Robert Reich: “Paid-what-you’re-worth” is a toxic myth

[one...two...tree 2,762]

A bit long, but a good read.

Robert Reich

It’s often assumed that people are paid what they’re worth. According to this logic, minimum wage workers aren’t worth more than the $7.25 an hour they now receive. If they were worth more, they’d earn more. Any attempt to force employers to pay them more will only kill jobs.

According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn’t be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.

“Paid-what-you’re-worth” is a dangerous myth.

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.

Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive.

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.

Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.

By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top.

If you still believe people are paid what they’re worth, take a look at Wall Street bonuses. Last year’s average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New York’s state comptroller. Remember, we’re talking bonuses, above and beyond salaries.

All told, the Street paid out a whopping $26.7 billion in bonuses last year.

Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail.

People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from America’s smaller banks. That’s because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones won’t be bailed out if they get into trouble.

This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger.

How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated it’s about eight tenths of a percentage point.

This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount — roughly $83 billion a year.

Recall that the Street paid out $26.7 billion in bonuses last year. You don’t have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because they’re too big to fail is about three times what Wall Street paid out in bonuses.

Without the subsidy, no bonus pool.

By the way, the lion’s share of that subsidy ($64 billion a year) goes to the top five banks — JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks’ typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits.

The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasn’t because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions — big Wall Street banks — that hold a privileged place in the American political economy.

And why, exactly, do these institutions continue to have such privileges? Why hasn’t Congress used the antitrust laws to cut them down to size so they’re not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)?

Perhaps it’s because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties.

America’s low-wage workers don’t have privileged positions. They work very hard — many holding down two or more jobs. But they can’t afford to make major campaign contributions and they have no political clout.

According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of America’s 1,085,000 full-time minimum wage workers.

http://www.salon.com/2014/03/15/robert_reich_paid_what_youre_worth_is_a_dangerous_myth_partner/

Edited March 18, 2014 by Porterhouse

[sandinista! 1,816]

Nicole Larson was the kind of person whose smile always made you want to smile back. It was only after a while that it struck you: She always smiled with her mouth closed.

It had been six years since Nicole last sat in a dentists chair, seven since her last full exam or X-rays. Childhood dental visits had been rare: Her parents low-wage jobs never had insurance, and after paying for rent and heat and food, there was rarely much left. As an adult, she worked long hours as a waitress and hotel housekeeper, but those jobs lacked insurance, too, and the meager pay always ran out before the month did.

So Nicole learned to white-knuckle it through toothaches, popping handfuls of ibuprofen. She brushed constantly, rinsing with every oral rinse the drugstore sold. And she perfected a dimpled, twinkle-in-the-eye smile that always got a smile in return but didnt require her to open her mouth.

But today all that was about to change. She had landed a new job still minimum wage, but this time with dental coverage. She sat in the waiting room, praying that today would be the day the pain finally stopped for good.

The dentist called Nicole into the exam room, poked and prodded a bit, and listed some treatment options. Nicole crossed her fingers.

But then he stood up and shut her file abruptly, not even trying to hide his disdain. Look, there are plenty of things we could do, he said frostily, hand on the doorknob. But if youre just going to let everything go to hell like this, theres really no point.

And the door clicked shut behind him.

* * *

It was nearly a year before Nicole even tried another dentist, too afraid of more humiliation, of being treated as if her condition was the result of some moral failing, instead of the logical outcome of a lifetime of low wages and no insurance.

But she couldnt help wondering: What had made an otherwise nice, competent, community-minded, churchgoing professional suddenly morph into such a jerk?

Americans, by and large, are a charitable bunch. Need canned corn for the food drive? Pairs of gloves for the church mitten tree? Dolls and bears for Toys for Tots? Were all over it and well probably give you three.

But our compassionate instincts have some blind spots, no matter whether we vote red or blue. Its not because were heartless (well, usually, anyway). Its rather because we so often dont understand the back story to what were seeing, or the unseen factors in play.

The rude dentist wasnt a cartoon villain; heck, most of the time he was probably a pretty nice guy. The problem was that he was utterly unable to imagine a life unlike his own, in which dental care wasnt a given where if there are five things on the list of essentials and the money runs out after item four, you just cant have number five, no matter how bad the pain. There was nothing in his personal experience to suggest the existence of such a life. Hed never imagined it, and no one had ever made him try.

So he felt nothing when he crushed Nicoles hope and pride in two short sentences; indeed, he didnt realize he was doing it at all.

* * *

Fortunately, most of us are much more perceptive than that dentist. But there may be gaps in our experience that, despite our best intentions, leave us with blind spots about American families living in poverty. Here are a few things we may have missed:

Hi, Im right here

Maybe she wipes your childs face at day care. Maybe he mops the floors at your church. Maybe she makes the beds in the hotel you stay at. Maybe he trims your shrubbery and mows your lawn. Maybe she lifts your elderly aunt in and out of her wheelchair each day at the nursing home.

Most middle-income Americans have no idea how many of the people around them every day are living in poverty. We think of the poor as only elsewhere, in inner cities or far-off trailer parks, anywhere but here. We tell ourselves that the poor are simply slackers who dont want to work or that the only folks earning wages you cant live on are teenagers working summers at McDonalds, who will of course go to college in the fall.

But its not true. Fifty-seven percent of the families below the poverty line in the U.S. are working families, working at jobs that just dont pay enough. Theyre not teenagers, theyre not lazy, and theyre not somewhere else. (After all, if every McDonalds employee is a high school student, how can I buy a Big Mac at noon on a school day?) These folks are childcare workers, janitors, house cleaners, lawn-service workers, bus drivers, hospital aides, waitresses, nursing home employees, security guards, cafeteria workers and cashiers and theyre the people who keep the rest of society humming along for everybody else.

http://www.salon.com/2014/03/10/hi_im_right_here_an_open_letter_to_paul_ryan_about_poverty_and_empathy/

[Mr. Big Dog 10,747]

Nicole Larson was the kind of person whose smile always made you want to smile back. It was only after a while that it struck you: She always smiled with her mouth closed.

It had been six years since Nicole last sat in a dentists chair, seven since her last full exam or X-rays. Childhood dental visits had been rare: Her parents low-wage jobs never had insurance, and after paying for rent and heat and food, there was rarely much left. As an adult, she worked long hours as a waitress and hotel housekeeper, but those jobs lacked insurance, too, and the meager pay always ran out before the month did.

So Nicole learned to white-knuckle it through toothaches, popping handfuls of ibuprofen. She brushed constantly, rinsing with every oral rinse the drugstore sold. And she perfected a dimpled, twinkle-in-the-eye smile that always got a smile in return but didnt require her to open her mouth.

But today all that was about to change. She had landed a new job still minimum wage, but this time with dental coverage. She sat in the waiting room, praying that today would be the day the pain finally stopped for good.

The dentist called Nicole into the exam room, poked and prodded a bit, and listed some treatment options. Nicole crossed her fingers.

But then he stood up and shut her file abruptly, not even trying to hide his disdain. Look, there are plenty of things we could do, he said frostily, hand on the doorknob. But if youre just going to let everything go to hell like this, theres really no point.

And the door clicked shut behind him.

* * *

It was nearly a year before Nicole even tried another dentist, too afraid of more humiliation, of being treated as if her condition was the result of some moral failing, instead of the logical outcome of a lifetime of low wages and no insurance.

But she couldnt help wondering: What had made an otherwise nice, competent, community-minded, churchgoing professional suddenly morph into such a jerk?

Americans, by and large, are a charitable bunch. Need canned corn for the food drive? Pairs of gloves for the church mitten tree? Dolls and bears for Toys for Tots? Were all over it and well probably give you three.

But our compassionate instincts have some blind spots, no matter whether we vote red or blue. Its not because were heartless (well, usually, anyway). Its rather because we so often dont understand the back story to what were seeing, or the unseen factors in play.

The rude dentist wasnt a cartoon villain; heck, most of the time he was probably a pretty nice guy. The problem was that he was utterly unable to imagine a life unlike his own, in which dental care wasnt a given where if there are five things on the list of essentials and the money runs out after item four, you just cant have number five, no matter how bad the pain. There was nothing in his personal experience to suggest the existence of such a life. Hed never imagined it, and no one had ever made him try.

So he felt nothing when he crushed Nicoles hope and pride in two short sentences; indeed, he didnt realize he was doing it at all.

* * *

Fortunately, most of us are much more perceptive than that dentist. But there may be gaps in our experience that, despite our best intentions, leave us with blind spots about American families living in poverty. Here are a few things we may have missed:

Hi, Im right here

Maybe she wipes your childs face at day care. Maybe he mops the floors at your church. Maybe she makes the beds in the hotel you stay at. Maybe he trims your shrubbery and mows your lawn. Maybe she lifts your elderly aunt in and out of her wheelchair each day at the nursing home.

Most middle-income Americans have no idea how many of the people around them every day are living in poverty. We think of the poor as only elsewhere, in inner cities or far-off trailer parks, anywhere but here. We tell ourselves that the poor are simply slackers who dont want to work or that the only folks earning wages you cant live on are teenagers working summers at McDonalds, who will of course go to college in the fall.

But its not true. Fifty-seven percent of the families below the poverty line in the U.S. are working families, working at jobs that just dont pay enough. Theyre not teenagers, theyre not lazy, and theyre not somewhere else. (After all, if every McDonalds employee is a high school student, how can I buy a Big Mac at noon on a school day?) These folks are childcare workers, janitors, house cleaners, lawn-service workers, bus drivers, hospital aides, waitresses, nursing home employees, security guards, cafeteria workers and cashiers and theyre the people who keep the rest of society humming along for everybody else.

http://www.salon.com/2014/03/10/hi_im_right_here_an_open_letter_to_paul_ryan_about_poverty_and_empathy/

That right there should make any person with even just an ounce of decency stop and think. And yet, so many simply don't.

[sandinista! 1,816]

I know right? So much of the commentary sounds downright sociopathic on this subject.

So much disconnect. The privileges of good teeth. The privileges of good clothes to wear to job interviews and the wardrobe necessary to fit into white collar professions. And all the other middle class intangibles taken for granted.

[Danno 1,228]

That right there should make any person with even just an ounce of decency stop and think. And yet, so many simply don't.

An ounce of decency? What about an ounce of logic?

You never questioned for a moment how likely it would be for a dentist to turn away a gold-mine of work..... simply because he wasn't sure the patient would care for her teeth?

You people are so friggin gullible.

Yeah right and my transmission guy refused to rebuild my tranny because he thought I would drive it too hard.

--------------------------

Robert Riech writes a elaborate comparison between 1955 and how great it was then for the working man and 2014.

He never mentioned the Nafta, Gatt or any other bipartisan effort to ship a large portion of our manufacturing over seas

mean while we imported 40 million folks from third world countries to compete for what unskilled low skilled jobs are left.

Shouldn't that have had a small mention when discussing why Wal-mart workers are making 8.74 per hour?

[one...two...tree 2,762]

--------------------------

Robert Riech writes a elaborate comparison between 1955 and how great it was then for the working man and 2014.

He never mentioned the Nafta, Gatt or any other bipartisan effort to ship a large portion of our manufacturing over seas

mean while we imported 40 million folks from third world countries to compete for what unskilled low skilled jobs are left.

Shouldn't that have had a small mention when discussing why Wal-mart workers are making 8.74 per hour?

In that same vein, you failed to mention how corporate lobbying played a big part of why trade policies like NAFTA ended up harming the average worker while lining the pockets of corporations.

If we can accept the fact that through free market forces, our economy has shifted to being consumer driven, and knowing that when working Americans have money to spend, the economy thrives, paying livable wages for service sector jobs makes sense. Henry Ford realized that if he paid his workers enough for them to buy his cars, his company would benefit.

Edited March 22, 2014 by Porterhouse

[Karee 4,191]

Henry Ford realized that if he paid his workers enough for them to buy his cars, his company would benefit.

Henry Ford wasn't competing with Chinese manufacturing. I have to laugh at all these comparisons of how things were in the early 1900s, or even the 50s and 60s. Keep living in the past, and you'll get left behind.

Edited March 22, 2014 by Karee

[Mr. Big Dog 10,747]

An ounce of decency? What about an ounce of logic?

You never questioned for a moment how likely it would be for a dentist to turn away a gold-mine of work..... simply because he wasn't sure the patient would care for her teeth?

You people are so friggin gullible.

Yeah right and my transmission guy refused to rebuild my tranny because he thought I would drive it too hard.

--------------------------

Robert Riech writes a elaborate comparison between 1955 and how great it was then for the working man and 2014.

He never mentioned the Nafta, Gatt or any other bipartisan effort to ship a large portion of our manufacturing over seas

mean while we imported 40 million folks from third world countries to compete for what unskilled low skilled jobs are left.

Shouldn't that have had a small mention when discussing why Wal-mart workers are making 8.74 per hour?

Yes, decency. Not something you appear to know much about.

[mota bhai 2,675]

Damn, y'all know it's Saturday morning right?

[Danno 1,228]

Yes, decency. Not something you appear to know much about.

In your world forcing others to pay for the causes you believe in (via huge expensive bureaucracies) is called "decency."

In my world doing something to address the needs of others is decency.

PLease, Stop, you have done enough already.

[Peikko 1,575]

In your world forcing others to pay for the causes you believe in (via huge expensive bureaucracies) is called "decency."

In my world doing something to address the needs of others is decency.

PLease, Stop, you have done enough already.

You place burdens on those you want to help. You only help those who conform to your moral code of who deserves help. Government help is non judgmental, it's universal. That to me is the best thing about it, but to you the worst thing because people you don't feel deserve help get it. That's says more about your values than it does about the universal safety net.

You also fail to understand that single worker will never be able to influence global corporations in a significant way, so I am not sure how the 'help yourself' mentality combats that massive inequality. If a global corporation has no ethical policies beyond profit then people become expendable and as some of us have noticed, they are. Unions are not perfect, sometimes the balance tips away from the stated goal of providing safe work conditions and fair wages which is not good for anyone,but that can be combated. Not having any collective bargaining tools in your tool kit places the single worker in an invidious position.

Edited March 22, 2014 by The Truth™

[one...two...tree 2,762]

Henry Ford wasn't competing with Chinese manufacturing. I have to laugh at all these comparisons of how things were in the early 1900s, or even the 50s and 60s. Keep living in the past, and you'll get left behind.

The wisdom that if you pay workers enough to afford the products and services they provide doesn't have an expiration date, except to those who think having a working class of poor people is a good economic model.

[Danno 1,228]

You place burdens on those you want to help. You only help those who conform to your moral code of who deserves help. Government help is non judgmental, it's universal. That to me is the best thing about it, but to you the worst thing because people you don't feel deserve help get it. That's says more about your values than it does about the universal safety net.

You also fail to understand that single worker will never be able to influence global corporations in a significant way, so I am not sure how the 'help yourself' mentality combats that massive inequality. If a global corporation has no ethical policies beyond profit then people become expendable and as some of us have noticed, they are. Unions are not perfect, sometimes the balance tips away from the stated goal of providing safe work conditions and fair wages which is not good for anyone,but that can be combated. Not having any collective bargaining tools in your tool kit places the single worker in an invidious position.

Have you been drinking today with all this talk about "moral standards" and all that?

The post is about comparing 1955 to today without noting those things which have brought us to where a single working earner struggles to make ends meet.

-Destroy the very industries which provided such jobs.

-Flood the country with unskilled labor who compete for the remaining service industry jobs and who are more apt to drain the relief programs.

You seem to be drifting into the social programs and if the "providers" have any right to expect the "takers" to be accountable for their actions.

[Rattlehead 69]

In your world forcing others to pay for the causes you believe in (via huge expensive bureaucracies) is called "decency."

In my world doing something to address the needs of others is decency.

PLease, Stop, you have done enough already.

It would very decent of you to pay off my house for me... thanks!

[Mr. Big Dog 10,747]

In your world forcing others to pay for the causes you believe in (via huge expensive bureaucracies) is called "decency."

In my world doing something to address the needs of others is decency.

PLease, Stop, you have done enough already.

Despite any fantasy that you are trying to cook up here, the issue I actually spoke to is what value we as a society place on caring for our young and our old. That value is called minimum wage. It's what we pay those that do the actual work of caring for the young and old. You might think that's great. I, on the other hand, think it tells a lot about who we as a people are. And it's really not a good story that is being told.

Edited March 22, 2014 by Mr. Big Dog