Thomas Piketty, translated from French by Arthur Goldhammer, Capital in the Twenty-First Century, (Cambridge, MA: Belknap Press of Harvard University Press, 2014) 577 pages, $39.95.
Capital in the Twenty-First Century by French economist Thomas Piketty studies and examines the only controversial question in economics: the distribution of income and wealth. It studies distribution between capital and labor, among wage earners, among capital owners, between countries and over several hundred years.
Few authors of economics books more than 500 pages with analytical foundations and a reflective data driven discussion attract attention in the popular media as Piketty has done. Paul Krugman comes to mind, but his notoriety comes in small doses from his New York Times editorials more than his books. None of Krugman’s books resemble Piketty’s except they both challenge the status quo and say things America’s wealthy like suppressed.
The book has four parts divided into sixteen chapters and subchapters that builds an economic framework and applies it to data from national income accounts. Data and discussion applies to France, Great Britain, Germany and the United States and a few more countries where data is available. Piketty develops his arguments after an expansive and rambling thirty-eight page introduction that has nearly as much to say about Piketty and the economics fraternity as it does about capital in the twenty first century.
The two part I chapters define terms from National Income Accounts: national income, capital, wealth, the capital to income ratio and growth of output, population, and per capita output. Piketty applies these terms in his first fundamental law of capitalism, which is the accounting identity α = r x β, where alpha(α) equals capital’s share of national income or the capital-labor split, r is the percentage rate of return on capital and Beta(β) is a ratio equal to the value of capital necessary to generate a years worth of national income.
The part II chapters develop an expanded discussion of Beta(β), the capital-income ratio already introduced. Here he applies his second fundamental law of capitalism: Beta(β) = s/g, where s is the percentage of net private saving and g is a percentage growth in national income. Economist readers will recognize this second fundamental law as a clever adaptation of market growth theory. Long ago economists theorized growth of national income depended on the saving rate multiplied by the ratio of income to capital, or g = s x (1/ β). Using the rules of algebra Piketty converted the equation to make the capital to income ratio depend on the ratio s/g. The conversion gives him a second way to study inequality.
Piketty builds his inequality discussion around these two fundamental laws. Several chapter five tables give example growth rates and saving rates in eight rich countries including the United States for the years 1970 to 2010. Both fundamental laws generate ratios to allow inter-country and inter-temporal comparisons of inequality. The data suggest the richer countries can expect s greater than g and r greater than g over long periods that can generate an ever higher capital to income ratio. If r = 5% and g = 1% then the wealthy have to consume at least 80 percent of their high incomes or capital will grow faster than national income and inequality will get worse.
Part II chapters report, chart and discuss the results for national economies where Piketty concludes that inequality does not necessarily diminish from market forces and can get much worse over time. This main or primary conclusion is also summarized in the introduction and again in the brief conclusion. Readers can get the main point with just the introduction and conclusion as I have heard people say they did, but only by missing extensive historical discussion and the much more detailed breakdown of inequality that comes in the part III material.
Keep in mind that Piketty has spent countless hours mastering the intricacies of national income accounting in a way that few American economists do. Our Federal government produces fine data for the U.S. economy but American economists still prefer theorizing while Piketty has built and maintains massive multi-country data files to test if its all true, or needs a few adjustments.
Part III makes extensive use of these data files in discussions that use forty percent of the book to cover inequality for combined capital and labor income, for labor income, for capital income, for inheritance and for wealth. The first of the six chapters in the structure of inequality section gives an introductory warm up to the others.
Piketty begins his warm up chapter with a plot summary from the Honore de Balzac novel, Pere Goriot. Occasional allusions to literature and history give a nice break to otherwise continuous technical material. The plot and characters in Pere Goriot contrast the inequality of class and culture from France around 1835, but you too may feel the parallel to the fading meritocracy of 2014. Then he summarizes and defines terms for the low, medium and high inequality he describes in more detail in the chapters that follow.
These remaining part III chapters build discussion from numerous charts that measure inequality of income and wealth for different countries over time, mostly 1910 to 2010 for income inequality and 1810-2010 for wealth inequality. Most charts plot the share of the top 10 percent of income, the decile, or 1 percent of income, the centile, against time, and similarly for wealth.
In the United States of the late 1920’s the top 10 percent had almost 50 percent of national income. That share declined in the depression and stayed 32 to 35 percent until 1980, but climbed back to 50 percent by 2010.
Wealth distributions generate greater inequality than income because the bottom half of a country’s population typically has no wealth at all. The U.S. share of the top 10 percent of wealth reached a high of 80 per cent in 1910. It dropped to 65 percent by 1950, before beginning a slow by steady climb to 70 percent in 2010.
One of many Piketty interpretations included “. . . there is absolutely no doubt that the increase of inequality in the United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States . . .”
Part IV has four chapters in a hundred page discussion of policy that repeatedly returns to the need for progressive taxation to correct for inequality. At page 497 he writes “The progressive tax is indispensable for making sure that everyone benefits from globalization, and the increasingly glaring absence of progressive taxation may ultimately undermine support for a globalized economy.”
He argues in favor of a progressive capital tax, but he offers support for, and historical discussion of, progressive income and inheritance taxes. He warns the rich progressive taxes offer a way to correct for inequality without undermining private property and the forces of competition.
The book is unnecessarily long in part because Piketty, or his editor, adopted conventions common to college textbooks. These are repeated plan of the book sections that give a roadmap of material yet to come and excessive introduction and summary. “I want to tell you about something important, but I can’t do that until I tell you about this, and then this, and then I will get back to that.” Textbook editors love this stuff but it is hard to follow or understand what you will read about later. I think of it as surplus.
More pages are added with material intended only for economists. Non-economists should notice in the introduction where he tells readers he was hired to teach at a university near Boston after finishing graduate school. He left off the name, MIT. After three years he went back to France. Then he writes “the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.”
Piketty learned at MIT that economics education at American colleges walks a fine line between education and indoctrination. American economists are expected to conform and confirm that capitalism and free enterprise bring ideal results. They theorize in ever more complex ways because they have nothing else to do. They avoid data that contradicts theory or career opportunities decline, or disappear.
His experience at MIT clearly left him with the urge to take a few pokes at American economists. After page 200 he brings in the Cobb-Douglas Production function, the elasticity of substitution, the Roy Harrod, Evsey Domar and Robert Solow growth theories, marginal productivity theory, Franco Modigliani’s Life Cycle theory and a few more; all standard fare in economics graduate programs at American Colleges. He can’t resist reporting his data contradict these long established market theories, but non-economists can skip this insider stuff.
Still there are many things to admire about this book that I can recommend it to non-economists. Non-economists can follow the principal arguments if they read carefully, study the charts, and doggedly keep in mind the difference between stocks and flows after he defines them in Part I and gives examples.
Piketty has attracted attention in the United States similar to British economist John Maynard Keynes after he published his General Theory of Employment, Interest and Money way back in 1936. The General Theory is not a general theory at all, but an abstract discussion of special cases in which Keynes describes conditions where markets and the economy break down and need an active policy of correction, even, god forbid, a policy of government spending.
Politicians and the Chamber of Commerce still attack and condemn Keynes after 78 years, but only a few of them care enough to read or study what he wrote; they just dislike his conclusions. It is early in the Piketty discussion but there are plenty of wealthy and well to do ready to condemn his conclusions without reading what he wrote. Keynes wrote only for economists while Piketty tries, somewhat erratically, for a broader audience. With some extra effort you can decide for yourself. It will be slow going, but forge ahead and the like.
Thursday, August 14, 2014
Tuesday, July 22, 2014
The Declining Returns to College Education
A good financial return for a college education should not be assumed as it once was. Chances remain high that college will pay, but changes in tuition and labor markets are lowering the return and raising the risk it might not pay for all graduates. Higher and higher tuition, delays finding jobs and the course of study head a list of trouble spots to consider when making a college investment.
Tuition
All the states have one and usually two public universities that offer the best opportunity to measure tuition inflation. Private colleges tend to have higher tuition than public colleges, but they are more likely to offer discounts to attract good students away from the less expensive public colleges. Competition for good students means the posted tuition at private colleges may not be a good measure of actual tuition paid, or its rate of increase. Public colleges are less likely to discount tuition than private colleges, which makes them a better measure of tuition increases.
Compare the 2002 tuition for the two largest state universities in each of the fifty states with the tuition of 2013. Some like the University of Arizona have tuition increases at rates that range up to five times the rate of inflation. For example, if the 2002 tuition of $2,490 at the University of Arizona increased by the rate of inflation until 2013, it would be $3,224.80. Instead it is $10,391, an increase of 317.31 percent, which is an annual compounded increase of 13.87 percent when the general inflation rate was 2.38 percent in the same years. (1)
The high percentage increase at the University of Arizona results partly from its relatively low 2002 tuition. The lower 2002 tuition exaggerates the percentage increase over the period but I can find 31 state colleges out of the hundred that have higher tuition than the University of Arizona. Take the University of Vermont. If its 2002 tuition of $8,994 increased by the rate of inflation until 2013, it would be $11,648.13. Instead it is $15,718, an increase of 74.76 percent, which is a annual compounded percent increase of 5.21 percent, one of the lower rates of increase of tuition for the 100 colleges reviewed.
All of the hundred colleges mentioned above had tuition increases higher than the 2.38 percent increase in the Consumer Price Index. All but seven had increases at least twice the rate of inflation; forty-nine had tuition increases at least three times the rate of inflation.
Wages
Wage for jobs that need BA degree skills need to go up as fast as tuition to avoid lowering the rate of return on a college education. The Bureau of Labor Statistics (BLS) identifies occupations and careers that need BA degree skills. (2)
In 2013, the Bureau of Labor Statistics reported 169 occupations that require BA degree skills with a combined 20.5 million jobs. The total includes 93 occupations with 10 million jobs that had a median wage increase above the inflation rate of 2.38 percent from 2002 to 2013. The median increase of the median wage for the 93 occupations was 2.9 percent. There were 32 occupations with 6.8 million jobs that had a median wage increase less than the inflation rate. The median increase of the median wage for the 32 occupations was 2.0 percent.
The remaining 44 occupations of the 169 do not have corresponding median wage data for 2013 because some occupations were defined in broader categories in 2002. For example, a nurse in 2002 was broken into four occupations in 2013: Registered Nurse, Nurse Anesthetists, Nurse Midwives, and Nurse Practitioners. Hence wage data is not reported for both years for 44 occupations that have 3.7 million jobs.
In sum, only three of the hundred colleges reviewed had tuition increases less than 4 percent a year, while only seven occupations of the 125 with data had median wage increases as high as four percent, and four of the seven were management occupations. The combination of tuition and wage changes over time assures a general decline in the rate of return on a BA degree.
Measuring the Decline
A few calculations help measure the decline. Someone entering the University of Arizona in 2002 had to pay $2,490 for a year’s tuition. At the time student loan interest was set at 4.06 percent. Using the 4.06 interest rate the total four-year investment would be $11,012.82 assuming tuition is paid in the fall and compounded once a year. [Computations are courtesy of the Excel FV spreadsheet function. Entries for the $11,012.82 are FV(.0406/1, 4, -$2,409, 0 ,1). ]
Someone graduating at age 22 in 2006 has 44 years to work and earn a return on the investment. If the $11,012.82 was invested in stocks and bonds and earned a 4.06 percent return over the 44 years it would be $65,525.86. To have the equivalent $65,525.86 because of a better job requiring college degree skills, it will be necessary to earn an extra $44.64 a month for the same 44 years. [Excel entries for the $65,525.86 are FV(.0406/12, 528, 0, -$11,012.82 ,1) and so on.]
Any amount above $44.64 and the return is above 4.06 percent. If the amount was $100 a month for 44 years the return would be 10.9 percent, a return higher than most long term stock returns or student loans.
However, compare that to what happens to someone entering the University of Arizona in 2013 when a year’s tuition jumped to $10,391. In the time between 2002 and 2013 the interest on college student loans has gyrated from a low of 3.4 to a high of 6.8 percent, but it was set at 3.86 percent for the 2013-2014 academic year. Using a 3.86 interest rate the total four-year investment will be $45,732.76, again assuming tuition is paid in the fall and compounded once a year.
If the $45,732.76 was invested in stocks and bonds and earned a 3.86 percent return over 44 years, as above, it would be $249,258.16. To have the equivalent $249,258.16 because of a better job requiring college degree skills, it will be necessary to earn an extra $179.58 a month for 44 years, a little over four times $44.64.
Any amount above $179.58 and the return will be greater than 3.86 percent, but any amount below $179.58 and the return is lower. If the amount was $100 as it was above the return drops to a paltry .67 percent.
Risk
Rapidly rising tuition during a period of stagnant wages has not slowed the tied of graduates. The number of working age adults with BA degrees keeps growing because current graduates are more than double the graduates from the 1970’s who are reaching retirement age. BA degree graduates total 48.7 million from June 1971 until the end of the academic year in 2012. If the two years yet to be reported have at least the same number as 2012, as seems likely, then 52.3 million working age adults have BA degrees. (3)
Some of the 52.3 million with BA degrees went on to get master’s degrees, doctorates and professional degrees. Subtracting the graduate and professional degrees from the total still leaves 28.2 million working age adults with BA degrees to fill the 20.5 million jobs in 2013 that need BA degree skills.
The growing number of people with BA degree skills raises the risk of delay to find higher wage career employment. Compare what happens with 10 years of delay. If the tuition was invested in stocks and bonds and earned 3.86 percent for 10 more years it would grow to $67,235.10. If the $67,235.10 was invested in stocks and bonds and earned a 3.86 percent return over 34 years, it would also be $249,258.16 as above. To have the equivalent $249,258.16 because of a better job for 34 years, it will be necessary to earn an extra $295.21 a month, more than six times the $44.64 from above. An additional $100 a month would be a negative return that would not earn the initial investment.
The chances remain good that college will pay, but individual decisions matter more than ever. I can find 65 occupations in the Occupational Employment Survey requiring no more than high school skills with employment just over 11 million people that have a median wage greater than $50,000. I expect some of the people in those jobs have college degrees, but it is likely their tuition money would be earning a higher return in the stock market. Allow me to repeat, a good financial return for a college education should not be assumed.
Notes
1) Tuition data is from the College Board
2) Occupational Employment Survey, BLS
3) Degree data from the Center for Education Statistics, US Department of Education
Monday, July 7, 2014
From the Jaws of Victory
Matt Garcia, From the Jaws of Victory: the Triumph and Tragedy of Cesar Chavez and the Farm Worker Movement, (Berkeley, CA: University of California Press, 2012), 298 pages
From the Jaws of Victory narrates the rise and fall of the United Farm Workers (UFW) union. An introductory chapter gives a brief roadmap of the book and a warning: the book includes the failures and shortcomings of UFW founder, Cesar Chavez, not just his success.
The first three chapters chronicle the slow but successful efforts to organize farm workers and improve wages and working conditions. After a brief discussion of historical material and the former Bracero Program, the narrative turns to Cesar Chavez and his decision to leave community organizing to organize farm workers. That was April 12, 1962.
Chavez built a devoted following to his United Farm Workers Association (UFWA) by knocking on doors and recruiting members one by one. He used marches, rallies and fasts to attract public attention in what turned into a crusade. His UFWA lacked the funds to support a strike when Larry Itliong of the Agriculture Workers Organizing Committee (AWOC) called his mostly Filipino members out of the Delano vineyards September 8, 1965. UFW joined the strike and the two unions combined their efforts to attract public support and put economic pressure on the growers.
Garcia develops the strike and its unfolding strategies over the next 70 pages. The two unions eventually merged to become the UFW with Chavez as president. His leadership in the Delano grape strike put the UFW on the path of success. The coincidence of the farm worker movement with civil rights helped bring in hundreds of volunteers and make the strike a cause for social justice. The early presence of UAW president Walter Reuther brought additional publicity.
The narrative follows the path of decisions that evolved into a successful consumer boycott. The union set up boycott houses in big grape consuming cities and volunteers settled in to devise strategies to reduce grape sales and sales of branded products made from grapes, like wine. Some grocery store chains agreed not to shelve grapes; pickets confronted shoppers at stores that would not go along. In Toronto, young Harvard dropout Marshall Ganz let balloons lettered with “Don’t buy Grapes” float to the ceiling of grocery stores, much to the anger of store managers.
Gradually the boycott succeeded. Prices dropped and then sales. Total shipments were off 9.2 percent by 1969. The bigger producers settled and others followed. Growers in the Coachella valley agreed first, then 26 growers in the San Joaquin Valley signed a labor union contract July 29, 1970.
By August 1970 UFW had 12,000 members, but external and internal problems brought celebrating to an abrupt halt. Chapter four narrates the division and conflict with the Teamsters union after they reneged on their promise not to organize farm workers. The Teamsters organized Salinas’ lettuce growers in August 1970 without a vote of farm workers and in competition with the United Farm Workers. Garcia takes readers through the gritty details of their conflict: picketing, fights, beatings, a court injunction and twenty days in jail for Cesar Chavez who defied the court.
The competition between the UFW and the Teamsters generated questions about labor law. Farm workers are excluded from the National Labor Relations Act that established voting procedures for union representation, but the law also makes boycotts an unfair labor practice subject to immediate court injunction. Chapter five describes the pros and cons of passing a California Agricultural Labor Relations Act, the administration of the law after it passed in May 1975, and the decision to propose changes in the law through a statewide initiative, proposition 14.
UFW won a majority of its representation elections, but the law in practice generated many disputes and unfair labor practice charges, often because the growers did not want the UFW organizing on their property. After a short period of operation both the growers and the unions wanted to amend the law, but the UFW made the aggressive and risky decision to propose a statewide referendum. Proposition 14, among other things, proposed to give union organizers access to workers on California farms during elections and required farm owners to allow organizers on their farms an hour before work, an hour after work, and at lunch time.
Garcia takes readers through the UFW campaign to pass proposition 14. Chavez diverted significant money and personnel to the campaign and over ruled internal opposition, but there was organized opposition from the growers who found a Japanese-American internment camp victim who characterized the access issue as stealing property rights.
Proposition 14 lost badly in the November 1976 election. Garcia interviewed union personnel who described Chavez as badly shaken up by the defeat and they give November 1976 as the date he changed.
There were ominous signs of trouble before the proposition 14 election loss. Chavez previously moved his headquarters to a remote place he called La Paz near Keene, California, which took him away from the activities of the union and the farm workers he needed to influence. He had trouble accepting that the labor contracts he signed needed administration. He did not appreciate the need to switch from volunteers to paid professional staff and continued to prefer organizing to the day to day work of a union, but these were miner compared to the trouble after the election loss.
The last three chapters - six, seven and eight - narrate the union’s post election decline and Chavez role in the union’s ruin. It is a story of the obsession Chavez developed to force union volunteers and staff to travel to La Paz to play a “Game” developed by his friend Charles Dederich as part of a drug rehabilitation program. The Game called for a moderator to attack and ridicule a target and then have a dozen others join in as part of “therapy” for self-examination. Only Chavez and few sycophants could see any connection to the needs of a union.
It is also a story of Executive Board meetings filled with personal attacks and purges of people Chavez falsely accused of plotting against him and the union. The people Garcia interviewed remember specific episodes like the “Monday Night Massacre” where the vegetarians at La Paz were attacked with accusations of plotting against the union and expelled without a chance to reply. Later the entire legal staff was summarily fired; 17 attorneys and dozens of support staff. Chavez arbitrarily called off the boycott and then badly offended Filipino farm workers when he insisted on a visit to Philippine dictator Ferdinand Marcos.
Many volunteers and staff protested through this period and tried to continue with the business of the union, but to no avail. Over the course of four years firings and resignations decimated the union which ceased doing what unions do by the early 1980’s. The book stops at this point followed by a brief epilogue.
The book covers the rise and fall of Cesar Chavez and the UFW thoroughly and clearly as it sets out to do, but not more. The book is not a history of farm workers or farm worker unions. Other unions and union organizing are mentioned only as necessary for the UFW story.
Given the tight focus of the book it has many details. Garcia had access to tape recordings of meetings and especially Executive Board meetings that allow a line by line recounting of who said what that fills the last three chapters of the book. Readers are introduced to many names in the narrative; some disappear, some reappear many times. Readers get to know a few key figures like Marshall Ganz and chief counsel Jerry Cohen, but special effort is required to keep track of all the people and their role in the story. Sometimes discussion reads like an organizer’s convention.
As I finished the book I weighed the positives and negatives in the work of Cesar Chavez and the legacy he leaves to organized labor, but one thing caught my eye in the epilogue: not one person picking grapes in California in 2012 was a member of a union.
From the Jaws of Victory narrates the rise and fall of the United Farm Workers (UFW) union. An introductory chapter gives a brief roadmap of the book and a warning: the book includes the failures and shortcomings of UFW founder, Cesar Chavez, not just his success.
The first three chapters chronicle the slow but successful efforts to organize farm workers and improve wages and working conditions. After a brief discussion of historical material and the former Bracero Program, the narrative turns to Cesar Chavez and his decision to leave community organizing to organize farm workers. That was April 12, 1962.
Chavez built a devoted following to his United Farm Workers Association (UFWA) by knocking on doors and recruiting members one by one. He used marches, rallies and fasts to attract public attention in what turned into a crusade. His UFWA lacked the funds to support a strike when Larry Itliong of the Agriculture Workers Organizing Committee (AWOC) called his mostly Filipino members out of the Delano vineyards September 8, 1965. UFW joined the strike and the two unions combined their efforts to attract public support and put economic pressure on the growers.
Garcia develops the strike and its unfolding strategies over the next 70 pages. The two unions eventually merged to become the UFW with Chavez as president. His leadership in the Delano grape strike put the UFW on the path of success. The coincidence of the farm worker movement with civil rights helped bring in hundreds of volunteers and make the strike a cause for social justice. The early presence of UAW president Walter Reuther brought additional publicity.
The narrative follows the path of decisions that evolved into a successful consumer boycott. The union set up boycott houses in big grape consuming cities and volunteers settled in to devise strategies to reduce grape sales and sales of branded products made from grapes, like wine. Some grocery store chains agreed not to shelve grapes; pickets confronted shoppers at stores that would not go along. In Toronto, young Harvard dropout Marshall Ganz let balloons lettered with “Don’t buy Grapes” float to the ceiling of grocery stores, much to the anger of store managers.
Gradually the boycott succeeded. Prices dropped and then sales. Total shipments were off 9.2 percent by 1969. The bigger producers settled and others followed. Growers in the Coachella valley agreed first, then 26 growers in the San Joaquin Valley signed a labor union contract July 29, 1970.
By August 1970 UFW had 12,000 members, but external and internal problems brought celebrating to an abrupt halt. Chapter four narrates the division and conflict with the Teamsters union after they reneged on their promise not to organize farm workers. The Teamsters organized Salinas’ lettuce growers in August 1970 without a vote of farm workers and in competition with the United Farm Workers. Garcia takes readers through the gritty details of their conflict: picketing, fights, beatings, a court injunction and twenty days in jail for Cesar Chavez who defied the court.
The competition between the UFW and the Teamsters generated questions about labor law. Farm workers are excluded from the National Labor Relations Act that established voting procedures for union representation, but the law also makes boycotts an unfair labor practice subject to immediate court injunction. Chapter five describes the pros and cons of passing a California Agricultural Labor Relations Act, the administration of the law after it passed in May 1975, and the decision to propose changes in the law through a statewide initiative, proposition 14.
UFW won a majority of its representation elections, but the law in practice generated many disputes and unfair labor practice charges, often because the growers did not want the UFW organizing on their property. After a short period of operation both the growers and the unions wanted to amend the law, but the UFW made the aggressive and risky decision to propose a statewide referendum. Proposition 14, among other things, proposed to give union organizers access to workers on California farms during elections and required farm owners to allow organizers on their farms an hour before work, an hour after work, and at lunch time.
Garcia takes readers through the UFW campaign to pass proposition 14. Chavez diverted significant money and personnel to the campaign and over ruled internal opposition, but there was organized opposition from the growers who found a Japanese-American internment camp victim who characterized the access issue as stealing property rights.
Proposition 14 lost badly in the November 1976 election. Garcia interviewed union personnel who described Chavez as badly shaken up by the defeat and they give November 1976 as the date he changed.
There were ominous signs of trouble before the proposition 14 election loss. Chavez previously moved his headquarters to a remote place he called La Paz near Keene, California, which took him away from the activities of the union and the farm workers he needed to influence. He had trouble accepting that the labor contracts he signed needed administration. He did not appreciate the need to switch from volunteers to paid professional staff and continued to prefer organizing to the day to day work of a union, but these were miner compared to the trouble after the election loss.
The last three chapters - six, seven and eight - narrate the union’s post election decline and Chavez role in the union’s ruin. It is a story of the obsession Chavez developed to force union volunteers and staff to travel to La Paz to play a “Game” developed by his friend Charles Dederich as part of a drug rehabilitation program. The Game called for a moderator to attack and ridicule a target and then have a dozen others join in as part of “therapy” for self-examination. Only Chavez and few sycophants could see any connection to the needs of a union.
It is also a story of Executive Board meetings filled with personal attacks and purges of people Chavez falsely accused of plotting against him and the union. The people Garcia interviewed remember specific episodes like the “Monday Night Massacre” where the vegetarians at La Paz were attacked with accusations of plotting against the union and expelled without a chance to reply. Later the entire legal staff was summarily fired; 17 attorneys and dozens of support staff. Chavez arbitrarily called off the boycott and then badly offended Filipino farm workers when he insisted on a visit to Philippine dictator Ferdinand Marcos.
Many volunteers and staff protested through this period and tried to continue with the business of the union, but to no avail. Over the course of four years firings and resignations decimated the union which ceased doing what unions do by the early 1980’s. The book stops at this point followed by a brief epilogue.
The book covers the rise and fall of Cesar Chavez and the UFW thoroughly and clearly as it sets out to do, but not more. The book is not a history of farm workers or farm worker unions. Other unions and union organizing are mentioned only as necessary for the UFW story.
Given the tight focus of the book it has many details. Garcia had access to tape recordings of meetings and especially Executive Board meetings that allow a line by line recounting of who said what that fills the last three chapters of the book. Readers are introduced to many names in the narrative; some disappear, some reappear many times. Readers get to know a few key figures like Marshall Ganz and chief counsel Jerry Cohen, but special effort is required to keep track of all the people and their role in the story. Sometimes discussion reads like an organizer’s convention.
As I finished the book I weighed the positives and negatives in the work of Cesar Chavez and the legacy he leaves to organized labor, but one thing caught my eye in the epilogue: not one person picking grapes in California in 2012 was a member of a union.
Tuesday, July 1, 2014
The Gamblers Dilemma
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.”
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.”
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.
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