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It's Time to Fix the Fair Labor Standards Act
The superintendent in my local school district has announced plans for upcoming layoffs to save money caused by a budget shortfall. He plans to layoff one member of the office staff and one of the janitorial staff at each school. They expect to enlarge class size to cut back on teachers.
Layoffs put people into the job market, adding to job seekers and making it easier for employers to offer lower wages. We might call that the obvious effect, but savings from layoffs have another effect: an increase in uncompensated work.
Teachers have never been hourly rated employees. Phrasing in teacher contracts assures long work hours. "Teacher shall perform such duties as deemed necessary, shall attend all assigned meetings, shall be present at school during school hours, shall be present at school or other location outside school hours as directed in connection with school events or activities."
With a contract clause like that, school officials can save money giving teachers more students and more work, like suggesting they may need to empty a few wastebaskets and fill out or file a few extra forms; work formally done by those laid off janitors and office staff.
Overtime pay rules in the Federal Fair Labor Standards Act, however, require time and a half pay for hourly rated employees working more than 40 hours a week. But, over the last 8 years many new exemptions and amendments were made to overtime work rules. Executive, administrative, professional and outside sales employees paid on a salary basis can be exempted from over time pay. The new rules can be found on the U.S. Department of Labor website.
The 40-hour work week has been the standard full time work week for more than eighty years, but pressuring people to work additional hours makes it easier to turn layoffs into a permanent loss of jobs.
The worst abuses are apparently in the managerial ranks, where the Bureau of Labor Statistics reports a decline of 2 million managerial jobs at establishments since 1999. Managerial jobs for 1999 are reported at 8,063,410; managerial jobs for 2007 are reported at 6,003,930. Three people working 40 hours a week is the same as two people working 60 hours a week but with a one-third savings in labor costs.
My superintendent's cost cutting plan comes right as the Congress debates billions of dollars in bailouts for defaulting homeowners, bankrupting car companies and failing banks. Maybe they could pass of few million along to my school district, but it will not matter much unless they get to the real problem: wages and employment.
They could start with the Fair Labor Standards Act and fix those destructive overtime rules.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Circuit City Failed in its Saving Efforts
Circuit City is back in the news with plans to close 155 stores and layoff thousands in bankruptcy reorganization.
I say back in the news because there was an article about Circuit City in the Washington Post back on March 29, 2007 titled Circuit City Cuts 3,400 'Overpaid' Workers.
The cuts came out of 40,000 in-store jobs; 9 percent of the company's in-store workforce. The firings were not related to job performance, but came as part of an effort to cut costs and improve the bottom line.
They were going to save on labor costs by firing their "overpaid" staff and rehiring new sales people at lower wages. That may sound like a way to save money, but now, 18 months later, there is good reason to doubt they saved any money.
Circuit City is part of retail trade in a sector called Electronics and Appliance Stores where salesmanship is important. Circuit City buyers may need to learn about complicated electronics products and how they work before they make up their mind.
Retail Salespersons do selling, which means explaining and demonstrating products, answering questions, knowing warranty terms or other product information.
In other retail sectors like gasoline stations and grocery stores, selling and salesmanship are not as important. People know if their gas tank is empty and they buy their pasta and potatoes from a cashier, not a salesperson.
Explaining and selling takes time, skill and experience and so more and better paid retail sales jobs are needed at electronic and appliance stores than gasoline stations or grocery stores.
The need for salesmanship is partly reflected in staffing where retail salespersons and their supervisors make up more than 40 percent of retail jobs. Staffing at gasoline stations contrasts with electronics and appliance stores where more than 60 percent of jobs are cashier, but virtually none are retail salespersons.
The Washington Post article informed readers that Circuit City dismissed their sales staff earning wages over of $15.50 an hour, or their most experienced and longest tenured sales staff.
We can be sure Circuit City management saved on wages, but wage savings are not cost savings unless they lower costs per dollar of sales. Ignoring productivity tells us that Circuit City management did not know the meaning of overpaid, or even how to save.
True, the economy is doing poorly now, which is probably part of Circuit City problems, but as the saying goes, "They were penny wise and pound foolish."
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Today's CEOs Are Like Yesterday's Karl Marx
There's a comment on my 1929 and 2008 post from Mickey Blue Eyes that deserves a reply.
The problem with promoting an even distribution of wealth is that it is a euphemism for Marxist "from everyone according to their ability, to everyone according to their need."
Doing a quick Google search, I could not find a global per capita income, but the per capita income for the U.S. in 2006 is $44,970. That's less than what I'm making now, and I'm not in evil top 2% of income earners.
Assuming everyone continues to be as productive (or unproductive, as the case may be) as they are now, everyone will receive a paycheck for $44K per year. That might be great to some high school dropout living off of welfare, but do we really expect productive people who studied in school and work hard for their >$44K/yr job to continue working that hard?
If the most you can earn is $44K/yr, are you going to work more than you absolutely have to to get your $44K paycheck?
Distribution of wealth, especially when forced by the government; e.g., USSR, N. Korea, Cuba, Maoist China, et al.; is a sure recipe for disaster.
It appears to argue that it is wrong to have social policies that reduce the inequality of income. It calls such a policy Marxian.
Marx was a 19th century guy who looked at the poverty and gross inequality of income he saw during the industrialization period in England. He could have said it is unfair, but instead he wrote a long boring book trying to convince people there is a natural and scientific reason that makes income inequality a bad thing.
Now we have free enterprisers that look at corporate CEOs who help themselves to millions of dollars of corporate funds. They could just say it is fair, but instead they write long boring books trying to convince people there is a natural and scientific reason that makes income inequality a good thing.
Truth is they are all posers and bluffers. Today’s free enterprisers are doing exactly what Marx did, only with the opposite conclusion.
If you think income inequality is a good thing you will have to convince people the current inequality is fair and should not be changed. Good luck, but my vote is no.
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Why Are Dividends and Income Taxed So Differently?
In 2007, someone starting out in their twenties with a modest $30,000 a year salary will be expected to pay $5,091.25 in federal income and payroll taxes. For a single person who earns the same $30,000 as dividend income, the total federal tax would be $1,062.50.
For a married couple starting out where both earn a $30,000 a year salary, they pay federal tax of $10,182.50. For a married couple who earns the same $60,000 as dividend income they pay $2,125 in total federal tax. There is no payroll tax on dividend income.
This extraordinary favoritism toward corporate dividends has been going on since 2003. It not only debases work but changes America's saving and consumption. A couple starting out in their twenties will be unlikely to have dividend income, but their very high taxes make it difficult to save anything, or buy a house.
Those with dividend income since 2003 are likely to be older with years of saving and a nest egg of savings and dividend income. Likely as well, they already own a home. Their lucrative tax breaks have generated savings for them and loanable funds for banks and financial intermediaries.
Apparently, they all forgot that savers earn a return only if borrowers can pay back their loans. The millions of sub-prime mortgages and the rapid and large number of foreclosures and defaults make it clear those who are starting out and many others cannot afford to buy a home, or borrow all those loanable funds.
There was a comment in one of my previous posts where a reader suggested Congress and the Bush administration has been pushing sub-prime loans to boast home ownership for political reasons. I am sure that is correct and recent testimony and discussion in the Wall Street Journal confirms that view.
It is the same Congress and Bush Administration that promoted tax breaks for dividends and ignores the income inequality their policies help to generate. It makes no difference what any one says about fairness in taxes.
America has to raise taxes on the wealthy and give tax relief to working Americans, or the economy will continue to flounder and decline.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Government Spending Cuts Will Lead to Job Losses
Recently the two presidential candidates and their two parties started arguing about a government project called "The Bridge to Nowhere."
From Wikipedia:
The Gravina Island Bridge, also known as the "Bridge to Nowhere", was a proposed bridge to replace the ferry that currently connects Ketchikan, Alaska, to the Ketchikan International Airport on Gravina Island. The bridge was projected to cost $398 million. Members of the Alaskan congressional delegation, particularly Rep. Don Young and Sen. Ted Stevens, were the bridge's biggest advocates in Congress, and helped push for federal funding. The project encountered fierce opposition outside of Alaska as a symbol of pork barrel spending and is labeled as one of the more prominent "bridges to nowhere".
Both sides now agree the project was wasteful government spending, but both sides claim their opposition to the project shows their commitment to save the taxpayer's money and cut government spending. It is easy to be against wasteful government spending, but neither side has much to say about the role of government in America's jobs or what might happen if government starts saving instead of spending.
Starting in December 2007, seasonally adjusted national establishment employment is down 605,000 jobs. The decline was a mixture of
- 590,000 jobs gone in manufacturing, construction and mining
- a 168,000 decrease in private sector service jobs
- a 153,000 increase in government services employment, including education
If we back up a whole year to August 2007 and look at change over the last 12 months, national employment is down 283,000 jobs but government employment is up 274,000 jobs.
If we back up two years to August 2006 and look at change for the last 24 months, then national employment is up 1.1 million jobs, but government employment is up 476,000. The government increase in jobs is offsetting losses in manufacturing and construction that are not made up by new jobs in private services.
Actually, 22.5 million people work on government payrolls in local, state and federal governments, but many more work on private payrolls as part of government sponsored and government funded projects like the Bridge to Nowhere. The terms "government contractor," "outsourcing" and "privatization" all signify private businesses, but they are private businesses doing government funded and government sponsored work.
Government employment added to government sponsored employment is more than a mere 22 million: much more.
America puts a heavy burden on its jobs by funding social security, Medicare, workman's compensation, unemployment insurance, and health insurance as a cost of employment. The personal income tax requires a higher rate on wages than on corporate dividends.
Both candidates say they will create jobs and we hope they do. It would be a better campaign if the candidates would suggest some new policies toward work and pay.
Right now, and for the foreseeable future, cuts in government spending will cause an unacceptable loss of jobs. The candidates want us to think they can manage the government to save, but without some new attitudes and new policies our government cannot save, it must spend.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Exchange Rates Affect Savers' Bottom Lines
Last spring, the Washington Post ran an article entitled "Foreign Buyers Flock to DC Office Market." The article explains that foreign investors bought 10 times as much commercial property in the District in 2007 as they did in 2006, with 2008 looking like 2007.
Buyers from Europe, Australia, Asia Pacific and Latin America have bid up prices to a record $867 a square foot.
Washington is an office-based economy with a stable or growing job base, so it is good to have the construction industry creating jobs and making way for even more office jobs. It would be better if the savings and savers financing the buildings were Americans.
Foreign nationals have so many dollars to invest because Americans buy so much oil and import so many products from Europe, China and other countries abroad. In 2001 and 2002 Americans paid around a dollar for a Euro, Europe's universal currency. By 2005 they had to pay around $1.35. Today, it is around $1.57.
A bottle of French wine that was $10.00 in 2002 now costs Americans $15.70. A higher price for wine makes it easy to see how higher exchange rates and a falling dollar value discourage consumption.
It might not be as obvious how higher exchange rates and a falling dollar value can benefit American savers. American buying abroad has supplied so many dollars to foreigners they are using their surplus in America's capital markets.
Some of it is loans but some of it is to buy America's assets like the office buildings mentioned above. It is sobering for real savers to see Americans trading assets like office buildings to pay for import consumption, but the devaluing dollar will begin to change that.
The devaluing dollar that limits American consumption will also limit the dollars foreigners have to invest in United States capital markets. If Americans have to rely more on its own savers, then savers can expect to earn higher interest rates.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Lower Retail Prices Depress Buying Power
Retail trade has an average monthly employment of nearly 15.5 million. While it is not the biggest part of America's economy (government is bigger and health care is almost as big and gaining fast), it is the percentage of America's jobs that makes retail different from other sectors.
In 2007, retail trade had 11¼% of wage and salaried jobs in the United States. It was also 11¼% in 1975. Back in the late 1940s, it was 10¼ to 10½%, but the percentage slowly crept up to 11% in the 1970s and briefly reached 12% in the late 1980s before beginning an 18-year decline to 11¼% today.
Using computer technology in trade, especially for barcodes and inventory management, increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing.
Higher productivity means potential savings as lower costs and competition pressures retailers to lower prices, but the savings limits job growth and decreases the retail share of jobs.
Employment data by state or metropolitan area tells the same story. The percent of retail jobs by state cluster tightly around the 11.25% average and the percent variation above and below that total is usually less than a percent.
Because retail jobs remain at roughly the same percentage of total employment, the only way to have more retailing jobs is to have a bigger population to serve. For anyone in local government or a chamber of commerce who wants to boast local employment by luring in a big national retailer, the plan will not work.
Before much time goes by, the new retailer displaces existing retailers and jobs fall back to 11 or 12 percent.
The matter of displacement is controversial because the retailer Wal-Mart has the reputation of charging low prices but paying the lowest wages in the retailing industry. When a large retailer such as Wal-Mart enters a new market in a new location, there will be potential savings for consumers from lower prices if Wal-Mart really has lower prices.
However, if Wal-Mart really does pay lower wages, then lower wages without new jobs depresses local buying power, which will depress all of the local economy.
While it may appear that lower prices are savings for many, lower paying jobs have secondary effects that spread throughout the area. Savings are more complicated than lower prices. Savings over time depends on prices and wages.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Travel Reimbursements Are a Pain. Seriously.
I've been traveling a lot recently for work — during the month of March, I traveled for three straight weeks; Boston the first week, Orlando the second, then back to Boston the third.
Normally, I don't mind traveling, but three weeks in a row is stressful. It doesn't help, though, that I have to deal with getting all of my expenses reimbursed.
Now that's stressful.
For some reason, my travel expenses are always coming under scrutiny by the accounting department.
THEM: "These receipts don't add up."
ME: "I don't have receipts for a $20 group lunch I paid cash for — I wrote it on the expense report."
THEM: "You need receipts for everything."
ME: "I got a $1.50 soda from a vending machine. How am I supposed to get a receipt? Call up Coca-Cola and ask for one?"
THEM: "If you spend over $55 any day, you have to pay for the rest."
ME: "So if I spend $65 one day then nothing the next, I still have to pay the difference? What kind of sense does that make?"
There's a problem when you're worried that the money you personally put forward for the company may not come back to you. I lose interest on every penny I spend for the company.
I'm not trying to rip them off, I'm just trying to get my money back. But they make it seem like I'm a thief for wanting my money back.
This month, because the accounting person was on vacation when I booked a hotel room, they apparently charged the room to me — even though the company has a corporate account. Too bad my receipt didn't note it. Now I have to carry a balance or transfer money around because I need to submit a second expense report.
There's got to be a better system than employees putting their money first and hoping to get reimbursed. Why not a pre-paid card good for X amount of dollars for employees who travel? If there's any large purchases that exceed the pre-paid amount (like group dinners), you charge it and submit an expense report.
How do you deal with travel reimbursements?
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Investing in Education: How Much It Pays
There are several ways to estimate returns on investments in education. One way is to compare wages between jobs using general workforce skills with jobs that need college degree skills.
Compare wages for a certified teacher with a college degree to wages for a teaching assistant, for example.
Another way converts college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets.
Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above and some are below, but let's use $6,000 as a representative tuition for 2007.
In the first year, $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000.
At the end of four years at the time of graduation, the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63.
The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. Using a forty-hour week and 160 hours a month, it is less than $2.00 an hour of extra wage and salary that pays for college.
Nothing is a guarantee — but expect college to pay.
Our thanks for these calculations go to the built-in spreadsheet functions on MS Excel. Experiment yourself.
Use the Excel help file under FV, which is the future value function. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Why Bill Gates Shouldn't Be Worried About Technology Grads
When Bill Gates testified before Congress on March 13, he had his usual requests: more money for math and science education, more funds for research, and more visas for foreigners to come and work in the United States.
He claims foreigners need to come here to "maintain a competitive edge in technology innovation."
The Bureau of Labor Statistics defines 7 different computer occupations that need at least BA degree skills, and one in computer and information science research that requires a doctorate. The Bureau of Labor Statistics reports these 8 occupations totaled 3.2 million jobs in 2006 and growing year by year.
However, computer programming jobs are down from over 500,000 in the late 1990s to fewer than 400,000 in 2006. The above mentioned research occupation has reported employment of 25,000 for 2006, but here the Bureau of Labor Statistics is forecasting annual growth under 1,000 per year.
When we look at the National Center for Education Statistics, we find 1,679 doctoral degrees in computer engineering and computer information sciences for the year ending June 2006.
The remaining 6 occupations needing at least BA degree skills include two specialty jobs in software engineering, and one each for systems analyst, database administrators, network computer systems administrator, and network systems and data communications analysts.
In our logical minds, recent graduates should compare to recent job growth for the United States to fill its computer jobs with graduates from American Universities. For the year ending June 2006, the National Center for Education Statistics reports 72,400 BA and MA degrees granted in computer and information science and degrees in computer engineering.
The average annual increase from 2004 to 2006 for the 6 computer occupations mentioned above was just over 75,000.
However, some of the nearly 20,000 MA degrees undoubtedly went to those who already have BA degrees in computing or computer engineering, so we doubt the 72,400 degrees represent new people available for computing jobs. Even so, jobs as computer programmers dropped an average of 10,000 per year from 2004 to 2006, which makes us doubt the need for 75,000 new graduates to fill those jobs.
The data for the recent years does not suggest large shortages of available degree candidates in computing from American Universities, despite Mr. Gates' worries. More ominous, though, is a decline in jobs as computer and information systems managers, down from just over 280,000 to just under 24,000 from 2004 to 2006, an average drop of 8,000 jobs a year.
We think Mr. Gates should tell us why!
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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