We Need a Massive Living Wage Federal Jobs Program Now!

1. We Need a Massive Living Wage Federal Jobs Program Now! Ron Baiman Chicago Political Economy Group and Center for Budget and Tax Accountability Email: Rbaiman@ctbaonline.org Conference on Jobs and Future of the US Economy Oct. 1, 2010 Howard University Washington, D.C.

2. Our Opinion Makers and Political Leaders Need to Openly Acknowledge, Disseminate, and Acton on the Obvious: • Our country is facing an unprecedented economic crisis. • This crisis will not be resolved automatically through market forces and private sector action or moderate public measures. • Only the federal government has the power to implement the kind of massive programs and fundamental policy changes necessary to restructure and revive our economy. • We need to tell our countrymen and women what is necessary, not what is currently political possible.

3. Principles of CPEG Job Program • Large Scale Federal Jobs Program: The Jobs program (CPEG, 2009) is the core of a very large scale structural transformation of an economy that has not been producing an adequate growth in living wage jobs for at least thirty years. The federal government must directly or indirectly support the creation of at least 20 million new jobs over the next five years in three key areas: a) public infrastructure, b) current social services, and c) industries of the future.

4. CPEG Principles (Cont.) • Living Wage Jobs: These jobs must be of median income ($18 an hour) or above and provide full employee bargaining rights. • Elimination of Low Wage Service Sector: We cannot have a prosperous economy or a democratic society with an ever expanding low wage service sector. Wages need to be increased and working conditions improved or these jobs need to be eliminated.

5. CPEG Principles (Cont.) • A Financial Transactions Tax will provide generous funding for a jobs program and reorient the economy toward productive job creation and away from wasteful and predatory financial speculation. • Permanent Economic Restructuring. Funding of this jobs program will require a permanent expansion of public funding in line with the most successful mixed economies that typically have much larger public sectors.

6. CPEG Principles (Cont.) • Economic Revival and industrial policy. In addition to economic restructuring we need to rebuild our economic capacity that has been decimated through investment and trade policies that have provided short-term benefits to private investors but destroyed our economy. We need an industrial policy that will revive competitive manufacturing capacity so that we can pay for our imports.

7. CPEG Principles (Cont.) 7. Radical changes in trade policy. We cannot cut our federal deficit in the long term or the short term without reducing our trade deficit and we cannot revive the US economy as long we continue to out- source investment, income, and employment. We need to invoke and implement emergency WTO rules and industrial policy measures to cap and gradually reduce our trade deficit.

8. 1) Large Scale Federal Jobs Program From the start of the recession in December 2007 to August 2010 employment has declined by 7.2 million . In these 33 months, based on pre-recession Dec 06 to Nov 07 average labor force rate (66.08%) and the average two year 2008 to 2010 (Aug to Aug) growth in population, there should have been 115,000 new entrants to the labor force every month, or 3.8 million new entrants seeking employment. This implies a current Great Recession employment deficit based on official unemployment rates of 11 million.

9. Under the most optimistic scenario based on the last private sector housing and financial bubble (2001 to 2007 Nov to Nov) expansion, employment would expand at the pre-recession rate of about 142,300 a month. At this rate it would take 7.2 million/(142,300 – 115,000)=263 months or roughly 22 years of continuous private sector expansion just to get back to employment levels of Nov. 2007. This is basically impossible as the longest expansion in post-war history lasted only about 10 years (July 1990 to March 2001).

10. The CPEG (Feb. 2009) program is designed to support the creation of 17.5 million new jobs over five years (3.5 x 5). At the time we used a BLS forecast of private sector job growth of 1.5 million a year and estimated that our wage floor would result in the elimination of 1 million low-wage jobs a year, resulting in total job growth of 3.5+1.5-1=4 million a year, or 20 million over five years.

11. True unemployment (U6) that includes involuntary part-timers and marginally attached to labor force was 13.4 million in Nov 07. It is currently (Aug. 2010) 26.8 million. So we need an employment increase of this magnitude right now. And for every year that it takes to ramp up this employment we will need employment increases of 1.38 million to accommodate new entrants.

12. If we assume the Aug 2010 number of discouraged and involuntary part-timers of 6.083 million. • a five year ramp-up of the employment program with 1.38 million new entrants to the Labor Force very year bringing the 2015 Labor Force to 161.01 million. • The same 16.7% Aug 2010 (U6) comprehensive unemployment rate in 2015 as a share of the LF plus discouraged workers (161.01+6.083=167.093) • Total employment needs in 2015 to achieve a job for all comes to about 28 million (16.7% of 167.093).

13. Allowing for 2% “frictional” unemployment brings this down by about 3 million to 25 million. • In the absence of significant private sector employment growth over this period, this will require a CPEG jobs program that supports 30 million jobs (to account for 5 million low wage jobs lost). • This is a 71% increase over the Feb. 2009 CPEG jobs program that supported 17.5 million jobs. This can be reduced if private sector job growth picks up. • As will be shown below, small increases in an FTT could provide funding for this expanded jobs program

14. 2) And 3) Living Jobs and Elimination of Low Wage Service Sector • A key characteristic of countries without large low-wage service sectors is generous public funding and high wages for “human” service jobs in typically public and/or non-profit sectors like: education, health care, elder care, child care, and care for the disabled and fewer and better paid jobs in retail, food service, and other generally for-profit or cooperative sectors (Hill, 2010).

15. US Real Wages Compared to Other OECD (Mostly) High Social Spending Countries

16. The CPEG program mandates that all Federally supported jobs (allowing for temporary training wages) have a wage equal or above to the 2008 median wage of about $ 18 an hour or $ 37,440 a year. • We recognize that this will cause many current lower wage jobs to disappear thus partially reducing the level of employment expansion. • However we view the reduction and ultimate elimination of low-wage employment is an important goal of the jobs program.

17. 4) Financial Transactions Tax • We Have the Resources to Fund a Large Scale Living Wage Federal Jobs Program • Our country is still very wealthy, though our industrial base has been devastated in the last few decades. • Our wealth however increasingly does not “lift all boats” but rather goes to the very top of the income scale and to most unproductive sectors of the economy (finance, insurance, real estate (until recently), law, and lobbying).

18. A Small Financial Transactions Tax Could Raise Trillions of dollars per Year • An FTT would be both highly progressive in it’s incidence on the wealthiest income groups, and • It would target, and reduce economic resources going toward unproductive short-term financial speculation • See CPEG (Barclay, 2010) FTT estimate FTT which I think is the most extensive, careful, and up to date estimate out there.

19. For Example: • On August 31 2010 the WSJ reported that world wide Currency Trading had reached $ 4 Trillion a day (WSJ, 2010). • If we assume 250 trading days and apply an FTT of 0.25% per side to these trades (higher than that used by Barclay), just cash currency trading would result in annual world wide FTT tax revenues of $ 1.25 Trillion. • If we apply the conservative Barclay estimate that only 0.25% of this (mostly London based but almost 90% dollar denominated on one leg) currency trading is by US firms, we get a US take of $ 312.5 B just from cash currency trading.

20. For Example (cont.): • Barclay’s 2007 data show that the Currency Derivative market is about 5 times the size of the currency Cash market. Applying the same rate to this market would therefore net over $ 1.2 T just from a US FTT on currency trading. • But interest rate (bond) cash and derivative trading is, based on Barclay’s data, even larger than currency trading and so at this rate could add more than $ 1.2 T for a US FTT. • And another $ 0.5 T could be raised from equity and equity derivative trading. • The point should be clear. Even with repression multiple Trillions of dollars could be raised.

21. 5) Permanent Economic Restructuring Since the jobs program would be permanent and permanently funded, it would result in a long-term economic restructuring of the US economy with a much expanded public sector along the lines of the most successful OECD economies. This is a key goal of the program that is based on the following principles (Baiman, 2010a) (Hill, 2010).

22. The U.S. economy has not been generating an adequate number of well paid jobs for many decades. • As manufacturing employment declines due to productivity increases and globalization of production, productive work will increasingly be in the service sector. • Moreover, as for-profit service sector work, for example: in retail, and warehousing and distribution, also becomes more efficient, productive service sector work will increasingly be in largely publicly funded non-commodifiable areas like health care, education and human services, that are best provided through direct state provision or through non-profit providers funded directly or indirectly by the state.

23. This inevitable “socialization” of the economy requires a fundamental and long-term restructuring effort that must be led by major increases in progressive public taxing and spending that move the U.S. closer to a social democratic configuration like that of the most successful northern and western European advanced economies which typically have a much larger share of their economies tied to public funding. • In order to support a high quality education, health care, and human service, sector, these jobs must be professionalized and well paid. As these jobs will inevitably make up an increasing share of all jobs they need to be good jobs if we are to sustain an equitable and vibrant economy.

24. The growth of a large and productive public services economy must be complemented by an internationally competitive export sector that will allow the U.S. to finance necessary imports. Without a viable export sector, public service sector growth will lead to a large increase in the already unsustainable trade deficit that the U.S. has been running since the 1970’s. • In the foreseeable future a large share of exports will be tradable goods (as opposed to services), i.e. manufacturing exports. Thus, in order to sustain an advanced public sector service economy, we will need to be able to produce an adequate output of high-valued added and competitive manufactured tradable goods, as countries like Denmark or Sweden are able to do, so as to support our imports.

25. We need to reinvigorate the U.S. manufacturing sector so that it regains the ability to sustain necessary imports for an advanced economy. This suggests that in the short-term we need to increase manufacturing employment that as noted above has dropped by almost 50% in the last two decades. • None of this necessary long-term restructuring can occur without large scale, and radical, public policy efforts. In the following we outline a proposed set of public policies that would begin to move the U.S. economy toward a sustainable and prosperous future.  

26. Source: Fletcher , Free Trade Doesn’t Work, 2009, p. 87. OECD data. 26

28. 6) Economic Revival and Industrial Policy • Since the 2001 recession the U.S. has lost 42,400 factories including 36% of plants employing more than 1000 workers (which declined from 1,479 to 947) and 38% of factories employing between 500 and 999 workers which declined from 3,198 to 1,972 (McCormick, 2010). • An additional 90,000 factories are now at risk of going out of business (McCormick, 2010). • Manufacturing full-time equivalent employment (FTE) has declined from 18.6 million in 1987 (19.1% of all FTE) to 13.2 million in 2008 (10.3% of all FTE) (Baiman, 2010a).

29. Moreover, this is not just a result of productivity improvements as manufacturing value-added as a percentage of GDP has declined from about 17% to 12% over the 1987 to 2007 period. • Particularly in the last 10 years, the U.S. economy has lost critical capacity and technological leadership in key high-tech and emerging green technology sectors (McCormick, 2010). • McCormick notes that in 2007 Georgia Tech’s bi-annual “High Tech Indicators” study found that the U.S. peaked in 1999 at 95.4 (on scale of 100) and had fallen to 76.1. China technological standing moved from 22.5 in 1996 to 82.7 in 2007 higher than the U.S. for the first time since the index was created two decades ago.

32. 7) Radical Changes in Trade Policy • The US has run the world’s largest and longest trade deficit for more than three decades (Fletcher, 2009). • Moreover because of the identity (Baiman, 2010b): Private deficit + Public deficit = Trade deficit • Any attempt to reduce the federal deficit (in the long run or the short run) without reducing the trade deficit or running up a large private sector deficit (like a stock market or housing bubble) will without fundamental structural changes to the economy cause more unemployment and economic decline.

33. Federal Jobs programs spending will “leak out” and increase the trade deficit if drastic measures that lead to a capping and gradually reduction in the trade deficit are not undertaken. • a cursory look at trade statistics demonstrates decisively that for the foreseeable future a reliance on “services” exports cannot possibly lead to balanced trade (Baiman, 2010a). • A indication of how far US manufacturing capacity has fallen and how severely this impacts the trade deficit can seen by Port Import Export Reporting Service (PIERS) of the US Commerce department. (McCormick, 2009) reports that in May 2008 PIERS data showed that:

34. Of the top 100 U.S. exporters via container, about 20 exported scrap paper, 20 exported bulk food or feedstock, 15 exported bulk chemicals, and 7 exported scrap metals. The top exporter was a Chinese company exporting scrap paper.Only one of the top 20 exporters was a US based manufacturer – Procter& Gamble. • The only US Corporations shipping manufactured goods were: • GE (ranked 23rd) which imported three times as much as it exported • Caterpillar ranked 27th behind 12 wastepaper exporters • GM 68th which exports little from US factories • Deere & Co 77th • Whirlpool 83rd

35. Imports are another matter. • At least 35 of the top 100 importers were retail companies led by: Wal-Mart, Target, Home Depot, and Sears, that collectively imported as many containers (1.8 million) than the top 21 US exporter discussed above. • At least 35 of the top importers were retail companies selling manufactured consumer goods. • The majority of the rest were high-tech manufacturing companies like LG Group, Phillips, Cannon, Nike, Toyota, Samsung, Sony, Panasonic, Michelin, Hewlett Packard, Sharp, Toshiba, etc.

37. References: • Baiman, Ron. 2010a. “Toward a New Political Economy for the U.S.,“ CPEG Working Papers: http://www.cpegonline.org/workingpapers/CPEGWP2010-1.pdf . • Baiman, Ron. 2010b. “The Linkage Between the Three Types of National Economic Deficits,” CPEG: http://www.cpegonline.org/multimedia/DeficitLinkages.ppt . • Barclay, William. 2010. “A Financial Transaction Tax: Revenue Potential and Economic Impact,” CPEG Working Papers: http://www.cpegonline.org/workingpapers/CPEGWP2010-2.pdf . • CPEG. 2009. “A Permanent Jobs Program for the U.S.: Economic Restructuring to Meet Human Needs,” Ron Baiman, Bill Barclay, Sidney Hollander, Joe Persky, Elce Redmond, Mel Rothenberg, Feb.: http://www.cpegonline.org/reports/jobs.pdf . • Fletcher, Ian. 2009. Free Trade Doesn’t Work: Why America Needs a Tariff. U.S. Business and Industrial Council. • Hill, Steven. 2010. Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age. University of California Press. • McCormick, Richard. 2009. Manufacturing A Better Future for America. Alliance for American Manufacturing. • McCormick, Richard. 2010. “The Plight of American Manufacturing,” American Prospect. Jan/Feb. • WSJ. 2010. “Currency Trading Soars: Market Hits $4 Trillion a Day as Investors Chase Profit in Growing Economies, “ Tom Lauricella and Dave Kansas, Wall Street Journal, Aug. 31.