The Progressive Ensign – Page 16 – insights and analytics to build an economy that works for all

Image: ccdallas.org

The number of starter homes for first time home buyers has continued to decline over the past six years. Millennial first time buyers are struggling with high student debt loads, car payments and sky high rents. Many young people can’t afford to live on their own and live with their parents into their late 20s and 30s. New household formations are at their lowest level since before the 2008 recession.

Sources: Trulia, Bloomberg – 3/22/18

On top of all the personal finance issues for first time buyers the price of housing continues to sky rocket now at a 7 – 8 % increase year over year. Plus, the GOP Administration has slapped tariffs on Canadian imported lumber a major building material for homes giving a even bigger boost to prices. The difference between incomes for starter home buyers and their incomes continues to spread with the housing affordability index at a 9-year low. For our economy we need a boost in first time buyer homes to increase house formation which will increase sales in home furnishings, appliances, and floor coverings – which are now flat to growing at only 1 to 2 % per year.

Builders make more margin on higher priced homes, so when they have a choice to build a high priced home versus an affordable one they will choose the high priced home. So, how do we provide incentives for builders to build more starter homes, and increase the pool of first time buyers so builders have a good market for starter homes?

Next Steps:

Home builders are business focused, they see a declining number of first time home buyers so they build more high prices homes and they have few incentives from loan providers to build first time homes.

First, we need to mitigate the student loan debt load by refinancing their loans at lower rates, providing more workouts on favorable terms or for public service out and out forgiveness of the loan.

Second, the lumber tariff needs to be ended, so we can balance lumber markets between the US and Canada to reduce lumber prices

Third, we need to work with federal home loan agencies to finance more first time homes on more favorable terms, so young couples, or others can purchase their starter home.

When people own a home they take care of it and their neighborhood looks better, they gain an intrinsic sense of reward in caring for their home and making it theirs – renting can never provide that feeling. Home ownership is a key pillar of our democracy building the equality of ownership. Homes need to be available to all to own, not just the wealthy.

Corporations Are Not Protecting Us from Identify Theft

By Patrick Hill

On March 28, 2018

In Corporate Nation State, Data Breaches, Privacy

Image: consumer.ftc.gov

There is a contract between users and the online service provider that our privacy and identity will be protected called a User Agreement. When Internet platform providers do not protect our privacy and account information they are violating the agreement and should be held legally accountable. These voluminous agreements are completely written from the company point of view forcing the user to turn over content rights to the platform provider. This is just not fair it is our content we created it, like writing with a pen, the pen company does not own the article I just wrote. Neither should Internet platform providers like Google, Facebook and Apple be allowed to do whatever they want with the content I create – they didn’t create it and should not own it.

We bring this starting point up because in the latest data breach announced belatedly by Facebook of 50 million users is another case in point. Executives causally looked at the problem as their spokesman would not even call it a breach because ‘no passwords were broken into’ no instead Facebook just gave access to Cambridge Analytica and then sent a form asking if Cambridge had deleted the data, the respondent checked a box that said Yes. Facebook never bothered to do the due diligence on the firm to see if the 50 million records were actually deleted that to begin with the firm never should have had access.

Source: Identity Theft Resource Center – 2017

The majority of the breaches are into businesses while banking and credit institutions are bringing down the number of incidents. Yet, the percentage of incidents that involve social security and credit card numbers is holding steady as hacking into systems increases. Experts at the Identity Theft Resource Center estimate for 2017 that 171 million records compromised, with a 44 % increase from 2016. Based on announced incidents the 171 million records compromised is probably on the low side of all the incidents during the year.

Today, Orbitz announced a breach into payment records for 850,000 users, Equifax disclosed last fall that 148 million users had their payment records compromised, though now they say it was ‘only partial driver’ license numbers and names’, not social security numbers or full drivers’ licenses or credit card numbers. Yahoo discovered that in 2013 over 1 billion user accounts were compromised 2 years later. The list goes on and on, what is clear is that the online industry is approaching user privacy and security in too causal a way.

Next Steps:

During the Obama administration a bill was introduced to strengthen privacy protections and make corporations accountable for data breaches. Senator Elizabeth Warren (D-MA) and Senator Mark Warner (D-VA) has introduced a bill to force credit reporting agencies to pay fines when data breaches occur, providing immediate disclosure and tools for remedying the problem to consumers. Senator Warner also introduced a bill to require that credit agencies make credit freezing services available free of charge. Firms like LifeLock actually had an agreement with Equifax on a per user basis to make money from the breach when Equifax users signed up for identity protection.

Plus, we propose a complete review of all online User Agreements to force platform providers to insert clauses protecting user data from hacks with accountability, noting that content is user owned and allowing for class action law suits in the event of a breach to remedy the damage to users who need to repair their credit records and financial information from identity theft.

EPA Continues Attack on Health in Disguised Policy

By Patrick Hill

On March 27, 2018

In Conflicts of Interest, Environment

Image: epa.gov

The EPA quietly has been planning a change to its policy on the use of scientific research to make it more ‘transparent and scientific’. Their plan is to disregard any scientific research that uses confidential study data. So, research into the health of American’s affected by fossil fuels with confidential health records of study patients would have to be redacted and made available for researchers from industry or universities taking industry funds. The process of de identifying patient data would cost millions of dollars. The EPA is standing sound scientific research on its head by telling us they are making it more ‘scientific’ while they throw out studies like the ‘Six Cities’ 1993 study by Harvard University identifying a link between air pollution and premature deaths. The new kill scientific data based studies policy will have broad ramifications across all policy areas, providing the EPA with the means to select whatever research it likes to relax regulations on industry behavior that will be harmful to our health.

Meanwhile, most of the energy industry is looking ahead investing in renewables:

Source: EIA, The Wall Street Journal, The Daily Shot – 3/13/18

The EPA is looking to protect the revenue streams of fossil fuel companies who are already in need of a change in their business models.

The American Lung Association reports that in 2017 that 40 percent of Americans still live in areas where the air is still unhealthy to breathe. So, the EPA has more work to do, not relax regulations.

Next Steps:

It is clear what is happening with this new bogus policy, EPA leadership is working to dismantle the work of the agency over the past 20 years to protect American’s health, by undermining the scientific foundation of EPA policies and federal laws. Our political leaders in Congress need to take a look further than next quarter’s profits for the fossil fuel industry and do its job of protecting the health of 125 million Americans breathing unhealthy air. Our Insight Byte of March 15 in our Insight Byte Archive reviews how our economy related to the environment is interlocked and connected as well as our health.

Heartland Communities Still Lagging in Income

By Patrick Hill

On March 26, 2018

In Heartland Economics

Image: thefamilymarketplace.com

Personal Income growth rates in heartland regions continue to lag the coasts by 3.8 to 2.0 % comparing income growth from 2016 to 2017. The following chart from the US Bureau of Economic Analysis shows how large the gap is:

Source: US Bureau of Economic Analysis, The Wall Street Journal, The Daily Shot – 3/26/18

Core issues for the lack of growth are young people moving out, industrial companies leaving for non-union states or moving factories overseas, automation, poor health, slow Internet speeds and lower education. Added to these issues which have trended in these ways over the past 20 years are now tariffs on imports with soybean farmers threatened in the Midwest where they already are competing with lower price soybean products from Brazil. In the advanced manufacturing sector which is based in the Midwest and South will likely see increases in imported aluminum and steel prices of between 10 – 25 % used in their products they resell. These price increases threaten their ability to compete and may have to lay off workers.

Next Steps:

Our heartland neighbors continue to feel under siege from many different directions. We discuss these issues in our blog – The Hallowing Out of America’s Heartland. We understand the need to push back on imported products being dumped into US markets – however broad tariffs are counter-productive and can lead to lose – lose trade wars as economic history tells us in the 1930s. We recommend in our blog that a major set of investments be made with the federal government providing seed funding for a partnership between non-government organizations, health services providers, universities, corporations and state and local government. To bring focus to the development process we propose that Heartland Development Centers (HDCs) be located in key regions maybe near a major university – land grant universities are good candidates located in rural communities. Experts from across the country, in HDCs would join together with local leaders in customizing solutions to build entrepreneurship centers, high quality health services, high speed Internet services, job and career training and other services necessary to renew the economic vitality of these regions.

Women Have Not Broken the Startup Glass Ceiling – Why?

By Patrick Hill

On March 8, 2018

In Woman CEO, Women Careers

Image: respectwomen.co.in

On International Women’s Day, we think it appropriate to review how women are doing in the fastest growing sector of the US economy – high tech startups. The results of a Silicon Valley Bank survey for 2017 are not good. There were no women board members in 70 % of Silicon Valley startups, actually up from 2016. Women were poorly represented in 54 % of startups with no executive positions filled by women in 2017.

Source: Silicon Valley Bank – 2017 (2018 figures are estimates)

Why? Having built a career in Silicon Valley for the last 25 years this author has seen a number of reasons – none really acceptable for the trend. It starts first in school, STEM programs to bring along girls in secondary school and then science and technology in college are few and poorly funded considering women represent 51 % of the population. In college, the men often start companies in dorms like CISCO at Stanford, or school buddies as the founders of Google at the Stanford School of Engineering. Universities are key incubators or engineering and high tech startups, with a low percentage of women in engineering programs there were fewer to start with to be founders. In the venture funding world, venture capitalists seek other men that they know of in graduate school departments, or grad students they know for tips on interesting new technologies. There is cultural network for men related to high tech startups that continues to grow and keep men in the mainstream. Plus, most venture capitalists are men, and don’t feel as comfortable giving many women funding, not trusting their judgement or skills is almost an unconscious response.

Next Steps:

What do we do about it? Diversity programs are a start, the Silicon Valley Bank survey did find that 41 % of startups up from 25% the previous year had started active women recruitment programs. More funding for STEM programs specifically focused on girls in grade schools with a focus on both the skills as an engineer but also the cultural aspects of a women in engineering. Many engineering environments in startups are hostile to women and keep growing with a ridiculing attitude toward women. One former manager at a $1B company in San Francisco told this author, “working in this place is like being in the boys’ locker room”. From STEM and engineering programs in college women need specific programs in incubators and founder support groups like the Women’s Founders Network. When more women start companies they will change the culture into a more robust, open and adult environment. Women on boards and in executive positions will shift HR policies in startups and small companies to be more family friendly, more flexible time for family issues as they arise and more supportive of women re-joining the workforce from having a baby or taking care of a family for many years.

There is no better day than today for men to realize many times, “The best man for the job is a woman!”

Blackrock CEO To Corporations: Focus on Social Responsibility Too, Are They Listening?

By Patrick Hill

On January 17, 2018

In Common Good, Corporate Nation State, Corporate Power, Corporate Reform, Public Interest, Solution, Worker Wages

Image: ipleaders.in

Laurence Fink, CEO of Blackrock with $6.3 trillion of assets under management sent a letter to one thousand CEOs outlining that in the future they will be evaluating companies on their societal impact not just profits. Blackrock manages major index funds which require that they invest in firms included in the index even when they don’t like the direction management is taking the company or take actions that are detrimental to their employees or community. Fink tells executives that a new age has arrived where shareholders and company management need to be more actively engaged. Plus, companies need to take the long term view related to rising automation, slow wage growth and climate change and explain their plans to shareholders.

Next Steps:

We applaud Fink’s focus on social responsibility by corporations. As he notes governments maybe way behind in the seeing the needs of society and solving those problems. Corporations can even add value, as Deloitte observes in five ways: creating new market opportunities, taking regulatory relationships from reactive to proactive, retaining top talent, enhancing brand value, and building sustainable supply chains. Now, let’s make this a priority on Wall Street. Fink in an interview on NPR’s Marketplace today, clarifying that Blackrock was not Wall Street. We have a ways to go with Wall Street expectations for quarterly results – we can hope that Wall Street was listening to a major investor like Blackrock.

GOP Administration Announces Work Requirement for Medicaid To Reduce Rolls

By Patrick Hill

On January 12, 2018

In Health, Health insurance, Medicaid

Photo: ahrq.gov

The White House announced approval of a work requirement for Medicaid recipients, yet most already work. Why? The Kaiser Family Family found in 2016 that 59 % of Medicaid patients already work:

Source: The Kaiser Family Foundation – 2016

So of the 41 % not working who is going to work? The Administration said those that are disabled, ill, in school or caregiving will not be required to work or provide community service. Does that mean that those that are retired will be required to find work? Only 8 % said they could not find work. We view this as the beginning of an effort to cut down the rolls and thus the costs of Medicaid. Instead of being viewed as a welfare program, Medicaid should be viewed as medical insurance. We don’t ask Medicare enrollees to work, and private insurers don’t ask for patients to work.

Next Steps:

Enroll US citizens into healthcare insurance at the time of birth (our blog in depth), establishing a healthcare account with Medicare for all. The idea of insurance is that we establish a large pool of 360 million people, to spread the costs of the sick along with the well, so that when the well get sick they will have services that don’t cost an unreasonable amount. The health insurers have somehow talked the American public into the idea that they get to cream off the well pool from the sick one (which is more expensive) and then sock it to people that are sick. That is just plan wrong.

Golden Years In Financial Jeopardy, Guaranteed Retirement Program Needed

By Patrick Hill

On December 1, 2017

In Retirement

The View:

Researchers estimate that 4.3 million seniors are living in poverty or near poverty today. The number of seniors in poverty is expected to soar by 146 % between 2013 and 2022. Millions of Americans between age 50 and 65 lost their home equity and savings in the Great Recession. They were not made whole then while bailouts were provided to banks and investment houses. The loss of retirement savings and limited social security income results in dire financial straits for many seniors. Retirees are squeezed between student debt (taken on for children and grandchildren), auto loans, medical costs other debt and their fixed income. The patchwork of 401k, IRAs, Roth IRAs, and SEP programs is total inadequate to provide a foundation for a secure financial future for retirement. The Solution is to setup a Retirement Savings Account that includes Social Security when first entering the workforce, with professional management of retirement funds in secure investments guaranteeing adequate income to be above the federal poverty level at age 65. Two-thirds of the funds and Social Security would go toward the poverty threshold providing retirees with an option of investing the other 34 % themselves.

The Story:

“The idea of our financial future being secure was an illusion!” Bob declared, an Amazon Campforce worker about the loss of his home and savings in the 2008 Great Recession. Bob owned a home with good equity and held hundreds of thousands in retirement accounts – in one year it was all gone. The sad reality is that for most seniors today, their financial future being secure is still an illusion.

Over 10 million people many in their 50s and 60s lost their homes, and home equity totaling $3.3 trillion in the Great Recession of 2008 – 2009. The National Association of Realtors estimates that only 33% of those who lost homes were able to come back into the housing market due to poor credit, lack of financing or the fear of another crash. Retirees lost over $1.4 trillion in the last two quarters of 2008 alone or 25 % of their investments. Professor Teresa Ghilarducci of the New School for Social Research predicts that of the 18 million Americans aged between 55 and 64 years old in 2012 by retirement age 4.3 million will live in poverty or near poverty. She estimates that between 2013 and 2022 the number of people in this group will soar by 146 %.

Yet, banks and investment houses that traded derivatives based on mortgages in 2008 that lost billions of dollars were made whole in the federal TARP bailout program. At the time of bank bailouts many people were holding underwater mortgages and were not made whole by write downs on the principal loans with their banks. On group is illustrative of their plight, senior ‘nomads’ houseless roving in RVs from job to job wherever they can find work. Some lost professional jobs during the recession and were not hired back due to lack of new skills or jobs being downsized.

In her book, Nomadland, author Jessica Bruder offers a definitive narrative of the predicament of work campers and their nomadic life. Few of these people chose this life – they are the consequential damage of the financial crisis who have been left out of the growing economy in the past eight years where 90 % of income growth accrued to the top 1 %. Feeling hopeless to change their circumstance, many see no way out but to move from job to job. Some are more hopeful that if they work hard enough they can buy a home again – however in an economy that drives wealth to the top this is a challenging dream. Seniors in urban areas who are homeless, living in shelters or living in crowded multi-family apartments are in a similar financial condition – they just don’t live a nomad life.

Corporations see an opportunity to gain access to an inexpensive, mobile labor by setting up work camp programs like Amazon’s Camperforce. The company needs a large seasonal workforce to achieve 4^th quarter sales goals totaling 33% of its yearly revenue. Amazon offers Camperforce members paid RV campsites near locations like their warehouses, where during the holidays they pull items from shelves and pack shipping boxes. Bonuses of $125 are offered for referrals. This is part time work paying $11.75 @hr, plus overtime, $1.00 @hr completion bonus with no 401k, health care, or security of a full time job. Below is a company website promotion focused on warehouse work in Kentucky and Tennessee that looks like a summer camp:

Source: Amazon – 11/30/17

Yet, Bruder discovered in interviews with Camperforce workers the job experience was far from a summer camp. They work in tough conditions lifting heavy packages, walking miles each day on the warehouse floor with limited breaks. Besides warehouse work, nomad workers seek jobs in agriculture; harvesting sugar beets, flipping burgers at spring training baseball games or other seasonal work. They are living on less than $1000 per month, with some locations having no hot showers or hygiene conveniences. Bruder found many women working long past retirement as in the past had left the workforce causing income gaps, had lower pay than men and little leftover for retirement savings.

In the future the number of seasonal jobs will decline as Amazon has installed over 40,000 warehouse robots in 2016 to do picking and packing with plans to install thousands more in the next 5 years.

Amazon reported in 2014 they had over 2,000 Camperforce members, since then it has grown fast to an estimated at 4,000 the result of hard driving company recruitment programs.

In agriculture there were 3 million migrant workers in the US in 2009, with 20% being seniors or about 600,000 both foreign born and domestic. Domestic workers make up 28 % of the migrant force so in terms of those affected by domestic retirement programs it is estimated to be 168,000, now likely to be much larger group.

These mobile seniors are just the tip of a huge population under stress from the losses of the Great Recession

How many seniors are under financial stress?

In our economy there are still 1.5 million more people working part – time for economic reasons than before the Great Recession, the majority are older workers:

Sources: Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 8/14/17

Seniors are taking on more debt for children and grandchildren. Last August, the Federal Reserve reports Parent Plus loans soared to 2 million borrowers in 2015 compared to 1 million in 2003 between ages 50 and 64. There were another 200,000 borrowers over age 64 for similar loans in 2015. The Federal Reserve Bank of New York estimates that Americans over age 60 had a 9 times increase in student debt between 2004 and 2014 to $58 billion.

Source: Federal Reserve Bank – New York – 6/30/15

The Consumer Financial Protection Bureau estimates that 40 % of Americans over age 60 have student debt loads so severe they skipped necessary healthcare. Health care costs continue to grow at a 6.5 % rate according to Price Waterhouse Coopers for 2017, 6 times the rate of inflation at 1.4 %. For older Americans on fixed incomes medical costs are a major component of their expenses with soaring medical costs creating a stressful squeeze on their fixed income budgets.

The financial reality for seniors aged 67 is growing worse as their total debt grew by 169 % between 2003 and 2015, they did not receive the uplift in incomes from the growing economy that the top 1% enjoyed.

Sources: New York Federal Reserve Credit Panel, Equifax – 2/12/16

Only 25 % of the increase in senior debt is due to an aging Baby Boomer population. Below is a debt load per capita versus 30 year olds:

Sources: New York Federal Reserve Credit Panel, Equifax, Census Bureau – 2/12/16

The Federal Reserve reported last August that seniors are taking on even more debt. Americans aged 60 and older held 22.5% of total household debt in the fourth quarter of 2016, almost double the debt load of 12.6% in 2003.

The high debt load for those nearing retirement age results from limited participation in savings for retirement. Only 33 % of Americans today are participating in employer 401K plans and on average Americans have only $5,000 saved for retirement, according to the Federal Reserve

The Solution:

Our politicians have designed a failure prone retirement system allowing corporations off the hook providing full defined benefit pension programs with professional management. Instead, 401k employee and employer match defined contribution programs were created where the individual is responsible for investing retirement funds safely. The present retirement program is a patchwork of 401ks, IRAs, Roth IRAs and SEP programs for small business. This mishmash of plans was engineered by the financial services industry to meet their sales and profit goals, yet is missing the continuity, security and financial safeguards that retirement programs demand. The loss of trillions of dollars in the Great Recession clearly demonstrate the failure of the present retirement system which has left millions in poverty or near poverty in their golden years.

Today, Social Security only provides a $12,000 a year benefit to the average retiree. Yet, Social Security provides 80 % of the benefits that 40 % all retired people depend on. A Retirement Savings Account would have as a core principle that the combination of Social Security and worker’s savings provide at least a guaranteed income at the poverty level at age 65.

Beginning with first day of a worker’s first job when they receive a Social Security number they would open a Retirement Savings Account. The worker contributes to the account no matter which employer they are working for the rest of their life until retirement. The Retirement Savings account could be administered by contract to the federal government by a financial services corporation, with the core savings invested by a professional in core income producing and safe investments – Treasuries and federally backed agency issues. Up to 66 % of their retirement funding would be in secured investments with employer matching funds being deposited into the account. If some Americans elect, they can have the remaining 34 % invested in secure defined benefit investments with a guaranteed rate of return at retirement age. Other workers may elect to invest 34 % of their funds in other financial instruments – yet 66 % of their retirement investments would be secured with Social Security making up the majority of the core guaranteed funds.

Funds deposited by workers into their Retirement Savings Account would be tax deferred up to $40,000 per year until age 65 similar to a traditional 401k today. Most workers will see a lower tax rate at retirement as this provision allows for lowering the cost of saving for retirement during high salary tax years. Corporations contributing to a workers’ Retirement Savings Account would be allowed up to a 50 % corporate tax deduction on the matching dollar amount to incent companies to contribute.

There would be no cap on total funds added to the Retirement Account by a worker. Workers would be allowed to obtain a medical or education loan with their retirement account as collateral but only up to 10 % of the value, which if defaulted and not paid back, would be paid back on a pro-rated basis by a Social Security deduction beginning at age 65.

This Retirement Savings Account proposal meets 12 core principle requirements by the Retirement USA, a Washington D.C retirement advocacy group including: universal coverage, secure retirement, adequate income, shared responsibility, required contributions, pooled assets, payouts at retirement, lifetime payouts, portable benefits, voluntary savings, efficient and transparent administration and effective oversight.

Note: References for this post can be found in the Research tab under Retirement.

The Hallowing Out of Heartland America – Requires A Major Investment Now

By Patrick Hill

On September 13, 2017

In Automation, Health insurance, Heartland Economics, Worker Wages

(Editor Note: The following blog is the result of a completed in depth research project into multi-dimensional problems facing our Heartland and we developed an innovative renewing sustainable solution. References are in the Research tab under this blog name, please right click on the charts to see them larger in a separate browser tab.)

The View:

Rural and inland regions in the Heartland have been left out of the robust growth centered mainly in coastal regions. The Heartland of America has been falling behind in education, entrepreneurship, health, housing, mobility, and digital infrastructure for the past 20 years. The rebuilding of these key regions is a multi-dimensional problem requiring a major investment similar in scale to the Marshall Plan after WWII. Yet with a different funding approach – building a startup non-government organization. We are recommending a difference approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center. An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.

The Story:

The Heartland of America been spiraling downward in terms of education, entrepreneurship, health, housing, mobility, digital infrastructure and jobs for over 20 years. All of these factors combine to create sub-nation apart from coastal and metro prosperity. Jobs programs in rural areas will not be enough to bring these regions to a tipping point in socio-economic growth. Other factors create huge challenges: the opioid epidemic has hard hit heartland communities where for example. some Ohio machine shop employers find 50 % of their job applicants for machinist jobs test positive for drugs. The Heartland is where: (1) mobility to take new jobs is the lowest in rural and small cities in the Midwest and South (2) there is the highest concentration of young people without a 4-year degree (3) the lowest concentration of entrepreneurs is holding back business formation and development to create new higher paying jobs with a future (4) the largest number of people without health insurance are found in the South and rural areas of the Southwest and West (5) slow speed Internet connections are the norm leaving many heartland regions way behind in the digital revolution where new jobs, opportunities for education and quality health are being developed and accessed (6) accounting for births, deaths and migration rural population has declined for five consecutive years. It is deplorable that a complete socio-economic region of the country has so many factors that have not been addressed to extent necessary to transform people’s lives toward good health and fair share of prosperity.

Rural and small town America enjoyed a renaissance of increasing jobs and prosperity into the mid 1990s. During this time rural counties were home to more than one-third of all net new businesses establishments fueling the job creation engine. Yet, in the past ten years the economic conditions have changed dramatically, leaving these regions out of robust growth in coastal areas since the Great Recession.

Employment

Rural or Non Metro areas have not regained the same level of employment as pre-2008 recession levels:

Sources: USDA – Economic Research Service, Bureau of Labor Statistics – 12/2016

Non Metro areas lost more jobs as a percentage of the labor force than Metro areas did during the recession and has not caught up. Non Metro employment was estimated to be 20.684M jobs in the 1^st quarter of 2007 versus the 2^nd quarter of 2016 with 20.091M jobs a 2.9% reduction or a loss of almost 600k jobs. While Metro areas during the same period exceeded recession employment levels by 4.8%. At least 50 % of the Non Metro deficit relative to Metro areas was due to zero population growth between 2010 and 2013. This factor was partially offset by an increase in hiring in the oil and gas industry when gas prices were high and fracking exploration was exploding in Midwest oil fields.

The distribution of industry sectors hurt Non Metro employment as the number of manufacturing jobs fell 20 % from 2001 to 2015. Non Metro areas were severely impacted as they had nearly twice the number of manufacturing jobs as a percentage of total employment versus Metro areas.

Sources: USDA – Economic Research Service, Bureau of Economic Analysis – 2016

Non Metro areas exceed Metro employment in sectors like Farming and Mining, Forestry and Fishing, Construction is about even with Trade, Transportation and Utilities is comparable. Yet, in Services, the fastest growing sector of the economy, Metro areas have a 16 % employment advantage over Non Metro areas.

Manufacturing companies concentrated in rural counties and near metro areas have increased employment by about 5 % in the last 6 years. However, due to automation far fewer workers are needed to increase output up to 20 %:

Sources: FiveThirtyEight, The Federal Reserve, Bureau of Labor Statistics – 3/2016

The ability of companies to dramatically increase output with fewer workers translates into fewer job opportunities for factory workers many without college degrees needed for knowledge management based work.

Other factors need to be addressed – like ensuring that workers even when trained are not in such despair that they are taking drugs. Or when on the job, their illnesses can be dealt with quickly and return to work immediately.

Health

Rural health providers face a daunting set of challenges in providing healthcare to a declining population, with high unemployment rates, reduced insurance coverage and limited access to broadband Internet for treatment information and patient records.

Excess deaths in heart disease, cancer, non-intentional injury and chronic lower respiratory disease are higher in Non Metro areas:

Source: CDC – 2015

In heartland states drug overdoses are at epidemic levels:

Source: CDC – 2016

Unfortunately, many Non Metro regions have limited or no insurance coverage, some have decided not to accept Medicaid help from the federal government – ie Texas. These no-coverage policies for many of the working class and poor mean that their health care is drastically reduced as shown in the charts above.

Sources: The Kaiser Family Foundation – 2016

The Affordable Care Act or Obamacare helped to reduce the total number of uninsured people from about 14 % total to about 9.2 %. However, as noted in the chart below for insurance plans under the ACA for 2018 many areas in the South and Southwest, and rural western states have only one insurer or some have none.

Source: Robert Wood Johnson Foundation – 6/6/2017

One major issue for health care providers and business leaders interested in bringing in new businesses is high speed Internet access and the lack of a digital infrastructure.

Internet

University of Texas researchers found in a study of rural communications in Oklahoma, Texas and Mississippi that rural household incomes went up and unemployment rates dropped in rural counties where broad band internet was installed.

The number of rural households connected to the Internet is directly proportional to Internet speed. As this graph shows Internet subscriptions per 1000 households by county where metro areas like St. Louis dense household connectivity vs a rural town like Caledonia, MO.

Sources: FCC, Broadband Now, The Wall Street Journal – 6/15/17

The FCC defines fast speed Internet as 25 Mbps about 39 % rural households in the US or 23 million people lack access to broadband Internet service. Only 4 % of of urban – metro households do not have high speed access.

A major challenge is that a city like St. Louis has 5,000 people per square mile compared to rural counties like Washington where Caledonia is located with 33 per square mile. Installation of fiber optic trunk lines cost about $30,000 per mile including access rights – so population density is crucial to meet financial targets for providers.

Broadband Internet access is like electricity was in the past – in 1935 only 10 % of rural America had electricity. President Franklin D. Roosevelt drove an initiative to connect every rural household to electric power and two decades later 90 % of all rural households have electricity.

Entrepreneurship

Rural communities once thrived in starting new businesses, however today the percentage of startups in rural areas has dropped from 20 % in the 1980s to 12.2 % in the 2010s.

Source: The Kaufmann Foundation – 2016

There are gaps between the largely white young entrepreneur often thought of in starting a Silicon Valley startup compared to a minority entrepreneur. Experts estimate that if minorities started and owned businesses at the same rate as whites that there would be over 1 million more new businesses creating an extra 9.5 million jobs.

Education impacts the propensity of young people to start businesses. Rural areas have a lower percentage of college graduates than metro areas. Adults without a college degree make up 11.6 % of the population but only 3.4 % of entrepreneurs.

Mobility

Americans have been always willing to move to ‘greener pastures’ for a new career or business opportunity, as evidenced in the Dust Bowl days of the 1930s and the migration to California, or the movement of southern African-Americans to northern states like Michigan for jobs in auto manufacturing after WWII.

Yet today that attitude and confidence is fast draining away, into a sense of not ‘fitting in’ for rural community members moving to a metro area or even small cities surrounding metro areas.

Mobility is at its lowest level on record since records were first kept after WWII, dropping by 50 % since a peak in 1985. After WWII about 20 % of Americans reported moving in the last year, that figure has now fallen to 12 %, a 40 % decline.

Source: Census Bureau, The Wall Street Journal – 8/2/17

There are three aspects related to reluctance to move: culture, housing, and education. On a cultural basis in many rural regions people are devout in their religion who don’t feel when they talk with ‘coastal people’ they are not appreciated, understood and end up being ridiculed for their values. In housing, over the last 8 years since the recession in metro areas restrictive zoning laws have reduced the availability of housing driving prices way up. Yet in rural areas housing prices are just now getting even with pre-recession levels. For a school custodian in a rural area, without a college degree a job in a metro area may pay 50 % more but housing could be 3 or 4 times more expensive. For those with college degrees, in a profession like an attorney can move from a rural area and handle the increase in housing costs due to a much higher salary ratio to housing costs, based on recent research. Finally, lack of education prevents young adults from taking jobs in higher paying metro areas where the knowledge economy requires a 4-year degree and in many cases an advanced degree.

Another issue is the possible ‘brain drain’ of losing young people to larger cities and where they stay. The small town loses the talents and innovation of its bright ambitious younger people. Investments in Non Metro areas need to offer both incentives for movement across county lines but opportunities that are created locally to build the local economy.

Education

Rural areas have endured lower education rates than urban areas. For example, rural areas achieved a higher rate of bachelor’s degrees from 2000 to 2015 but they still are 73 % lower than the bachelor’s degree rates of urban areas. Rural residents often have to travel further for college studies and of those schools serving these areas they have experienced continuous cutbacks due to regional economic downturns.

Sources: USDA, Census Bureau – 2016

There is a direct relationship between education attainment and earnings – yet here again rural residents are earning much less than urban residents by 25 % for bachelor’s degrees.

Sources USDA – Economic Research Service, Census Bureau – 2016

While rural job holders with 4 year degrees experienced higher demand for their skills they were still behind urban residents – largely due to lack of local employment prospects.

While there is a high rate of poor attainment of high school diplomas in inner cities, the problem is larger in rural areas. Of adults without a high school diploma 4 out of 5 are in located in rural areas.

Sources: USDA – Economic Research Service, Census Bureau – 2014

Rural areas hardest hit by unemployment are also those with the highest percentage of non-high school graduates in the South, East Central mountains and along the Mexican border.

The Solution:

The Rural Socio – Economic Crisis – Calls for Major Investment Now!

There is a major reason for the civil conflict we see today across America – it is the hallowing out of America’s heartland. Rural areas have been hardest by globalization, automation, fewer new business formations, lack of education opportunities, poor digital infrastructure, inadequate or non-existent health services and economic loss since the Great Recession leading to limited mobility to obtain better jobs or education.

A dedicated non-government organization (NGO) for centralizing multi-dimensional development in the heartland needs to be created, a Heartland Development Center (HDC). An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The federal government would provide ‘seed’ funding with major funding from state, local and city government and major corporations who would benefit from the new available job force. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, or preventive health – Cleveland Clinic as contractors to the HDC. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down.

Training and Employment

To plug the skills gap in rural areas initiatives like the Opportunity@Work program are one solution. The training group started in the Obama White House focuses on providing Internet economy job training to workers in the heartland to gain digital skills for jobs in fields like programming and information technology.

Designing, developing and deploying focused apprenticeship programs for the Heartland is crucial to building a robust regional economy. Colorado has invested in its CareerWise to bring businesses, colleges and vocational training groups into partnerships providing all Colorado high school juniors and seniors with a dual career path leading to a community college associates degree plus key skills. Students can begin working on the factory floor as juniors learning key company job skills, and are guaranteed full time employment at the end of their apprenticeship along with financial support to earn a community college degree. This type of program provides a good template on how to implement a Heartland program.

However, an HDC goal to create over 1 million jobs in rural communities within 5 years will require significant investments by major corporations, foundations, Federal, State and Local government and universities to turn the present situation around.

In manufacturing, partnering with the ARM Institute (Advanced Robotics in Manufacturing Institute) is an alternative where ARM focuses on developing robotic solutions with partner companies and developing worker skills in robotics. Automation is growing fast in manufacturing, so US workers need to learn robotics management, support, and collaborative work to be competitive in the world manufacturing marketplace.

Major high technology companies like Apple, Amazon, Facebook have business development departments planning today where they will be locating manufacturing sites, customer support centers and other services. HDC leaders need to be developing relationships with fast growing companies to understand their business needs and ensure they are developing the local economies, infrastructure and workforce these companies need.

Entrepreneurship

The majority of new jobs come from new businesses, yet new business formations in Non – Metro areas are half of the rate in Metro areas. Contracting with experts like the Y-Incubator in Mountain View, who has invested in over 1450 companies with a combined market capitalization of over $80b capitalization. They provide programs for non-profits and profit making organizations and a network of consultants on business fundamentals in legal, logistics, manufacturing, services, finance, and marketing to help startups.

The Kaufmann Foundation provides resources for entrepreneurs to learn business formation skills and development. They setup entrepreneur and investor networks and complete research on the needs of entrepreneurs and the status of entrepreneurship in the US.

Digital Infrastructure

Similar to the Rural Electrification project of the 1930s, the heartland needs to have its digital infrastructure upgraded to full broadband Internet service of at least 25 Mbps and ideally up to 100 Mbps to all households. Google has been setting up mega bandwidth sites in areas like Utah and the SF Bay Area, possibly a program could be setup with them to target rural communities across the country. In Rural Electrification, the federal government lent funds to local cooperatives of local merchants or farms could be setup as an alternative in areas where local telecom cooperatives have already been established. A possible successful model is in central Missouri, where The Co-Mo Electric Cooperative, Inc. installed a fiber optic network to over 25,000 subscribers. The service has reached out to another 15,000 subscribers who are non-members in neighboring communities. Co-Mo funded their program with a $100 from each member upfront with 100 Mbps service costing $49.95 per subscriber per month. The FCC needs to ensure that all providers not just phone companies can participate and offer Internet access.

Healthcare

Rural regions have some of the highest rates of drug overdose, obesity and cancer and other diseases in the country. To support the economic development and job training programs to lift the region, healthcare services need to be upgraded and offered at reasonable rates to people. The Cleveland Clinic has a start-of-the-art illness prevention and wellness program they have implemented for their own employees that has saved them tens of millions of dollars per year. Contracting with leaders like the Cleveland Clinic to setup innovative health services programs partnering with local providers would be a way to jumpstart the upgrade process for health services in these regions.

Local Feedback, Communication to HDCs

One aspect of a major development program like the Heartland Development Center project is to keep renewing itself and gain continuous feedback on how effective its programs are with its clients – the people in the region. A non-profit, Spaceship Media, in cooperation with the Bay Area News Group and other media groups has deployed on the Internet ‘conversation experiences’ with local people over Facebook and other social media to connect people with each other to discuss issues and possible solutions. Similar groups can be implemented by HDCs as focus groups to ensure they are receiving continuous feedback to tune their programs or make major changes as needed. Teamed up with incubators, local business groups and universities a continuous innovation process can be implemented to constantly support HDCs to reinvent themselves and stay on track in meeting the needs of local people.

Wages Are Stuck, Here’s Why and How To Change It

By Patrick Hill

On May 15, 2017

In Automation, Worker Wages

(Editor Note: This is the first in a series of posts on the state of the job market, and the changing balance of power between workers and management in the Internet Economy, right click on all charts to enlarge in a separate tab)

The View:

When management gains the upper hand and establishes sustained wage power, old economic theories collapse – like the idea that a low unemployment rate meant more wage bargaining power for workers but not anymore. For example, at the time of hire, wages are a negotiation between management and the candidate for a job. The employer has options if the candidate does not accept the offer to seek a variety of candidates from the Internet. After hiring, the employee enjoyed increased power due to his/her performance and value to other employers. However, assuming job performance is sustained now a variety of factors outside job performance are holding wages down. In the Internet Economy, workers face a daunting set of factors reducing their bargaining power – diminished bargaining units (unions decline), automation, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, increased executive pay and corporate control of job markets. The Action: political forces are gathering to increase worker bargaining power with initiatives like these: placing workers on corporate boards, limit outsourcing, eliminate low wage H-1B visas, offer incentives for corporations to invest in productivity improvements, end stock buybacks, breakup oligopolies, balance the job market process, balance workers and executive pay, fund worker training and increase wages related to robot deployment.

The Story:

This author was hiring a support manager for a customer support community of 5,000 users a few years ago. It was a senior position, it took three months of 3 round interviews, background checks, management review and signoffs to create a candidate job offer. The candidate came back with a counter offer (not unusual in Silicon Valley) of 4 % more and a little more in stock options. I asked my manager how far we could go to meet his counter, the executive’s reply, “We don’t make counter offers, everyone wants to work for us, you have 400 resumes from the Internet on this job, 100 are qualified, just go back to one of them.” This candidate did not have much bargaining power in the job market few years ago and with increasing job market automation candidates have even less bargaining power today.

The Bureau of Labor Statistics for last March charts wages versus inflation illustrating how workers experience stagnating wages for 8 years since the great recession – they aren’t getting ahead with wages barely keeping up with inflation recently. In June this year, total compensation including bonuses and commissions has stayed under 2.5%, note prior to the recession it was close to 3.5 % :

Source: Federal Reserve Bank St. Louis, The Wall Street Journal, The Daily Shot – 4/5/17

Source: Federal Reserve Bank St. Louis, The Wall Street Journal, The Daily Shot – 7/10/17

So, how have workers lost their wage bargaining power over the past thirty years?

Unions

Fifty years ago 33 % of all US workers were members of a union, by 2015 membership had declined to just 10 % – a greater than 66 % decline. The decline was quite pronounced in ‘right to work’ states in many in inland regions and the South:

Source: NPR 2/23/2015

Manufacturing jobs were heavily unionized, yet declined due to automation and productivity increases primarily in electronics and automotive industries where many factories were moved overseas. Almost 5 million manufacturing jobs have disappeared since 2000, yet over the past few years factories have been coming back to the US by increasing employment by 5 %, but with far fewer workers and the US taking the No. 2 position in worldwide manufacturing output with a 20 % increase in output:

Source: FiveThirtyEight, Federal Reserve Bank, Bureau of Labor Statistics – 3/2016

Automation

Thus, while union membership has declined mostly due to the reduction of manufacturing jobs in the US, automation has been a key factor weakening the worker wage bargaining position. A recent Ball State University study found that over 88 % of lost manufacturing jobs were due to automation and productivity increases not offshoring.

Automation started decades ago, as IT applications deployed in offices and manufacturing plants in the 1970s and 80s displaced thousands of workers performing repetitive manual tasks such as data gathering and reporting, answering phone calls, editing and copying documents, sending and receiving status reports, manufacturing reporting and others that were easily automated by software. By 1995, the Internet began to impact the workplace, networking software applications so that jobs once requiring local support or data could be performed overseas for far less. In Silicon Valley, an entry level software engineer would be paid $65 – 75 @hr., while an engineer in India was paid $20 @hr. or less. Thus, most business processes for ‘non-core’ functions like accounting, IT, customer support and benefits processing were moved offshore to reduce costs by 50 – 75 %.

In addition, major corporations have been outsourcing non-core services to US contracting companies to the detriment of worker’s pay security or benefits. For example, in Silicon Valley starting in the 1980s until present – many core IT functions were outsourced with ‘facilities management’ agreements, where IT workers are fired, and rehired by outsourcing companies at 30 – 40 % less in salary with no benefits or health insurance. The workers were faced with no good choice – look for another job or take a pay and benefits cut for the job they had before. In the Bay Area, H1-B visas are often used to keep wages low by offering a worker from India 40 % of the local prevailing wage for a software engineer.

Automation investments continue as software firms develop applications that automate many business activities previously thought to be difficult to automate:

Source: McKinsey Global Institute – 2/28/2017

Jobs requiring skills from sensory perception fine motor activity or navigation are going to be automated over the next 30 – 50 years. All this investment in automation results in less competition for employers to find employees to do the work they need – a machine will do it. The machine shows up on time, requires no vacation, is not absent, and does not sue the company for management miscues.

Corporate Oligopoly

Another way corporations limit worker job options is by merging with other companies and then laying off workers in the newly combined firm. Since 1997 the average market share for the top four firms in most of 893 industry sectors has increased from 26 % to 34 %. For a tenth of these sectors where the top four firms have 33 % to 66 % market share their revenues have increased by 37 %!

Source: Census Bureau, The Economist – 3/2016

The antitrust section of the Department of Justice has been asleep the past two decades. In the airline industry, there are now 4 airlines that own 80 % of the business. In finance, just 5 banks have 50 % of $15 trillion in total assets. In the information search sector – the top 4 companies have 98.5 % of the search industry market. The wireless communications industry is dominated by the top 4 companies control 94.7 % of the market between them – Verizon, AT &T, Sprint and T-Mobile. In the tire manufacturing sector, the 4 top firms dominate the US market with a total market share of 90.1 %. In 2012, entertainment, media and distribution markets were concentrated in 6 conglomerates with a total of 90 % market share. In 1983, 90 % of entertainment and related markets was distributed over 50 corporations:

Source: mediaculturesociety.org – 1/30/2013

The advertising industry is consolidated into a two Internet behemoths – Google (Alphabet) has nearly 50 % market share and Facebook with 16 %:

Source: Bloomberg, Zenith Media, The Wall Street Journal, The Daily Shot – 9/25/2017

From 1997 to 2017, the number of publicly listed corporations has declined by 50 % overall. Fewer corporations for job candidates translates into fewer corporations offering good paying jobs with high quality benefits. Plus, an analysis of corporate concentration in the five year period of 2007 to 2012 in the services sector, found that where corporations control markets and reduce the number of workers to support sales wages decline.

Source: The Wall Street Journal, The Daily Shot – 6/27/17

Source: David Autor, Professor of Economics, MIT et al, The Wall Street Journal, The Daily Shot 7/23/17

These markets have been turned into oligarchy power centers, where many executives wield huge market and political power – with no interest in increasing wages of employees. Instead, they are motivated to focus on increasing profits (increasing wages would hurt short term profits) by bonus compensation and stock price targets (inducing them to execute stock buybacks).

Gig Economy

The ‘gig economy’ of freelancing and independent contractors has ballooned to about one-third of our workforce or 56 million workers in 2016 according to the McKinsey Global Institute. The growth of ‘shared economy’ companies like Uber, Lyft, Airbnb, Rideshare and many others have provided these gig workers new flexible income opportunities without the financial safety net of traditional employer jobs. Gig economy workers often have limited or no access to worker’s compensation, unemployment insurance, 401K retirement plans, disability insurance or health insurance. Independent workers are required to pay both the worker and company portion of Social Security taxes and worker portion of Medicare each year on their income. In the Gig Economy, 33 % of the workforce is not organized into a union or any bargaining unit. These contract workers they are at the mercy of corporations or businesses that set the terms of a work contract, and if there is a problem they quickly find another contractor with no obligation to the contract worker. Uber, and Lyft dominate the ride sharing market, pushing out taxi cab firms, car companies and shuttle businesses – many with full time employees including benefits. While the cost of rides maybe going down for the passenger, workers are seeing their wages held steady or reduced (Uber reduced driver share of fares by 20 % a year ago) with no compensation for gas costs, auto depreciation and or financial protections. Financial protection for gig economy workers is in the infant stage, where companies are holding off any meaningful changes until class action suits are brought against them.

Productivity

Major corporations have parked over $1 trillion in profits overseas, invested in financial instruments. In 2017, Goldman Sachs estimates S & P 500 corporations will spend over $780 billion in stock buybacks. None of these funds are being invested in the corporation, and its workers to develop new technology, processes or systems to increase productivity or cut costs.

When productivity is anemic, offering wage increases to workers cuts into profits. Executives are compensated well based on hitting profit targets, so wage increases are not going to happen other than low inflation level 1 – 2 % increases. Over the past five years productivity has dropped from 7.5 % to 2.6 % this past year. Interestingly, 2.6 % is the level of wages we see today, stuck at this level for the past three years.

Source: The Wall Street Journal, The Daily Shot – 3/9/17

Most of our economy is services based, and productivity improvements in the services sector have been slow in coming compared to the goods based sector. For example in social assistance, education, and healthcare there has actually been a reduction in productivity by up to 9% since the 1980s. Plus, hiring has centered on our services sectors so productivity increases are likely to be limited.

Sources: Brookings Institution, The Wall Street Journal – 10/30/2016

Sources: Information Technology and Innovation Foundation, Commerce Department, Labor Department, The Wall Street Journal – 5/18/17

Executive Pay

Today, executive compensation at S & P 500 corporations is on average 300 times the average pay of their workers! Senior management enjoys a combination of high salaries, benefits (executive healthcare), house low cost loans, stock options and bonuses for achieving earnings targets. For 2016, CEO average pay increased by 6.8% year/year to a record $11.5 million since the 2008 recession while production worker pay has stagnated at a 2.5 % wage increase.

Source: The Federal Reserve Bank St. Louis, Compustat Exec/Comp Database, Economic Policy Institute – 6/13//2014

Note the ratio of CEO to Worker pay soars in the 1990s with the de-regulation and trickle-down economics of the GOP administration. Extreme executive compensation is taking wages from workers who would otherwise receive their fair share wage. Corporations have committed over $780 billion, according to Goldman Sachs to stock buybacks for 2017 which only go to increase their stock compensation plans and shareholder assets. Those billions of dollars could be better allocated to increasing worker wages.

Worker Pay

One aspect of worker pay that has increased by 12 % since 2006 is total worker compensation in the form of benefits. While wages have increased by just 4 % in the same period. Paid leave, health and other benefits have grown faster than wages, except in a few months. Wages as a percentage of total compensation have dropped from 70 % in 2006 to 68.3 %.

Sources: Labor Department, The Wall Street Journal – 6/9/17

The health component is somewhat misleading, while corporations have seen increased costs for medical coverage, they have reduced those costs by moving the the majority of cost increases over to employees. Corporations have done this by increasing the deductibles covered, reducing the number of plans and increasing premiums. Worker households are caught in a cash squeeze by having to pay more for the health care coverage they had previously while corporations are holding their costs in line with inflation or slightly more.

Federal minimum wage laws are not keeping up even with inflation. Some states are making up the difference, by requiring higher minimum wages than the federal minimum wage (green). Other states offer the same minimum wage (blue) and yet in the South many states don’t have any (yellow) wage minimum laws with others (red) below federal minimum wage rates like Minnesota, Arkansas, Georgia and Wyoming. Note many foreign car manufacturers have deployed plants in no wage minimum states like Tennessee, Alabama and South Carolina.

Source: Department of Labor – 1/1/2014

Job Market Automation

LinkedIn was designed for corporate recruiters with the features and services they wanted to speed the recruiting process. The edge to recruiters is obvious in the design of the service. For example job seekers cannot have multiple resumes or experience sets styled toward different jobs. Unless the candidate – user is adept at settings updates to profiles are immediately sent out to all people in their network. Recruiters have dashboards with filtered candidate lists around search preferences and locations. The majority of LinkedIn’s revenue is from the corporate recruiting market – candidates are promoted to meet the needs of recruiters. The use of LinkedIn, Monster, Indeed and other Internet job search services create and sustain a powerful recruiting edge for corporations. Businesses can identify hundreds of high quality resumes and candidates quickly from all over the world in just a few hours or less. Resume scanning programs further refine the candidate list, filtering content by keywords, phrases or other text targets.

HR departments often hide behind Internet screens, offer no phone contact numbers and provide few ways for candidates to follow up with key staff. Without an inside contact, a candidate is left to be a cog in the corporate recruiting machine.

So, workers are faced with a daunting set of economic forces holding their wages down – diminished bargaining units, juggernaut of automation, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, exorbitant executive pay and corporate control of job markets.

Yet, political forces are emerging to effect changes in the relationship between workers and management that we may expect to see over the next few years. Progressives, worker rights groups and reformers in the US heartland hard hit by the economy are looking to make dramatic changes in the balance between workers and executives.

The Action:

Place Workers on Boards – as Germany has so effectively setup, engaging management with required representation of workers on Boards.
End Outsourcing – corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.
End Low Cost H1-B Visas – the practice of importing inexpensive labor to drive down wages in US markets would be ended.
Offer Lower Taxes on Repatriated Funds – only if the profits from overseas are invested in productivity actions, increasing wages of workers (not executives), reducing costs or innovation. Stock buybacks or dividends would be prohibited.
End Stock buybacks – these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases.
Breakup Oligopolies – breakup market concentrations in key sectors: information technology, banks and financial services, health insurers, airlines, hospitals and clinics, entertainment, media and distribution and others as deemed in the public interest.
Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication.
Balance Worker and Executive Pay– tax corporations 25 % surcharge on any corporate income where any executive makes greater than 150 % than any the average worker wage – this would force executives to share their income with workers while not increasing costs. End federal tax deductions on corporate income taxes for executive stock compensation above $1 million. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives 10x of monthly salary a worker would receive 10x of his/her monthly salary.
Fund Worker Training and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.