Playing the capitalist game: heads they win, tails you lose

According to an Economic Policy Institute report, between 28 and 47 percent of U.S. private sector workers are subject to noncompete agreements.  In brief, noncompete agreements (or noncompetes) are provisions in an employment contract that ban workers from leaving their job to work for a “competitor” that operates in the same geographic area, for a given period of time.  In a way, it’s an attempt to recreate the power dynamics of the employer-dominated company towns of old—with workers unable to change employers if they want to continuing working in the same industry.

It is not just top executives that are forced to accept a noncompete agreement.  Companies also use them to restrict the employment freedom of many low wage workers, including janitors, security guards, fast food workers, warehouse workers, personal care aids, and room cleaners.  In fact, the Economic Policy Institute estimates that almost a third of all businesses require that all of their workers sign noncompetes, regardless of their job duties or pay.

As for the impact of these agreements, a number of studies have found that noncompetes lower wages for all workers in the industry, even those not subject to noncompetes.  And then there is this from CBS News:

“In the context of the pandemic, which caused millions of people to be laid off, it’s safe to say at least a share of those workers are constrained [by noncompetes] in pursuing other opportunities during this crisis,” said John Lettieri, head of the Economic Innovation Group, a think tank that advocates against noncompetes. 

Indeed, at least four employers — including an accounting firm and a real estate brokerage — have tried to enforce noncompetes against workers they’ve laid off, with the lawsuits making their way through the courts.

On July 9, 2021 President Biden signed an executive order on “Promoting Competition in the American Economy” that, among other things, calls upon the Chair of the Federal Trade Commission (FTC) to work “with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”  While it seems likely that the FTC will take some action, the scope of that action remains uncertain.

Noncompetes and their use

There are no federal rules governing the use of noncompetes.  It is up to the states to decide how to regulate their use.  California, North Dakota, and Oklahoma are the only states with outright bans on their use; Washington DC also outlaws them.  Several states have placed limits on the use of non-competition agreements.  Illinois, Maryland, Nevada, Oregon, and Virginia all prohibit the use of noncompetes with low wage workers.  Washington state banned noncompetes for those earning under $100,000. Hawaii has prohibited noncompetes for tech workers only.  On the other hand, there are some states, like Idaho, which have actually passed laws making it easier for companies to enforce noncompete agreements.

Most workers live in states where there are few if any restrictions on the use of noncompete agreements.  And as the results of a national survey that included firms with at least 50 employees show, the use of noncompetes is common in workplaces with low pay (see the table below).  As the Economic Policy Institute report points out, although “the use of noncompetes tends to be higher for higher-wage workplaces than lower-wage workplaces . . . it is striking that more than a quarter—29.0%—of responding establishments where the average wage is less than $13.00 use noncompetes for all their workers.”

Popular outrage has sometimes forced companies to change their policies or state authorities to intervene on behalf of workers.  An example of the former: in 2015 Amazon began requiring its warehouse workers to sign noncompetes.  As The Verge reported:

The work is repetitive and physically demanding and can pay several dollars above minimum wage, yet Amazon is requiring these workers — even seasonal ones — to sign strict and far-reaching noncompete agreements. The Amazon contract, obtained by The Verge, requires employees to promise that they will not work at any company where they “directly or indirectly” support any good or service that competes with those they helped support at Amazon, for a year and a half after their brief stints at Amazon end. Of course, the company’s warehouses are the beating heart of Amazon’s online shopping empire, the extraordinary breadth of which has earned it the title of “the Everything Store,” so Amazon appears to be requiring temp workers to foreswear a sizable portion of the global economy in exchange for a several-months-long hourly warehouse gig.

The company has even required its permanent warehouse workers who get laid off to reaffirm their non-compete contracts as a condition of receiving severance pay. 

The company eventually ended the practice after its actions were widely reported in the media, generating bad publicity for the company.

Jimmy John’s offers an example of state action. In 2016, the attorneys general of New York and Illinois, reacting to public anger, forced Jimmy John to stop its franchises from using noncompetes that forbid its employees from working at any other sandwich shop within a 3-mile radius of the franchise for two years.

The cost of noncompetes to workers

When noncompetes are banned, worker pay rises.  One of the most detailed and complete studies of the wage consequences of such a change is based on Oregon’s 2008 decision to ban noncompetes (NCAs) for hourly wage workers.  As the authors of the study explain:

We find that banning NCAs for hourly workers increased hourly wages by 2-3% on average. Since only a subset of workers sign NCAs, scaling this estimate by the prevalence of NCA use in the hourly-paid population suggests that the effect on employees actually bound by NCAs may be as great as 14-21%, though the true effect is likely lower due to labor market spillovers onto those not bound by NCAs. While the positive wage effects are found across the age, education and wage distributions, they are stronger for female workers and in occupations where NCAs are more common. The Oregon low-wage NCA ban also improved average occupational status in Oregon, raised job-to-job mobility, and increased the proportion of salaried workers without affecting hours worked.”

Earlier studies of the consequence of changes in the use of noncompetes in other states produced similar results. For example, a study of Hawaii’s 2015 decision to ban noncompetes for tech workers showed a 4.2% pay bump for new hires and a 12% increase in worker mobility.

But even a change in law doesn’t necessarily bring an end to the practice, as highlighted by the California experience.  California courts will not enforce a noncompete contract, but that hasn’t stopped many California businesses from including them in their employment contracts.  One reason according to worker advocates, as reported by CBS News, is that most workers don’t know that noncompetes are banned in California: 

As a result, employers in California use these restrictive contracts just as much as employers elsewhere in the U.S., and they have their desired effect: scaring workers away from leaving for better jobs. 

“There’s no disincentive for the employer to include it in the employment contract. The worst thing that would happen is a court would declare [the noncompete] void,” said Harvard’s Gerstein. “There needs to be a disincentive to employer overreach.”

Possible federal action

President Biden pledged during his campaign to “eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets.”  On the other hand, his executive order speaks to “curtailing” their use.  The best outcome would be an FTC ban on the use of non-competes in all situations and for all workers; noncompetes are just another tool that businesses can use to exploit their workers.

But it may be that the FTC will instead seek to place limits on the use of such agreements, perhaps outlawing their use with low wage workers or establishing federal regulations that restrict their scope and duration.  Although such a step would be an improvement over the current situation, where most states do little to restrict the use of noncompetes, it may well result in an unsatisfying patchwork regulatory framework, much like that of our current unemployment system.

No matter how the FTC rules on the use of noncompete agreements, there are two other actions it should take that would significantly strengthen worker rights. Currently, many workers only learn they are subject to a noncompete agreement after they have already accepted a job.  The FTC should mandate that employers include any noncompete requirements in all job postings.

And as the California experience shows, companies will continue to use noncompetes even if they are not enforceable, relying on ignorance, intimidation, as well as the financial costs of court proceedings, to get workers to accept their terms.  Therefore, the FTC should also allow workers to sue for damages if a business is illegally attempting to enforce a noncompete agreement.

In the meantime, while we await FTC action, the greater the public knowledge about, and voiced opposition to the use of noncompetes, the better. 

Learning from history: community-run child-care centers during World War II

We face many big challenges.  And we will need strong, bold policies to meaningfully address them.  Solving our child-care crisis is one of those challenges, and a study of World War II government efforts to ensure accessible and affordable high-quality child care points the way to the kind of bold action we need. 

The child care crisis

A number of studies have established that high-quality early childhood programs provide significant community and individual benefits.  One found that “per dollar invested, early childhood programs increase present value of state per capita earnings by $5 to $9.”  Universal preschool programs have also been shown to offer significant benefits to all children, even producing better outcomes for the most disadvantaged children than means-tested programs.  Yet, even before the pandemic, most families struggled with a lack of desirable child-care options.    

The pandemic has now created a child-care crisis. As Lisa Dodson and Mary King point out: “By some estimates, as many as 4.5 million child-care ‘slots’ may be permanently lost and as many as 40 percent of child-care providers say they will never reopen.”  The lack of child care is greatly hindering our recovery from the pandemic.  Women suffered far greater job losses than men during 2020, including as child-care workers, and the child-care crisis has made it difficult for many working mothers to return to the labor force.  The cost goes beyond the immediate family hardship from lost income; there is strong evidence that a sustained period without work, the so-called employment gap, will result in significantly lower lifetime earnings and reduced retirement benefits.  

To his credit, President Biden has recognized the importance of strengthening our care economy.  His proposed American Families Plan includes some $225 billion in tax credits to help make child care more affordable for working families.  According to a White House fact sheet, families would “receive a tax credit for as much as half of their spending on qualified child care for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children. . . . The credit can be used for expenses ranging from full-time care to after school care to summer care.”

But tax credits don’t ensure the existence of convenient, affordable, high-quality child-care facilities staffed by well-paid and trained child-care providers.  And if that is what we really want, we will need to directly provide it.  That is what the government did during World War II.  While its program was far from perfect, in part because it was designed to be short-term, it provides an example of the type of strong, bold action we will need to overcome our current child-care crisis. 

Federal support for child care

During World War II the United States government financed a heavily-subsidized child-care program.  From August 1943 through February 1946, the Federal Works Agency (FWA), using Lanham Act funds, provided some $52 million in grants for child-care services (equal to more than $1 billion today) to any approved community group that could demonstrate a war-related need for the service.  At its July 1944 peak, 3,102 federally subsidized child-care centers, with some 130,000 children enrolled, operated throughout the country.  There was at least one center in every state but New Mexico, which decided against participation in the program.  By the end of the war, between 550,000 and 600,000 children received some care from Lanham Act funded child-care programs.  

Communities were allowed to use the federal grant money to cover most of the costs involved in establishing and running their centers, including facilities construction and upkeep, staff wages and most other daily operating costs.  They were required to provide some matching funds, most of which came from fees paid by the parents of children enrolled in the program.  However, these fees were capped. In the fall of 1943, the FWA established a ceiling on fees of 50 cents per child per day (about $7 now), which was raised to 75 cents in July 1945. And those fees included snacks, lunch, and in some cases dinner as well. Overall, the federal subsidy covered two-thirds of the total maintenance and operation of the centers.

The only eligibility requirement for enrollment was a mother’s employment status: she had to be working at a job considered important to the war effort, and this was not limited to military production. Center hours varied, but many accommodated the round-the-clock manufacturing schedule, staying open 24 hours a day, 6 days a week. 

The centers served preschoolers (infants, toddlers, and children up to 5 years of age) and school-age children (6 to 14 years of age). In July 1944, approximately 53,000 preschoolers and 77,000 school-age children were enrolled.  School-age enrollment always climbed during summer vacation.  However, in most months, preschoolers made up the majority of the children served by Lanham Act-funded centers. Enrollment of preschoolers peaked at some 74,000 in May 1945. 

Some 90 percent of the centers were housed in public schools, with newly contructed housing projects providing the next most used location. Although local school boards were free to decide program standards–including staff-child ratios, worker qualifications, and facility design–state boards of education were responsible for program supervision. The recommended teacher-child ratio was 10-to-1, and most centers complied.  According to Chris M. Herbst,

Anecdotal evidence suggests that preschool-aged children engaged in indoor and outdoor play; used educational materials such paints, clay, and musical instruments; and took regular naps. . . . Programs for school-aged children included . . . outdoor activities, participation in music and drama clubs, library reading, and assistance with schoolwork. 

Children at a child-care center sit for “story time.” (Gordon Parks / Library of Congress / The Crowley Company)

While quality did vary–largely the result of differences in community support for public child care, the willingness of cities to provide additional financial support, and the ability of centers to hire trained professionals to develop and oversee program activities–the centers did their best to deliver a high-quality childhood education.  As Ruth Peason Koshuk, the author of a 1947 study of the developmental records of 500 children, 2 to 5 years of age, at two Los Angeles Country centers, describes:

In these two . . . schools, as elsewhere, the program has developed since 1943, toward recognized standards of early childhood education. The aim has been to apply the best of existing standards, and to maintain as close contact with the home as possible. In-service training courses carrying college credit have been given, for the teaching staff, and a mutually helpful parent education program carried on in spite of difficulties inherent in a child care situation.

There has been a corresponding development in the basic records. A pre-entrance medical examination has been required by state law since the first center opened. In December 1943 a developmental record was added, which is filled out by the director during an unhurried interview with the mother just before a child enters. One page is devoted to infancy experience; the four following cover briefly the child’s development history, with emphasis on emotional experience, behavior problems he has presented to the parents, if any, and the control methods used, as well as the personal-social behavior traits which they value and desire for the child. After entrance, observational notes and semester reports are compiled by the teachers. Intelligence testing has been limited to cases where it seemed especially indicated. A closing record is filled out, in most cases, by the parent when a child is withdrawn. These records are considered a minimum. They have proved indispensable as aids to the teachers in guiding the individual children and as a basis for conferences on behavior in the home.

A 2013 study of the long-term effects on mothers and children from use of Lanham centers found a substantial increase in maternal employment, even five years after the end of the program, and “strong and persistent positive effects on well-being” for their children.

In short, despite many shortcomings, these Lanham centers, as Thalia Ertman sums up,

broke ground as the first and, to date, only time in American history when parents could send their children to federally-subsidized child care, regardless of income, and do so affordably. . . .

Additionally, these centers are seen as historically important because they sought to address the needs of both children and mothers. Rather than simply functioning as holding pens for children while their mothers were at work, the Lanham child care centers were found to have a strong and persistent positive effect on the well-being of children.

The federal government also supported some private employer-sponsored child care during the war. The most well-known example is the two massive centers built by the Kaiser Company in Portland, Oregon to provide child care for the children of workers at their Portland Yards and Oregon Shipbuilding Corporation. The centers were located right at the front of the shipyards, making it easy for mothers to drop their children off and pick them up, and were operated on a 24-hour schedule.  They were also large, each caring for up to 1,125 children between 18 months and 6 years of age. The centers had their own medical clinic, cafeteria, and large play areas, and employed highly trained staff.  Parents paid $5 for a six-day week for one child and $3.75 for each additional child.  For a small additional fee, the centers also prepared a small dinner for parents to pick up at the end of their working day.

While the Kaiser Company received much national praise as well as appreciation from its employees with young children, these centers were largely paid for by the government.  Government funds directly paid for their construction, and a majority of the costs of running the center, including staff salaries, were included in the company’s cost-plus contracting with the military.

Political dynamics

There was considerable opposition to federal financing of group child care, especially for children younger than 6 years of age.  The sentiment is captured in this quote from a 1943 New York Times article: “The worst mother is better than the best institution when it is a matter of child care, Mayor La Guardia declared.”  Even the War Manpower Commission initially opposed mothers with young children working outside the home, even in service of the war effort, stating that “The first responsibility of women with young children, in war as in peace, is to give suitable care in their own homes to their children.”

But on-the-ground realities made this an untenable position for both the government and business. Women sought jobs, whether out of economic necessity or patriotism.  The government, highlighted by its Rosie the Riveter campaign, was eager to encourage their employment in industries producing for the war effort.  And, despite public sentiment, a significant number of those women were mothers with young children. 

Luedell Mitchell and Lavada Cherry working at a Douglas Aircraft plant in El Segundo, Calif. Circa 1944. Credit: National Archives photo no. 535811

The growing importance of women in the workplace, and especially mothers with young children, is captured in employment trends in Portland, Oregon.  Women began moving into the defense workforce in great numbers starting in 1942, with the number employed in local war industries climbing from 7,000 in November 1942 to 40,000 in June 1943.  An official with the state child-care committee reported that “a check of six shipyards reveals that the number of women employed in the shipyards has increased 25 percent in one month and that the number is going to increase more rapidly in the future.” 

The number of employed mothers was also rapidly growing.  According to the Council of Social Agencies, “Despite the recommendations of the War Manpower Commission . . . thousands of young mothers in their twenties and thirties have accepted jobs in war industries and other businesses in Multnomah County. Of the 8,000 women employed at the Oregon Shipyards in January, 1943, 32 percent of them had children, 16 percent having pre-school children.”

Portland was far from unique.  During the war, for the first time, married women workers outnumbered single women workers.  Increasingly, employers began to recognize the need for child care to address absenteeism problems.  As a “women’s counselor” at the Bendix Aviation Corporation in New Jersey explained to reporters in 1943, child care is one of the biggest concerns for new hires. “We feel a mother should be with her small baby if possible. But many of them have to come back. Their husbands are in the service and they can’t get along on his allotment.”  Media stories, many unsubstantiated, of children left in parked cars outside workplaces or fending for themselves at home, also contributed to a greater public acceptance of group child care. 

An image of Rosie the Riveter that appeared in a 1943 issue of the magazine Hygeia

Finally, the government took action.  The Federal Works Agency was one of two new super agencies established in 1939 to oversee the large number of agencies created during the New Deal period.  In 1940 President Roosevelt signed into law the Lanham Act, which authorized the FWA to fund and supervise the construction of needed public infrastructure, such as housing, hospitals, water and sewer systems, police and firefighting facilities, and recreation centers, in communities experiencing rapid growth because of the defense buildup. In August 1942, the FWA decided, without any public debate, that public infrastructure also meant child care, and it began its program of support for the construction and operation of group child-care facilities.

The Federal Works Agency, the other super agency, whose oversight responsibilities included the Children’s Bureau and the U.S. Office of Education, opposed the FWA’s new child-care initiative.  It did so not only because it believed that child care fell under its mandate, but also because the leadership of the Children’s Bureau and Office of Education opposed group child care.  The FWA won the political battle, and in July 1943, Congress authorized additional funding for the FWA’s child-care efforts. 

And, as William M. Tuttle, Jr. describes, public pressure played an important part in the victory:

the proponents of group child care organized a potent lobbying effort. The women’s auxiliaries of certain industrial unions, such as the United Electrical Workers and the United Auto Workers, joined with community leaders and FWA officials in the effort. Also influential were the six women members of the House of Representatives. In February 1944, Representative Mary T. Norton presented to the House “a joint appeal” for immediate funds to expand the wartime child day care program under the FWA.

Termination and a step back

Congressional support for group child care was always tied to wartime needs, a position shared by most FWA officials.  The May 1945 Allied victory in Europe brought a drop in war production, and a reduction in FWA community child care approvals and renewals.  In August, after the Japanese surrender brought the war to a close, the FWA announced that it would end its funding of child-care centers as soon as possible, but no later than the end of October 1945.

Almost immediately thousands of individuals wrote letters, sent wires, and signed petitions calling for the continuation of the program.  Officials in California, the location of many war-related manufacturing sites and nearly 25 percent of all children enrolled in Lanham Act centers in August 1945, also weighed in, strongly supporting the call.  Congress yielded, largely influenced by the argument that since it would be months before all the “men” in the military returned to the country, mothers had no choice but to continue working and needed the support of the centers to do so.  It approved new funds, but only enough to keep the centers operating until the end of February 1946.

The great majority of centers rapidly closed not long after the termination of federal support, with demonstrations following many of the closings.  The common assumption was that women would not mind the closures, since most would be happy to return to homemaking.  Many women were, in fact, forced out of the labor force, disproportionately suffering from post-war industrial layoffs.  But by 1947, women’s labor force participation was again on the rise and a new push began for a renewal of federal support for community child-care centers. Unfortunately, the government refused to change its position. During the Korean War, Congress did approve a public child-care bill, but then it refused to authorize any funding.

After WWII, parents organized demonstrations, like this one in New York on Sept. 21, 1947, calling for the continuing funding of the centers. The city’s welfare commissioner dismissed the protests as “hysterical.” Credit: The New York Times

Finally, in 1954, as Sonya Michel explains, “Congress found an approach to child care it could live with: the child-care tax deduction.”  While the child-care tax deduction did offer some financial relief to some families, it did nothing to ensure the availability of affordable, high-quality child care.  The history of child care during World War II makes clear that this turn to market-based tax policy to solve child-care problems represented a big step back for working women and their children.  And this was well understood by most working people at the time. 

Sadly, this history has been forgotten, and Biden’s commitment to expand the child-care tax credit is now seen as an important step forward.  History shows we can and need to do better.

Climate Change, The Green New Deal, and the Struggle for Climate Justice

Most calls for a Green New Deal correctly emphasize that it must include a meaningful commitment to climate justice.  That is because climate change—for reasons of racism and capitalist profit-making—disproportionately punishes frontline communities, especially communities of color and low-income.

A 2020 published study on redlining (“the historical practice of refusing home loans or insurance to whole neighborhoods based on a racially motivated perception of safety for investment”) and urban heat islands helps to shed light on the process.  The authors of the study, Jeremy S. Hoffman, Vivek Shandas, and Nicholas Pendleton, examined temperature patterns in 108 US urban areas and found that 94 percent of them displayed “consistent city-scale patterns of elevated land surface temperatures in formerly redlined areas relative to their non-redlined neighbors by as much as 7 degrees Celsius (or 13 degrees Fahrenheit).”

As one of the authors explained in an interview:

“We found that those urban neighborhoods that were denied municipal services and support for home ownership during the mid-20th century now contain the hottest areas in almost every one of the 108 cities we studied,” Shandas said. “Our concern is that this systemic pattern suggests a woefully negligent planning system that hyper-privileged richer and whiter communities. As climate change brings hotter, more frequent and longer heat waves, the same historically underserved neighborhoods — often where lower-income households and communities of color still live — will, as a result, face the greatest impact.”

Urban heat islands

Climate scientists have long been aware of the existence of urban heat islands, localized areas of excessive land surface heat.  The urban heat island effect can cause temperatures to vary by as much as 10 degrees C within a single urban area.  As heat extremes become more common, and last longer, the number of associated illnesses and even deaths can be expected to rise.  Already, as Hoffman, Shandas, and Pendleton note,

extreme heat is the leading cause of summertime morbidity and has specific impacts on those communities with pre-existing health conditions (e.g., chronic obstructive pulmonary disease, asthma, cardiovascular disease, etc.), limited access to resources, and the elderly. Excess heat limits the human body’s ability to regulate its internal temperature, which can result in increased cases of heat cramps, heat exhaustion, and heatstroke and may exacerbate other nervous system, respiratory, cardiovascular, genitourinary, and diabetes-related conditions.

Studies have identified some clear causes for urban heat extremes—one is the density of impervious surface area; the greater the density, the hotter the land surface temperature.  The other is the tree canopy; the greater the canopy, the cooler the land surface temperature.  And as the three authors observe, “emerging research suggests that many of the hottest urban areas also tend to be inhabited by resource-limited residents and communities of color, underscoring the emerging lens of environmental justice as it relates to urban climate change and adaptation.” What their study helps us understand is that the process by which communities of color and poor came to live in areas with more impervious surface area and fewer green spaces was to a large degree the “result of racism and market forces.”

Racism and redlining

Racism in housing has a long history.  Kale Williams, writing in the Oregonian newspaper, highlights the Portland, Oregon history:

Exclusionary covenants, legal clauses written into property deeds, prohibited people of certain races, specifically African Americans and people of Asian descent, from purchasing homes. In 1919, the Portland Realty Board adopted a rule declaring it unethical to sell a home in a white neighborhood to an African American or Chinese person. The rules stayed in place until 1956.

In 1924, Portland voters approved the city’s first zoning policies. More than a dozen upscale neighborhoods were zoned for single-family homes. The policy, pushed by homeowners under the guise of protecting their property values, kept apartment buildings and multi-family homes, housing options more attainable for low-income residents, in less-desirable areas.

Portland was no isolated case; racism shaped national housing policy as well.  In 1933, Congress, as part of the New Deal, passed the Home Owners’ Loan Act, which established the Home Owners’ Loan Corporation (HOLC).  The purpose of the HOLC was to help homeowners refinance mortgages currently in default to prevent foreclosure and, of course, reduce stress on the financial system. It did that by issuing bonds, using the funds to purchase housing loans from lenders, and then refinancing the original mortgages, offering homeowners easier terms.

Between 1935 and 1940, the HOLC drew residential “security” maps for 239 cities across the United States.  These maps were made to access the long-term value of real estate now owned by the Federal Government and the health of the banking industry. They were based on input from local appraisers and neighborhood surveys, and neighborhood demographics.

As Hoffman, Shandas, and Pendleton describe, the HOLC:

created color-coded residential maps of 239 individual US cities with populations over 40,000. HOLC maps distinguished neighborhoods that were considered “best” and “hazardous” for real estate investments (largely based on racial makeup), the latter of which was outlined in red, leading to the term “redlining.” These “Residential Security” maps reflect one of four categories ranging from “Best” (A, outlined in green), “Still Desirable” (B, outlined in blue), “Definitely Declining” (C, outlined in yellow), to “Hazardous” (D, outlined in red).

This identification of problem neighborhoods with the racial makeup of the neighborhood was no accident.  And because the maps were widely distributed to other government bodies and private financial institutions, they served to guide private mortgage lending as well as government urban planning in the years that followed.  Areas outlined in red were almost always majority African-American.  And as a consequence of the rating system, those who lived in them had more difficulty getting home loans or upgrading their existing homes. Redlined neighborhoods were also targeted as prime locations for development of multi-unit buildings, industrial use, and freeway construction.

As expected, a 2019 paper by three researchers with the Chicago Federal Reserve Bank found:

a significant and persistent causal effect of the HOLC maps on the racial composition and housing development of urban neighborhoods. These patterns are consistent with the hypothesis that the maps led to reduced credit access and higher borrowing costs which, in turn, contributed to disinvestment in poor urban American neighborhoods with long-run repercussions.

What Hoffman, Shandas, and Pendleton establish in their paper is that this racially influenced mapping has also had real climate consequences.  Urban heat islands are not just randomly distributed through an urban area—they are more often than not located in redlined areas.  And those extra degrees of heat have real health and financial consequences. As Hoffman explains, the impact on residents of those heat islands is serious and wide-ranging:

“They are not only experiencing hotter heat waves with their associated health risks but also potentially suffering from higher energy bills, limited access to green spaces that alleviate stress and limited economic mobility at the same time,” Hoffman said. “Our study is just the first step in identifying a roadmap toward equitable climate resilience by addressing these systemic patterns in our cities.”

Redlining and climate change

Hoffman, Shandas, and Pendleton condensed the 239 HOLC maps into a database of 108 US cities.  They excluded cities that were not mapped with all four HOLC security rating categories and in some cases had to remove overlapping security rating boundaries, or merge them because they were drawn in different years.  The map below shows the location of the 108 cities.

They then used land surface temperature (LST) maps generated in summer months between 2014 and 2017 to estimate land surface temperatures in all four color-coded neighborhoods in each of these 108 cities to determine whether there was a relationship between LST and neighborhood rating in each city.

They found that present-day temperatures were noticeably higher in D-rated areas relative to A-rated areas in approximately 94 percent of the 108 cities.  The results are illustrated below. Figure a shows the LST difference between ranked neighborhoods for the country as a whole.  The four other figures do the same for each designated region of the country.

Portland, Oregon and Denver, Colorado had the greatest D to A temperature differences, with their D-rated areas some 7 degrees Celsius warmer than their A-rated areas (or some 13 degrees warmer in Fahrenheit).  For the nation as a whole, D-rated areas are now on average 2.6 degrees Celsius warmer than A-rated areas. Thus, as the authors note, “current maps of intra-urban heat echo the legacy of past planning policies.”   Moreover,

indicators of and/or higher intra-urban LSTs have been shown to correlate with higher summertime energy use, and excess mortality and morbidity. The fact that residents living in formerly redlined areas may face higher financial burdens due to higher energy and more frequent health bills further exacerbates the long-term and historical inequities of present and future climate change.

As this study so clearly shows, we are not all in the same boat when it comes to climate change; racial and class dimensions matter.  The poor and people of color are disproportionately suffering the most from global warming largely because of the way racism and profit-making combined to shape urbanization in the United States.  But this is only one example.  A transformative Green New Deal must bring to light the ways in which this dynamic has shaped countless other processes and embrace and support the struggles of frontline communities, economic and climate.

State Conservatives Block City Progressives

Recently, organizers in a number of cities helped to build strong local coalitions which successfully won passage, either though ballot or elected official vote, of measures that improved majority living and working conditions.  Examples include higher minimum wages as well as fair scheduling, paid leave, and improved prevailing wage laws.

Now, conservative forces, organized by groups such as ALEC, are using their influence in state legislatures to pass preemption laws to block this progressive city strategy and, in some cases, roll back past gains. This development is well described by Marni von Wilpert in a recent Economic Policy Institute report titled “City governments are raising standards for working people—and state legislators are lowering them back down.”

Preemption and the rise of the right

Preemption allows a higher level of government to restrict the power of a lower level of government in areas where it believes that lower level government action conflicts, or might conflict, with its own actions. In terms of state politics, state governments can use preemption to restrict the rights of city governments.

A case in point, as described by von Wilpert:

In 2015, the Birmingham City Council passed an ordinance raising the city’s minimum wage to $8.50 effective July 2016 and to $10.10 effective July 2017. At the beginning of the 2016 session, the Alabama state legislature fast-tracked a minimum wage preemption law, which Governor Robert Bentley signed 16 days after the bill was first introduced, nullifying Birmingham’s ordinance and knocking the minimum wage back down to $7.25

At one time, preemption was used by more liberal state governments to keep more conservative city governments from undercutting social standards.  However, as von Wilpert explains, “Now that the Republican Party controls 33 governorships and has majority representation in both chambers of most state legislatures, conservative state legislators have increasingly used preemption laws to strike down local government efforts to increase the quality of life for working people in their municipalities.”

Preemption and minimum wage laws

The federal minimum wage has not been increased since 2009. In 2017, the federal minimum wage of $7.25 was worth 12 percent less, in real terms, than when it was last raised, and is 27 percent below its peak value in 1968.  Working people have therefore pushed hard to get their states and/or localities to take action, and with growing success at the local level.  “Before 2012, only five localities had enacted their own local minimum wage laws, but as of 2017, forty counties and cities have done so.”

But now, as the following figure from the EPI report makes clear, conservative state lawmakers are fighting back, using preemption to restrict local action.  Twenty-five states now have preemption laws denying local governments the right to set their own minimum wages; more than half of these laws were passed beginning in 2013.

Preemption and paid leave

State level right-wing forces have also taken aim at paid leave laws, which generally include the right to paid sick and family medical leave.  There is no federal law guaranteeing workers the right to paid leave, and, as with minimum wage gains, workers have been most successful in winning paid leave at the local level.  However, as we see in the following figure, state legislatures, since 2013, have been busy denying local governments the right to implement their own higher standards.  Twenty states now have preemption laws covering paid leave.

Preemption and fair scheduling

There are currently no federal laws that ensure workers basic fairness and predictability in scheduling.  As von Wilpert describes,

While waiting for the federal government to act, four cities and two states have passed various forms of fair work schedules legislation. But in the last few years, as local governments have begun to innovate in the arena of fair scheduling, state governments have stripped local governments’ abilities to do so—[as we see in the following figure] at least nine states have passed work scheduling preemption laws since 2015.

Preemption and prevailing wage/project labor agreements

Prevailing wage and project labor agreements require private contractors to treat workers fairly, including paying all their workers the prevailing wage, when doing work under government contract.  Such agreements keep private contractors from competing for public work at the expense of their workers.

And, as in the other areas of labor rights discussed above, we see a similar explosion in action by states to restrict the right of their localities to set higher standards for public contracting. At least 12 states now have preemption laws, all but one of which was passed beginning in 2013.

What’s next?

The current right-wing strategy highlighted above greatly reduces what working people can win at the city level in many states.  Of course, there are still many states where local initiatives can bring real improvement and these should obviously continue.  At the same time, it seems clear that the political environment is changing and not for the better in terms of what local efforts can produce.

While far from easy, this means that organizers have little choice but to deepen and extend their work. Among other things, this means pursuing efforts to link local/city coalitions in order to strengthen state level influence.  It also means that more emphasis needs to be put into building organizations as well as alliances of working people around a vision of good jobs for all, a strong and accountable public sector serving human needs, and healthy cities and communities that is to be won through organizing and direct action as well as electoral work.  Above all,  this will require seeking and sharing creative ways to strengthen working class solidarity, which is key if we are to overcome the existing divisions that allow right-wing forces to set the terms of our political choices.

False Promises: Trump And The Revitalization Of The US Economy

President Trump likes to talk up his success in promoting the reindustrialization of the United States and the return of good manufacturing jobs.  But there is little reason to take his talk seriously.

Microsoft closes shop

For example, as reported in a recent article in the Oregonian, Microsoft just decided to close its two year old Wilsonville factory, where it built its giant touch-screen computer, the Surface Hub.  As the article explains :

Just two years ago, Microsoft cast its Wilsonville factory as the harbinger of a new era in American technology manufacturing.

The tech giant stamped, “Manufactured in Portland, OR, USA” on each Surface Hub it made there. It invited The New York Times and Fast Company magazine to tour the plant in 2015, then hired more than 100 people to make the enormous, $22,000 touch-screen computer. . . .

“We looked at the economics of East Asia and electronics manufacturing,” Microsoft vice president Michael Angiulo told Fast Company in a fawning 2015 article that heaped praise on the Surface Hub and Microsoft’s Wilsonville factory.

“When you go through the math, (offshoring) doesn’t pencil out,” Angiulo said. “It favors things that are small and easy to ship, where the development processes and tools are a commodity. The machines that it takes to do that lamination? Those only exist in Wilsonville. There’s one set of them, and we designed them.” . . .

But last week Microsoft summoned its Wilsonville employees to an early-morning meeting and announced it will close the factory and lay off 124 employees – nearly everyone at the site – plus dozens of contract workers. . . .

Even as President Donald Trump heralds “Made in America” week, high-tech manufacturing remains an endangered species across the United States. Oregon has lost more than 14,000 electronics manufacturing jobs since 2001, according to state data, more than a quarter of the total job base.

Microsoft is moving production of its Surface Hub to China, which is where it makes all its other Surface products.  Apparently, the combination of China’s low-cost labor and extensive supplier networks is an unbeatable combination for most high-tech firms.  In fact, the Oregonian article goes on to quote a Yale economist as saying:

“Re-shoring” stories like the tale Microsoft peddled in 2015 are little more than public relations fakery,” [providing] “lip services or window-dressing to please politicians and the general public.”

Foxconn says it is investing

But now we have another bigger and bolder re-shoring story: The Taiwanese multinational Foxconn has announced it will spend $10 billion to build a new factory somewhere in Wisconsin (likely in Paul Ryan’s district), where it will produce flat-panel display screens for televisions and other consumer electronics.

As reported in the press, Foxconn is pledging to create 13,000 jobs in six years—but only 3000 at the start.  In return, the state of Wisconsin is offering the company $3 billion in subsidies.

According to the Trump administration, this is a sign that its efforts to bring back good manufacturing jobs is working.  The Guardian quotes a senior administration official “who said the announcement was ‘meaningful,’ because ‘it [represents] a milestone in bringing back advanced manufacturing, specifically in the electronics sector, to the United States.’”  President Trump followed with “If I didn’t get elected, [Foxconn] definitely would not be spending $10bn.”

However, there are warning signs.  For example, as an article in the Cap Times points out, Foxconn doesn’t always follow through on its promises:

  • Foxconn promised a $30 million factory employing 500 workers in Harrisburg, Pennsylvania, in 2013. The plant was never built, not a single job was created.
  • That same year, the company signed a letter of intent to invest up to $1 billion in Indonesia. Nothing came of it.
  • Foxconn announced it would invest $5 billion and create 50,000 jobs over five years in India as part of an ambitious expansion in 2014. The investment amounted to a small fraction of that, according to The Washington Post’s Todd Frankel.
  • Foxconn committed to a $5 billion investment in Vietnam in 2007, and $10 billion in Brazil in 2011. The company made its first major foray in Vietnam only last year. In Brazil, Foxconn has an iPhone factory, but its investment has fallen far short of promises.
  • Foxconn recently laid off 60,000 workers, more than 50 percent of its workforce at its IPhone 6 factory in Kushan, China, replacing them with robots that Foxconn produces.

In fact, even the Wisconsin Legislative Fiscal Bureau is worried that the state may be overselling the deal, promising billions for very little.  As a Verge article reported:

Wisconsin’s plan to treat Foxconn to $3 billion in tax breaks in exchange for a $10 billion factory is looking less and less like a good deal for the state. In a report issued this week, Wisconsin’s Legislative Fiscal Bureau said that the state wouldn’t break even on its investment until 2043 — and that’s in an absolute best-case scenario.

How many workers Foxconn actually hires, and where Foxconn hires them from, would have a significant impact on when the state’s investment pays off, the report says.

The current analysis assumes that “all of the construction-period and ongoing jobs associated with the project would be filled by Wisconsin residents.” But the report says it’s likely that some positions would go to Illinois residents, because the factory would be located so close to the border. That would lower tax revenue and delay when the state breaks even.

And that’s still assuming that Foxconn actually creates the 13,000 jobs it claimed it might create, at the average wage — just shy of $54,000 — it promised to create them at. In fact, the plant is only expected to start with 3,000 jobs; the 13,000 figure is the maximum potential positions it could eventually offer. If the factory offers closer to 3,000 positions, the report notes, “the break-even point would be well past 2044-45.”

The authors of the report even seem somewhat skeptical of the best-case scenario happening. Foxconn is already investing heavily in automation, and there’s no guarantee it won’t do the same thing in Wisconsin. Nor is there any guarantee that Foxconn will remain such a manufacturing powerhouse. (Its current success relies heavily on the success of the iPhone.)

It is because of concerns like these, that the Milwaukee Journal Sentinel reports that the state’s Senate Majority Leader has said he doesn’t yet have the votes to pass the tax package Governor Scott Walker has promised.

Forget the new trade deals

President Trump has also spoken often about his determination to revisit past trade deals and restructure them in order to strengthen the economy and boost manufacturing employment.  However, it is now clear that the agreement restructuring he has in mind is what he calls “modernization” and that translates into expanding the terms of existing agreements to cover new issues of interest to leading US multinational corporations.

As Inside US Trade explains:

Commerce Secretary Wilbur Ross on Wednesday said “the easiest issues” to be addressed in North American Free Trade Agreement modernization talks “should be” those that were not part of the existing agreement, which entered into force in 1994.

“The easiest ones will be the ones that weren’t contained in the original agreement because that’s new territory; that’s not anybody giving up anything,” Ross said at an event hosted by the Bipartisan Policy Institute on May 31. “And by and large, those should be the easiest issues to get done.”

Ross added that those new issues are important “because one of our objectives will be to try to incorporate in NAFTA kind of basic principles that we would like to have followed in subsequent free-trade agreements, rather than starting each one with a blank sheet of paper.”

Among those issues — which he called “big holes” in the old agreement — he listed the digital economy, services, and financial services. . . .

Ross reiterated the administration’s stance that the “guiding principle is do no harm” in redoing NAFTA, while the second “rule of thumb” is to view concessions made by Mexico and Canada in the Trans-Pacific Partnership negotiations “as sort of a starting point” for NAFTA talks.

Asked whether the administration has set itself up for “unrealistic aspirations” on NAFTA — promising to return to the U.S. jobs that the president has often claimed were lost due to the agreement with Mexico and Canada — Ross cautioned against viewing a retooled deal as a “silver bullet.”

In short, it is foolish and costly to believe the promises made to working people by leading corporations and the Trump administration.  Hopefully, growing numbers of people are getting wise to the game being played, making it easier for us to more effectively organize and advance our own interests.

Why Unions Matter

I write an occasional column for Street Roots, a wonderful Portland, Oregon weekly newspaper that is sold on the streets by homeless vendors, who keep 75 percent of the dollar cost of each Friday issue.

As the paper explains:

Street Roots creates income opportunities for people experiencing homelessness and poverty by producing a newspaper and other media that are catalysts for individual and social change.

In addition to income and an opportunity for meaningful street conversations, Street Roots also provides venders, who number in the hundreds, a safe place with “access to computers, a mailing address, hygiene items, socks, fresh water, coffee, and public restrooms.”  It also maintains “a vendor health fund to support vendors when they are sick or in an extreme crisis.”

The paper does outstanding reporting on local, national, and even international issues; it has 20,000 readers throughout the region.  Check it out.

Here is my latest piece, published June 9, 2017.

The attack on labor unions – and why they matter

Fewer workers are in unions now than in 1983, the earliest year in the Bureau of Labor Statistics series on union membership. In 1983 there were 17.7 million, 20.1 percent of the workforce. In 2016 the number had fallen to 14.6 million, or 10.7 percent of the workforce. While union membership rates in Oregon have been above the U.S. average, they have also followed the national trend, falling to 13.5 percent in 2016.

This decline in unionization is largely the result of a sustained corporate directed and, in many ways, government-aided attack on unions. Its success is one important reason why corporate profits have soared and most people have experienced deteriorating working and living conditions over the past decades.

Improving our quality of life will require rebuilding union strength. And, although rarely mentioned by the media, things are starting to happen in Portland. Over the last few years new unions were formed and/or new contracts signed by workers at our airport, zoo, K-12 public schools, colleges and universities, parks and recreation centers, hotels, restaurants, hospitals and office buildings.

The attack on unions 

Not long after President Reagan declared the 1981 air traffic controllers strike illegal and fired 11,000 air traffic controllers, corporations began illegally opposing union organizing efforts by aggressively firing union organizers.

According to studies based on NLRB records, the probability of a union activist being illegally fired during a union organizing campaign rose from about 10 percent in the 1970s to 27 percent over the first half of the 1980s. Since then it has remained around 20 percent. Illegal firings occurred in approximately 12 percent of all union election campaigns in the 1970s and in roughly one out of every three union election campaigns over the first half of the 1980s. They now occur in approximately 25 percent of all union election campaigns.

It is a violation of U.S. labor law for an employer to “interfere with, restrain or coerce” employees who seek to exercise their right to unionize. However, the law is so weak that many employers willingly disregard it and accept the consequences in order to stymie union organizing efforts.

Many companies also try to undermine union organizing campaigns by illegally threatening to shut down or move operations if workers vote to unionize. One mid-1990s study found that more than 50 percent of all private employers made such a threat. The acceleration of globalization in the following decades, thanks to government support, has made growing numbers of workers fearful of pursuing unionization, even without an explicit threat by management.

Although not the most important factor, unions also have some responsibility for their decline. Union leaders have often been reluctant to aggressively organize new sectors; encourage new leadership from people of color, women, and other marginalized groups; promote rank and file democracy in decision-making and organizing; and vigorously defend the rights of their members to live in healthy communities as well as work in safe workplaces.

Taking all this into account, it is no wonder that the share of workers in unions has declined.

The union difference 

The decline in union strength matters. Here are a few examples of what unions still deliver:

According to the Economic Policy Institute, “the union wage premium – the percentage-higher wage earned by those covered by a collective bargaining contract, adjusted for workers’ education, age and other characteristics – is 13.6 percent overall.”

Unionized workers are 28.2 percent more likely to be covered by employer-provided health insurance and 53.9 percent more likely to have employer-provided pensions.

Working women in unions are paid 94 cents, on average, for every dollar paid to unionized working men, compared to non-union working women who receive only 78 cents on the dollar for every dollar paid to non-union working men. This union wage premium is significant for unionized working women regardless of race and ethnicity.

Looking just at Oregon, the Oregon Center for Public Policy found that “union representation boosts the wages of Oregon’s lowest paid workers by about 21 percent, while middle-wage workers enjoy an increase of about 17 percent. Even the highest paid workers benefit from unionizing, with a 6 percent increase to their wages.”

Studies also show that strong unions force non-union employers to lift up the wages and improve the working conditions of their own employees for fear of losing them or encouraging unionization.

More generally, unions provide workers with voice and the means to use their collective strength to gain job security and say over key aspects of their conditions of employment, including scheduling and safety. These gains are significant in our “employment at will” economy where, without a union, employers can fire a worker whenever they want and for whatever reason, subject to the weak protections afforded by our labor laws.

Why unions still matter 

Two widely respected labor economists, Lawrence F. Katz and Alan B. Krueger, recently published a study of the growth in the number of workers with so-called “alternative work arrangements,” which they “defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.” They found that the percentage of U.S. workers with such alternative work arrangements rose from 10.1 percent of all employed workers in 2005 to 15.8 percent in 2015. But their most startling finding was that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.”

Large corporations are driving this explosion in irregular and precarious work by applying the same strategy here in the U.S. that they have long used in the third world. They are increasingly outsourcing to smaller non-unionized firms the jobs that were once done by their own in-house workers. This allows these large corporations to escape paying many of those who “work for them” the wages and benefits offered to their remaining employees. Instead, their salaries are paid by smaller firms, whether they be independent businesses, temporary work agencies, or franchise owners, or in more extreme cases so-called independent contractors. And because these second-tier smaller businesses operate in highly competitive markets, with substantially lower profit margins than the corporations they service, these outsourced workers now receive far lower salaries with few if any benefits and protections.

As the Wall Street Journal describes, “Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.”

At most large firms, 20 percent to 50 percent of the total workforce is now outsourced. This includes big and profitable U.S. companies like Google, Bank of America, Verizon, Procter & Gamble and FedEx.

In sum, companies aren’t going to willingly offer us jobs that pay a living wage, provide opportunities for skill development, and afford the security necessary to plan for the future. We are going to have to fight for them. And the strength of unions will be critical in that effort. So, the next time you hear about a unionization campaign or union organized workplace action— support it. You will be helping yourself.

The Importance of Oregon’s Measure 97

Approval of Measure 97 is critical for the well-being of most Oregonians; its passage could also encourage efforts in other states to reverse the slashing of public capacities in the name of tax relief for profit-rich large corporations.

The national picture is well illustrated in a New York Times article.   As David Leonhardt explains:

Consider corporate taxes, which ultimately tend to be paid by the well-off, because they own the most stock. The official corporate rate is 35 percent, infamously higher than in any other advanced economy. Yet there are so many loopholes that companies often pay relatively little in tax.

The following chart highlights just how well corporations have done at avoiding taxes—and remember this shows the tax rate for all taxes paid (federal, state, local, and foreign) by corporations.

national-tax-mess

Here in Oregon, corporations have also done well.  In fact, according to the Anderson Economic Group, which does a yearly state-by-state study of the overall tax burden faced by businesses relative to their profits, Oregon has the lightest business tax burden in the country, and has secured that dead last position three years running.  The table below comes from its 2016 edition.

anderson-tax-burden

No wonder Oregon is short of funds and unable to deliver high quality early childhood and K-12 education, affordable health care, and critical senior services.

Measure 97 is designed to change this situation.  Although the Oregon initiative process limits the kinds of changes people can make to state law, the authors of this measure have crafted a well-designed change to the tax code.   The proposed measure makes one simple, but critical change to the state’s existing minimum tax code.

Here a bit of history is useful.  Oregon introduced a $25 minimum corporate tax in 1929.  The tax was lowered to $10 in 1931 and the rate remained unchanged until 2010.  By 2009, some two-thirds of C-corporations were paying just this $10 minimum.  As we can see below in the figure taken from an Oregon Center for Public Policy study, corporations currently pay only 6.7 percent of Oregon income taxes; thirty years ago it was 18.5 percent.

shrinking-oregon-corporate-taxes

The Great Recession, which caused the state deficit to explode, finally forced the legislature to act on tax reform.  It proposed, after consultation with the business community, a ballot measure which called for a new flat tax for all businesses and a new minimum tax schedule based on sales only for C-corporations. This measure, Measure 67, was approved by the voters.  The change, although helpful, was a modest one.  Most importantly, the new minimums remained set in unchanging dollar terms; were quite low; and were regressive in that the implicit minimum tax rate went down as sales went up.

Measure 97 seeks to remedy these shortcomings by changing only the minimum tax schedule, and only for the largest corporations.   Corporations with less than $25 million in in-state sales will see no change in their taxes.  Corporations with more than $25 million in in-state sales will now have to pay a new higher minimum tax equal to 2.5% of the amount of their sales above $25 million.

According to the Oregon Legislative Revenue Office, this new minimum will raise taxes on only 1051 corporations, less than one percent of all businesses operating in Oregon and less than 4 percent of all corporations operating in Oregon.  It will however raise a significant amount of money, some $3 billion a year; that amount will produce a 30 percent increase in the state’s general fund.  Moreover, as structured, the tax will fall heavily on the largest firms; more than half of the new revenue will come from the top 50 firms.  Finally, because the tax is based on sales, corporations will have little choice but to pay it.  They cannot fudge their sales figures like they can their profits, and it doesn’t matter where they produce as long as they sell in Oregon.  No wonder these large corporations don’t like the measure.

More money has been spent on the fight over Measure 97 than on any any other ballot measure in Oregon’s history.   According to the Oregonian:

With more than two weeks to go before the state’s Nov. 8 general election, groups against the corporate tax measure have contributed more than $22.5 million toward its defeat.

That surpasses the previous record of $21.2 million contributed in 2014 toward the defeat of Measure 92, the proposed GMO labeling measure. . . .

The group supporting the measure, Yes on 97, has raised more than $10.5. That puts the combined figure for spending on the measure at more than $33 million, which also eclipses the previous record of $29.6 million in total spending on a ballot measure. The prior record was also set during the contentious run-up to the GMO labeling measure election, in which it lost by fewer than 1,000 votes.

Among the biggest contributors to the No on 97 are retail corporations like Costco, Safeway, and Kroger, each of which has given almost $2 million.  More than 80 percent of the new revenue is predicted to come from large, multi-state corporations headquartered outside Oregon and not surprisingly it is these firms that are pouring in the most money to defeat the measure.

Their strategy is to scare working people, by claiming that the tax will be passed on to consumers through higher prices.  Little is said, of course, about the fact that the measure directs that the new money is to be spent on improving early childhood and K-12 education, expanding health care options, and funding senior services—all programs with high payoff for working people.  However, this fact aside, corporate threats of higher prices are merely that, empty threats.

There are three simple reasons why these large corporations will have little choice but to absorb the tax, and accept lower profits.  First, as mentioned above, very few firms will have their taxes raised by the measure.  Thus, these firms will be facing many firms that will not be subject to higher taxes. This is well illustrated by the following figure taken from an Oregon Center for Public Policy study.  If the firms affected by the new tax try to raise their prices, they risk losing market share.  In short, competitive pressures will make it difficult for them to raise their prices.

affected-firms-by-industry

Second, research shows that most large, out of state corporations employ national pricing strategies.  This means that they charge the same price for the same product in every state in which they sell.  In other words, there is no relationship between their pricing strategies and the various tax regimes they face in the different states in which they operate.  For example, the Oregon Consumer League examined prices charged by a number of major retailers.  What they found in the case of Target was typical:

Target is one of the biggest retailers in America, making $3.4 billion in net profits from $73.8 billion in sales in 2015. Target stores can be found in every state except Vermont. We selected one Target store in each state and looked up prices online for a sample of five items: a digital camera, laundry detergent, sunscreen, a box of Cheerios, and a spiral notebook. No matter which store was chosen, the prices did not change. . . . [P]rices remain consistent despite Target paying higher taxes in some states and much lower taxes in others.

Finally, there is the internet.  Most large firms offer on-line shopping.  Oregonians could easily check to see whether firms were raising local prices and if they found that to be true, simply order the same product on-line for the national price.  And, there is always Amazon, which is ready to sell anything to anyone.

In short, Measure 97 will raise much needed money that will be used to boost the quality of the state’s schools, health care, and senior services.  And it will do so by targeting the biggest and richest corporations, making them finally pay the taxes they have so far avoided.

For more on the importance of this measure and why I strongly support it you can read my article, Measure 97 corporate tax would put state on right track, which was recently published in the excellent local newspaper Street Roots.

 

 

 

 

Yes on Oregon Measure 97

Straight Talk About Measure 97

If we want Oregon to prosper we need to dramatically improve our state’s badly underfunded public schools, health care system, and senior services.  Here are some of the consequences of current funding levels: Oregon ranks 38th in school funding, has the 3rd largest class sizes, and has the 4th lowest graduation rate in the country.  Growing numbers of working people are unable to afford health care or financially survive a medical emergency; Oregon ranks 39th in the country for public health funding.  The number of seniors being forced to leave their homes because of a lack of social services also continues to grow.

The primary reason our state doesn’t have the funds it needs is that corporations operating in Oregon have quietly but steadily found ways to stop paying state income taxes.  As the Oregon Center for Public Policy pointed out in a recent study, “In the 1973-75 budget period, corporations paid 18.5 percent of all Oregon income taxes. Today they pay just 6.7 percent, a decline of nearly two-thirds. Absent any significant policy change, corporations are projected to pay just 4.6 percent of all Oregon income taxes by the mid 2020s.”  A study funded by The Council On State Taxation, a business lobbying group, found Oregon tied with Connecticut for the lowest “total effective business tax rate” in the country.

There is no point in beating around the bushes.  The only reasonable way to generate the tax revenue we need to fund critical state programs is by forcing corporations to pay more in taxes. If we don’t, as bad as things are now, they will get worse.  The state Chief Financial Officer, George Naughton, reports that the state of Oregon is facing a $1.4 billion gap between projected revenue and what it needs to maintain existing service levels.  State officials are talking possible 7 percent cuts across state programs.

There is an answer: Pass Measure 97 in November.

The virtues of Measure 97

Measure 97 will tax few corporations and the heaviest burden will fall on large out of state corporations.  Measure 97 makes one change to the existing Oregon tax code: it raises the corporate minimum tax on Oregon sales over $25 million for the largest C-corporations selling in the state.

Currently, the state minimum tax for C-corporations with sales of 25 to 50 million is $30,000 and tops out at $100,000 for C-corporations with sales above $100 million.  Measure 97 would impose a new tax rate of 2.5% on sales above the $25 million threshold.  The Oregon Legislative Revenue Office (LRO) offers the following example: “a C-corporation with Oregon sales of $50 million would pay a corporate minimum tax of $30,001 for the first $25 million in sales (the current tax) plus 2.5% on the second $25 million ($625,000) for a total minimum tax of $655,001.”

Oregon has some 400,000 businesses, 30,000 of which are classified as C-corporations.  According to the LRO, only 1051 of these corporations have more than $25 million in state sales and would be required to pay the higher minimum tax; that is approximately one-quarter of one percent of all businesses and 3 percent of all C-corporations selling in the state.  The real burden of the tax will fall on even fewer firms: the LRO estimates that the top 50 C-corporations would likely be responsible for more than 50 percent of the resulting increase in tax revenue.  And most of the money raised by the tax, more than 80 percent, will come from companies headquartered outside the state.

Measure 97 is an effective tax that will raise significant funds.  Measure 97 raises the minimum tax on large C-corporation sales, not profits.  By taxing sales rather than profits firms will not be able to fudge accounts and escape their responsibilities.  And Measure 97 taxes large C-corporations on their sales in Oregon.  Because the tax is on where the sales take place rather than where the goods are produced, firms cannot escape the tax by shifting production outside the state.  As for revenue, the LRO estimates that the tax would raise some $6 billion each biennium, which would boost the state budget by more than 15 percent; we are talking real money.

Measure 97 also makes clear where the money is to be spent.  The measure says that the funds generated by the tax are to be used to “provide additional funding for: public early childhood and kindergarten through twelfth grade education; health care; and services for senior citizens.” While it is true that the legislature will have the final say, passage of the measure will send a clear signal of our priorities to our elected leaders.

Misleading controversies over Measure 97’s effectiveness

The Oregon Legislative Revenue Office studied the likely impact of Measure 97 on the Oregon economy.  Some who oppose the measure have drawn on parts of its report to buttress their opposition.  Unfortunately, most of their objections to Measure 97 have been based on a misunderstanding of both the LRO’s methodology and the report’s conclusions.

Let’s be clear on what the report does say:

First, the report finds that Measure 97 will raise more than $6 billion in each of the next two budget cycles and that the new tax will ensure a more stable funding base for the state going forward.

Second, the report also shows that there is little reason to fear tax pyramiding.  Tax pyramiding is a common consequence of what are called gross receipt taxes, which are taxes that are levied on all business transactions.  As goods and services are sold from one business to another the tax tends to pyramid, growing larger and larger.  Measure 97 is not a typical gross receipts tax.  First, it is not levied on all business transactions.  As we saw above, only 1000 firms will likely pay the tax.  Competition within the economy will make it difficult for these firms to pass on the cost of the tax and other firms that may purchase their products will not be responsible for paying an additional tax.  Second, the LRO report shows that the tax will fall heaviest on large firms that are engaged in “final” rather than “intermediate sales,” for example, retail sales.  Thus, there is no evidence to support fears that Measure 97 will result in significant tax pyramiding and escalating tax rates.

Third, the report also concludes that the gains from greater and more stable funding of vital services come with minimal negative economic consequences.  The LRO study does find, as critics of Measure 97 point out, that the Oregon economy with Measure 97 in place will grow more slowly and create fewer jobs over the next five years than if the measure were not passed.  However, the negative impact of the tax is quite small.  For example, the LRO model predicts that there will be 20,000 fewer jobs in Oregon if Measure 97 is passed, but this is out of a projected labor force of some 2.7 million.  In reality we are talking about rounding errors.  This is highlighted by the results of a study of the effects of Measure 97 by the Northwest Economic Research Center (NERC) at Portland State University.  The NERC, using a similar methodology, concluded that adoption of the measure would generate a small overall gain in employment.

Most importantly, critics of Measure 97 do not appear to understand the LRO’s methodology and the biases that shape its conclusions.  The LRO did not use a forecasting model to assess the economic consequences of Measure 97.  In other words, the LRO never actually tried to predict what would happen to the Oregon economy if we passed or didn’t pass Measure 97.  For example, it did not try to model the consequences of slashing state budgets if the measure does not pass; it did not take the looming budget deficit into account at all.

Rather the LRO used an idealized model of the 2012 Oregon economy that operates in its own time and space, with firms that keep no profit (since all earnings are distributed to their owners) and full employment.  The authors of the study introduced the tax, made assumptions about firm responses, and used their model to simulate their created economy’s return to a new equilibrium state over a five year period.

While this model has its uses when comparing two different tax proposals, it is not very helpful for modeling the actual economic consequences of Measure 97.  In fact, its structure is such that its predicted results overestimate the costs and underestimate the benefits of the measure.  One serious flaw in the model is its assumption that businesses have no retained profits.  This means that firms will automatically seek to pass the entire tax along to consumers, leading to higher prices and declines in real income.

However, there are many reasons to think that this outcome is unlikely.  First, competitive pressures will, in many cases, make it difficult for large firms to raise their prices.  After all, only some firms in each industry will be required to pay the new tax.  Second, studies have shown, including a recent one jointly authored by the Oregon Consumer League and Our Oregon, that large firms tend to have national pricing strategies.  In other words, these firms charge the same prices for the same products in every state in which they operate.  The study also found no relationship between state tax policies and the cost of living in each state.  Thus, it is likely that large multi-state firms operating in Oregon will simply absorb much of the new tax, accepting slightly lower profits, rather than try to pass it on to consumers through higher prices.

When you hear opponents of Measure 97 confidently predict that its passage will lead to higher prices and real income losses for consumers because businesses will simply pass on the cost of the tax to consumers, take a minute to investigate who is bankrolling the opposition to the measure.  Among the leading contributors to the no campaign are companies like Comcast, Standard Insurance, Procter and Gamble, Weyerhaeuser, Walmart, Well Fargo, and US Bank.  Would they be pouring tens of thousands of dollars each into the campaign if they didn’t fear that the tax will cost them profits?

Another serious flaw in that the model is that it does not try to capture any of the broader social benefits that would accrue to the state and its citizens from passage of Measure 97.  For example, the model does not account for the fact that a better educated and healthier population will likely attract new businesses and employment opportunities.  Or that well-funded social services would enable more people to work, boosting their incomes, or help families better weather hard times and plan and save for the future.   If the LRO had adjusted its model to compensate for these flaws, there is no doubt that its assessment of the effects of Measure 97 would have been far more positive.

In sum, most Oregonians know that many people are hurting.  And we are facing a huge budget deficit that will, if nothing is done, require more cuts to education and critical social services, leading to more suffering.  Measure 97 is a game changer.  Yes, this measure will force a large tax increase on some of the country’s biggest corporations.  But the reason that we need such a large increase is that these corporations have essentially been using our public services for close to nothing.  Until 2010 the state minimum tax was $10.  Even now, many corporations find ways to completely avoid paying even the minimum tax.  Measure 97 will put an end to that.  It will go a long way to creating an Oregon that works for the great majority.

Election Thoughts

President Obama had hoped that recent signs of economic strength would benefit Democrats in the recently completed election.  While it is true that job creation has picked up, the unemployment rate is falling, and growth is stronger, the reality is that most Americans have not enjoyed any real gains during this so-called expansionary period.

The following two charts highlight this on the national level.  The first shows how income gains made during the expansion period have been divided between the top 1% and everyone else.   There is not a lot to say except that there is not a lot of sharing going on.

income distribution

The second shows trends in real median household net worth.  While declines in median net worth are not surprising in a recession, what is noteworthy is that median net worth has continued to decline during this expansion.  Adjusted for inflation the average household is poorer now than in 1989.

Median-Net-Worth

Oregon provides a good example of state trends.  The chart below shows that the poverty rate in Oregon is actually higher now than it was during the recession.

fs20141106graphicviewofpoverty_graph1_small

The poverty rate for children is even higher. In 2013, 21.6 percent of all Oregon children lived in families in poverty.

And, not surprisingly, communities of color experience poverty rates far higher than non-hispanic whites.

fs20141106graphicviewofpoverty_graph5_small

Electing Republicans will certainly not improve things, but it is hard to blame people for feeling that the Democratic Party has abandoned them.  

More promising is movement building to directly advance community interests.  One example: voters in five states passed measures to boost minimum wages.   Another was the successful effort in Richmond, California to elect progressives to the city council over candidates heavily supported by Chevron, which hoped to dominate the council and overcome popular opposition to its environmental and health and safety policies.

Corporations And The General Welfare

There is general agreement that the economy is not growing fast enough to boost employment.  The question: What to do about it?

The response, at all levels of government, seems to be: increase corporate subsidies and lower corporate taxes in hopes that corporations will boost investment and, by extension, employment.  Those who promote this response no doubt reason that corporations must be struggling along with workers and need additional incentives and support to become successful “job-creators.”

The chart below, taken from a Paul Krugman blog post, certainly raises questions about this rationale and response.  It shows trends in corporate profits (in red) and business investment (in blue), both measured as shares of GDP.

Profits and Investment

As you can see, profits have clearly been trending upwards over time, especially during our current recovery.  At the same time, business investment, although improving, remains historically quite low.  It is hard to see a poor profit performance as the root cause of our slow growth and job creation.

Moreover, banks are sitting on record amounts of money.  The chart below, from the St. Louis Federal Reserve, shows that banks are holding approximately $1.5 trillion in excess reserves.  In the past, excess reserves averaged roughly $20 billion.  In other words, our banks just aren’t motivated to make loans.  And, instead of taxing these excess reserves to encourage loan activity, the Federal Reserve is actually paying the banks interest on their holdings.

EXCRESNS_Max_630_378

Now, as noted above, it would not be fair to say that governments are not actively trying to create jobs.  It is just that they are going about it in the wrong way, the wrong way that is, if their aim is to actually create jobs.

Governments continue to shovel huge subsidies and tax breaks at our major corporations.  This, despite the fact that most studies find little evidence that they help promote investment or employment.  What they do, of course, is enhance corporate profits.  They also force cutbacks in public spending, which does have negative effects on the economy and social welfare.  Ironically, these negative effects then cause corporations to shy away from investing.

The New York Times recently ran a good series on state and local tax deals and subsidies written by Louise Story.  She wrote:

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid. . . .

A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.

Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors.

These subsidies can dominate state budgets.  The Times reports that they were equal to approximately one-third the budgets of Oklahoma and West Virginia and almost one-fifth of the budget of Maine.

Here in Oregon, we continue to struggle with budget shortfalls.  And, fearful of losing corporate investment, the state legislature is doing what it can to keep corporate costs down.  In December 2012, Governor John Kitzhaber called the state legislature into special session to pass a bill specially designed to help Nike.

Nike had privately told the Governor that it planned to spend at least $150 million in an expansion which it claimed would create at least 500 jobs over a five year span.  If the state wanted that expansion and those jobs to be in Oregon, it had to reassure the company that its current favorable tax treatment would remain unchanged far into the future.

Although state legislators were not pleased to be presented with a major tax bill with little if any time to study its terms, they passed it.  The new bill guarantees Nike that the state of Oregon will not change how it calculates the company’s state taxes for the next 30 years, regardless of any future changes in the state’s tax policy.  More specifically, it gives the Governor power to offer such a deal to any major company that plans to invest at least $150 million and create at least 500 jobs over a five year span.  It just so happened that Nike is the only company, at least for the moment, receiving this benefit.

To appreciate what is at stake in this deal a little background on how Oregon taxes multi-state corporations like Nike is helpful.  Prior to 1991, Oregon taxed Nike using a formula that considered the state’s share of Nike’s total property, payroll, and sales, with each weighted equally.  In 1991, Oregon double weighted the sales component.  This greatly reduced Nike’s state tax bill, since while its property and payroll are concentrated in Oregon, only a small share of its sales are made in the state.

Then in 2001, Oregon began introducing a “single-sales factor” formula.  As Michael Leachman of the Oregon Center for Public Policy explains:

Under this formula, only in-state sales relative to all US sales matter in determining how much of a company’s profits are apportioned to and thus taxable by Oregon; it doesn’t matter how much of their property or payroll is based in Oregon. The Legislative Assembly in 2005 cut short the phase-in process and fully phased-in the “single-sales” formula for tax years starting on or after July 1, 2005.

The Oregon Department of Revenue estimates that using the single-sales factor formula instead of the double-weighted sales formula is costing Oregon $77.6 million in the current 2005-07 budget cycle, and will cost another $65.6 million in the upcoming 2007-09 budget cycle. The projected decline in the cost of “single-sales” in the upcoming budget cycle is temporary. It is due primarily to a corporate kicker that will slash corporate tax payments by two-thirds this year. In subsequent budget cycles, the revenue hit from “single-sales” will return to a higher level. . . .

Take Nike, for example. Nike lobbied for the switch to single-sales factor apportionment and it’s easy to see why. At the Oregon Center for Public Policy, we conservatively estimate that Nike’s 2006 tax cut from “single-sales” was over $16 million. Other prominent, profitable firms such as Intel also received a massive tax break from “single-sales.”

As Michael Munk points out:

The governor’s deal is also particularly cynical when at a time of declining public services desperate politicians are dragging out a regressive sales tax out of mothballs and The Oregonian’s “fact checker finds “mostly true” a finding that Oregon’s existing tax breaks (including almost $900B a year in corporate welfare) exceed tax collections.

Of course, this stance towards the needs of Oregonians is nothing new for Nike.  In 2010, Oregonians voted in favor of two measures (66 and 67) which temporarily raised taxes on the very wealthy and corporations.  Phil Knight, the Nike CEO, not only gave $100,000 to the anti-Measures campaign, he also wrote an article published in the Oregonian newspaper in which he said:

Measures 66 and 67 should be labeled Oregon’s Assisted Suicide Law II.

They will allow us to watch a state slowly killing itself.

They are anti-business, anti-success, anti-inspirational, anti-humanitarian, and most ironically, in the long run, they will deprive the state of tax revenue, not increase it.

The current state tax codes are all of those things as well. Measures 66 and 67 just take it up and over the top.

Knight even threatened to leave the state.  He didn’t, but I guess the last laugh is his, now that his company’s tax situation is secure for the next 30 years.

So—what lies ahead—more counterproductive state policies and head scratching about why things are going poorly for working people, or a change in strategy?