Want to improve the economy? Narrow the growing wealth gap

December 21, 2014

Many politicians and business executives like to complain about the slowness and fragility of the economic recovery. Then they push policies to keep it that way — or make it worse.

What they don’t seem to understand is that the best way to improve the economy is to put more money in the pockets of average people who will spend it.

Instead, these politicians and executives oppose raising the minimum wage, which has been $7.25 an hour since 2009 and losing ground to inflation for decades. A low minimum wage keeps wages just above it depressed, too.

Then there are the perversely misnamed “right to work” laws. Their real purpose is to weaken what is left of labor unions so that big business, which already seems to have bought control of government with campaign contributions, has nobody to challenge its power.

Add to that efforts to repeal Kentucky’s “prevailing wage” law, which would cut the pay of working men and women who build public construction projects.

The biggest drag on the economy — and perhaps the biggest threat to America’s long-term prosperity — is the widening wealth gap between the haves and have-nots. Narrowing the gap is in everyone’s best interest, whether they realize it or not.

The prevailing-wage law became a flashpoint last week at a state legislative meeting. The law is designed so that public construction projects pay wages that reflect those in the local community. But as so much of the construction industry has become non-union, critics argue that the law puts too much emphasis on higher union wages.

The Legislative Research Commission compiled a report showing that construction workers on state projects earned $8 an hour more than those on private projects. Workers on 12 school district projects earned $11.37 an hour more.

But critics objected to the analysis, saying it looked only at labor costs, not total project costs. Might more skilled, better-paid workers complete projects faster and better? Besides, higher wages help strengthen local communities.

The irony is that most of the legislators who think construction workers are overpaid have little to say about the sometimes obscene compensation policies at state government’s highest levels.

Kentucky’s public pension systems are among the most under-funded and least transparent in the nation, yet they provide rich benefits for part-time legislators and other high-ranking officials smart enough to game the system.

And then there is the case of the Kentucky Community and Technical College System president, long the nation’s highest-paid community college leader. He recently retired with a $300,000 handshake.

Warren County’s Fiscal Court last week approved Kentucky’s first county “right to work” ordinance, although it is unclear if it is legal under state law.

Republican legislators and chambers of commerce would like to make Kentucky a “right to work” state. That would make Kentucky more “friendly” to companies that want to come here and pay low wages. Studies show right-to-work states often do have faster job growth — as well as lower overall wages and higher poverty rates.

Since Congressional Democrats failed to overcome Republican opposition to raising the federal minimum wage, a statewide minimum-wage increase has been proposed by Democrats in the Kentucky General Assembly. Last Thursday, Louisville’s City Council raised the local minimum wage to $9 by 2017 on a 16-9 party-line vote.

Predictably, business groups and right-wing activists argue that would cause huge job losses — even though it has never happened with previous minimum-wage increases.

Since Ronald Reagan was elected president in 1980, economic policies and trends have largely been based on “trickle-down” economic theory — the notion that if the rich get richer, everyone else will prosper, too. Trouble is, it hasn’t worked that way.

Wealth inequality in the United States is now higher than at any point since the 1920s. The vast majority of all income growth is going to the rich. Corporate profits and the stock market are at record highs. But average workers are losing ground, and the overall economy remains sluggish.

This is a global problem, too, prompting Pope Francis to take up the issue last year in a papal statement worthy of a few amens.

“Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” the Roman Catholic Church’s leader wrote. “This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power.”

Labor Day a reminder of how working people are falling behind

August 31, 2014

Each year on Labor Day, I think of Myles Horton and something he once told me.

Horton started Tennessee’s Highlander Center in 1932 and spent most of his 84 years crusading for racial, environmental and economic justice. Rosa Parks called him, “the first white man I ever trusted.” He was a mentor to the Rev. Martin Luther King Jr.

During an interview in the 1980s, I asked Horton about his focus. “Working people,” he replied. “People who work for a living rather than own for a living.”

Labor Day celebrates Americans who work for a living, which is most of us. But each year there seems to be less to celebrate. Stock markets, corporate profits and executive compensation are hitting record highs. But at the other end of the spectrum, there aren’t enough good jobs for people who want to work.

There has been a lot of political talk about job creation, but a more important issue is the quality of jobs. More and more people are working hard at full-time or several part-time jobs and still can’t earn a decent living.

The Kentucky Center for Economic Policy, a non-profit think tank in Berea, issued a report last week that offers a gloomy assessment of recent trends. The full report is at Kypolicy.org, but here are some key findings:

Kentucky is experiencing job growth, but still needs 80,800 jobs to get back to the pre-recession 2007 level and accommodate population growth since then. Nearly one in four Kentucky part-time workers say they would rather have full-time jobs.

A lack of jobs has led to a decrease in the labor force as many Kentuckians have given up looking for work. One third of Kentucky’s unemployed people have been that way for a long time.

Wages are depressed by high unemployment levels. The late 1990s, when the unemployment rate was below 4 percent, was the only time in the past 35 years when Kentucky workers’ real wages actually grew.

The inflation-adjusted median wage has fallen 8 percent since 2001, and low-wage workers’ pay has fallen by 7 percent. Much of that is because higher-paying jobs that produce goods — especially in manufacturing — have been replaced by service jobs. Many service jobs pay low wages, which have been further depressed by a $7.25 hourly minimum wage that hasn’t been raised since 2009.

What are some solutions? First, the center recommends long-needed reform in Kentucky’s 1950s-era tax code to reflect the modern economy. That would provide more revenue for the state to invest in education and infrastructure, both of which would create jobs and spur economic development.

Another good idea the center recommends is raising the minimum wage. The value of the minimum wage has been eroded by inflation to the point that it is too little for an individual, much less a family, to live on.

What is especially obscene is huge, profitable corporations that pay workers so little they are eligible for public assistance. That leaves taxpayers subsidizing the profits of companies such as Wal-Mart and McDonald’s. Raising the minimum wage would save taxpayers money.

Opponents argue, as they always have, that increasing the minimum wage costs jobs and raises prices. But evidence shows those effects are minimal. A higher minimum wage, which also pushes up pay for workers just above it, puts more money in the pockets of people who will spend it, which boosts the economy.

Conservatives argue that Kentucky could spur economic growth by enacting anti-union laws and loosening environmental regulations. But that kind of growth does more harm than good. Pollution creates health problems and lowers the state’s quality of life. Anti-union laws boost business profits at the expense of workers.

Cynically named “right to work” laws make it harder for workers to organize for higher wages and better working conditions. States that enact those laws generally have lower average wages and more poor people than those that do not.

Similarly, repealing “prevailing wage” laws would make public construction projects cheaper, but only by taking money out of the pockets of the people doing the work.

It is no accident that the decline of the middle class since the 1970s has mirrored the decline of organized labor, which had a big role in creating the middle class in the first place. More and more of this nation’s wealth is rising to the top at the expense of everyone else.

Yes, we need to create more jobs. But we need to do it in ways that will improve the fortunes of people who work for a living and not just those who own for a living.


Will Mayor Gray keep making the tough calls?

March 5, 2011

In his first two months in office, Mayor Jim Gray hasn’t been shy about wading into swamps to wrestle alligators. The question is: Will he keep it up?

Gray moved quickly to launch management reviews of Lexington’s troubled jail and emergency call center. He was involved behind the scenes in last week’s ouster of the two top officials of the Lexington-Fayette County Health Department, where poor management seemed to be at the root of longstanding problems.

Last Monday, Gray asked for the resignation of Fire Chief Robert Hendricks, saying he had not demonstrated the level of leadership the department needed. The flash point was Hendrick’s failure to manage overtime, resulting in an $80,000 budget overage that was on track to grow to $500,000 by the end of the year.

If the chief refuses to resign, the Urban County Council will ultimately decide whether to fire him. Council members voted unanimously Thursday to support Gray in gathering information that could lead to the chief’s dismissal.

Gray said in an interview Friday that, after nearly four decades as a business executive, he is comfortable with this part of his job. “This is what you do as a manager,” he said. “You’re a problem-solver.”

Gray, who is on leave as chief executive of his family’s firm, Gray Construction Co., said experience has taught him that nothing can do more to diminish an organization’s efficiency or morale than poor leadership.

“It’s always blamed on the employees,” he said. “Employees are in search of leadership. When it’s not present, the issues really elevate themselves.”

Will more heads roll? That depends, Gray said. He created the Mayor’s Office of Performance Management, headed by Sheila Hupp, who held a similar job in Irving, Texas. Her task is to work with city division directors to set standards and measurements of success.

“This is not an event, it’s a process,” Gray said. “But we do have a moment in time because of the financial crisis to adapt, adjust and learn better ways of operating.”

While Gray said he is determined to run government more like a business, it is still government, which means politics. Gray was elected with backing from Lexington’s police and firefighter unions, and his transition team reports reflected their dissatisfaction with both the fire and police chiefs.

So is Police Chief Ronnie Bastin’s job also on the line? Gray said no, because he doesn’t see evidence of poor management in the police department.

What’s more, Gray said, the police and firefighters unions’ support of his campaign will not keep him from driving a hard bargain in contract negotiations, which begin soon. For the first time, he said, the city will hire a professional negotiator to assist management.

“My responsibility is to represent the people, the taxpayers, in these negotiations, and that’s what I’m going to do,” Gray said. “That involves respecting the work of our public safety employees. But it also involves driving a hard and true bargain that’s best for everyone. Unless it’s good for everybody, it’s not good for anybody.”

Gray said he will take the same tough approach to fixing the police and firefighter pension system, which looms as perhaps the biggest financial crisis facing Lexington’s government.

When Lexington and Fayette County merged in 1974, the state General Assembly, over the city’s objections, created a separate pension fund for city police and firefighters rather than putting them in Kentucky’s County Employees Retirement System.

The city’s pension system has always been underfunded, but the liability has ballooned 900 percent since 1997. The city’s unfunded obligations to the system now total about $325 million.

There are many reasons for that unfunded liability, but a big one has been very generous disability benefits. A study showed that 42 percent of Lexington police and firefighters retire on disability, compared with 7.6 percent of Louisville police and firefighters and 8 percent in the country retirement system.

Gray said he will soon appoint a commission to study the pension problems and recommend solutions. I’m betting those solutions will require tighter rules and reduced benefits for future police and firefighters.

Convincing the General Assembly and the unions to go along with such changes is sure to be one of the biggest tests of Gray’s wrestling ability. Alligators don’t come much bigger than that.