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Policy Points from Iowa Fiscal Partners

Posts tagged jobs

Job Creationism

Posted June 12th, 2013 to Blog
Peter Fisher

Peter Fisher

In the beginning, there was a CEO. And he said, “Let there be jobs.” Because he wanted to be a Job Creator, since he had heard that Job Creators get all kinds of public praise and respect, not to mention some significant perks, like being able to flash the Job Creator ID card whenever anyone threatens to raise your taxes. Others touted the ability of the Job Creator card to transfix governors and state legislators, who would then intone “We will grant you any incentives you ask for, oh wonderful Job Creator.” And amazingly, spending public money indiscriminately on Job Creators helps those public officials get re-elected. A win-win situation, at least if you leave ordinary working citizens out of the equation.

And his board of directors said, “Hey wait a minute; how about a new product first, and consumers who are willing and able to buy it.” So the CEO bought up an innovative start-up company, and conducted market studies. And it turned out that indeed there was a market for this product, and sales to be had, and profits to be made.

But the CEO discovered that his board of directors and his shareholders really wanted him to focus on that last point: profits. It turned out that maximizing profits required minimizing costs, which actually meant hiring as few people as possible. Workers, it seemed, could be a pain; they wanted to be paid, and to get benefits like health insurance, and work in safe and reasonable conditions, and maybe join a union. So the CEO set about creating as few jobs as he could, at the lowest wages that would get the skills he needed, with as little job security as he could get away with. He hired consultants to tell him how to keep them from joining unions. And he dreamed of a company that had no employees whatsoever.

As consumers spent more, the company produced more, and hired more workers. (Hmmm; seems like consumers are creating jobs. We can’t call everyone a Job Creator, though; sorry folks.) But then there was a recession, and consumers stopped buying and the CEO had to lay off half his work force. And when the economy recovered he found he could make more profits without hiring them all back, by mechanizing some operations and outsourcing others to low-paid workers overseas.

The CEO fretted for a moment. Would they repossess his Job Creator card, because he was actually destroying jobs? Well, not to worry. It turns out that you can destroy jobs right and left and that has no effect on your status. In fact, you can ship 1,000 jobs overseas and then get praised for opening a new U.S. branch that employs 50. Not just praised, but rewarded, with tax exemptions and credits and such. Things that really help that profit maximizing thing that your board is so worried about.  In fact, it seemed that the more Job Creators laid off workers, the more desperate people became for jobs, and the more lavishly they showered benefits on the Job Creators. How could you lose with a deal like this?

When he read the fine print on the back of the card the CEO understood how membership actually worked: Anyone in a position to hire (and fire) was a Job Creator. Your actual record didn’t matter. Nor did anyone seem to worry about the actual source of job gains being traced to innovation, and research, and public support of universities, and public investments in transportation and other infrastructure, and broadly shared income that allowed consumers to buy the products and services that workers were producing.

So the CEO quit worrying, and sipped his martinis on the beaches of various tax havens in the Caribbean, contemplating how well deserved was his status as a Job Creator, and how nice it was to be worshipped for who you were instead of what you did.

Posted by Peter Fisher, Research Director


Who benefits? No doubts — the ‘1 Percent’

Posted June 4th, 2013 to Blog
Peter Fisher

Peter Fisher

For whose benefit is this country run? The events of the past 10 years should have erased any doubts about the answer to that question. Let’s recap for a minute just what happened.

First, federal regulators sat idly by while banks and investment funds, with help from their friends the bond rating agencies, put billions into high-risk mortgages that should never have been made, and mortgage brokers raked in closing fees. Millions of families became heavily in debt, and housing prices shot up at unsustainable rates. When all this collapsed, it drove the economy into the deepest recession since the 1930s. Millions lost their jobs and their homes, as banks chose to foreclose rather than work out a way for homeowners to remain in their homes.

There was a little seeming good news: Interest rates were at an all-time low. People could refinance at incredibly low rates. But wait: The banks reacted to the criticisms of their previous loose lending practices by drastically tightening credit rules. Ordinary people who were making house payments with mortgages at 5 or 6 or 7 percent were denied refinancing because their credit was bad — because of the recession and loss of jobs. So the banks were saying, in effect: Yes, we see that you are making your payments at 6 percent but we don’t think you could make the lower payments at 3.5 percent. Banks kept their very profitable mortgages, earning twice what they could get on new mortgages, and prolonging the recession as consumers were unable to free up money for other purchases.

So finally, after five years of economic hardship for much of the population, housing prices have hit bottom and started back up again. Great news. People who have a job again may also be able to buy a house again, and at still very favorable prices and interest rates. But wait: We can’t have the formerly unemployed, forced out of their homes, becoming homeowners again and getting all the benefit from future rising prices and cheap credit. No, that’s clearly a job for the rich.

Families who struggled and suffered during the recession saw their credit ratings sink, and with the tight credit rules, they are shut out of the mortgage market (and in some cases the job market as well). And who steps in? Wall Street firms and wealthy house-flippers. One firm alone, the Blackstone Group, has purchased 26,000 homes in nine states.[i] In a few years they can re-sell to ordinary working folks at higher prices (with mortgages at higher interest rates). The rich, it turns out, are the ones in a position to buy at the bottom and reap the capital gains that will follow (taxed, of course, at a much lower rate than wages).

It should hardly come as a surprise that the net effect of the housing bubble, the financial collapse and prolonged recession, and the beginnings of recovery, was to bring about a substantial redistribution of wealth. For much of the population, what little wealth they had was concentrated in home equity, which was wiped out by the collapse of the housing market; wealth continued to decline for the bottom 93 percent of the population during the first two years of “recovery.”[ii] But for the richest 7 percent, wealth increased 28 percent, from 2009 to 2011.

Income inequality is rising again as well, as profits have surged since the recovery began while wages have stagnated. The top 1 percent got 121 percent of all the gains in income from 2009 to 2011.[iii] If you are in the 1 percent, things have worked out just swimmingly; causing an economic collapse can be very profitable if you are in the right position.

If you are part of the 1 percent, you are also free to spend as much of that new wealth as you want re-electing public officials who will blame Food Stamp recipients, unions, and public school teachers for our economic troubles, while slashing any program that benefits the poorer half of the population in the name of cutting the national debt. Those elected officials can also be counted on to weaken those pesky new financial regulations, modest to start with, and making sure your tax rate doesn’t go back up to anywhere near what it was in the 1990s. Of course, curbing spending while unemployment is still above 7 percent prolongs the jobs recession and the hardships of working families, but who cares? Keep those wages down, profits up, and stock prices hitting historic highs. Meanwhile, having helped destroy several millions jobs during the recession, and having found numerous ways to restore production levels since then without hiring back your former employees, you will now find that you can claim an exemption from tax increases and qualify for all kinds of state and local incentives on the grounds that you are a “job creator.”

Is this a great country or what?

Posted by Peter Fisher, Research Director


Iowa’s decline in job-based health insurance

Posted April 11th, 2013 to Blog

The Cedar Rapids Gazette today offered an interesting look at the question of where Iowans get their insurance. It’s less and less something that comes through employment. And when the costs of insurance keep rising, that makes it tougher on the household budget — or results in people not having insurance.

This is a trend we’ve been watching and reporting on at the Iowa Policy Project for many years, as have several good research organizations such as the Economic Policy Institute.

The Affordable Care Act offers at least a partial remedy. As health insurance exchanges are developed, affordable insurance should be more readily available. Tax credits for employers providing insurance will provide a targeted incentive to offer employees a better option than what employees might find on the individual insurance market.

Colin Gordon

Colin Gordon

Our State of Working Iowa report for 2012 offers another good look at this issue. As author Colin Gordon observes, wage stagnation, erosion of good jobs and recession have combined to batter workers, at the same time non-wage forms of compensation, health and pension benefits, also have declined. This has eroded both job quality and family financial security, and increased the need for public insurance. In Chapter 3, “The Bigger Picture,” Gordon writes that Iowa is one of 15 states, including five in the Midwest, to lose more than 10 percent of job-based coverage in a decade. He continues:

These losses reflect two overlapping trends. The first of these is costs. Health spending has slowed in recent years, but still runs well ahead of general inflation. Both premium costs … and the employee’s share of premiums have risen sharply — especially for family coverage — while wages have stagnated.

In 1999, a full-time median-wage worker in Iowa needed to work for about 10 weeks in order to pay an annual family premium; by 2011, this had swollen to nearly 25 weeks. Steep cost increases have pressed employers to drop or cut back coverage, or employees to decline it when offered. High costs may also encourage more employees to elect single coverage — counting on spousal coverage from another source and kids’ coverage through public programs. The second factor here is the shift in sectoral employment outlined above: Job losses are heaviest in sectors that have historically offered group health coverage; and job gains (or projected job gains) are strongest in sectors that don’t offer coverage.

This graph looks at the rate of employer-sponsored coverage, by industry sector, from 2002 to 2012.

job-based coverage comparison, Iowa 2002-2012

An interactive version of that graph in the online report allows the reader to toggle between those two years; the colored balloons sink on the graph in moving from 2002 to 2012, as if they all are losing air — the result of declining rates of coverage.

Good public policy could help to fill them again.

2010-mo-blogthumbPosted by Mike Owen, Assistant Director

 


Score one for economic reality: Public jobs matter

Posted October 22nd, 2012 to Blog
Mike Owen

Mike Owen

Today’s New York Times editorial, “The Myth of Job Creation,” takes both President Obama and challenger Mitt Romney to task for their comments in the second debate about the importance of public-sector (government) jobs.

As the Times noted:

Public-sector job loss means trouble for everyone. Government jobs are crucial to education, public health and safety, environmental protection, defense, homeland security and myriad other functions that the private sector cannot fulfill. They are also critical for private-sector job growth in … fundamental ways.

At the Iowa Policy Project, we have made this case repeatedly in Iowa over the last few years, both in response to cutbacks in Iowa budgets and to misinformed political assaults on federal stimulus spending, which did a good job bridging revenue gaps in Iowa to prevent worse cutbacks in public-sector spending. See our latest “Iowa JobWatch.”

In Iowa, 1 in 6 jobs is a government job, at the local, state or national level. How is it possible that roughly a quarter-million jobs in our state do not have an important impact on our economy? The answer of course is that they do. The lion’s share of those jobs are in local government, so they are scattered across the state. They are filled by our neighbors, buying goods and services from local businesses and keeping kids in our schools. As the Times notes, regarding comments by both presidential candidates suggesting that “government does not create jobs”:

Except that it does, millions of them — including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

As with shortsighted approaches in budgeting that attempt to resolve all deficit issues with spending cuts, instead of taking a balanced approach to both the spending and revenue sides of the budget ledger, our leaders make a mistake when they think all new jobs have to be in the private sector or they don’t matter. Public-sector spending feeds private industry, and creates new jobs in the private sector. To pretend otherwise is foolish.

It’s always good when a dose of fiscal and economic reality hits the public debate. But it is unfortunate that it doesn’t happen more often.

Posted by Mike Owen, Assistant Director