market and trade for themselves. Stock market rules prohibited the practice, back then. Fast forward to a computer age and a few rule changes and the new results sound very much like the computer assisted same thing, except that multiple exchanges and universal access to computers make it necessary to have faster computers than the competition.
The Carlin financial operation was losing millions for the Royal Bank of Canada and Katsuyama begins to suspect their computers are a few micro seconds too slow to keep up with competitors. His bosses fire the Carlin Financial guy and put him in place to run electronic operations. From there the story moves along as he finds new people with various skills and experience who can turn the operation around.
His first hire is an acquaintance and former Royal Bank of Canada employee, a computer guy who can write computer code and talk to humans. Then there is the hardware guy and others with specialty skills and experience. Readers get a little bio-material about them all and should not be surprised to find them quirky and eccentric, but they do turn the operation around. Generally though they feel dissatisfied just coping; Katsuyama decides to leave his job and start his own exchange with an eye to defeating the abuses they now know so well. The rest of the story follows these efforts.
High frequency trading makes two transactions out of what should be one. When a client wants to buy a stock, the high frequency trader’s computer can find all the other offers to sell in a few milliseconds. If the computer bought the stock at the lowest price on behalf of their client, that would be one transaction. If instead the high frequency trader’s computer buys the stock for the firm and then sells it to the client, two transactions take place. As Lewis explains “In buying from every seller and selling to every buyer, it[high frequency trading] winds up: a) doubling the trades in the marketplace and b) being exactly 50 percent of the booming volume. It adds nothing to the market but at the same time might be mistaken for the central player in that market.”
In the earlier housing collapse Wall Street bought home mortgages and repackaged them into Collateral Debt Obligation bonds to resell to others, or they generated profits by inventing transactions. With High Frequency Trading Wall Street uses computer technology to get between a buyer and seller, or they generate profits by inventing transactions.
Lewis branches into several sub plots at various points in the story. The need for speed obsesses everyone in high frequency trading with hilarious results. Even though a computer signal can go from Chicago to New York and back in twelve milliseconds, a broker closer to the computer doing the trade can front run other orders farther away. Having the latest hardware and locating it in the best place is the newest problem in stocks; some argued over which side of a room their server should be.
The trials and troubles of Russian programmer, Sergey Aleynikow, made grist for another sub plot. Sergey wrote computer code for the Goldman-Sachs high frequency trading operation. He downloaded lots of open source code to reuse and adapt, but his bosses told him everything he did was their property. After he emailed some of the code to himself, Goldman-Sachs complained to the FBI. They arrested him and he was later convicted of stealing proprietary material. He served time, was released on appeal, re-arrested by the state of New York on the same charge, then denied bail as a flight risk and on and on.
The book has the plot, characters and theme I expect to find in a short story or novella. There is no index or references to other works or web sites. There is no research, nor really any argument to follow. The book is based entirely on interviews and some explanation as necessary. The book comes to an end without resolving anything, except like good fiction there is a theme: Wall Street, a bunch of self-serving pickpockets.
Thursday, May 15, 2014
Unions in College Sports
A Union of Northwestern University Football Players
On March 26th the Chicago regional office of the National Labor Relations Board (“ the Board”) agreed that 55 scholarship football players of Northwestern University can be represented by a union for purposes of collective bargaining. The 24 page ruling relies on relevant citations from the National Labor Relations Act as amended. The player’s petition argued grants-in-aid scholarship recipients meet the definition of employees under the act. The University argued the players were students or at best temporary employees not suitable for bargaining.
The Board opinion included an extensive explanation and statement of facts. The scholarship players received $61,000 a year worth of tuition, fees, books, plus room and board in exchange for signing a written document defining their duties and responsibilities. Contracts apply to one year at a time and players can be let go at anytime if they do not play as well as expected or follow the rules. They have to sit out a year to play at another college.
Scholarship players are under strict and exacting control by their employer throughout the calendar year. The work year starts with training camp six weeks before the academic year with the coaches preparing daily hour by hour itineraries that start as early as 5:45 a.m. and go into the evening watching films, after which they are expected to be in bed. Once the season starts activities like practices, meetings, film sessions, workouts and week end games cover 40 to 50 hours per week. There are January workouts, a “winning edge” program in February prior to spring football and summer strength training.
Given the facts cited above the board concluded scholarship players at Northwestern University and by inference the NCAA meet the definition of an employee under the National Labor Relations Act: “a person who performs services for another under a contract of hire, subject to the other’s control or right of control, and in return for payment.” The Regional Board wrote pages of detail describing the work of Northwestern football players to make it difficult to deny their conclusion.
Northwestern and the NCAA oppose the decision. The NCAA frets that a union might harm non-revenue generating sports, especially women’s sports. However, they do not cite athletic department budget figures that would show how much of the football money goes to football facilities, coaching salaries and administrative and recruiting costs and how much goes to say, Women’s lacrosse.
The nature of the public discussion implies that players need a lawyer and the government to help them organize a union, but the NLRA rewrites and rewords rights everyone has always had, at least since the ratification of the U.S. Constitution and Bill of Rights. Rights of free speech and free assembly in the first amendment assure the rights to bargain collectively with representatives of our own choosing and the right to withhold work in a strike and to peaceable protest by picketing.
With or without the NLRA it will be hard for Northwestern University Players to organize a union. Players will confront a rich and well-organized cartel, the NCAA. Cartel rules that cap player expenses across many colleges and conferences make their total value enormous relative to a single school like Northwestern University. Organizing at one or a few schools would be easy to defeat; the NCAA would suspend a school violating cartel rules and blacklist the players. The losses would be trivial compared to threats to the cartel. To have a chance of success the union would need to organize many players across many schools. Organizing many would pose a significant financial threat to the cartel, but poses a nearly impossible organizing challenge.
The major league team sports all have unions to represent players, but college sports have more conferences, more teams and more players to organize. Players have only four years of eligibility, which guarantees rapid turnover of players and limits their time to hold out in a labor dispute.
The players could meet together and form their own union if they are unified enough to call for a meeting with coaches and officials to air their grievances. If their grievances are brushed off or ignored they could plan a measured show of solidarity like showing up late for practice before moving on to something more.
Self help organizing may sound quixotic and impracticable, but compare organizing a union under the National Labor Relations Act(NLRA). It requires a long process of filings to the National Labor Relations Board (NLRB) and bureaucratic review to assure the union meets the terms and conditions of the law. The request to the National Labor Relations Board for a ruling on their status as employees barely gets the process started.
Before the National Labor Relations Act labor disputes were private disputes, which often brought nationwide strikes and shutdowns in major industries. For decades employers would claim their employees were happy and contented and did not want a union. Employers were free to dismiss employees for union organizing or union membership. They could impose company union and force employees to join. After the National Labor Relations Legislation in 1935 labor relations became public policy to be administered by public agencies with legally defined powers over unions and a strong desire to prevent strikes and shut downs.
When employees or union organizers attempt to establish a union, the National Labor Relations Act requires management to bargain in good faith, but bargaining in good faith has been hard to define much less enforce. Hence the procedure of enforcement has tried to define good faith through hearings at the National Labor Relations Board to settle disputes.
Good faith obligates both sides to meet and make an honest effort to keep an open mind and settle differences, but the two sides only have to try to reach an agreement. After decades of hearings and written opinions good faith requires little more than going through the motions of sitting and talking or holding an initial position indefinitely. Despite years of rulings good faith, or not, rests on inference based on the mood or apparent state of mind of the parties.
The only help the Northwestern University football players will get from American labor law is a governmental interpretation of good faith bargaining. The National Labor Relations Act does not limit management rights, does not require agreements to end strikes or grievances; does not keep employers from hiring replacement workers; and does not limit management powers to discipline or control employees. Failure to act in good faith by an employer is an unfair labor practice, but there are no penalties for acting in bad faith. After hearings and delay the National labor Relations Board can order employers to follow the law and they can order back pay for those dismissed for union organizing, but there is little to deter more subtle forms of anti union actions.
As the matter stands the players have already voted, yes or no, to have a union. The results are not released as of this writing, May 13, 2014, pending a review and decision by the Washington office of the National Labor Relations Board.
The crude and heavy-handed exploitation of players in college football and basketball remains. In the major league team sports players have fought restrictions on their rights of free agency, but unlike college sports there was never an absolute dollar cap on their salaries. College players get their tuition and room and board and nothing else. The amount of money in college sports has gotten so high that independent commercial interests might organize a minor league for players ages 18 to 24. Generally a large commercial interest like the NCAA has to be challenged by another large commercial interest to bring some reforms. What happens after the Washington Board decision will be fun to watch, but do not expect a union to result.
On March 26th the Chicago regional office of the National Labor Relations Board (“ the Board”) agreed that 55 scholarship football players of Northwestern University can be represented by a union for purposes of collective bargaining. The 24 page ruling relies on relevant citations from the National Labor Relations Act as amended. The player’s petition argued grants-in-aid scholarship recipients meet the definition of employees under the act. The University argued the players were students or at best temporary employees not suitable for bargaining.
The Board opinion included an extensive explanation and statement of facts. The scholarship players received $61,000 a year worth of tuition, fees, books, plus room and board in exchange for signing a written document defining their duties and responsibilities. Contracts apply to one year at a time and players can be let go at anytime if they do not play as well as expected or follow the rules. They have to sit out a year to play at another college.
Scholarship players are under strict and exacting control by their employer throughout the calendar year. The work year starts with training camp six weeks before the academic year with the coaches preparing daily hour by hour itineraries that start as early as 5:45 a.m. and go into the evening watching films, after which they are expected to be in bed. Once the season starts activities like practices, meetings, film sessions, workouts and week end games cover 40 to 50 hours per week. There are January workouts, a “winning edge” program in February prior to spring football and summer strength training.
Given the facts cited above the board concluded scholarship players at Northwestern University and by inference the NCAA meet the definition of an employee under the National Labor Relations Act: “a person who performs services for another under a contract of hire, subject to the other’s control or right of control, and in return for payment.” The Regional Board wrote pages of detail describing the work of Northwestern football players to make it difficult to deny their conclusion.
Northwestern and the NCAA oppose the decision. The NCAA frets that a union might harm non-revenue generating sports, especially women’s sports. However, they do not cite athletic department budget figures that would show how much of the football money goes to football facilities, coaching salaries and administrative and recruiting costs and how much goes to say, Women’s lacrosse.
The nature of the public discussion implies that players need a lawyer and the government to help them organize a union, but the NLRA rewrites and rewords rights everyone has always had, at least since the ratification of the U.S. Constitution and Bill of Rights. Rights of free speech and free assembly in the first amendment assure the rights to bargain collectively with representatives of our own choosing and the right to withhold work in a strike and to peaceable protest by picketing.
With or without the NLRA it will be hard for Northwestern University Players to organize a union. Players will confront a rich and well-organized cartel, the NCAA. Cartel rules that cap player expenses across many colleges and conferences make their total value enormous relative to a single school like Northwestern University. Organizing at one or a few schools would be easy to defeat; the NCAA would suspend a school violating cartel rules and blacklist the players. The losses would be trivial compared to threats to the cartel. To have a chance of success the union would need to organize many players across many schools. Organizing many would pose a significant financial threat to the cartel, but poses a nearly impossible organizing challenge.
The major league team sports all have unions to represent players, but college sports have more conferences, more teams and more players to organize. Players have only four years of eligibility, which guarantees rapid turnover of players and limits their time to hold out in a labor dispute.
The players could meet together and form their own union if they are unified enough to call for a meeting with coaches and officials to air their grievances. If their grievances are brushed off or ignored they could plan a measured show of solidarity like showing up late for practice before moving on to something more.
Self help organizing may sound quixotic and impracticable, but compare organizing a union under the National Labor Relations Act(NLRA). It requires a long process of filings to the National Labor Relations Board (NLRB) and bureaucratic review to assure the union meets the terms and conditions of the law. The request to the National Labor Relations Board for a ruling on their status as employees barely gets the process started.
Before the National Labor Relations Act labor disputes were private disputes, which often brought nationwide strikes and shutdowns in major industries. For decades employers would claim their employees were happy and contented and did not want a union. Employers were free to dismiss employees for union organizing or union membership. They could impose company union and force employees to join. After the National Labor Relations Legislation in 1935 labor relations became public policy to be administered by public agencies with legally defined powers over unions and a strong desire to prevent strikes and shut downs.
When employees or union organizers attempt to establish a union, the National Labor Relations Act requires management to bargain in good faith, but bargaining in good faith has been hard to define much less enforce. Hence the procedure of enforcement has tried to define good faith through hearings at the National Labor Relations Board to settle disputes.
Good faith obligates both sides to meet and make an honest effort to keep an open mind and settle differences, but the two sides only have to try to reach an agreement. After decades of hearings and written opinions good faith requires little more than going through the motions of sitting and talking or holding an initial position indefinitely. Despite years of rulings good faith, or not, rests on inference based on the mood or apparent state of mind of the parties.
The only help the Northwestern University football players will get from American labor law is a governmental interpretation of good faith bargaining. The National Labor Relations Act does not limit management rights, does not require agreements to end strikes or grievances; does not keep employers from hiring replacement workers; and does not limit management powers to discipline or control employees. Failure to act in good faith by an employer is an unfair labor practice, but there are no penalties for acting in bad faith. After hearings and delay the National labor Relations Board can order employers to follow the law and they can order back pay for those dismissed for union organizing, but there is little to deter more subtle forms of anti union actions.
As the matter stands the players have already voted, yes or no, to have a union. The results are not released as of this writing, May 13, 2014, pending a review and decision by the Washington office of the National Labor Relations Board.
The crude and heavy-handed exploitation of players in college football and basketball remains. In the major league team sports players have fought restrictions on their rights of free agency, but unlike college sports there was never an absolute dollar cap on their salaries. College players get their tuition and room and board and nothing else. The amount of money in college sports has gotten so high that independent commercial interests might organize a minor league for players ages 18 to 24. Generally a large commercial interest like the NCAA has to be challenged by another large commercial interest to bring some reforms. What happens after the Washington Board decision will be fun to watch, but do not expect a union to result.
Friday, May 9, 2014
Jobs in Day Care Centers
A recent article in the Washington Post ["Math 101 for New Parents," WP, 1-10-14] reported the cost of a year of day care in many states exceeds a year of tuition at state colleges. The article cited Child Care Aware of America as a source of information. They publish annual expenses by state for child care centers and family care centers. Expenses are broken out for infant care, 4 year olds, and school age care for the two types of facilities.
While they do not report college tuitions the child care center expenses they report exceed $10,000 for 19 states; the average for the 50 states is $9,466.00. In Oregon, for example, the College Board gives in-state tuition at the University of Oregon as $9,767, compared to $13,452 reported as a year's expenses for infant child care. Expenses reported for 4 year olds and for school age children tend to be lower. In Oregon the expenses reported for 4 year olds dropped to $10,200 and to $5,028 for school age children. School age children need after school care rather than all day at least during the school year.
Licensed day care costs include rent, supplies, maintenance, toys-equipment, liability insurance, utilities but wages for staff make up the biggest share of a day care program budget. The Bureau of Labor Statistics confirms staffing information also reported on the Child Care Aware website. Both report that three occupations account for 76 to 80 percent of employment at child care centers: preschool teachers, teacher assistants and childcare workers.
Preschool teachers have the highest median wage of the three occupations at $27,570 in 2013, up from $22,680 in 2006. The increase of wages exceeds the rate of inflation by enough to raise buying power by 5 percent over the 8 year period. States do not require a BA degree or teacher certification for the lead teacher in a pre-school. Training hours in early childhood education or child development activities are required in 19 states, but 31 states allow a high school education or less than high school as training for a preschool teacher. The low entry requirement to work in day care makes it unnecessary to compete with the public schools for certified teachers and assures a large pool of labor to help keep wages low.
Teacher assistants have a median wage of $24,000 in 2013, up from $20,740 in 2006. To have the buying power of 2006 in 2013 the wage would need to be $23,965, which makes $24,000 a tiny increase in buying power for teacher assistants for the 8 year period.
Child care workers make up a little over 30 percent of staffing but they have the lowest wages of the three occupations with a median wage of $19,700. To have the buying power of the 2006 median wage of $14,630 in 2013, the median wage would need to be $20,372. Instead it was $19,700 a 3.8 percent decline in buying power over the 8 years.
State licensing rules limit the number of children per staff, the child to staff ratio. For children in infant care some states allow 6 children per staff in; some states allow only 3 per staff. The ratio goes up for older children. For school age children the maximum for some states is 25 per staff; the low for others is 9.
With six to one staff 30 children in infant care need to have one lead teacher and four other staff ready to assist suggesting payroll expenses of $127,644 a year that allows for 20 percent extra to pay Social Security taxes, workman’s compensation and so on. [i.e. ($27,570 + 4 x $19,700)*1.2 = $127,644 ] A day care center with 30 children and the average charge of $9,644 can generate revenue $284,000, and over $400,000 with charges like Oregon. The difference of revenue and payroll suggests an adequate margin for expenses and maybe a little extra.
Some of the revenue paid to day care centers comes from the Child Care Development Block Grant program and Temporary Assistance to Needy Families (TANF), the Clinton Administration replacement for welfare, but Child Care Aware of America reports 60 percent of revenues come directly from parents.
If a couple that both earn $45,000 salaries then social security and joint federal income taxes generates taxes of $19,338.75. Adding in the average day care expense of $9,644 brings the total to $28,982.75. If one stays home and the other continues at $45,000, taxes drop to $6,411.25 including a small child care tax credit of $250. When both work they are left with $61,017.25 when one works they are left with $38,588.75. Therefore $45,000 additional income from a second salary adds only $22,428.75 to net income and the difference of $45,000 - $22,428.75 equals the cost of working and paying for child care, which in this example is $22,571.50.
Child Care Aware of America tells website visitors they are the nation’s leading voice for child care. They also write “A major hidden funding source for child care subsidies are the teachers in child care centers and family child care homes. . . . In effect, the low wages of the early care and education workforce serve as a subsidy for parents.”
It’s nice they are honest, but those working do earn enough to be self supporting. High prices and low wages are getting to be an old story in American job markets.
While they do not report college tuitions the child care center expenses they report exceed $10,000 for 19 states; the average for the 50 states is $9,466.00. In Oregon, for example, the College Board gives in-state tuition at the University of Oregon as $9,767, compared to $13,452 reported as a year's expenses for infant child care. Expenses reported for 4 year olds and for school age children tend to be lower. In Oregon the expenses reported for 4 year olds dropped to $10,200 and to $5,028 for school age children. School age children need after school care rather than all day at least during the school year.
Licensed day care costs include rent, supplies, maintenance, toys-equipment, liability insurance, utilities but wages for staff make up the biggest share of a day care program budget. The Bureau of Labor Statistics confirms staffing information also reported on the Child Care Aware website. Both report that three occupations account for 76 to 80 percent of employment at child care centers: preschool teachers, teacher assistants and childcare workers.
Preschool teachers have the highest median wage of the three occupations at $27,570 in 2013, up from $22,680 in 2006. The increase of wages exceeds the rate of inflation by enough to raise buying power by 5 percent over the 8 year period. States do not require a BA degree or teacher certification for the lead teacher in a pre-school. Training hours in early childhood education or child development activities are required in 19 states, but 31 states allow a high school education or less than high school as training for a preschool teacher. The low entry requirement to work in day care makes it unnecessary to compete with the public schools for certified teachers and assures a large pool of labor to help keep wages low.
Teacher assistants have a median wage of $24,000 in 2013, up from $20,740 in 2006. To have the buying power of 2006 in 2013 the wage would need to be $23,965, which makes $24,000 a tiny increase in buying power for teacher assistants for the 8 year period.
Child care workers make up a little over 30 percent of staffing but they have the lowest wages of the three occupations with a median wage of $19,700. To have the buying power of the 2006 median wage of $14,630 in 2013, the median wage would need to be $20,372. Instead it was $19,700 a 3.8 percent decline in buying power over the 8 years.
State licensing rules limit the number of children per staff, the child to staff ratio. For children in infant care some states allow 6 children per staff in; some states allow only 3 per staff. The ratio goes up for older children. For school age children the maximum for some states is 25 per staff; the low for others is 9.
With six to one staff 30 children in infant care need to have one lead teacher and four other staff ready to assist suggesting payroll expenses of $127,644 a year that allows for 20 percent extra to pay Social Security taxes, workman’s compensation and so on. [i.e. ($27,570 + 4 x $19,700)*1.2 = $127,644 ] A day care center with 30 children and the average charge of $9,644 can generate revenue $284,000, and over $400,000 with charges like Oregon. The difference of revenue and payroll suggests an adequate margin for expenses and maybe a little extra.
Some of the revenue paid to day care centers comes from the Child Care Development Block Grant program and Temporary Assistance to Needy Families (TANF), the Clinton Administration replacement for welfare, but Child Care Aware of America reports 60 percent of revenues come directly from parents.
If a couple that both earn $45,000 salaries then social security and joint federal income taxes generates taxes of $19,338.75. Adding in the average day care expense of $9,644 brings the total to $28,982.75. If one stays home and the other continues at $45,000, taxes drop to $6,411.25 including a small child care tax credit of $250. When both work they are left with $61,017.25 when one works they are left with $38,588.75. Therefore $45,000 additional income from a second salary adds only $22,428.75 to net income and the difference of $45,000 - $22,428.75 equals the cost of working and paying for child care, which in this example is $22,571.50.
Child Care Aware of America tells website visitors they are the nation’s leading voice for child care. They also write “A major hidden funding source for child care subsidies are the teachers in child care centers and family child care homes. . . . In effect, the low wages of the early care and education workforce serve as a subsidy for parents.”
It’s nice they are honest, but those working do earn enough to be self supporting. High prices and low wages are getting to be an old story in American job markets.
Monday, April 21, 2014
Labor Market Forecast 2014
Labor Market Forecast 2014
The Bureau of Labor Statistics has published its annual benchmark review and revision for the year 2013 that makes it a good time for an assessment of job growth for the future. The increase for the 12 months ending December 2013 is 2.331 million jobs, better than last year. It equals a growth rate of 1.73 percent for the 12 months of 2013. The growth rate of establishment jobs is faster than the growth rate of the adult civilian population and labor force, indicating a modest progress for the 2013.
During the recession of January 2008 to February of 2010 jobs declined 8.78 million, a 6.33 percent decrease in non-farm establishment employment. After the turnaround beginning March 2010 until December 2013 non-farm establishment jobs recovered 7.7 million to just over 137.4 million, a little over 89 percent of the recession losses.
Almost all of the short term changes for the 12 months ending with December 2013 followed the same long term trends from as far back as 1990. That is the industry sectors that showed a declining share of total non-farm employment in 2013 also have a declining share of jobs from 1990 to 2013, and vice versa for the industries with an increasing share.
The Declining Share of Goods Production
Combined goods production jobs were 13.7 percent of non-farm employment in 2013, down 7.9 percent from 1990. Natural resources - logging and mining – have only 868 thousand jobs, less than one percent of non-farm employment, which is a .1 percent smaller share of 2013 employment than 1990. In spite of recent growth construction employment remains 1.86 million below its 2006 high of 7.7 million. A sustained increase in construction will be necessary to bring a recovery of construction jobs.
Manufacturing is the biggest disappointment for 2013 with an employment gain of only 78 thousand jobs with an anemic growth rate of .65 percent, well below the national average. The 2012 gain was 201 thousand, but manufacturing gains do not signal a turn around of decline in manufacutring.
The Declining Shares in Service Production
Services sectors in wholesale and retail trade, utility services, information services, financial and real estate services, repair and maintenance services and federal government ,and state and local government excluding education had their share of non-farm employment decrease in 2013 as they have been doing since 1990. Combined these services were 32.9 percent of non-farm employment at the end of 2013, down 3.9 percent from 1990.
Combined goods production and long term declining service sectors have 46.6 percent of jobs, but it is the percent of jobs left after two decades of decline that shows no sign of reversal. In the service sectors like trade and finance computer technologies have raised productivity and cut job growth. Higher productivity has cut jobs in manufacturing, but also millions of manufacturing jobs are now offshore. A trickle of these jobs have come back giving hope that foreign wages will rise relative to the decline in U.S. wages, but it will take more than hope to create new manufacturing jobs. American companies will have to invest more here and less abroad.
The Increasing Shares in Service Production
Service sector industries in transportation, professional and technical services, establishments managing companies, administrative support services, arts, entertainment, recreation, food services and restaurants, personal services and health care had their share of non-farm employment increase in 2013. Combined these services were 41.4 percent of non-farm employment at the end of 2013, up 10.3 percent from 1990.
Educational services and non-profit associations fell below their long term trends for 2013. Private schools, state education at colleges and local education in the public schools had more jobs for 2013, but just barely. The total increase was a couple thousand, which cut the share of education in total non-farm employment. Non-profit associations lost a few thousand jobs, and therefore its percentage share declined as well. Combined these two services were 12.0 percent of non-farm employment at the end of 2013, up 1.6 percent from 1990, but down about .2 percent for 2013.
In 2013, the big gainers were in administrative support services that generated 422 thousand new jobs for the 12 months ending December 2013. Temporary help services had 227 thousand of the 422 thousand jobs, which was the biggest individual increase in jobs that also have a higher percentage of U.S. non-farm employment. Firms and establishments in administrative support services contract office and facility support services, and do employment placement services, executive search services, telephone call centers, investigation and security services, exterminating and pest control services, janitorial services, landscaping services, carpet and upholstery cleaning services all gained jobs with a continuing increase in their percentage of non-farm employment for 2013.
Other big gains came at restaurants with 341 thousand new jobs; more new jobs than logging, mining, construction and manufacturing combined; more new jobs than the health care sector including social services. Full service restaurants, fast food restaurants, bars and coffee bars are all growing at two to three times the national average of job growth.
The health care increase of 308 thousand jobs for the 12 months ending December 2013 was well below last year’s increase of 469 thousand. The increase came even though hospital employment dropped over the same 12 months.
Professional and technical services had third place among sub-sectors with a growing percentage of employment. The new jobs here totaled 204 thousand for the 12 months ending December 2013. However, 60 percent of the gains in professional and technical services were in computer design and related services and managerial and technical consulting services; another 20 percent were in architectural and engineering services.
Good job opportunities continue for Baccalaureate degree students in computing, still the most employable BA degree. The many new jobs in managerial and technical consulting service offer career employment, but the competition for these jobs has started to push up degree requirements. An M.B.A. may be about to replace the BA as an entry degree.
Architecture and engineering did well with 40 thousand new jobs for the 12 months of 2013. However, new architecture and engineering graduates have to compete with other engineers who have left the construction and manufacturing industries to look for work at specialty architecture and engineering firms. The new employment is not necessarily entry level jobs.
Other professional employment has slow growth and college graduates will find it harder to get started in a professional career. Legal services generated only 4 thousand new jobs in the 12 months ending December 2013. The best jobs at law firms require a law degree, although a BA degree has an entry degree for a paralegal. Paralegal employment is growing faster than lawyers.
Accounting firms hire BA degree candidates but accounting firms generated only 10 thousand new jobs in the 12 months ending December 2013. Scientific development and research services generated 45 thousand new jobs for the 12 months of 2013. The best jobs here require advanced degrees although there are many assistant research positions for BA candidates.
A Growth Rate for the next Decade
There are several approaches to labor market forecasts. One starts with a projected growth rate for non-farm employment based on long term trends with consideration for productivity, and expected social and political events. Then the projected total increase can be divided by industry sector and individual industries based on the trend of year by year share changes for individual industries. A second approach starts with projected growth rates for individual sectors and builds up, or adds up the total; both can be tried and compared.
The latest forecast from the Bureau of Labor Statistics for non-farm establishment employment for the ten years ending 2022 is 1.09 percent a year. The annual average growth rate of the adult civilian population from 1990 through 2013 is 1.14 percent, and from 2000 to 2013 it was 1.12 percent. Theoretically establishment jobs and the civilian labor force can grow faster than the adult population if those not in the labor force look for work or find jobs that help expand establishment employment. Those with work or those looking for work are part of the civilian labor force, which has settled at 63 percent of the adult population in recent years. The other 37 percent of the adult population not in the labor force could decide to look for work and take jobs, which theoretically allows jobs to grow faster than population growth.
In practice it has not happened. From 1990 to 2013 the growth rate of the civilian labor force averaged .92 percent per year; from 2000 to 2013 it was .66 percent. From 1990 to 2013 the growth rate of those not in the labor force averaged 1.98 percent per year; from 2000 to 2013 it was 1.56 percent.
The long term growth rate of establishment employment from 1990-2013 averaged .96 percent per year. Therefore, the Bureau of Labor Statistics forecast of 1.09 percent, slightly above the long term growth of jobs and slightly below population growth, pushes their forecast into a moderately optimistic range.
Annual growth rates in establishment employment are subject to cyclical fluctuations from expansion or recession. In the decade of 2000-2010 there were five years where one year of change decreased and five years where one year of change increased. The high year growth rate was 1.8 percent for 2005 to 2006, which was the high point of the housing bubble. The low year growth rate was -4.34 percent for 2008 to 2009, after the housing bubble and stock market bubble burst and the economy sank into recession.
Last year’s growth rate of 1.73 percent includes some increase of jobs from cyclical expansion. Year to year forecasts can allow for cyclical fluctuations by allowing for expected fluctuations in GDP, but the year to year forecasts in this report allow for long term trends of the individual industry sectors of the economy. When I compile my forecasts for the separate industries I get an annual growth rate of 1.07 percent.
A 1.07 percent forecast means 1.530 million new jobs in the coming year 2014, or an average of 127.5 thousand new jobs a month. That is the non-cyclical forecast applied to a year, which like the BLS forecast is on the optimistic side. The country has relied on a limited range of industry sub-sectors to create employment for the last decade at least, and especially since the recession ended.
Some Forecast Details
The separate industry forecasts include recovery in construction but a slow, steady erosion of jobs in manufacturing with a small net annual decline in combined goods production jobs and its continued loss of percentage share of employment that has to be made up elsewhere. The forecast calls for 1.4 percent decline in share over the next 10 years, a smaller decline compared to the 5.0 percent decline from 2000 to 2013.
Two services are forecast to lose jobs and percentage share: utilities and information services. Information services, primarily telecommunications and publishing, but also broadcasting, motion pictures and the Internet services, has been declining; all use computer technologies. Utilities are also in decline from productivity and mergers. The forecast calls for a 13 thousand new jobs a year with a .3 percent decline in share over the next decade, less than the .8 percent decline since 2000.
Wholesale and retail trade, finance and real estate are forecast to have more jobs, but not enough new jobs to prevent a continued decline in percentage share of these services. The forecast calls for 0.6 percent decline in share over the next 10 years, a smaller decline compared to the .9 percent decline from 2000 to 2013.
Unpredictable politics affects government forecasts. In the past few years government employment declined with the most political pressure for cuts coming to the Federal Government. The Federal government has declined from 2.9 percent of non-establishment employment to 2.2 percent in 2000, and 2 percent in 2013. The forecast calls for a decline in federal employment from 2.7 to 2.5 million over the next decade, a decline or nearly .4 percent over the decade.
State and local government including education is up from a 13.6 percent share of non-farm employment in 2000 to 14.0 percent in 2013. However, all of the .4 percent share increase comes in public education. State and local excluding education has a 6.5 percent share in 2013 as it did in 2000. The forecast calls for a decline of .6 percent share of state and local government for the next 10 years.
Private education is up from 1.8 percent to 2.5 percent of establishment employment from 2000 to 2013. However, the growth of public education has slowed down in the last 3 years and slowed down enough that its percentage share has dropped since 2010. For the last three years private education has replaced jobs in public education. The forecast calls for a combined private and public education increase of .8 percent in share over the next decade, a smaller increase than the 1.0 increase since 2000.
Transportation, business and professional services, health care, leisure and hospitality, especially restaurants, and personal services will be the primary sources of new jobs in the next decade. The forecast calls for a 6.8 percent increase in share over the next decade, a smaller increase than the 10.3 percent increase since 2000.
A Difficult Task
To create an average of 125.7 thousand jobs a month will be difficult. Too many industries cannot contribute many new jobs even if the economy does well. Wholesale and retail trade and finance are two examples. Trade remains 560 thousand jobs below its highest job total which came in November 2007 right before the recession started. However, its percentage share of non-farm employment at that time was down from 2000 and from 1990. Given the automation from computer technology no realistic forecast would predict an increase in jobs that reverses that downward share trend.
Finance remains 493 thousand jobs below its highest total which came in November 2006, right as the housing bubble started. Like trade, the financial activities share of total non-farm employment was down from 1990 and 2000. Job totals have stabilized in the last few years, but it’s share of jobs keeps falling. Given the automation from computer technology no realistic forecast would predict an increase that reverses that downward share trend.
The country must rely on the industries with a long run trend of rising share to take up the slack and provide enough jobs if there are going to be enough jobs. Health care needs a minimum of 30 to 31 thousand new jobs a month. Because the forecast has declining sectors declining at a slower rate than they have been, the expanding sectors are in turn forecast to increase at a slower rate than they have been to make up the difference, but they must increase.
Combined government jobs are down almost 700 thousand jobs since the recession ended. Whether they will stop falling, increase or decrease, depends more on politics than the private sector forecasts, but declining government payrolls take money out of the spending stream that hurts private sector employment as well.
Except for professional services like computing and management consulting, the remaining services sectors with long term growth are also sectors with low wages and also prone to a high percentage of recessionary layoffs. Restaurants, arts, entertainment, recreation and personal services have a larger share of jobs in 2013 than 2000 and 1990, but they are more cyclical than education and health care.
In sum, I have made a cautious non-cyclical forecast of annual average increase in jobs for a decade. Time will tell just how good it is.
The Bureau of Labor Statistics has published its annual benchmark review and revision for the year 2013 that makes it a good time for an assessment of job growth for the future. The increase for the 12 months ending December 2013 is 2.331 million jobs, better than last year. It equals a growth rate of 1.73 percent for the 12 months of 2013. The growth rate of establishment jobs is faster than the growth rate of the adult civilian population and labor force, indicating a modest progress for the 2013.
During the recession of January 2008 to February of 2010 jobs declined 8.78 million, a 6.33 percent decrease in non-farm establishment employment. After the turnaround beginning March 2010 until December 2013 non-farm establishment jobs recovered 7.7 million to just over 137.4 million, a little over 89 percent of the recession losses.
Almost all of the short term changes for the 12 months ending with December 2013 followed the same long term trends from as far back as 1990. That is the industry sectors that showed a declining share of total non-farm employment in 2013 also have a declining share of jobs from 1990 to 2013, and vice versa for the industries with an increasing share.
The Declining Share of Goods Production
Combined goods production jobs were 13.7 percent of non-farm employment in 2013, down 7.9 percent from 1990. Natural resources - logging and mining – have only 868 thousand jobs, less than one percent of non-farm employment, which is a .1 percent smaller share of 2013 employment than 1990. In spite of recent growth construction employment remains 1.86 million below its 2006 high of 7.7 million. A sustained increase in construction will be necessary to bring a recovery of construction jobs.
Manufacturing is the biggest disappointment for 2013 with an employment gain of only 78 thousand jobs with an anemic growth rate of .65 percent, well below the national average. The 2012 gain was 201 thousand, but manufacturing gains do not signal a turn around of decline in manufacutring.
The Declining Shares in Service Production
Services sectors in wholesale and retail trade, utility services, information services, financial and real estate services, repair and maintenance services and federal government ,and state and local government excluding education had their share of non-farm employment decrease in 2013 as they have been doing since 1990. Combined these services were 32.9 percent of non-farm employment at the end of 2013, down 3.9 percent from 1990.
Combined goods production and long term declining service sectors have 46.6 percent of jobs, but it is the percent of jobs left after two decades of decline that shows no sign of reversal. In the service sectors like trade and finance computer technologies have raised productivity and cut job growth. Higher productivity has cut jobs in manufacturing, but also millions of manufacturing jobs are now offshore. A trickle of these jobs have come back giving hope that foreign wages will rise relative to the decline in U.S. wages, but it will take more than hope to create new manufacturing jobs. American companies will have to invest more here and less abroad.
The Increasing Shares in Service Production
Service sector industries in transportation, professional and technical services, establishments managing companies, administrative support services, arts, entertainment, recreation, food services and restaurants, personal services and health care had their share of non-farm employment increase in 2013. Combined these services were 41.4 percent of non-farm employment at the end of 2013, up 10.3 percent from 1990.
Educational services and non-profit associations fell below their long term trends for 2013. Private schools, state education at colleges and local education in the public schools had more jobs for 2013, but just barely. The total increase was a couple thousand, which cut the share of education in total non-farm employment. Non-profit associations lost a few thousand jobs, and therefore its percentage share declined as well. Combined these two services were 12.0 percent of non-farm employment at the end of 2013, up 1.6 percent from 1990, but down about .2 percent for 2013.
In 2013, the big gainers were in administrative support services that generated 422 thousand new jobs for the 12 months ending December 2013. Temporary help services had 227 thousand of the 422 thousand jobs, which was the biggest individual increase in jobs that also have a higher percentage of U.S. non-farm employment. Firms and establishments in administrative support services contract office and facility support services, and do employment placement services, executive search services, telephone call centers, investigation and security services, exterminating and pest control services, janitorial services, landscaping services, carpet and upholstery cleaning services all gained jobs with a continuing increase in their percentage of non-farm employment for 2013.
Other big gains came at restaurants with 341 thousand new jobs; more new jobs than logging, mining, construction and manufacturing combined; more new jobs than the health care sector including social services. Full service restaurants, fast food restaurants, bars and coffee bars are all growing at two to three times the national average of job growth.
The health care increase of 308 thousand jobs for the 12 months ending December 2013 was well below last year’s increase of 469 thousand. The increase came even though hospital employment dropped over the same 12 months.
Professional and technical services had third place among sub-sectors with a growing percentage of employment. The new jobs here totaled 204 thousand for the 12 months ending December 2013. However, 60 percent of the gains in professional and technical services were in computer design and related services and managerial and technical consulting services; another 20 percent were in architectural and engineering services.
Good job opportunities continue for Baccalaureate degree students in computing, still the most employable BA degree. The many new jobs in managerial and technical consulting service offer career employment, but the competition for these jobs has started to push up degree requirements. An M.B.A. may be about to replace the BA as an entry degree.
Architecture and engineering did well with 40 thousand new jobs for the 12 months of 2013. However, new architecture and engineering graduates have to compete with other engineers who have left the construction and manufacturing industries to look for work at specialty architecture and engineering firms. The new employment is not necessarily entry level jobs.
Other professional employment has slow growth and college graduates will find it harder to get started in a professional career. Legal services generated only 4 thousand new jobs in the 12 months ending December 2013. The best jobs at law firms require a law degree, although a BA degree has an entry degree for a paralegal. Paralegal employment is growing faster than lawyers.
Accounting firms hire BA degree candidates but accounting firms generated only 10 thousand new jobs in the 12 months ending December 2013. Scientific development and research services generated 45 thousand new jobs for the 12 months of 2013. The best jobs here require advanced degrees although there are many assistant research positions for BA candidates.
A Growth Rate for the next Decade
There are several approaches to labor market forecasts. One starts with a projected growth rate for non-farm employment based on long term trends with consideration for productivity, and expected social and political events. Then the projected total increase can be divided by industry sector and individual industries based on the trend of year by year share changes for individual industries. A second approach starts with projected growth rates for individual sectors and builds up, or adds up the total; both can be tried and compared.
The latest forecast from the Bureau of Labor Statistics for non-farm establishment employment for the ten years ending 2022 is 1.09 percent a year. The annual average growth rate of the adult civilian population from 1990 through 2013 is 1.14 percent, and from 2000 to 2013 it was 1.12 percent. Theoretically establishment jobs and the civilian labor force can grow faster than the adult population if those not in the labor force look for work or find jobs that help expand establishment employment. Those with work or those looking for work are part of the civilian labor force, which has settled at 63 percent of the adult population in recent years. The other 37 percent of the adult population not in the labor force could decide to look for work and take jobs, which theoretically allows jobs to grow faster than population growth.
In practice it has not happened. From 1990 to 2013 the growth rate of the civilian labor force averaged .92 percent per year; from 2000 to 2013 it was .66 percent. From 1990 to 2013 the growth rate of those not in the labor force averaged 1.98 percent per year; from 2000 to 2013 it was 1.56 percent.
The long term growth rate of establishment employment from 1990-2013 averaged .96 percent per year. Therefore, the Bureau of Labor Statistics forecast of 1.09 percent, slightly above the long term growth of jobs and slightly below population growth, pushes their forecast into a moderately optimistic range.
Annual growth rates in establishment employment are subject to cyclical fluctuations from expansion or recession. In the decade of 2000-2010 there were five years where one year of change decreased and five years where one year of change increased. The high year growth rate was 1.8 percent for 2005 to 2006, which was the high point of the housing bubble. The low year growth rate was -4.34 percent for 2008 to 2009, after the housing bubble and stock market bubble burst and the economy sank into recession.
Last year’s growth rate of 1.73 percent includes some increase of jobs from cyclical expansion. Year to year forecasts can allow for cyclical fluctuations by allowing for expected fluctuations in GDP, but the year to year forecasts in this report allow for long term trends of the individual industry sectors of the economy. When I compile my forecasts for the separate industries I get an annual growth rate of 1.07 percent.
A 1.07 percent forecast means 1.530 million new jobs in the coming year 2014, or an average of 127.5 thousand new jobs a month. That is the non-cyclical forecast applied to a year, which like the BLS forecast is on the optimistic side. The country has relied on a limited range of industry sub-sectors to create employment for the last decade at least, and especially since the recession ended.
Some Forecast Details
The separate industry forecasts include recovery in construction but a slow, steady erosion of jobs in manufacturing with a small net annual decline in combined goods production jobs and its continued loss of percentage share of employment that has to be made up elsewhere. The forecast calls for 1.4 percent decline in share over the next 10 years, a smaller decline compared to the 5.0 percent decline from 2000 to 2013.
Two services are forecast to lose jobs and percentage share: utilities and information services. Information services, primarily telecommunications and publishing, but also broadcasting, motion pictures and the Internet services, has been declining; all use computer technologies. Utilities are also in decline from productivity and mergers. The forecast calls for a 13 thousand new jobs a year with a .3 percent decline in share over the next decade, less than the .8 percent decline since 2000.
Wholesale and retail trade, finance and real estate are forecast to have more jobs, but not enough new jobs to prevent a continued decline in percentage share of these services. The forecast calls for 0.6 percent decline in share over the next 10 years, a smaller decline compared to the .9 percent decline from 2000 to 2013.
Unpredictable politics affects government forecasts. In the past few years government employment declined with the most political pressure for cuts coming to the Federal Government. The Federal government has declined from 2.9 percent of non-establishment employment to 2.2 percent in 2000, and 2 percent in 2013. The forecast calls for a decline in federal employment from 2.7 to 2.5 million over the next decade, a decline or nearly .4 percent over the decade.
State and local government including education is up from a 13.6 percent share of non-farm employment in 2000 to 14.0 percent in 2013. However, all of the .4 percent share increase comes in public education. State and local excluding education has a 6.5 percent share in 2013 as it did in 2000. The forecast calls for a decline of .6 percent share of state and local government for the next 10 years.
Private education is up from 1.8 percent to 2.5 percent of establishment employment from 2000 to 2013. However, the growth of public education has slowed down in the last 3 years and slowed down enough that its percentage share has dropped since 2010. For the last three years private education has replaced jobs in public education. The forecast calls for a combined private and public education increase of .8 percent in share over the next decade, a smaller increase than the 1.0 increase since 2000.
Transportation, business and professional services, health care, leisure and hospitality, especially restaurants, and personal services will be the primary sources of new jobs in the next decade. The forecast calls for a 6.8 percent increase in share over the next decade, a smaller increase than the 10.3 percent increase since 2000.
A Difficult Task
To create an average of 125.7 thousand jobs a month will be difficult. Too many industries cannot contribute many new jobs even if the economy does well. Wholesale and retail trade and finance are two examples. Trade remains 560 thousand jobs below its highest job total which came in November 2007 right before the recession started. However, its percentage share of non-farm employment at that time was down from 2000 and from 1990. Given the automation from computer technology no realistic forecast would predict an increase in jobs that reverses that downward share trend.
Finance remains 493 thousand jobs below its highest total which came in November 2006, right as the housing bubble started. Like trade, the financial activities share of total non-farm employment was down from 1990 and 2000. Job totals have stabilized in the last few years, but it’s share of jobs keeps falling. Given the automation from computer technology no realistic forecast would predict an increase that reverses that downward share trend.
The country must rely on the industries with a long run trend of rising share to take up the slack and provide enough jobs if there are going to be enough jobs. Health care needs a minimum of 30 to 31 thousand new jobs a month. Because the forecast has declining sectors declining at a slower rate than they have been, the expanding sectors are in turn forecast to increase at a slower rate than they have been to make up the difference, but they must increase.
Combined government jobs are down almost 700 thousand jobs since the recession ended. Whether they will stop falling, increase or decrease, depends more on politics than the private sector forecasts, but declining government payrolls take money out of the spending stream that hurts private sector employment as well.
Except for professional services like computing and management consulting, the remaining services sectors with long term growth are also sectors with low wages and also prone to a high percentage of recessionary layoffs. Restaurants, arts, entertainment, recreation and personal services have a larger share of jobs in 2013 than 2000 and 1990, but they are more cyclical than education and health care.
In sum, I have made a cautious non-cyclical forecast of annual average increase in jobs for a decade. Time will tell just how good it is.
Sunday, April 6, 2014
Free Speech, Picketing and Bribery and the McCutcheon Case
The phrasing in the first amendment to the U.S Constitution intends to guarantee the right of free speech and the right to peaceably assemble to redress grievances. The Supreme Court just decided that campaign finance laws that limit contributions to candidates limit free speech. In this case known as McCutcheon v. FEC it might be an example of the justices changing the subject to justify a personal agenda rather than application of a constitutional principle like free speech. Before you decide how you think read below and compare the case known as Truax v. Corrigan (257 U.S. 312).
The case of Truax versus Corrigan resulted from a strike of employees at a restaurant in Bisbee Arizona. Strikers picketed, displayed banners and passed out brochures condemning the restaurant as unfair to unions and encouraging customers to boycott. Revenues dropped 50 percent as a result of union résistance. The restaurant filed for an injunction to end picketing as a cause of irreparable harm to the restaurant. Restaurant attorneys claimed the union could not rely on the recently enacted Arizona law that forbid restraining orders and injunctions in a labor dispute. They claimed the Arizona law violated 14th amendment rights against the taking of property without due process of law and denied them equal protection of the law.
The state court dismissed the case and the Arizona Supreme Court concurred citing the state law. The case moved to the U.S. Supreme Court, where the majority opinion written by Chief Justice William Howard Taft reversed the Arizona courts.
The Taft opinion declared "plaintiff's business is a property right" protected from injury caused by the striker's picketing. Pickets induced willing patrons to leave "by having agents of the union walk forward and back in front of plaintiff's restaurant . . ." and by having agents at the restaurant "during all business hours" to "continuously announce in a loud voice, audible for a great distance, that the restaurant was unfair to the labor union." Willing and would-be patrons were asked "Can you patronize such a place and look the world in the face?" and told "All ye who enter here leave all hope behind" and "Don't be a traitor to humanity."
Justice Taft characterized the picketing as a "campaign" of "unlawful annoyance and a hurtful nuisance in respect of the free access to the plaintiffs' place of business" that "was compelling every customer or would be customer to run the gauntlet of most uncomfortable publicity, aggressive and annoying importunity, libelous attacks, and fear of injurious consequences, illegally inflicted, to his reputation and standing in the community."
After declaring union picketing an unlawful conspiracy, Justice Taft and the majority declared the Arizona law forbidding injunctions in labor disputes to be an unconstitutional "subordination of fundamental principles of right and justice." If "a wrongful and highly injurious invasion of property rights," allowed by the Arizona Supreme Court is "practically sanctioned" by the U.S. Supreme Court, then the owner will be "stripped of all real remedy," which is "wholly at variance" with the principle against taking property without due process of law in the 14th amendment.
Further, the majority declared the Arizona law denied the restaurant owner the 14th amendment guarantee of equal protection of the law. Instead the majority declared the law created class privilege for unions because a violation of property rights from picketing would be subject to injunction under Arizona law, "except when committed by ex-employees of the injured person."
Justice Oliver Holmes wrote a blunt dissent for the court minority who recognized the majority opinion depended entirely from defining business as a "thing" with property rights. "By calling a business 'property' you make it seem like land, and lead up to the conclusion that a statute cannot substantially cut down the advantages of ownership existing before the statute was passed." . . . Business "is a course of conduct and like other conduct is subject to substantial modification according to time and circumstances both in itself and in regard to what shall justify doing it harm." Justice Holmes added "There is nothing that I more deprecate than the use of the Fourteenth Amendment beyond the absolute compulsion of its words to prevent the making of social experiments that an important part of the community desires . . ."
In Truax v. Corrigan the court changed the subject from the right to picket as an expression of free speech and free assembly to a violation of property rights and due process. Pickets that block streets, break windows or destroy property can be arrested, but not as pickets, as criminals committing misdemeanor crimes. Pickets that assemble on public property to protest and redress grievances are engaged in one of the most fundamental rights of democracy, except that William Howard Taft, lawyer, federal judge, president of the United States, Yale University law professor and Chief Justice of the United States Supreme Court would not recognize his opinion as a grant of protection and privilege to the well-to-do and the upper class.
In McCutcheon v. FEC the majority of the court changed the subject from bribery to free speech. The majority acknowledges the bribery issue, but defines it away by demanding bribery be a proven transaction with thorough evidence of an exchange of money for political favors, whereas Congress and many others notice how wealthy corporate campaign contributions correlate with political favors.
Picketing is the poor man’s avenue to free speech; inexpensive and equally available to all. When free speech was a disadvantage to the well to do the Supreme Court made it an unconstitutional interference with property rights. Now that limits on campaign contributions are a disadvantage to the well to do the Supreme Court makes these limits an unconstitutional interference with free speech.
Heads I win, tails you lose. Think of that as judicial precedent at the U.S. Supreme Court.
The case of Truax versus Corrigan resulted from a strike of employees at a restaurant in Bisbee Arizona. Strikers picketed, displayed banners and passed out brochures condemning the restaurant as unfair to unions and encouraging customers to boycott. Revenues dropped 50 percent as a result of union résistance. The restaurant filed for an injunction to end picketing as a cause of irreparable harm to the restaurant. Restaurant attorneys claimed the union could not rely on the recently enacted Arizona law that forbid restraining orders and injunctions in a labor dispute. They claimed the Arizona law violated 14th amendment rights against the taking of property without due process of law and denied them equal protection of the law.
The state court dismissed the case and the Arizona Supreme Court concurred citing the state law. The case moved to the U.S. Supreme Court, where the majority opinion written by Chief Justice William Howard Taft reversed the Arizona courts.
The Taft opinion declared "plaintiff's business is a property right" protected from injury caused by the striker's picketing. Pickets induced willing patrons to leave "by having agents of the union walk forward and back in front of plaintiff's restaurant . . ." and by having agents at the restaurant "during all business hours" to "continuously announce in a loud voice, audible for a great distance, that the restaurant was unfair to the labor union." Willing and would-be patrons were asked "Can you patronize such a place and look the world in the face?" and told "All ye who enter here leave all hope behind" and "Don't be a traitor to humanity."
Justice Taft characterized the picketing as a "campaign" of "unlawful annoyance and a hurtful nuisance in respect of the free access to the plaintiffs' place of business" that "was compelling every customer or would be customer to run the gauntlet of most uncomfortable publicity, aggressive and annoying importunity, libelous attacks, and fear of injurious consequences, illegally inflicted, to his reputation and standing in the community."
After declaring union picketing an unlawful conspiracy, Justice Taft and the majority declared the Arizona law forbidding injunctions in labor disputes to be an unconstitutional "subordination of fundamental principles of right and justice." If "a wrongful and highly injurious invasion of property rights," allowed by the Arizona Supreme Court is "practically sanctioned" by the U.S. Supreme Court, then the owner will be "stripped of all real remedy," which is "wholly at variance" with the principle against taking property without due process of law in the 14th amendment.
Further, the majority declared the Arizona law denied the restaurant owner the 14th amendment guarantee of equal protection of the law. Instead the majority declared the law created class privilege for unions because a violation of property rights from picketing would be subject to injunction under Arizona law, "except when committed by ex-employees of the injured person."
Justice Oliver Holmes wrote a blunt dissent for the court minority who recognized the majority opinion depended entirely from defining business as a "thing" with property rights. "By calling a business 'property' you make it seem like land, and lead up to the conclusion that a statute cannot substantially cut down the advantages of ownership existing before the statute was passed." . . . Business "is a course of conduct and like other conduct is subject to substantial modification according to time and circumstances both in itself and in regard to what shall justify doing it harm." Justice Holmes added "There is nothing that I more deprecate than the use of the Fourteenth Amendment beyond the absolute compulsion of its words to prevent the making of social experiments that an important part of the community desires . . ."
In Truax v. Corrigan the court changed the subject from the right to picket as an expression of free speech and free assembly to a violation of property rights and due process. Pickets that block streets, break windows or destroy property can be arrested, but not as pickets, as criminals committing misdemeanor crimes. Pickets that assemble on public property to protest and redress grievances are engaged in one of the most fundamental rights of democracy, except that William Howard Taft, lawyer, federal judge, president of the United States, Yale University law professor and Chief Justice of the United States Supreme Court would not recognize his opinion as a grant of protection and privilege to the well-to-do and the upper class.
In McCutcheon v. FEC the majority of the court changed the subject from bribery to free speech. The majority acknowledges the bribery issue, but defines it away by demanding bribery be a proven transaction with thorough evidence of an exchange of money for political favors, whereas Congress and many others notice how wealthy corporate campaign contributions correlate with political favors.
Picketing is the poor man’s avenue to free speech; inexpensive and equally available to all. When free speech was a disadvantage to the well to do the Supreme Court made it an unconstitutional interference with property rights. Now that limits on campaign contributions are a disadvantage to the well to do the Supreme Court makes these limits an unconstitutional interference with free speech.
Heads I win, tails you lose. Think of that as judicial precedent at the U.S. Supreme Court.
Friday, March 7, 2014
The UAW Election Failure
The United Autoworkers (UAW) lost their February 12, 2014 representation election to establish a UAW local in the Volkswagen plant in Chattanooga, Tennessee. The vote was reported as 626 yes, 712 no. The election was conducted by the National Labor Relations Board, but there was an unusual amount of confusion about statements made by VWGOA management and actions and statements of opposition from politicians and outsiders with no personal stake in the outcome.
Tennessee Senator Bob Corker was quoted in three separate articles in the Washington Post. (1) In the first, he said, "If Volkswagen turns then its BMW, then it's Mercedes, then it's Nissan, hurting the entire South-East if they get the momentum." In the second, he said, "This is all about money. They feel like if they can get under the hood with a company in the south, then they can make progress in other places." In the third, he said "He'd been "assured" that Volkswagen would make a planned new SUV in Chattanooga rather than Mexico if workers voted no."
Others lined up against the UAW and also Volkswagen. State Senator Bo Watson threatened there would be a "very tough time" winning tax incentives for a plant expansion if the vote succeeds even though the original plant received $577 million in tax subsidies. Grover Norquist who runs the Center for Worker Freedom funded opposition billboards and fliers. The National Right to Work Legal Defense Foundation found eight plant employees to help challenge legal procedure under the National Labor Relations Act. A web site of anti-union materials was set up: no2uaw.com.
As bad as the outsiders got to be, the UAW had to confront continuing disadvantages from anti-union legacies that remain in spite of U.S. labor law. Furthermore VWGOA did confusing things American companies do not do when confronted with a labor union. Usually when a union tries to organize a local affiliate it requests an election from the NLRB. The company then jumps into action to bully and browbeat their employees to vote no. Because companies get their way so often, unions try to use the alternative "card check" to get a majority to sign cards in support of unionization.
In this case it is reported a majority of the employees signed cards in a union effort to organize the plant over several years. The company could have legally agreed to have the UAW represent its hourly employees, and done so knowing Tennessee is a right to work state that prohibits dues check off or a union shop for those employees who hate unions. Instead they made confusing statements suggesting they wanted to settle the issue of labor relations before they would proceed with a plant expansion. Specifically the quote I found was made by a German official Stephan Wolf "We will only agree to an expansion of the site or any other model contract when it is clear how to proceed with the employees' representatives in the United States."
Some of the Chattanooga workforce apparently interpreted the VW statement as an ultimatum: they had to unionize or expansion would not go forward and so the UAW decided that statement made it a good time to go to Chattanooga and speak again in favor of unionization. The UAW encouraged their thinking as a way to get the workforce to accept the UAW or persuade the workforce they could help them.
The anti-union southern opposition started howling coercion and claimed the UAW wanted to organize VWGOA without a vote. The company then backtracked and released another statement saying labor relations would not influence their decision for plant expansion. The quote I found was made by the head of the Global works council, Bernd Osterloh. He said that expansion of VWGOA’s Chattanooga plant would not hinge on unionization of the plant’s employees. “The decision about a vehicle will always be made along economic and employment policy lines. It has absolutely nothing to do with the whole topic about whether there is a union there or not.”
If a company decides they want to accept union representation with card check and not a vote, they can do it. If the company decides they want a vote, they can ask the NLRB for a vote, but it is the company that asks, not the anti-union politicians and pressure groups. The anti-union groups and politicians found some anti-union employees and helped them file an unfair labor practice claim that the UAW used coercive methods in contradiction to section 8(b) of the National Labor Relations Act, but card check was still up to Volkswagen.
The Election Agreement
When the company decided to have a NLRB election they sat down with the UAW and drafted a 22 page document titled "An Agreement for a Representation Election," hereafter the Election Agreement. In the cover materials on the website, no2uaw, the objectors call the 22 page Election Agreement a sellout. A careful review of the Election Agreement makes this claim hard to brush off. Among other things there are two sections that defines the bargaining unit and a Dual Model. Much of the material in the agreement sounds painfully close to a company union that has a long history from years past.
In the early years of the last century business denounced union organizers as outside agitators, always claiming their employees were happy and contented until the agitators arrived to cause trouble. After World War I it became popular in business to defeat the outsiders by setting up company unions. One of the earliest company union plans was the John D. Rockefeller Jr Employee Representation Plan. Business regarded themselves as progressive because a company union plan allowed company employees to elect representatives to speak, or even complain, to management without being summarily fired, but management did not give up any decision making authority over their employees. They maintained the options of an open shop.
In the early part of the great depression Congress passed the National Industrial Recovery Act that included Section 7: employees shall have the right to organize and bargain collectively through representatives of their own choosing. Companies claimed their company unions fulfilled the requirements of the new law, but the Unions disagreed and when the National Labor Relations Act, aka the Wagner Act, was passed in 1935, it included wording to define a labor organization and ban the company union.
That was Section 2(5): The term "labor organization" means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.
Then Section 8(a)(2): It shall be an unfair labor practice for an employer to dominate or interfere with the formation or administration of any labor organization or contribute financial or other support to it.
In the first paragraph of the Agreement, both the Volkswagen Group of America (VWGOA) and the UAW acknowledge they are proposing something not proposed before. They call it a Question Concerning Representation(QCR), which they agree to address in the Election Agreement with an expedited representation election and by establishing “certain shared principles that the UAW and VWGOA agree shall form the basis for their conduct, activities and relationship between the date of this Election Agreement and such NLRB-conducted representation election, and their future relationship and understandings. . .”
The next section of the Agreement has stipulations in whereas clauses to be incorporated as principles to the Agreement. Here the UAW agreed to establish an employee works council with VWGOA principles and participation. The discussion reads like the UAW is giving up union functions to the VWGOA works council where it reads “the UAW acknowledges, supports and shares VWGOA's commitment to the development of an innovative model of Labor relations . . . in which a lawfully recognized or certified bargaining representative would delegate functions and responsibilities ordinarily belonging to a union . . .”
Then there is “the UAW would delegate to the Works Council many of the functions and responsibilities ordinarily performed by unions as bargaining representative in the United States that it shall support the Dual Model as the basis for a relationship with VWGOA and that it is committed to the delegation to the Works Council of certain duties, responsibilities and functions that are traditionally the subject of collective bargaining . . .”
The Dual Model mentioned above appears as an appendix at the end of the Election Agreement. It uses similar language to delegate authority and responsibilities to the works council, which would be used later to negotiate a collective bargaining agreement.
Explaining the Vote
Explaining the vote requires some conjecture primarily because the use and abuse of United States labor law assures some uncertainty. If VWGOA wanted to form works councils that establishes a grievance procedure or other union functions listed in Section 2(5), they could be subject to unfair labor practice charges of dominating or interfering with the administration or formation of a union under section 8(a)(2).
The UAW or other international union might file an unfair labor practice to end the works councils. The employees themselves could decide to organize their own Independent Labor Union(ILU) at the VW Chattanooga plant and they could file an unfair labor practice complaint with the National Labor Relations Board that the works council was in effect a company union. However, a National Labor Relations Board ruling against VWGOA would only bring a cease and desist order under unfair labor practice rules.
The VWGOA decision to sit down with the UAW and make an Election Agreement to organize a local at the Chattanooga plant suggest they wanted to use the works council badly enough to attempt to avoid potential unfair labor practice claims, but did not want work councils badly enough to give up the authority to set up and operate their works councils the way they do in Germany. To use the vernacular, they wanted to have their cake and eat it too.
Based on the written terms of the Election Agreement, the VWGOA agreed to conditions for a free election that avoided adversial attacks on the UAW and unions. Wording included “The parties and their representatives will communicate with employees in a non adversarial, positive manner and will not defame or make any untruthful statements regarding one another or their respective employees and representatives . . . VWGOA shall not take a position opposed to such representation. . . .”
Between 1935 to 1947 it was an unfair labor practice for employers to speak to or contact employees. That changed with the Taft-Hartley Amendments of 1947. New wording now referred to as the management free speech amendments provide many options for employers to speak against a union. Section 8(c) allows that expressing of any views, arguments, or opinions, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this Act, if such expression contains no threat of reprisal or force or promise of benefit.
The whole of the Election Agreement suggests the UAW negotiated the opportunity to have an election without management interference in exchange for delegating customary union perogatives to management. In the years since 1947 there has been no change in what constitutes a labor organization or a company union that would allow the UAW and VWGOA to agree for the UAW to delegate union functions to management. In effect, VWGOA agreed to give up what is not an unfair labor practice to get the UAW to agree to do what is an unfair labor practice. The Election Agreement puts both parties in a labor law netherworld.
VWGOA apparently honored its commitment but before the election there were outside threats from Tennessee politicians to eliminate tax advantages for VWGOA and fromTennessee Senator Corker that VWGOA would move work to Mexico if the union won the election. Even though these claims were not supported by VW, they probably influenced votes in the election.
I confess a hard time believing the employees at VWGOA do not know their own best interests. Based on the Election Agreement it appears quite rational for an employee to weigh the expense of union dues and other implied threats against potential gains from the UAW Election Agreement, and then vote no.
How much southern politicians and union haters everywhere influenced the election cannot be known, but union elections have too many abuses to believe the votes reflect the true sentiments of employees at VWGOA in Chattanooga, or anywhere else. Companies routinely demand their employees attend anti union meetings on company time and listen to threats of layoffs, wage cuts, outsourcing and plant closings. They go beyond what is allowed in the section 8(c) knowing unfair labor practice filings have few sanctions even when they lose, which they quite often do. Companies can fire employees for union organizing knowing they will lose unfair practice decisions, but sanctions will be mitigated back wages after years of delay so they go ahead anyway.
New Ideas
Remember that in spite of all the anti union talk heaped on the UAW and employees, 626 voted yes, and they were southerners no less. It does suggest a significant number in Chattanooga and around the country might welcome some help to organize a collective defense against the current onslaught against labor.
The result suggests organized labor needs a new Modus Operandi. It might be time to question spending rank and file dues on politicians and political campaigns. Woodrow Wilson, Bill Clinton and Barak Obama were Democrats elected as the friends of labor, but their friendliness has never relieved labor’s fundamental political and legal disadvantages, then or now.
The National Labor Relations Act is not friendly to labor because it is not intended to help labor so much as it is designed, amended and interpreted to prevent strikes, boycotts and disruptions. The disadvantages of organizing under it have become so severe it is close to impossible to organize a plant over the determined opposition of business and now the active opposition of anti union politicians.
Without help from the law or politics labor has to look for some economic leverage, which is also difficult in surplus labor markets in an economy managed to have surplus labor and excess capacity. Unions might want to lower dues and promote soldiarity and job actions across many labor markets. Autoworkers have more in common with nurses, engineers and fast food cooks than they apparently realize and so do you if you work for wages.
After the latest attack on labor an excerpt of the declaration of principles from the short lived Socialist Trade and Labor Alliance of 1902 sounds relevant.
"The methods and spirits of labor organization are absolutely impotent to resist the absolute aggressions of concentrated capital . . . ; that the economic power of the capitalist class . . . rests upon institutions, essentially political, which . . . cannot be radically changed . . . except through the direct action of the people themselves, economically and politically united as a class."
And so on.
note
[1] "In Tennessee, the UAW finds an unusual ally", WP February 11, 2014, "Union Vote at VW plant is seen as bellwether," WP, February 14, 2014, "Volkswagen workers reject UAW in Tenn.; Union looks for Plan B to enter South," WP, February 15, 2014.
Tennessee Senator Bob Corker was quoted in three separate articles in the Washington Post. (1) In the first, he said, "If Volkswagen turns then its BMW, then it's Mercedes, then it's Nissan, hurting the entire South-East if they get the momentum." In the second, he said, "This is all about money. They feel like if they can get under the hood with a company in the south, then they can make progress in other places." In the third, he said "He'd been "assured" that Volkswagen would make a planned new SUV in Chattanooga rather than Mexico if workers voted no."
Others lined up against the UAW and also Volkswagen. State Senator Bo Watson threatened there would be a "very tough time" winning tax incentives for a plant expansion if the vote succeeds even though the original plant received $577 million in tax subsidies. Grover Norquist who runs the Center for Worker Freedom funded opposition billboards and fliers. The National Right to Work Legal Defense Foundation found eight plant employees to help challenge legal procedure under the National Labor Relations Act. A web site of anti-union materials was set up: no2uaw.com.
As bad as the outsiders got to be, the UAW had to confront continuing disadvantages from anti-union legacies that remain in spite of U.S. labor law. Furthermore VWGOA did confusing things American companies do not do when confronted with a labor union. Usually when a union tries to organize a local affiliate it requests an election from the NLRB. The company then jumps into action to bully and browbeat their employees to vote no. Because companies get their way so often, unions try to use the alternative "card check" to get a majority to sign cards in support of unionization.
In this case it is reported a majority of the employees signed cards in a union effort to organize the plant over several years. The company could have legally agreed to have the UAW represent its hourly employees, and done so knowing Tennessee is a right to work state that prohibits dues check off or a union shop for those employees who hate unions. Instead they made confusing statements suggesting they wanted to settle the issue of labor relations before they would proceed with a plant expansion. Specifically the quote I found was made by a German official Stephan Wolf "We will only agree to an expansion of the site or any other model contract when it is clear how to proceed with the employees' representatives in the United States."
Some of the Chattanooga workforce apparently interpreted the VW statement as an ultimatum: they had to unionize or expansion would not go forward and so the UAW decided that statement made it a good time to go to Chattanooga and speak again in favor of unionization. The UAW encouraged their thinking as a way to get the workforce to accept the UAW or persuade the workforce they could help them.
The anti-union southern opposition started howling coercion and claimed the UAW wanted to organize VWGOA without a vote. The company then backtracked and released another statement saying labor relations would not influence their decision for plant expansion. The quote I found was made by the head of the Global works council, Bernd Osterloh. He said that expansion of VWGOA’s Chattanooga plant would not hinge on unionization of the plant’s employees. “The decision about a vehicle will always be made along economic and employment policy lines. It has absolutely nothing to do with the whole topic about whether there is a union there or not.”
If a company decides they want to accept union representation with card check and not a vote, they can do it. If the company decides they want a vote, they can ask the NLRB for a vote, but it is the company that asks, not the anti-union politicians and pressure groups. The anti-union groups and politicians found some anti-union employees and helped them file an unfair labor practice claim that the UAW used coercive methods in contradiction to section 8(b) of the National Labor Relations Act, but card check was still up to Volkswagen.
The Election Agreement
When the company decided to have a NLRB election they sat down with the UAW and drafted a 22 page document titled "An Agreement for a Representation Election," hereafter the Election Agreement. In the cover materials on the website, no2uaw, the objectors call the 22 page Election Agreement a sellout. A careful review of the Election Agreement makes this claim hard to brush off. Among other things there are two sections that defines the bargaining unit and a Dual Model. Much of the material in the agreement sounds painfully close to a company union that has a long history from years past.
In the early years of the last century business denounced union organizers as outside agitators, always claiming their employees were happy and contented until the agitators arrived to cause trouble. After World War I it became popular in business to defeat the outsiders by setting up company unions. One of the earliest company union plans was the John D. Rockefeller Jr Employee Representation Plan. Business regarded themselves as progressive because a company union plan allowed company employees to elect representatives to speak, or even complain, to management without being summarily fired, but management did not give up any decision making authority over their employees. They maintained the options of an open shop.
In the early part of the great depression Congress passed the National Industrial Recovery Act that included Section 7: employees shall have the right to organize and bargain collectively through representatives of their own choosing. Companies claimed their company unions fulfilled the requirements of the new law, but the Unions disagreed and when the National Labor Relations Act, aka the Wagner Act, was passed in 1935, it included wording to define a labor organization and ban the company union.
That was Section 2(5): The term "labor organization" means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.
Then Section 8(a)(2): It shall be an unfair labor practice for an employer to dominate or interfere with the formation or administration of any labor organization or contribute financial or other support to it.
In the first paragraph of the Agreement, both the Volkswagen Group of America (VWGOA) and the UAW acknowledge they are proposing something not proposed before. They call it a Question Concerning Representation(QCR), which they agree to address in the Election Agreement with an expedited representation election and by establishing “certain shared principles that the UAW and VWGOA agree shall form the basis for their conduct, activities and relationship between the date of this Election Agreement and such NLRB-conducted representation election, and their future relationship and understandings. . .”
The next section of the Agreement has stipulations in whereas clauses to be incorporated as principles to the Agreement. Here the UAW agreed to establish an employee works council with VWGOA principles and participation. The discussion reads like the UAW is giving up union functions to the VWGOA works council where it reads “the UAW acknowledges, supports and shares VWGOA's commitment to the development of an innovative model of Labor relations . . . in which a lawfully recognized or certified bargaining representative would delegate functions and responsibilities ordinarily belonging to a union . . .”
Then there is “the UAW would delegate to the Works Council many of the functions and responsibilities ordinarily performed by unions as bargaining representative in the United States that it shall support the Dual Model as the basis for a relationship with VWGOA and that it is committed to the delegation to the Works Council of certain duties, responsibilities and functions that are traditionally the subject of collective bargaining . . .”
The Dual Model mentioned above appears as an appendix at the end of the Election Agreement. It uses similar language to delegate authority and responsibilities to the works council, which would be used later to negotiate a collective bargaining agreement.
Explaining the Vote
Explaining the vote requires some conjecture primarily because the use and abuse of United States labor law assures some uncertainty. If VWGOA wanted to form works councils that establishes a grievance procedure or other union functions listed in Section 2(5), they could be subject to unfair labor practice charges of dominating or interfering with the administration or formation of a union under section 8(a)(2).
The UAW or other international union might file an unfair labor practice to end the works councils. The employees themselves could decide to organize their own Independent Labor Union(ILU) at the VW Chattanooga plant and they could file an unfair labor practice complaint with the National Labor Relations Board that the works council was in effect a company union. However, a National Labor Relations Board ruling against VWGOA would only bring a cease and desist order under unfair labor practice rules.
The VWGOA decision to sit down with the UAW and make an Election Agreement to organize a local at the Chattanooga plant suggest they wanted to use the works council badly enough to attempt to avoid potential unfair labor practice claims, but did not want work councils badly enough to give up the authority to set up and operate their works councils the way they do in Germany. To use the vernacular, they wanted to have their cake and eat it too.
Based on the written terms of the Election Agreement, the VWGOA agreed to conditions for a free election that avoided adversial attacks on the UAW and unions. Wording included “The parties and their representatives will communicate with employees in a non adversarial, positive manner and will not defame or make any untruthful statements regarding one another or their respective employees and representatives . . . VWGOA shall not take a position opposed to such representation. . . .”
Between 1935 to 1947 it was an unfair labor practice for employers to speak to or contact employees. That changed with the Taft-Hartley Amendments of 1947. New wording now referred to as the management free speech amendments provide many options for employers to speak against a union. Section 8(c) allows that expressing of any views, arguments, or opinions, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this Act, if such expression contains no threat of reprisal or force or promise of benefit.
The whole of the Election Agreement suggests the UAW negotiated the opportunity to have an election without management interference in exchange for delegating customary union perogatives to management. In the years since 1947 there has been no change in what constitutes a labor organization or a company union that would allow the UAW and VWGOA to agree for the UAW to delegate union functions to management. In effect, VWGOA agreed to give up what is not an unfair labor practice to get the UAW to agree to do what is an unfair labor practice. The Election Agreement puts both parties in a labor law netherworld.
VWGOA apparently honored its commitment but before the election there were outside threats from Tennessee politicians to eliminate tax advantages for VWGOA and fromTennessee Senator Corker that VWGOA would move work to Mexico if the union won the election. Even though these claims were not supported by VW, they probably influenced votes in the election.
I confess a hard time believing the employees at VWGOA do not know their own best interests. Based on the Election Agreement it appears quite rational for an employee to weigh the expense of union dues and other implied threats against potential gains from the UAW Election Agreement, and then vote no.
How much southern politicians and union haters everywhere influenced the election cannot be known, but union elections have too many abuses to believe the votes reflect the true sentiments of employees at VWGOA in Chattanooga, or anywhere else. Companies routinely demand their employees attend anti union meetings on company time and listen to threats of layoffs, wage cuts, outsourcing and plant closings. They go beyond what is allowed in the section 8(c) knowing unfair labor practice filings have few sanctions even when they lose, which they quite often do. Companies can fire employees for union organizing knowing they will lose unfair practice decisions, but sanctions will be mitigated back wages after years of delay so they go ahead anyway.
New Ideas
Remember that in spite of all the anti union talk heaped on the UAW and employees, 626 voted yes, and they were southerners no less. It does suggest a significant number in Chattanooga and around the country might welcome some help to organize a collective defense against the current onslaught against labor.
The result suggests organized labor needs a new Modus Operandi. It might be time to question spending rank and file dues on politicians and political campaigns. Woodrow Wilson, Bill Clinton and Barak Obama were Democrats elected as the friends of labor, but their friendliness has never relieved labor’s fundamental political and legal disadvantages, then or now.
The National Labor Relations Act is not friendly to labor because it is not intended to help labor so much as it is designed, amended and interpreted to prevent strikes, boycotts and disruptions. The disadvantages of organizing under it have become so severe it is close to impossible to organize a plant over the determined opposition of business and now the active opposition of anti union politicians.
Without help from the law or politics labor has to look for some economic leverage, which is also difficult in surplus labor markets in an economy managed to have surplus labor and excess capacity. Unions might want to lower dues and promote soldiarity and job actions across many labor markets. Autoworkers have more in common with nurses, engineers and fast food cooks than they apparently realize and so do you if you work for wages.
After the latest attack on labor an excerpt of the declaration of principles from the short lived Socialist Trade and Labor Alliance of 1902 sounds relevant.
"The methods and spirits of labor organization are absolutely impotent to resist the absolute aggressions of concentrated capital . . . ; that the economic power of the capitalist class . . . rests upon institutions, essentially political, which . . . cannot be radically changed . . . except through the direct action of the people themselves, economically and politically united as a class."
And so on.
note
[1] "In Tennessee, the UAW finds an unusual ally", WP February 11, 2014, "Union Vote at VW plant is seen as bellwether," WP, February 14, 2014, "Volkswagen workers reject UAW in Tenn.; Union looks for Plan B to enter South," WP, February 15, 2014.
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