Time to put the spotlight on corporate taxes

A battle is slowly brewing in Washington DC over whether to raise corporate taxes to help finance new infrastructure investments.  While higher corporate taxes cannot generate all the funds needed, the coming debate over whether to raise them gives us an opportunity to challenge the still strong popular identification of corporate profitability with the health of the economy and, by extension, worker wellbeing.

According to the media, President Biden’s advisers are hard at work on two major proposals with a combined $3 trillion price tag.  The first aims to modernize the country’s physical infrastructure and is said to include funds for the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and affordable and energy efficient housing as well as rural broadband, improvements to the electric grid, and worker training programs.  The second targets social infrastructure and would provide funds for free community college education, universal prekindergarten, and a national paid leave program. 

To pay for these proposals, Biden has been talking up the need to raise corporate taxes, at least to offset some of the costs of modernizing the country’s physical infrastructure.  Not surprisingly, Republican leaders in Congress have voiced their opposition to corporate tax increases.  And corporate leaders have drawn their own line in the sand.  As the New York Times reports:

Business groups have warned that corporate tax increases would scuttle their support for an infrastructure plan. “That’s the kind of thing that can just wreck the competitiveness in a country,” Aric Newhouse, the senior vice president for policy and government relations at the National Association of Manufacturers, said last month [February 2021].

Regardless of whether Biden decides to pursue his broad policy agenda, this appears to be a favorable moment for activists to take advantage of media coverage surrounding the proposals and their funding to contest these kinds of corporate claims and demonstrate the anti-working-class consequences of corporate profit-maximizing behavior.  

What do corporations have to complain about?

To hear corporate leaders talk, one would think that they have been subjected to decades of tax increases.  In fact, quite the opposite is true.  The figure below shows the movement in the top corporate tax rate.  As we can see, it peaked in the early 1950s and has been falling ever since, with a big drop in 1986, and another in 2017, thanks to Congressionally approved tax changes.

One consequence of this corporate friendly tax policy is, as the following figure shows, a steady decline in federal corporate tax payments as a share of GDP.  These payments fell from 5.6 percent of GDP in 1953 to 1.5 percent in 1982, and a still lower 1.0 percent in 2020.  By contrast there has been very little change in individual income tax payments as a share of GDP; they were 7.7 percent of GDP in 2020.

Congressional tax policy has certainly been good for the corporate bottom line.  As the next figure illustrates, both pre-tax and after-tax corporate profits have risen as a share of GDP since the early 1980s.  But the rise in after-tax profits has been the most dramatic, soaring from 5.2 percent of GDP in 1980 to 9.1 percent in 2019, before dipping slightly to 8.8 percent in 2020.   To put recent after-tax profit gains in perspective, the 2020 after-tax profit share is greater than the profit share in every year from 1930 to 2005.

What do corporations do with their profits?

Corporations claim that higher taxes would hurt U.S. competitiveness, implying that they need their profits to invest and keep the economy strong.  Yet, despite ever higher after-tax rates of profit, private investment in plant and equipment has been on the decline.

As the figure below shows, gross private domestic nonresidential fixed investment as a share of GDP has been trending down since the early 1980s.  It fell from 14.8 percent in 1981 to 13.4 percent in 2020.

Rather than investing in new plant and equipment, corporations have been using their profits to fund an aggressive program of stock repurchases and dividend payouts.  The figure below highlights the rise in corporate stock buybacks, which have helped drive up stock prices, enriching CEOs and other top wealth holders. In fact, between 2008 and 2017, companies spent some 53 percent of their profits on stock buybacks and another 30 percent on dividend payments.

It should therefore come as no surprise that CEO compensation is also exploding, with CEO-to-worker compensation growing from 21-to-1 in 1965, to 61-to-1 in 1989, 293-to-1 in 2018, and 320-to-1 in 2019.  As we see in the next figure, the growth in CEO compensation has actually been outpacing the rise in the S&P 500.

In sum, the system is not broken.  It continues to work as it is supposed to work, generating large profits for leading corporations that then find ways to generously reward their top managers and stockholders.  Unfortunately, investing in plant and equipment, creating decent jobs, or supporting public investment are all low on the corporate profit-maximizing agenda.  

Thus, if we are going to rebuild and revitalize our economy in ways that meaningfully serve the public interest, working people will have to actively promote policies that will enable them to gain control over the wealth their labor produces.  One example: new labor laws that strengthen the ability of workers to unionize and engage in collective and solidaristic actions.  Another is the expansion of publicly funded and provided social programs, including for health care, housing, education, energy, and transportation. 

And then there are corporate taxes.  Raising them is one of the easiest ways we have to claw back funds from the private sector to help finance some of the investment we need.  Perhaps more importantly, the fight over corporate tax increases provides us with an important opportunity to make the case that the public interest is not well served by reliance on corporate profitability.

Black Lives Matter protests are saving lives

The research is pretty clear that oppressive economic and social conditions are bad for one’s mental and physical health.   And there is also research showing that protesting is good for one’s mental and physical health.  As Dr. Bandy X. Lee, a psychiatrist at Yale University explains:  

Can protesting and other forms of activism help people break out of those negative thought cycles? Yes, because protesting alone is therapeutic. It is acting on hope and it is also, in the case of oppression, therapeutic.

Now we have a study that finds that protesting actually saves lives.  More specifically, that Black Lives Matter Protests reduce police killings.  As Travis Campbell, the author of the study, concludes, “census places with Black Lives Matter protests experience a 15 percent to 20 percent decrease in police homicides over [the period 2014-2019], around 300 fewer deaths. The gap in lethal use-of-force between places with and without protests widens over these subsequent years and is most prominent when protests are large or frequent.” 

Black Lives Matter movement and protests

Campbell dates the rise of the Black Lives Matter movement to the outrage triggered by the acquittal of George Zimmerman for the 2013 killing of Trayvon Martin.  Alicia Garza, an Oakland, California-based activist, posted a Facebook message saying “black people. I love you. I love us. Our lives matter.” Patrisse Cullors, another Oakland activist, began sharing the message along with the twitter tag #blacklivesmatters.  And, “with the help of activist Opal Tometi, Black Lives Matter (BLM) was born.” 

Campbell dates the start of the Black Lives Matter protest movement to the explosion of protests in response to the 2014 police killings of Eric Garner in New York City and Michael Brown in Ferguson, Missouri. The protests continued, as did the police killings, among the most well-known victims being Tamir Rice, Walter Scott, Sandra Bland, Alton Sterling, Freddie Gray, Laquan McDonald, Philando Castile, Stephon Clark, Breonna Taylor, and George Floyd.

The study—killings and protests

Campbell sought to determine whether these BLM protests, motivated by police killings, actually helped to reduce them.  An important question but one not easy to answer.  His first challenge was to determine the actual number of police killings. 

Unfortunately, there is no reliable federal database of police killings.  There are, however, a number of nonprofit and media organizations that do maintain a public record.  The most important are KilledByPolice.net, The Homicide Record by the Los Angeles Times, Mapping Police Violence (MPV), the Washington Post, the Counted by the Guardian, and Fatal Encounters Dot Org (FE). 

Campbell uses the Fatal Encounters Dot Org database–which relies on the work of paid researchers, public records requests, and crowdsourcing for its information–for his study.  Its dataset is updated regularly and begins in 2000.  According to Campbell, the MPV database has the most complete information on victims, including their race and the circumstances surrounding their death, because it also makes use of social media sites, criminal records databases, and police reports.  However, Campbell doesn’t use it.  Its records only date back to 2013, which makes it impossible to determine pre-protest trends in police homicides in locations with BLM protests.  

As for what constitutes a police homicide, FE uses a broad definition: all lethal interactions with police, whether on- or off-duty, including suicides.  The MPV database only includes cases where “a person dies as a result of being shot, beaten, restrained, intentionally hit by a police vehicle, pepper-sprayed, tasered, or otherwise harmed by police officer whether on-duty or off-duty.”  Campbell uses a more restrictive measure for his study, one that only includes police homicides due to asphyxiation, bludgeoning, a gunshot, pepper spray, or a taser that are not suicides. 

As we can see from Figures 1 (c) and (d) below, which correspond to Campbell’s more restrictive measure, both FE and MPV include roughly the same number of total deaths with a correspondingly high share caused by gunshot. This similarity encourages confidence in the reliability of the FE database.

The second challenge is to determine the number of BLM protests.  Campbell draws his data from a 2018 published study that covers protests over the years 2014-2015 and a public data base maintained by Alisa Robinson for the following years.  To maintain a focus on street demonstrations Campbell does not include in his data “online demonstrations, protests by professional athletes, protests against presidential candidates, or protests against conservative talks at universities.”

The following figure shows the location of the killings and protests used in the study.

The methodology

Campbell’s study includes every census place with a population of at least 20,000 people.  Using a stacked difference-in-difference design, he tested whether Black Lives Matter protests had an effect on police killings in the locations where protests occurred.  In broad brush, the design uses the locations where no Black Lives Matter protests occurred to develop a baseline trend, adjusted for relevant economic and social determinants (highlighted below), of police killings.  Then, the adjusted baseline is applied to locations where Black Lives Matter protests have occurred to determine whether the protests had an independent effect on the number of police killings.

In recognition of the great differences between census areas, the adjusted baseline trend is calculated taking a number of different variables into account.  These include: poverty rates, labor force participation rates, unemployment rates, full-time employment rates, black poverty rates; and educational attainment measures; rates and types of crime; and the number, renumeration, and training of police officers as well as officer demographics, unionization, use-of-force reporting, use of cameras, and community policing initiatives.

The results

The results are striking.  As Campbell explains:

Following BLM protests, lethal use-of-force fell by 16.8 percent on average.  If the model is correct, then BLM protests are responsible for approximately 300 fewer people being killed by the police from 2014 through 2019.  The payoff for protesting is substantial; every 5 of the 1,654 protests in the sample correspond with approximately one less person killed by the police over the following years. The police killed one less person for every four thousand participants.

When Campbell normalized the homicides by population and gave added weight to larger census areas under the assumption that news reports of police killings and protests were likely more accurate there, the decline in police homicides grew to 19.8 percent.

Campbell tested his conclusion by looking separately at the cities with the greatest number of protests.  The figure below shows census places with the most protests in descending order, many of which were home to high profile police killings.  As we can see, almost all experienced a statistically significant decline in police killings following protests.  The exceptions were St. Louis, Minneapolis, San Francisco, and Portland.

As to possible explanations for the decline in police killings, Campbell found that the demonstrations appeared to force changes in local policing.  For example, they increased police use of body-worn cameras, the number of police officers assigned to regular geographic patrols, and the adoption of a variety of community policing initiatives.

A Scientific American review of the study quotes Aldon Morris, the Leon Forrest Professor of Sociology and African American Studies at Northwestern University and president of the American Sociological Association:  

The question becomes, ‘Are Black Lives Matter protests having any real effect in terms of generating change?’ The data show very clearly that where you had Black Lives Matter protests, killing of people by the police decreased. It’s inescapable from this study that protest matters—that it can generate change.

Hopefully that recognition—that BLM protests are saving lives—will encourage ever greater support for, and participation, in the movement, thereby helping to achieve the transformational changes in policing needed to protect the rights of communities of color to live safely and well.

The failings of our unemployment insurance system are there by design

Our unemployment insurance system has failed the country at a moment of great need.  With tens of millions of workers struggling just to pay rent and buy food, Congress was forced to pass two emergency spending bills, providing one-time stimulus payments, special weekly unemployment insurance payments, and temporary unemployment benefits to those not covered by the system.  And, because of their limited short-term nature, President Biden must now advocate for a third.

The system’s shortcomings have been obvious for some time, but little effort has been made to improve it.  In fact, those shortcomings were baked into the system at the beginning, as President Roosevelt wanted, not by accident.  While we must continue to organize to ensure working people are able to survive the pandemic, we must also start the long process of building popular support for a radical transformation of our unemployment insurance system.  The history of struggle that produced our current system offers some useful lessons.

Performance

Our unemployment insurance system was designed during the Great Depression.  It was supposed to shield workers and their families from the punishing costs of unemployment, thereby also helping to promote both political and economic stability.  Unfortunately, as Eduardo Porter and Karl Russell reveal in a New York Times article, that system has largely failed working people.

The chart below shows the downward trend in the share of unemployed workers receiving benefits and the replacement value of those benefits.  Benefits now replace less than one-third of prior wages, some eight percentage points below the level in the 1940s.  Benefits aside, it is hard to celebrate a system that covers fewer than 30 percent of those struggling with unemployment.

A faulty system

Although every state has an unemployment insurance system, they all operate independently.  There is no national system.  Each state separately generates the funds it needs to provide unemployment benefits and is largely free, subject to some basic federal standards, to set the conditions under which an unemployed worker becomes eligible to receive benefits, the waiting period before benefits will be paid, the length of time benefits will be paid, the benefit amount, and requirements to continue receiving benefits.

Payroll taxes paid by firms generate the funds used to pay unemployment insurance benefits.  The size of the taxes to be paid depends on the value of employee earnings that is made taxable (the base wage) and the tax rate.  States are free to set the base wage as they want, subject to a federally mandated floor of $7000 established in the 1970s.  States are also free to set the tax rate as they want.  Not surprisingly, in the interest of supporting business profitability, states have generally sought to keep both the base wage and tax rate low.  For example, Florida, Tennessee and Arizona continue to set their base wage at the federal minimum value.  And, as the figure below shows, insurance tax rates have been trending down for some time.

While such a policy might help business, lowering the tax rate means that states have less money in their trust funds to pay unemployment benefits.  Thus, when times are hard, and unemployment claims rise, many states find themselves hard pressed to meet their required obligations.  In fact, as Porter and Russell explain:

Washington has been repeatedly called on to provide additional relief, including emergency patches to unemployment insurance after the Great Recession hit in 2008. Indeed, it has intervened in response to every recession since the 1950s.

This is far from a desirable outcome for those states forced to borrow, since the money has to be paid back with interest by imposing higher future payroll taxes on employers.  Thus, growing numbers of states have sought to minimize the likelihood of this happening, or at least the amount to be borrowed, by raising eligibility standards, reducing benefits, and shortening time of coverage, all of which they hope will reduce the number of people drawing unemployment benefits as well as the amount and length of time they will receive them.

Porter and Russell highlight some of the consequences of this strategy:

In Arizona, nearly 70 percent of unemployment insurance applications are denied. Only 15 percent of the unemployed get anything from the state. Many don’t even apply. Tennessee rejects nearly six in 10 applications.

In Florida, only one in 10 unemployed workers gets any benefits. The state is notably stingy: no more than $275 a week, roughly a third of the maximum benefit in Washington State. And benefits run out quickly, after as little as 12 weeks, depending on the state’s overall unemployment rate.

And, the growing stagnation of the US economy, which has led to more precarity of employment, only makes this strategy ever more fiscally “intelligent.”  For example, as the following figure shows, a growing percentage of the unemployed are remaining jobless for a longer time.  Such a trend, absent state actions to restrict access to benefits, would mean financial trouble for state officials.

Adding to the system’s structural shortcomings is that fact that growing numbers of workers, for example the many workers who have been reclassified as independent contractors, are not covered by it.  In addition, since eligibility for benefits requires satisfying a minimum earnings and hours of work requirement over a base year, the growth in irregular low wage work means that many of those in most need of the system’s financial support during periods of unemployment find themselves declared ineligible for benefits.

By design, not by mistake

Our current unemployment insurance system and its patchwork set of state standards and benefits dates back to the depression. While President Roosevelt gets credit for establishing our unemployment insurance system as part of the New Deal, the fact is he deliberately sidelined a far stronger program that, if it had been approved, would have put working people today in a far more secure position. 

The Communist Party (CP) began pushing an unemployment and social insurance bill in the summer of 1930 and, along with the numerous Unemployed Councils that existed in cities throughout the country, worked hard to promote it over the following years.  On March 4, 1933, the day of Roosevelt’s inauguration, they organized demonstrations stressing the need for action on unemployment insurance.

Undeterred by Roosevelt’s lack of action, the CP-authored “Workers Unemployment and Social Insurance Bill” was introduced in Congress in February 1934 by Representative Ernest Lundeen of the Farmer-Labor Party.  In broad brush, the bill mandated the payment of unemployment insurance to all unemployed workers and farmers equal to average local full-time wages, with a guaranteed minimum of $10 per week plus $3 for each dependent. Those forced into part-time employment would receive the difference between their earnings and the average local full-time wage.  The bill also created a social insurance program that would provide payments to the sick and elderly, and maternity benefits to be paid eight weeks before and eight weeks after birth.  All these benefits were to be financed by unappropriated funds in the Treasury and taxes on inheritances, gifts, and individual and corporate incomes above $5,000 a year.

The bill enjoyed strong support among workers—employed and unemployed—and it was soon endorsed by 5 international unions, 35 central labor bodies, and more than 3000 local unions.  Rank and file worker committees also formed across the country to pressure members of Congress to pass it.

When Congress refused to act on the bill, Lundeen reintroduced it in January 1935. Because of public pressure, the bill became the first social insurance plan to be recommended by a congressional committee, in this case the House Labor Committee.  However, it was soon voted down in the full House of Representatives, 204 to 52.

Roosevelt strongly opposed the Lundeen bill and it was to provide a counter that he pushed to create an alternative, one that offered benefits far short of what the Workers Unemployment and Social Insurance Bill offered, and was strongly opposed by many workers and all organizations of the unemployed.  Roosevelt appointed a Committee on Economic Security in July 1934 with the charge to develop a social security bill that he could present to Congress in January 1935 that would include provisions for both unemployment insurance and old-age security.  An administration approved bill was introduced right on schedule in January and Roosevelt called for quick congressional action. 

Roosevelt’s bill was revised in April by a House committee and given a new name, “The Social Security Act.”  After additional revisions the Social Security Act was signed into law on August 14, 1935. The Social Security Act was a complex piece of legislation.  It included what we now call Social Security, a federal old-age benefit program; a program of unemployment insurance administered by the states; and a program of federal grants to states to fund benefits for the needy elderly and aid to dependent children. 

The unemployment system established by the Social Security Act was structured in ways unfavorable to workers (as was the federal old-age benefit program).  Rather than a progressively funded, comprehensive national system of unemployment insurance that paid benefits commensurate with worker wages, the act established a federal-state cooperative system that gave states wide latitude in determining standards.

More specifically, the act levied a uniform national pay-roll tax of 1 percent in 1936, 2 percent in 1937, and 3 percent in 1938, on covered employers, defined as those employers with eight or more employees for at least twenty weeks, not including government employers and employers in agriculture.  Only workers employed by a covered employer could receive benefits.

The act left it to the states to decide whether to enact their own plans, and if so, to determine eligibility conditions, the waiting period to receive benefits, benefit amounts, minimum and maximum benefit levels, duration of benefits, disqualifications, and other administrative matters. It was not until 1937 that programs were established in every state as well as the then-territories of Alaska and Hawaii.  And it was not until 1938 that most began paying benefits.

In the early years, most states required eligible workers to wait 2 to 4 weeks before drawing benefits, which were commonly set at half recent earnings (subject to weekly maximums) for a period ranging from 12 to 16 weeks. Ten state laws called for employee contributions as well as employer contributions; three still do today.

Over the following years the unemployment insurance system has been improved in a number of positive ways, including by broadening coverage and boosting benefits.  However, its basic structure remains largely intact, a structure that is overly complex, with a patchwork set of state eligibility requirements and miserly benefits. And we are paying the cost today.

This history makes clear that nothing will be given to us.  We need and deserve a better unemployment insurance system. And to get it, we are going to have to fight for it, and not be distracted by the temporary, although needed, band-aids Congress is willing to provide.  The principles shaping the Workers Unemployment and Social Insurance Bill can provide a useful starting point for current efforts.

The U.S. recovery on pause, December brings new job losses

A meaningful working-class recovery from the recession seems far away.

After seven months of job gains, although diminishing gains to be sure, we are again losing jobs.  As the chart below shows,  the number of jobs fell by 140,000 in December.

We are currently about 9.8 million jobs down from the February 2020 employment peak, having recovered only 55 percent of the jobs lost.  And, as the following chart illustrates, the percentage of jobs lost remains greater, even now after months of job growth, than it was at any point during the Great Recession. 

If the job recovery continues on its current pace, some analysts predict that it will likely take more than three years to just get back to pre-pandemic employment levels.  However, this might well be too rosy a projection.  One reason is that the early assumption that many of the job losses were temporary, and that those unemployed would soon be recalled to employment, is turning out to be wrong.  A rapidly growing share of the unemployed are remaining unemployed for an extended period. 

As we see below, in October, almost one-third of the unemployed had been unemployed for 27 weeks or longer.  According to the December jobs report, that percentage is now up to 37 percent, four times what it was before the pandemic.  And that figure seriously understates the problem, since many workers have given up looking for work; having dropped out of the workforce, they are no longer counted as unemployed.  The labor force participation rate is now 61.5 percent, down from 63.3 percent in February.

Dean Baker, quoted in a recent Market Place story, underscores the importance of this development:

“This is obviously a story of people losing their job at the beginning of the crisis in March and April and not getting it back,” said Dean Baker, co-founder and senior economist with the Center for Economic and Policy Research.

Those out of work for 27 weeks or more make up a growing share of the unemployed, and that could have enduring consequences, Baker said.

“After people have been unemployed for more than six months, they find it much harder to get a job,” he said. “And if they do get a job, their labor market prospects could be permanently worsened.”

And tragically, the workers that have suffered the greatest job losses during this crisis are those that earned the lowest wages. 

It is no wonder that growing numbers of working people are finding it difficult to meet their basic needs.

There is no way to sugar coat this situation.  We need a significant stimulus package, a meaningful increase in the minimum wage, real labor law reform, a robust national single-payer health care system, and an aggressive Green New Deal designed public sector investment and jobs program.  And there is no getting around the fact that it is going to take hard organizing and mutually supportive community and workplace actions to move the country in the direction it needs to go.

The planning and politics of conversion: World War II lessons for a Green New Deal—Part 1

This is the first in a series of posts that aim to describe and evaluate the World War II mobilization experience in the United States in order to illuminate some of the economic and political challenges we can expect to face as we work for a Green New Deal.  

This post highlights the successful government directed wartime reorientation of the U.S. economy from civilian to military production, an achievement that both demonstrates the feasibility of a rapid Green New Deal transformation of the U.S. economy and points to the kinds of organizational capacities we will need to develop. The post also highlights some of the strategies employed by big business to successfully stamp the wartime transformation as a victory for “market freedom,” an outcome that strengthened capital’s ability to dominate the postwar U.S. political economy and suggests the kind of political struggles we can expect and will need to overcome as we work to achieve a just Green New Deal transformation.

The climate challenge and the Green New Deal

We are hurtling towards a climate catastrophe.  The Intergovernmental Panel on Climate Change, in its Special Report on Global Warming of 1.5°C, warns that we must limit the increase in the global mean temperature to 1.5 degrees Celsius above pre-industrial levels by 2100 if we hope to avoid a future with ever worsening climate disasters and “global scale degradation and loss of ecosystems and biodiversity.”  And, it concludes, to achieve that goal global net carbon dioxide emissions must fall by 45 per cent by 2030 and reach net zero emissions by 2050.

Tragically, none of the major carbon dioxide emitting nations has been willing to pursue the system-wide changes necessary to halt the rise in the global mean temperature.  Rather than falling, carbon dioxide emissions rose over the decade ending in 2019.  Only a major crisis, in the current case a pandemic, appears able to reverse the rise in emissions.   

Early estimates are that the COVID-19 pandemic will cause a fall in global emissions of somewhere between 4 and 7 percent in 2020.  But the decline will likely be temporary.  For example, the International Monetary Fund is forecasting an emission rise of 5.8 percent in 2021. This bounce back is in line with what happened after the 2008-09 Great Recession.  After falling by 1.4 percent in 2009, global emissions grew by 5.1 percent in 2010.

Motivated by signs of the emerging climate crisis—extreme weather conditions, droughts, floods, warming oceans, rising sea levels, fires, ocean acidification, and soil deterioration—activists in the United States have worked to build a movement that joins climate and social justice activists around a call for a Green New Deal to tackle both global warming and the country’s worsening economic and social problems. The Green Party has promoted its ecosocialist Green New Deal since 2006, but it was the 2018 mass actions by new climate action groups such as Extreme Rebellion and the Sunrise Movement and then the 2019 introduction of a Green New Deal congressional resolution by Representative Alexandria Ocasio-Cortez and Senator Edward Markey that helped popularize the idea.

The Ocasio-Cortez—Markey resolution, echoing the Intergovernmental Panel on Climate Change, calls for a ten-year national program of mobilization designed to cut CO2 emissions by 40-60 percent from 2010 levels by 2030 and achieve net-zero emissions by 2050.  Its program includes policies that aim at replacing fossil fuels with clean, renewable sources of energy, and existing forms of transportation, agriculture, and urban development with new affordable and sustainable ones; encouraging investment and the growth of clean manufacturing; and promoting good, high paying union jobs and universal access to clean air and water, health care, and healthy food.

While there are similarities, there are also important differences, between the Green Party’s Green New Deal and Ocasio-Cortez—Markey’s Green New Deal, including over the speed of change, the role of public ownership, and the use of fracking and nuclear power for energy generation.  More generally, there are also differences among supporters of a Green New Deal style transformation over whether the needed government investments and proposed social policies should be financed by raising taxes, slashing the military budget, borrowing, or money creation.  There are also environmentalists who oppose the notion of sustained but sustainable growth explicitly embraced by many Green New Deal supporters and argue instead for a policy of degrowth, or a “Green New Deal without growth.”

These arguments are important, representing different political sensibilities and visions, and need to be taken seriously.  But what has largely escaped discussion is any detailed consideration of the actual process of economic transformation required by any serious Green New Deal program.  Here are some examples of the kind of issues we will need to confront:

Fossil fuel production has to be ratcheted down, which will dramatically raise fossil fuel prices.  The higher cost of fossil fuels will significantly raise the cost of business for many industries, especially air travel, tourism, and the aerospace and automobile industries, triggering significant declines in demand for their respective goods and services and reductions in their output and employment.  We will need to develop a mechanism that will allow us to humanely and efficiently repurpose newly created surplus facilities and provide alternative employment for released workers.

New industries, especially those involved in the production of renewable energy will have to be rapidly developed.  We will need to develop agencies capable of deciding the speed of their expansion as well as who will own the new facilities, how they will be financed, and how best to ensure that the materials required by these industries will be produced in sufficient quantities and made available at the appropriate time. We will also have to develop mechanisms for deciding where the new industries will be located and how to develop the necessary social infrastructure to house and care for the new workforce.  

The list goes on—we will need to ensure the rapid and smooth expansion of facilities capable of producing electric cars, mass transit vehicles, and a revitalized national rail system.  We will need to organize the retrofitting of existing buildings, both office and residential, as well as the training of workers and the production of required equipment and materials.  The development of a new universal health care system will also require the planning and construction of new clinics and the development of new technologies and health practices. 

The challenges sound overwhelming, especially given the required short time frame for change.  But, reassuringly, the U.S. government faced remarkable similar challenges during the war years when, in approximately three years, it successfully converted the U.S. economy from civilian to military production. This experience points to the importance of studying the World War II planning process for lessons and should give us confidence that we can successfully carry out our own Green New Deal conversion in a timely fashion.

World War II economic mobilization

The name Green New Deal calls to mind the New Deal of the 1930s, which is best understood as a collection of largely unrelated initiatives designed to promote employment and boost a depressed economy.  In contrast, the Green New Deal aims at an integrated transformation of a “functioning” economy, which is a task much closer to the World War II transformation of the U.S. economy. That transformation required the repression of civilian production, much like the Green New Deal will require repression of the fossil fuel industry and those industries dependent on it.  Simultaneously, it also required the rapid expansion of military production, including the creation of entirely new products like synthetic rubber and weapon systems, much like the Green New Deal will require expansion of new forms of renewable energy, transportation, and social programs.  And it also required the process of conversion to take place quickly, much like what is required under the Green New Deal. 

J.W. Mason and Andrew Bossie highlight the contemporary relevance of the wartime experience by pointing out:

Just as in today’s public-health and climate crises, the goal of wartime economic management was not to raise GDP in the abstract, but to drastically raise production of specific kinds of goods, many of which had hardly figured in the prewar economy. Then as now, this rapid reorganization of the economy required a massive expansion of public spending, on a scale that had hardly been contemplated before the emergency. And then as, potentially, now, this massive expansion of public spending, while aimed at the immediate non-economic goal, had a decisive impact on long-standing economic problems of stagnation and inequality. Of course, there are many important differences between the two periods. But the similarities are sufficient to make it worth looking to the 1940s for economic lessons for today.

Before studying the organization, practice, and evolution of the World War II era planning system, it is useful to have an overall picture of the extent, speed, and success of the economy’s transformation. The following two charts highlight the dominant role played by the government.  The first shows the dramatic growth and reorientation in government spending beginning in 1941.  As we can see federal government war expenditures soared, while non-war expenditures actually fell in value.  Military spending as a share of GNP rose from 2.2 percent in 1940, to 11 percent in 1941, and to 31.2 percent in 1942.

The second shows that the expansion in plant and equipment required to produce the goods and services needed to fight the war was largely financed by the government.  Private investment actually fell in value over the war years.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 92.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 115.

The next chart illustrates the speed and extent of the reorientation of industrial production over the period 1941-1944.  As we can see, while industrial production aimed at military needs soared, non-military industrial production significantly declined.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 104.

The next two charts illustrate the success of the conversion process.  The first shows the rapid increase in the production of a variety of military weapons and equipment.  The second demonstrates why the United States was called the “Arsenal of democracy”; it produced the majority of all the munitions produced during World War II.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 319

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 507.

Significantly, while the rapid growth in military related production did boost the overall growth of the economy, because it was largely achieved at the expense of nonmilitary production, the economy’s overall growth over the years 1941-44/45, was far from extraordinary.  For example, the table below compares the growth in real gross nonfarm product over the early years of the 1920’s to that of the early years of the 1940’s.  As we can see, there is little difference between the two periods, and that holds true even if we exclude the last year of the war, when military spending plateaued and military production began to decline.  The same holds true when comparing just the growth in industrial production over the two periods.

Years                   Growth in real gross nonfarm product                                              

1921-2528.4%
1941-4524.6%
  
1921-2426.2%
1941-4425.8%
Source: Harold G. Vatter, The U.S. Economy in World War II, New York: Columbia University Press, 1985, p. 22.

This similarity between the two periods reinforces the point that the economic success of the war years, the rapid ramping up of military production, was primarily due to the ability of government mobilization agencies to direct an economic conversion that privileged the production of goods and services for the military at the expense of non-military goods and services.  This experience certainly lends credibility to those who seek a similar system-wide conversion to achieve a Green New Deal transformation of the U.S. economy.

Such a transformation is not without sacrifice.  For example, workers did pay a cost for the resulting suppression of civilian oriented production, but it was limited.  As Harold Vatter points out: “There were large and real absolute decreases in total consumer expenditures between 1941 and 1945 on some items considered important in ordinary times.  Prominent among these, in the durable goods category, were major home appliances, new cars, and net purchases of used cars, furniture, and radio and TV sets.”

At the same time there were real gains for workers.  Overall personal consumption which rose in both 1940 and 1941, declined absolutely in 1942, but then began a slow and steady increase, with total personal consumption higher in 1945 than in 1941.  However, this record understates the real gains.  The U.S. civilian population declined from 131.6 million in 1941 to 126.7 million in 1944.  Thus, the gain in personal consumption on a per capita basis was significant.  As Vatter notes, “real employee compensation per private employee in nonfarm establishments rose steadily ever year, and in 1945 was over one-fifth above the 1941 level. . . . More broadly, similar results show up for the index of real disposable personal income per capita, which increased well over one-fourth during the same war years.”  Of course, these gains were largely the result of more people working and for longer hours; it was definitely earned.  Also important is the fact that pretax family income rose faster for those at the bottom of the income distribution than for those at the top, helping to reduce overall income inequality. 

In sum, there are good reasons for those seeking to implement a Green New Deal style transformation of the U.S. economy to use the World War II planning experience as a template.  A careful study of that experience can alert us to the kinds of organizational and institutional capacities we will need to develop.  And, it is important to add, it can also alert us to the kinds of political challenges we can expect to face.

Planning and politics

The success of the U.S. economy’s World War II transformation was due, in large part, to the work of a series of changing and overlapping mobilization agencies that President Roosevelt established by executive order and then replaced or modified as new political and economic challenges emerged. Roosevelt took his first meaningful action to help prepare the United States economy for war in May 1940, when he reactivated the World War 1-era National Defense Advisory Commission (NDAC).  The NDAC was replaced by the Office of Production Management (OPM) in December 1940.  The Supply Priorities and Allocation Board (SPAB) was then created in August 1941 to develop a needed longer-term planning orientation to guide the work of the OPM.  And finally, both the OPM and the SPAB were replaced by the War Production Board (WPB) in January 1942.  With each change, decision-making became more centralized, planning responsibilities expanded, and authority to direct economic activity strengthened.

The work of these agencies was greatly enhanced by a number of other initiatives, one of the most important being the August 1940 establishment of the Defense Plant Corporation (DPC). The DPC was authorized to directly finance and own plant and equipment vital to the national defense. The DPC ended up financing and owning roughly one-third of the plant and equipment built during the war, most of which was leased to private companies to operate for a minimal amount, often $1 a year. The aircraft industry was the main beneficiary of DPC investment, but plants were also built to produce synthetic rubber, ships, machine tools, iron and steel, magnesium, and aluminum.

Despite its successful outcome, the process of economic conversion was far from smooth and the main reason was resistance by capitalists.  Still distrustful of New Deal reformers, most business leaders were critical of any serious attempt at prewar planning that involved strengthening government regulation and oversight of their respective activities.  Rather, they preferred to continue their existing practice of individually negotiating contracts with Army and Navy procurement agencies.  Many also opposed prewar government entreaties to expand their scale of operations to meet the military’s growing demand for munitions and equipment.  Their reasons were many: they were reluctant to expand capacity after a decade of depression; civilian markets were growing rapidly and highly profitable; and the course of the war, and the U.S. participation in it, remained uncertain.

Their attitude and power greatly influenced the operation and policies of the NDAC, which was built on industry divisions run by industry leaders, most of whom were so-called “dollar-a-year men” who continued to draw their full salaries from the corporations that employed them, and advised by industry associations.  This business-friendly structure, with various modifications, was then transferred to the OPM and later the WPB.

With business interests well represented in the prewar mobilization agencies, the government struggled to transform the economy in preparation for war.  The lack of new business investment in critical industries meant that by mid-1941 material shortages began forcing delays in defense orders; aluminum, magnesium, zinc, steel, and machine tools were all growing scare.  At the same time, a number of industries that were major consumers of these scare materials and machinery, such as the automobile industry, also resisted government efforts to get them to abandon their consumer markets and convert to the production of needed military goods.

In some cases, this resistance lasted deep into the war years, with some firms objecting not only to undertaking their own expansion but to any government financed expansion as well, out of fear of post-war overproduction and/or loss of market share.  The resulting political tension is captured by the following exchange at a February 1943 Congressional hearing between Senator E. H. Moore of Oklahoma and Interior Secretary and Petroleum Administrator for War Harold L. Ickes over the construction of a petroleum pipeline from Texas to the East Coast:

Secretary Ickes. I would like to say one thing, however. I think there are certain gentlemen in the oil industry who are thinking of the competitive position after the war.

The Chairman. That is what we are afraid of, Mr. Secretary.

Secretary Ickes. That’s all right. I am not doing that kind of thinking.

The Chairman. I know you are not.

Secretary Ickes. I am thinking of how best to win this war with the least possible amount of casualties and in the quickest time.

Senator Moore. Regardless, Mr. Secretary, of what the effect would be after the war? Are you not concerned with that?

Secretary Ickes. Absolutely.

Senator Moore. Are you not concerned with the economic situation with regard to existing conditions after the war?

Secretary Ickes. Terribly. But there won’t be any economic situation to worry about if we don’t win the war.

Senator Moore. We are going to win the war.

Secretary Ickes. We haven’t won it yet.

Senator Moore. Can’t we also, while we are winning the war, look beyond the war to see what the situation will be with reference to –

Secretary Ickes (interposing). That is what the automobile industry tried to do, Senator. It wouldn’t convert because it was more interested in what would happen after the war. That is what the steel industry did, Senator, when it said we didn’t need any more steel capacity, and we are paying the price now. If decisions are left with me, it is only fair to say that I will not take into account any post-war factor—but it can be taken out of my hands if those considerations are paid attention to.

Once the war began, many businesses were also able to build a strategic alliance with the military that allowed them to roll back past worker gains and isolate and weaken unions.  For example, by invoking the military’s overriding concern with achieving maximum production of the weapons of war, business leaders were able to defeat union attempts to legislate against the awarding of military contracts to firms in violation of labor law. They also succeeded in ignoring overtime pay requirements when lengthening the workweek and in imposing new workplace rules that strengthened management prerogatives. 

If unions struck to demand higher wages or resist unilateral workplace changes, business and military leaders would declare their actions a threat to the wartime effort, which cost them public support. Often the striking unions were threatened with government sanctions by mobilization authorities.  In some cases, especially when it came to the aircraft industry, the military actually seized control of plants, sending in troops with fixed bayonets, to break a strike.  Eventually, the CIO traded a no-strike pledge for a maintenance of membership agreement, but that often put national union officials in the position of suppressing rank-and-file job actions and disciplining local leaders and activists, an outcome which weakened worker support for the union.

Business didn’t always have its own way.  Its importance as essential producer was, during the war, matched by the military’s role as essential demander.  And, while the two usually saw eye-to-eye, there were times when military interests diverged from, and dominated, corporate interests.  Moreover, as the war continued, government planning agencies gained new powers that enabled them to effectively regulate the activities of both business and the military.  Finally, the work of congressional committees engaged in oversight of the planning process as well as pressure from unions and small business associations also helped, depending on the issue, to place limits on corporate prerogatives.

Still, when all was said and done, corporate leaders proved remarkably successful in dominating the mobilization process and strengthening their post-war authority over both the government and organized labor.  Perhaps the main reason for their success is that almost from the beginning of the mobilization process, a number of influential business leaders and associations aggressively organized themselves to fight their own two-front war—one that involved boosting production to help the United States defeat the Axis powers and one that involved winning popular identification of the fight for democracy with corporate freedom of action.

In terms of this second front, as J.W. Mason describes:

Already by 1941, government enterprise was, according to a Chamber of Com­merce publication, “the ghost that stalks at every business conference.” J. Howard Pew of Sun Oil declared that if the United States abandoned private ownership and “supinely reli[es] on government control and operation, then Hitlerism wins even though Hitler himself be defeated.” Even the largest recipients of military contracts regarded the wartime state with hostility. GM chairman Alfred Sloan—referring to the danger of government enterprises operating after war—wondered if it is “not as essential to win the peace, in an eco­nomic sense, as it is to win the war, in a military sense,” while GE’s Philip Reed vowed to “oppose any project or program that will weaken” free enterprise.

Throughout the war, business leaders and associations “flooded the public sphere with descriptions of the mobilization effort in which for-profit companies figured as the heroic engineers of a production ‘miracle’.”  For example, Boeing spent nearly a million dollars a year on print advertising in 1943-45, almost as much as it set aside for research and development.

The National Association of Manufactures (NAM) was one of the most active promoters of the idea that it was business, not government, that was winning the war against state totalitarianism.  It did so by funding a steady stream of films, books, tours, and speeches.  Mark R. Wilson describes one of its initiatives:

One of the NAM’s major public-relations projects for 1942, which built upon its efforts in radio and print media, was its “Production for Victory” tour, designed to show that “industry is making the utmost contributions toward victory.” Starting the first week in May, the NAM paid for twenty newspaper reporters to take a twenty-four-day, fifteen-state trip during which they visited sixty-four major defense plants run by fifty-eight private companies. For most of May, newspapers across the country ran daily articles related to the tour, written by the papers’ own reporters or by one of the wire services. The articles’ headlines included “Army Gets Rubber Thanks to Akron,” “General Motors Plants Turning Out Huge Volume of War Goods,” “Baldwin Ups Tank Output,” and “American Industry Overcomes a Start of 7 Years by Axis.”

It was rarely if ever mentioned by the companies or the reporters that almost all of these new plants were actually financed, built, and owned by the government, or that it was thanks to government planning efforts that these companies had well-trained workers and received needed materials on a timely basis.  Perhaps not surprisingly, government and union efforts to challenge the corporate story were never as well funded, sustained, or shaped by as clear a class perspective.  As a consequence, they were far less effective.

Paul A.C. Koistinen, in his major study of World War II planning, quotes Hebert Emmerich, past Secretary of the Office of Production Management (OPM), who looking back at the mobilization experience in 1956 commented that “When big business realized it had lost the elections of 1932 and 1936, it tried to come in through the back door, first through the NRA and then through the NDAC and OPM and WPB.”  Its success allowed it to emerge from the war politically stronger than when it began.

Capital is clearly much more organized and powerful today than it was in the 1940s.  And we can safely assume that business leaders will draw upon all their many strengths in an effort to shape any future conversion process in ways likely to limit its transformative potential.  Capital’s wartime strategy points to some of the difficult challenges we must prepare to face, including how to minimize corporate dominance over the work of mobilization agencies and ensure that the process of transformation strengthens, rather than weakens, worker organization and power.  Most importantly, the wartime experience makes clear that the fight for a Green New Deal is best understood as a new front in an ongoing class war, and that we need to strengthen our own capacity to wage a serious and well-prepared ideological struggle for the society we want to create.

Profits over people: frontline workers during the pandemic

It wasn’t that long ago that the country celebrated frontline workers by banging pots in the evening to thank them for the risks they took doing their jobs during the pandemic. One national survey found that health care workers were the most admired (80%), closely followed by grocery store workers (77%), and delivery drivers (73%). 

Corporate leaders joined in the celebration. Supermarket News quoted Dacona Smith, executive vice president and chief operating officer at Walmart U.S., as saying in April:

We cannot thank and appreciate our associates enough. What they have accomplished in the last few weeks has been amazing to watch and fills everyone at our company with enormous pride. America is getting the chance to see what we’ve always known — that our people truly do make the difference. Let’s all take care of each other out there.

Driven by a desire to burnish their public image, deflect attention from their soaring profits, and attract more workers, many of the country’s leading retailers, including Walmart, proudly announced special pandemic wage increases and bonuses.  But as a report by Brookings points out, although their profits continued to roll in, those special payments didn’t last long.

There are three important takeaways from the report: First, don’t trust corporate PR statements; once people stop paying attention, corporations do what they want.  Second, workers need unions to defend their interests.  Third, there should be some form of federal regulation to ensure workers receive hazard pay during health emergencies like pandemics, similar to the laws requiring time and half for overtime work.

The companies and their workers

In Windfall Profits and Deadly Risks, Molly Kinder, Laura Stateler, and Julia Du look at the compensation paid to frontline workers at, and profits earned by, 13 of the 20 biggest retail companies in the United States.  The 13, listed in the figure below, “employ more than 6 million workers and include the largest corporations in grocery, big-box retail, home improvement, pharmacies, electronics, and discount retail.” The seven left out “either did not have public financial information available or were in retail sectors that were hit hard by the pandemic (such as clothing) and did not provide COVID-19 compensation to workers.”

Pre-pandemic, the median wages for the main frontline retail jobs (e.g., cashiers, salespersons, and stock clerks) at these 13 companies generally ranged from $10 to $12 per hour (see the grey bar in the figure below).  The exceptions at the high end were Costco and Amazon, both of which had a minimum starting wage of $15 before the start of the pandemic. The exception at the low end was Dollar General, which the authors estimate had a starting wage of only $8 per hour.  

Clearly, these companies thrive on low-wage work.  And it should be added, disproportionately the work of women of color.  “Women make up a significantly larger share of the frontline workforce in general retail stores and at companies such as Target and Walmart than they do in the workforce overall. Amazon and Walmart employ well above-average shares of Black workers (27% and 21%, respectively) compared to the national figure of 12%.”

Then came the pandemic

Eager to take advantage of the new pandemic-driven business coming their way, all 13 companies highlighted in the report quickly offered some form of special COVID-19-related compensation in an effort to attract new workers (as highlighted in the figure below).  “Commonly referred to as “hazard pay,” the additional compensation came in the form of small, temporary hourly wage increases, typically between $2 and $2.50 per hour, as well as one-off bonuses. In addition to temporary hazard pay, a few companies permanently raised wages for workers during the pandemic.“

Unfortunately, as the next figure reveals, these special corporate payment programs were short-lived.  Of the 10 companies that offered temporary hourly wage increases, 7 ended them before the beginning of July and the start of a new wave of COVID-19 infections. Moreover, even with these programs, nine of the 13 companies continued to pay wages below $15 an hour.  Only three companies instituted permanent wage hikes.   While periodic bonuses are no doubt welcomed, they are impossible to count on and of limited dollar value compared with an increase in hourly wages.  So much, for corporate caring!

Don’t worry about the companies

As the next figure shows, while the leading retail companies highlighted in the study have been stingy when it comes to paying their frontline workers, the pandemic has treated them quite well.  As the authors point out:

Across the 13 companies in our analysis, revenue was up an average of 14% over last year, while profits rose 39%. Excluding Walgreens—whose business has struggled during the pandemic—profits rose a staggering 46%. Stock prices rose on average 30% since the end of February. In total, the 13 companies reported 2020 profits to date of $67 billion, which is an additional $16.9 billion compared to last year.

Looking just at the compensation generosity of the six companies that had public data on the total cost of their extra compensation to workers, the authors found that the numbers “paint a picture of most companies prioritizing profits and wealth for shareholders over investments in their employees. On average, the six companies’ contribution to compensating workers was less than half of the additional profit earned during the pandemic compared to the previous year.”

This kind of scam, where companies publicly celebrate their generosity only to quietly withdraw it a short time later, is a common one.  And because it is hard to follow corporate policies over months, they are often able to sell the public that they really do care about the well-being of their workers.  That is why this study is important—it makes clear that relying on corporations to do the “right thing” is a losing proposition for workers.

America’s labor crisis

We face a multifacited labor crisis. One of the most important aspects of this crisis is the U.S. economy’s diminishing capacity to provide employment. This development is highlighted in the chart below, which shows the trend in civilian employment over the last thirty years.  Civilian employment includes all individuals who worked at least one hour for a wage or salary, or were self- employed, or were working at least 15 unpaid hours in a family business or on a family farm, during the week including the 12th of the month when surveys are taken.

As we can see, it took approximately 4 years to bring civilian employment back to its pre-crisis peak after the 2001 recession, and a much longer 6.5 years after the 2008 recession.  The number of years it will take to regain the pre-crisis peak employment level after the end of this recession (which remains ongoing) can be expected to be far greater, with some analysts predicting it could take a decade or more. And of course, new people will be entering the labor force over that decade, generating a serious unemployment problem.

The following chart, which shows the trend in the civilian labor force participation rate, offers additional evidence of the economy’s declining job creating potential. The civilian labor force participation rate is calculated by dividing the sum of all workers who are employed or actively seeking employment by the total noninstitutionalized, civilian working-age population.

As we can see, this measure has been in sharp decline for many years, including over the years of expansion that followed the 2008 recession.  With growing numbers of working-age people, including prime-age workers, forced to drop out of the labor force even during so-called “good times,” there is little reason to expect a significant improvement in employment opportunities in the years following the end of this recession.

These charts make clear that without a significant change in the workings of the economy, working people are facing a future of declining employment possibilities. And it certainly appears that there is no enthusiasm for major economic changes among the most powerful and wealthy in the United States.  According to a recent report, U.S. billionaires saw their fortunes soar by $434 billion during the nation’s lockdown between mid-March and mid-May. And Market Watch reported that the S&P 500 and Nasdaq just booked the best postelection day gains in history.  The reason:

Wall Street warmed to the possibility of a divided U.S. government and further political gridlock in Washington following a contentious election, potentially keeping Trump administration’s tax cuts in place no matter who sits in the White House.

In sum, if we want a meaningful economic recovery, one that serves majority needs, we will have to fight for it.  Among other things, this means finding new ways to strengthen labor-community coalitions and engage people in sustained conversation about the class-contradictory nature of our economic system.

COVID-19 Economic Crisis Snapshot

 Workers in the United States are in the midst of a punishing COVID-19 economic crisis.  Unfortunately, while a new fiscal spending package and an effective vaccine can bring needed relief, a meaningful sustained economic recovery will require significant structural changes in the operation and orientation of the economy.

The unemployment problem

Many people blame government mandated closure orders for the decline in economic activity and spike in unemployment.  But the evidence points to widespread concerns about the virus as the driving force.  As Emily Badger and Alicia Parlapiano describe in a New York Times article, and as illustrated in the following graphic taken from the article:

In the weeks before states around the country issued lockdown orders this spring, Americans were already hunkering down. They were spending less, traveling less, dining out less. Small businesses were already cutting employment. Some were even closing shop.

People were behaving this way — effectively winding down the economy — before the government told them to. And that pattern, apparent in a range of data looking back over the past two months, suggests in the weeks ahead that official pronouncements will have limited power to open the economy back up.

As the graphic shows, economic activity nosedived around the same time regardless of whether state governments were quick to mandate closings, slow to mandate closings, or unwilling to issue stay-at-home orders.

The resulting sharp decline in economic activity caused unemployment to soar. Almost 21 million jobs were lost in April at the peak of the crisis.  The unemployment rate hit a high of 14.7 percent.  By comparison the highest unemployment rate during the Great Recession was 10.6 percent in January 2010.

Employment recovered the next month, with an increase of 2.8 million jobs in May.  In June, payrolls grew by an even greater number, 4.8 million.  But things have dramatically slowed since.  In July, only 1.8 million jobs came back.  In August it was 1.5 million.  And in September it was only 661,000.  To this point, only half of the jobs lost have returned, and current trends are far from encouraging.

The unemployment rate fell to 7.9 percent in September, a significant decline from April.  But a large reason for that decline is that millions of workers have given up working or looking for work and are no longer counted as being part of the labor force.  And, as Alisha Haridasani Gupta writes in the New York Times:

A majority of those dropping out were women. Of the 1.1 million people ages 20 and over who left the work force (neither working nor looking for work) between August and September, over 800,000 were women, according to an analysis by the National Women’s Law Center. That figure includes 324,000 Latinas and 58,000 Black women. For comparison, 216,000 men left the job market in the same time period.

The relationship between the fall in the unemployment rate and worker exodus from the labor market is illustrated in the next figure which shows both the unemployment rate and the labor force participation rate (LFPR), which is measured by dividing the number of people 16 and over who are employed or seeking employment by the size of the civilian noninstitutional population that is 16 and over.

The figure allows us to see that even the relatively “low” September unemployment rate of 7.9 percent is still high by historical standards.  It also allows us to see that its recent decline was aided by a decline in the LFPR to a level not seen since the mid-1970s.  If those who left the labor market were to decide to once again seek employment, pushing the LFPR back up, unless the economic environment changed dramatically, the unemployment rate would also be pushed up to a much higher level.

Beyond the aggregate figures is the fact, as Heather Long, Andrew Van Dam, Alyssa Fowers and Leslie Shapiro explain in a Washington Post article, that “No other recession in modern history has so pummeled society’s most vulnerable.”

As we can see in the above graphic, the 1990 recession was a relatively egalitarian affair with all income groups suffering roughly a similar decline in employment.  That changed during the recessions of 2001 and 2008, with the lowest earning cohort suffering the most.  But, as the authors of the Washington Post article state, “even that inequality is a blip compared with what the coronavirus inflicted on low-wage workers this year.”  By the end of the summer, the employment crisis was largely over for the highest earners, while employment was still down more than 20 percent for low-wage workers and around 10 percent for middle-wage workers.

Poverty is on the rise

In line with this disproportionate hit suffered by low wage workers, the poverty rate has been climbing.  Five Columbia University researchers, using a monthly version of the Supplemental Poverty Measure (SPM), provide estimates of the monthly poverty rate from October 2019 through September 2020.  They found, as illustrated below, “that the monthly poverty rate increased from 15% to 16.7% from February to September 2020, even after taking the CARES Act’s income transfers into account. Increases in monthly poverty rates have been particularly acute for Black and Hispanic individuals, as well as for children.”

The standard poverty measure used by the federal government is an annual one, based on whether a family’s total annual income falls below a specified income level.  It doesn’t allow for monthly calculations and is widely criticized for using an extremely low emergency food budget to set its poverty level.   The SPM includes a more complete and accurate measure of family resources, a more expansive definition of family, the cost of a broader basket of necessities, and is adjusted for cost of living across metro areas.

As we can see in the above figure, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress and signed into law on March 27th, 2020, has had a positive effect on poverty levels.  For example, without it, the poverty rate would have jumped to 19.4 percent in April. “Put differently, the CARE Act’s income transfers directly lifted around 18 million individuals out of poverty in April.”

However, as we can also see, the positive effects of the CARES Act have gradually dissipated.  The Economic Impact Payments (“Recovery Rebates”) were one-time payments.  The $600 per week unemployment supplement expired at the end of July.  Thus, the gap between the monthly SPM with and without the CARES Act has gradually narrowed.  And, with job creation dramatically slowing, without a new federal stimulus measure it is likely we will not see much improvement in the poverty rate in the coming months.  In fact, if working people continue to leave the labor market out of discouragement and the pressure of home responsibilities, there is a good chance the poverty rate will climb again.

It is also important to note that the rise in monthly rates of poverty, even with the CARES Act, differs greatly by race/ethnicity as illustrated in the following figure.

The need to do more

Republican opposition to a new stimulus ensures that that there will be no follow-up to the CARES Act before the upcoming election.  Opponents claim that the federal government has already done enough and the economy is well on its way to recovery. 

As for the size of the stimulus, the United States has been a lagger when it comes to its fiscal response to the pandemic.  The OECD recently published an interim report titled “Coronavirus: Living with uncertainty.”  One section of the report looks at fiscal support as a percent of 2019 GDP for nine countries. As the following figure shows, the United States trails every country but Korea when it comes to direct support for workers, firms, and health care.  

A big change is needed

While it is natural to view COVID-19 as responsible for our current crisis, the truth is that our economic problems are more long-term.  The U.S. economy has been steadily weakening for years.  In the figure below, the “trend” line is based on the 2.1% average rate of growth in real per capita GDP from 1970 to 2007, the year before the Great Recession.  Not surprising, real per capita GDP took a big hit during the Great Recession.  But as we can also see, real per capita GDP has yet to return to its historical trend. In fact, the gap has grown larger despite the record long recovery that followed. 

As Doug Henwood explains:

Since 2009, the growth rate has averaged 1.6%. Last year [2019], which Trump touted as the greatest economy ever, it managed to get back to the pre-2008 average of 2.1%, an average that includes two deep recessions (1973–1975 and 1981–1982).

At the end of 2019, actual [real GDP per capita] was 13% below trend. At the end of the 2008–2009 recession it was 9% below trend. Remarkably, despite a decade-long expansion, it fell further below trend in well over half the quarters since the Great Recession ended. The gap is now equal to $10,200 per person—a permanent loss of income, as economists say. 

The pre-coronavirus period of expansion (June 2009 to February 2020), although the longest on record, was actually also one of the weakest. It was marked by slow growth, weak job creation, deteriorating job quality, declining investment, rising debt, declining life expectancy, and narrowing corporate profit margins. In other words, the economy was heading toward recession even before the start of state mandated lockdowns.  The manufacturing sector actually spent much of 2019 in recession.   

Thus, there is strong reason to believe that a meaningful sustained recovery from the current COVID-19 economic crisis is going to require more than the development of an effective vaccine and a responsive health care system to ensure its wide distribution.  Also needed is significant structural change in the operation and orientation of the economy.

There is a union difference: mortality rates from COVID-19 are lower in unionized nursing homes

We need strong unions, all of us.  Tragically, even during the pandemic, businesses continue to aggressively resist worker attempts at unionization. And recent decisions by the NLRB only add to worker difficulties.

Here is one example of what is at stake: a recently published study of New York State nursing homes found that mortality rates from COVID-19 were 30 percent lower in unionized nursing homes than in facilities without health care worker unions.  By gaining better protection for themselves, unionized workers were also able to better protect the health of those they served.

Although the pandemic makes organizing and solidarity actions more difficult, it is essential that we find effective ways to support worker struggles for strong unions.

Work during the pandemic

Many workers, especially those now celebrated as “essential” or “frontline,” don’t feel safe at work, and for good reason.  Many have been denied needed personal protective equipment (PPE) or even information about the health status of their coworkers.

While surveys find that many employers have implemented new workplace cleaning procedures, they also find that a large percentage of workers continue to work without access to PPE, especially masks and gloves.  Strikingly, according to one study,

If [worker] access to PPE was limited in our data, policies mandating that workers wear protective gear were even more uncommon. Around a third of workers in restaurants, fast food, coffee shops, and hotels and motels reported requirements to wear gloves. This share was dramatically lower (around 12%) in big-box stores, department stores, retail stores, grocery stores, and pharmacies. The share of workers required to wear gloves was even lower in warehouses, fulfillment centers, and in delivery. Mask requirements were vanishingly uncommon across workplaces, at between 2% and 7% in convenience stores, coffee shops, fast food, restaurants, grocery stores, retail, department stores, and big-box stores. Just 12% of those in fulfillment centers reported a mask requirement, which was significantly higher than the 5% of warehouse and delivery workers.

Adding to the danger, many companies are aggressively trying to keep information about worker infections secret from coworkers and the public.  As a Bloomberg Law post explains:

U.S. businesses have been on a silencing spree. Hundreds of U.S. employers across a wide range of industries have told workers not to share information about Covid-19 cases or even raise concerns about the virus, or have retaliated against workers for doing those things, according to workplace complaints filed with the NLRB and the Occupational Safety and Health Administration (OSHA).

Workers at Amazon.com, Cargill, McDonald’s, and Target say they were told to keep Covid cases quiet. The same sort of gagging has been alleged in OSHA complaints against Smithfield Foods, Urban Outfitters, and General Electric. In an email viewed by Bloomberg Businessweek, Delta Air Lines told its 25,000 flight attendants to “please refrain from notifying other crew members on your own” about any Covid symptoms or diagnoses. At Recreational Equipment Inc., an employee texted colleagues to say he’d tested positive and that “I was told not to tell anybody” and “to not post or say anything on social media.”

These policies may help the corporate bottom line, but they endanger workers and those they serve, and thereby help to spread the pandemic.

Without unions, workers have limited ways to force their employers to create a safe work environment.  One is to file a complaint with the Occupational Safety and Health Administration.  And, despite fears of retaliation, many workers have done just that.  As a Brookings blog post reports:

Using data from the Occupational Safety and Health Administration (OSHA), [the figure below] shows the cumulative number of COVID-19 related workplace safety complaints. Between April 20 and August 20, total COVID-19 related workplace safety complaints rose over 350 percent.

Unfortunately, these complaints have achieved little.  According to the Bloomberg Law post,Many thousands of OSHA complaints about coronavirus safety issues have yielded citations against just two companies—a health-care company and a nursing home—totaling about $47,000.” OSHA has still not issued any regulations that address the pandemic.

OSHA rarely sends out inspectors to investigate complaints.  The Bloomberg Law post describes one case in which a mechanic at Maid-Rite, a company that supplies frozen meat products to military bases, nursing homes, and schools, wrote to OSHA describing unsafe conditions:

The mechanic says OSHA called him to say it would be sending Maid-Rite a letter instead of coming to inspect the plant, and that was the last he ever heard from the agency about his complaint. Letters between OSHA and Maid-Rite show OSHA told Maid-Rite in April to investigate worker allegations itself, and Maid-Rite wrote back saying that it was providing and mandating masks and that 6-foot distancing sometimes wasn’t feasible.

No changes were made and so other workers followed up with more complaints over the following weeks, leading OSHA to finally send an inspector to the plant.  However,

in a break from typical protocol, [the inspector] gave the company a heads-up. “OSHA is here, so do everything right!” a supervisor told staff during the inspection, the mechanic later wrote in an affidavit. Fifteen minutes later, the supervisor returned to say “Never mind,” because the visit was over, the mechanic wrote: “As soon as OSHA left, everything went exactly back to the way it was.”

Unions can help

Unions are far from perfect, but they are one of the most effective means workers have to protect their interests, and by extension those they serve.  That point is highlighted by the results of the above noted study on COVID-19 deaths in nursing homes which found that mortality rates from COVID-19 are lower in unionized nursing homes.  This is significant because approximately 43% of all reported COVID-19 deaths in the United States have occurred in nursing homes.

The three authors–Adam Dean, Atheendar Venkataramani, and Simeon Kimmel–focused on nursing homes in New York State, which has had over 6,500 COVID-19 nursing home deaths, second only to New Jersey.  The authors built a model that attempted to explain the variation in confirmed COVID-19 deaths at these New York State nursing homes with an eye to determining if the presence of a health care union made a difference.  They used “proprietary data from 1199SEIU United Healthcare Workers East, the International Brotherhood of Teamsters, and the Communication Workers of America (CWA), as well as publicly-available data from the New York State Nurses Association (NYSNA) to determine if a labor union represented health care workers in each facility.”

Their cross-section regression model also included a range of nonunion variables as possible causes for the variation.  These variables included: whether or not a facility had an adequate supply of PPEs, including masks, eye shields, gowns, gloves, and hand sanitizer; the average age of residents; Resource Utilization Group Nursing Case Mix Index of resident acuity, which classifies patient care needs based on diagnosis, proposed treatment, and level of needed assistance with activities of daily living; occupancy rates; staff-hours-to resident-days ratios for RN, CNA, and licensed practical nurses; percent of residents whose primary support comes from Medicaid or Medicare; Overall 5-Star Rating; whether the nursing home was part of a chain; whether the nursing home was for-profit or non-profit; and county-level data on confirmed cases of COVID-19 and population.

Their main regression result, confirmed by several sensitivity tests, was that, taking all the other variables into account, the presence of a health care labor union was associated with a 30% relative decrease in the COVID-19 mortality rate compared to facilities without a health care labor union.

In examining possible reasons for this result, they ran two other regressions.  One found that the presence of a health care labor union was associated with a 13.8% relative increase in access to N95 masks and a 7.3% relative increase in access to eye shields. Labor union status was not a significant predictor of access to other types of PPE.  The other regression found that the presence of a health care labor union was associated with a 42% relative decrease in the COVID-19 infection rate.

The struggle ahead

There is good reason to believe that the union benefits found by Dean, Venkataramani, and Kimmel in their study are not limited to New York State nursing homes.  Unions are one of the most effective ways for workers to ensure access to critical PPEs and implementation of safety regulations, things that as noted above workers desperately seek.

But of course, corporations don’t want to pay the higher costs that come with unionization.  They prefer the status quo, where working people are forced to pay far greater costs, individually and collectively.  And even in the midst of the pandemic, the NLRB continues to pass new rules making it ever more difficult for workers to unionize.

Workers are increasingly coming to understand that they cannot rely on OSHA or the NLRB to defend their interests. Thus, growing numbers of workers are bravely engaging in direct action, risking their jobs, to fight for their rights and the safety of their co-workers.  We need to find ways to support them and improve the broader environment for organizing and unionizing. A recent Gallup poll offers one hopeful sign: approval of unions continues to grow.

Times remain hard, especially for low-wage workers

The current economic crisis has hit workers hard.  Unemployment rates remain high, with total weekly initial claims for unemployment insurance benefits continuing to grow.  Recent reports of a sharp rise in median earnings for full-time workers appear to complicate the picture.  However, a more detailed examination of worker earnings and employment not only helps to sharpen our understanding of the devastating nature of the current crisis for working people, but makes clear that low wage workers are the hardest hit.

Earnings growth

The labor department recently published data showing wages skyrocketing.  As Federal Reserve Bank of San Francisco researchers reported in a recent Economic Letter:

Recent data show that median usual weekly earnings of full-time workers have grown 10.4 percent over the four quarters preceding the second quarter of 2020. This is a 6.4 percentage point acceleration compared with the fourth quarter of 2019. The median usual weekly earnings measure that we focus on here is not an exception. Other measures of wage growth—like average hourly earnings and compensation per hour—show similar spikes.

The spike can be seen in the movement in the blue line in the figure below (which is taken from the Economic Letter).  As we can see, nominal average weekly earnings for full-time employees grew by 10.4 percent between spring of 2019 and spring of 2020, the fastest rate of growth in nearly 40 years.

While this earnings trend suggests a strong labor market, it is, as the researchers correctly note, highly misleading.  The reason is that this measure has been distorted by the massive loss of jobs disproportionally suffered by low wage full-time workers.  The decline in the number of full-time low wage workers has been large enough to change the earnings distribution, leading to a steadily growing value for the median earnings of the remaining full-time workers.

In other words, the spike in median earnings is not the result of currently employed workers enjoying significant wage gains.  This becomes clear when we adjust for the decline in employment by only considering the nominal median earnings of those workers that remained employed full-time throughout the past year.  As the downward movement in the green line in the above figure shows, the gains in medium earnings for those continuously employed has been small and falling.

Disproportionate job losses for full-time low-wage workers

The researchers confirmed that it was low-wage workers that have disproportionately suffered job losses by calculating the earnings distribution of the full-time workers forced to exit to, in the words of the researchers, “nonemployment” – by which they mean either unemployment or nonparticipation — each month over the past two decades.

They began by estimating the yearly share of full-time worker exits to unemployment and nonparticipation.  As we see in the figure above, in non-recession years, about 7 percent of those with full-time jobs become nonemployed each year—2 percent become unemployed and 5 percent leave the labor force.  During the Great Recession, nonemployment peaked in August 2009 at 11 percent, with most of the increase driven by a sharp rise in unemployment (as shown by the big bump in green area).  There was little change in the rate at which full-time workers dropped out of the labor force.

The severity of our current crisis is captured by the dramatic rise in the share of workers exiting full-time employment beginning in March 2020.  Exits to nonemployment peaked in May 2020 at 17 percent, with 9 percent moving to unemployment and 8 percent to nonparticipation. Not only is this almost twice as high as during the Great Recession, the extremely challenging state of the labor market is underscored by the fact that the share of nonemployed who chose nonparticipation and thus exit from the labor market was almost as great as the share who remained part of the labor force and classified as unemployed.

The next figure shows the share of workers exiting to nonemployment by their position in the wage distribution. The three areas depict exits by workers in the lowest quarter of the earnings distribution, the second lowest quarter, and the top half, respectively.

As the researchers explain,

In the months following the onset of COVID-19, workers in the bottom 25 percent of the earnings distribution made up about half of the exits to nonemployment. In contrast, the top half of the distribution only accounted for about a third of the exits. . . .

Therefore, the recent spike in aggregate nominal wage growth does not reflect the benefits of pay raises and a strong labor market for workers. Instead, it is the result of the high levels of job loss among low-income workers since the start of the pandemic.

Tragically, low wage workers have not only suffered disproportional job losses during this pandemic. Those who remain employed are increasingly being victimized by wage theft.  As Igor Derysh, writing in Salon, notes: “A paper released this week by the . . . Washington Center for Equitable Growth found that minimum wage violations have roughly doubled compared to the period before the pandemic.”

These are indeed hard times for almost all working people but, perhaps not surprisingly, those at the bottom of the wage distribution are suffering the most.