Thursday, October 22, 2020

The Offshoring of U.S. Jobs Increased on Trump's Watch [feedly]

The Offshoring of U.S. Jobs Increased on Trump's Watch

President Donald Trump's great economic promise in the 2016 elections was to stop the offshoring of American jobs. So has it worked?

That's not an easy question to answer. Companies tend not to loudly announce when they shut down a factory or office in the U.S. and move production and jobs overseas. Particularly in the days of Trump tweets.

But there is one fairly good barometer in the data kept by the U.S. Department of Labor on applications for Trade Adjustment Assistance, the federal aid program for workers dislocated by the effects of trade. Those petitions importantly can be filed by workers and local government officials as well as firms. They are all investigated and certified by the Labor Department, which tries to establish to which country the jobs are heading.

Trade Adjustment Assistance Petitions by U.S. Auto Companies

If you dive into the data, as we did for this story on how a company founded by Commerce Secretary Wilbur Ross has been closing factories in the U.S. and shifting production overseas even as he serves in Trump's Cabinet, you find some interesting tidbits:

  • Between Trump's inauguration day and the end of June this year, the Labor Department certified 1,996 petitions related to companies shifting work overseas. Those petitions covered 184,888 jobs in fields ranging from manufacturing to back-office functions for financial services companies. In other words, offshoring didn't stop in the Trump administration.
  • For the equivalent period of President Barack Obama's second term, the Labor Department actually certified fewer petitions covering fewer jobs. (1,811 petitions affecting 172,336 jobs). Which in theory means 12,552 more jobs left the U.S. in the first three-and-a-half years of the Trump presidency than did in the equivalent period of the presidential term immediately before.
  • A central promise of Trump's renegotiated Nafta, renamed the U.S.-Mexico-Canada Agreement, is that it has stricter auto content rules meant to keep more factories in the U.S. One new provision requires 40% of a car to come from factories that pay $16/hour or more, for example. Those rules won't fully be in effect until 2025. But fear of them certainly isn't stopping some parts companies from shifting work overseas. In the first six months of this year — in decisions often made before the pandemic — 17 different companies cut jobs at 25 different plants in the U.S. to shift work overseas, according to the Labor Department data. In some cases they have closed plants altogether. Among the firms doing so: Ross' one-time company, International Automotive Components, which he sold out of when he joined the Trump administration.

Shawn Donnan in Washington

Charted Territory

relates to The Offshoring of U.S. Jobs Increased on Trump's Watch

As the U.S.-China confrontation takes root, the ability to craft chips for everything from artificial intelligence and data centers to autonomous cars and smartphones has become an issue of national security, injecting government into business decisions over where to manufacture chips and to whom to sell them. Those tensions could kick into overdrive as Communist Party leaders set a five-year plan that includes developing China's domestic technology industry, notably its chip capabilities. 

 -- via my feedly newsfeed

Wednesday, October 21, 2020

Tim Taylor: The Google Antitrust Case and Echoes of Microsoft [feedly]

The Google Antitrust Case and Echoes of Microsoft

The US Department  of Justice has filed an antitrust case against Google. The DoJ press release is here;  the actual complaint filed with the US District Court for the District of Columbia is here. Major antitrust cases often take years to litigate and resolve, so there will be plenty of time to dig into the details as they emerge. Here, I want to reflect back on the previous major antitrust case in the tech sector, the antitrust case against Microsoft that was resolved back in 2001. 

For both cases, the key starting point is to remember that in US antitrust law, being big and having a large market share is not a crime. Instead, the possibility of a crime emerges when a company with a large market share leverages that market share in a way that helps to entrench its own position and block potential competition. Thus, the antitrust case digs down into specific contractual details.

In the Microsoft antitrust case, for example, the specific legal question was not whether Microsoft was big (it was), or whether it dominated the market for computer operating systems (it did). The legal question was whether Microsoft was using its contracts with personal computer manufacturers in a way that excluded other potential competitors. In particular, Microsoft signed contracts requiring that computer makers license and install Microsoft's Internet Explorer browser system as a condition of having a license to install the Windows 95 operating system. Microsoft had expressed fears in internal memos that alternative browsers like Netscape Navigator might become the fundamental basis for how computers and software interacted in the future. From the perspective of antitrust regulators, Microsoft's efforts to used contracts as a way of linking together its operating system and its browser seemed like anticompetitive behavior. (For an overview of the issues in the Microsoft case, a useful starting point is a three-paper symposium back in the Spring 2001 issue of the Journal of Economic Perspectives.)

After several judicial decisions went against Microsoft, the case was resolved with a consent agreement in November 2001. Microsoft agreed to stop linking its operating system and its web browser. It agreed share some of it coding so that it was easier for competitors to produce software that would connect to Microsoft products. Microsoft also agreed to an independent oversight board that would oversee its actions for potentially anticompetitive behavior for five years. 

As we look back on that Microsoft settlement today, it's worth noting that losing the antitrust case in the courts and being pressured into a consent agreement certainly did not destroy Microsoft. The firm not broken up into separate firms. In 2020, Microsoft ranks either #1 or very near the top of all US companies as measured by the total value of its stock. 

Looking at the antitrust case against Google, the claims again are focused on specific contractual details. For example, here's how the Department of Justice listed the issues in its press release: 

As alleged in the Complaint, Google has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor. In particular, the Complaint alleges that Google has unlawfully maintained monopolies in search and search advertising by:
  • Entering into exclusivity agreements that forbid preinstallation of any competing search service.
  • Entering into tying and other arrangements that force preinstallation of its search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference.
  • Entering into long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple's popular Safari browser and other Apple search tools.
  • Generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers, and other search access points, creating a continuous and self-reinforcing cycle of monopolization.
As noted earlier, I expect these allegations will result in years of litigation. But I also strongly suspect that even if Google eventually loses in court and signs a consent agreement, it ultimately won't injure Google much or at all as a company, nor will it make a lot of difference in the short- or the medium-term to the market for online searches. If this is the ultimate outcome, I'm not sure it's a bad thing. After all, what are we really talking about in  this case. As Preston McAfee has pointed out, "First, let's be clear about what Facebook and Google monopolize: digital advertising. The accurate phrase is "exercise market power," rather than monopolize, but life is short. Both companies give away their consumer product; the product they sell is advertising. While digital advertising is probably a market for antitrust purposes, it is not in the top 10 social issues we face and possibly not in the top thousand. Indeed, insofar as advertising is bad for consumers, monopolization, by increasing the price of advertising, does a social good." 

Ultimately, it seems to me as if the most important outcomes of these big-tech antitrust cases may not be about the details of contractual tying. Instead, the important outcome is that the company is put on notice that it is being closely watched for anticompetitive behavior, it has been judged legally guilty of such behavior, and it needs to back away from anything resembling such behavior moving forward.  

Looking back at the aftermath of the Microsoft case, for example, some commenters have suggested that it caused Microsoft to back away from buying other upstart tech companies--like buying Google and Facebook when they were young firms. A common complaint against the FAANG companies— Facebook, Apple, Amazon, Netflix, and Google--is that they buying up companies that could have turned into their future competitors. A recent report from the House Judiciary Committee ("Investigation of Competition in Digital Markets") points out that "since 1998, Amazon, Apple, Facebook, and Google collectively have purchased more than 500 companies. The antitrust agencies did not block a single acquisition. In one instance—Google's purchase of ITA—the Justice Department required Google to agree to certain terms in a consent decree before proceeding with the transaction."

It's plausible to me that the kinds of contracts Google has been signing with Apple or other firms are a kind of anticompetitive behavior that deserves attention from the antitrust authorities. But the big-picture question here is about the forces that govern overall competition in these digital market, and one major concern seems to me that the big tech fish are protecting their dominant positions by buying up the little tech fish, before the little ones have a chance to grow up and become challengers for market share. 

Mark A. Lemley and Andrew McCreary offer a strong statement of this view in their paper "Exit Strategy (Stanford Law and Economics Olin Working Paper #542, last revised January 30, 2020).  They write (footnotes omitted): 

There are many reasons tech markets feature dominant firms, from lead-time advantages to branding to network effects that drive customers to the most popular sites. But traditionally those markets have been disciplined by so-called Schumpeterian competition — competition to displace the current incumbent and become the next dominant firm. Schumpeterian competition involves leapfrogging by successive generations of technology. Nintendo replaces Atari as the leading game console manufacturer, then Sega replaces Nintendo, then Sony replaces Sega, then Microsoft replaces Sony, then Sony returns to displace Microsoft. And so on. One of the biggest puzzles of the modern tech industry is why Schumpeterian competition seems to have disappeared in large swaths of the tech industry. Despite the vaunted speed of technological change, Apple, Amazon, Google, Microsoft, and Netflix are all more than 20 years old. Even the baby of the dominant firms, Facebook, is over 15 years old. Where is the next Google, the next Amazon, the next Facebook?
Their answer is the "exit strategy" for the hottest up-and-coming tech firms isn't to do a stock offering, remain an independent company, and keep building the firm until perhaps it will challenge one of the existing tech Goliaths. Instead, the "exit strategy," often driven by venture capital firms, is for the new firms to sell themselves to the existing firms. 

This particular antitrust case against Google's allegedly anticompetitive behavior in the search engine market is surely just one of the cases Google will face in the future, both in the US and around the world. The attentive reader will have noticed that nothing in the current complaint is about broader topics like how Google collects or makes use of  information on consumers. There's nothing about how Google might or might not be manipulating the search algorithms to provide an advantage to Google-related products: for example, there have been claims that if you try to search Google for websites that do their own searches and price comparisons, those websites may be hard to find. There are also questions about whether or how Google manipulates its search results based on partisan political purposes. 

Looking back at the Microsoft case, my suspicion is that the biggest part of the outcome was that when Microsoft was under the antitrust microscope, other companies that eventually became its big-tech competitors had a chance to grow and flourish on their own. With Google, the big issue isn't really about details of specific contractual agreements relating to its search engine, but whether Google and the other giants of the digital economy are leaving sufficient room for their future competitors. 

For more posts on antitrust and the big tech companies, some previous posts include: 

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The rising number of U.S. households with burdensome student debt calls for a federal response [feedly]

The rising number of U.S. households with burdensome student debt calls for a federal response


Today, about 43 million adults in the United States collectively hold $1.5 trillion in federal student loan debt and an additional $119 billion in private student loans not backed by the federal government. Student loan debt is an issue for many U.S. households, but it is becoming an especially acute problem for heads of households who are low-income, Black, or Hispanic. The Federal Reserve's 2019 Survey of Consumer Finances shows that student debt-to-income ratios are rising, saddling millions of U.S. households with a persistent drag on their incomes that could last 20 years.

The new data show that student debt-to-income ratios crept up over the past two decades and now average 0.56 among adults who have any student debt. In this issue brief, we report mean (average) income divided by mean (average) debt to reduce the influence of large outliers and look at people between the ages of 25 and 40 to roughly capture the generation that has been most affected by climbing college costs while excluding those who are just starting out their careers and therefore have especially low incomes. Excluding older households also addresses, in part, known weaknesses of using SCF data to analyze student debt. Although we think this age restriction is a reasonable frame for analyzing the data, removing it or using different age brackets does not substantially change the results we give here.

Our analysis demonstrates that the student debt burden in the United States falls most heavily on those U.S. households in the bottom 50 percent of the income distribution—and even more on Black American households. Measures to alleviate these student debt burdens—via income-based repayment plans and one-time forbearance policies enacted by Congress amid the coronavirus recession—mitigate these burdens only on the margins. We detail these findings from the new 2019 Survey of Consumer Finances and conclude with some analysis of student debt forgiveness programs based in these data.

Student debt burdens are on the rise

Disaggregating households by their income, the data show that adults in the bottom 50 percent of the income distribution with any debt have an average debt-to-income ratio of 1.03—more than double the ratio of 0.5 that same group held in 2001. Debt ratios are also rising for those in the next 40 percent of individuals by income, indicating that student debt is a problem of growing significance for a broad swathe of working- and middle-class households. Notably, these trends are for households that hold student debt and have therefore attended some college, so the trend is not being driven by increased college attendance. (See Figure 1.)

Figure 1

Heightened levels of student debt are often downplayed. Analysts point out that many of the largest balances are accrued by doctors and lawyers who will find high-paying jobs and have no trouble paying down their debt. But there are a large number of workers with relatively low balances on the student debt they owe who are nonetheless struggling to pay because they are stuck in low-income jobs. In fact, about 500,000 U.S. households with heads between the ages of 25 and 40 in the bottom 50 percent of the income distribution have a debt ratio greater than 1, and 2.5 million have a debt-to-income ratio greater than 0.5. Twenty percent of all households in this age group in the bottom half of the income distribution have a debt-to-income ratio of 0.5 or greater, not just those who have any student debt. (See Figure 2.)

Figure 2

Black borrowers are struggling most

Because the U.S. labor market continues to discriminate against Black Americans, the result is Black student debtholders are likely to have lower-paying jobs than their White peers. Black student loan borrowers also have less family wealth to draw on to pay for college, leaving them with higher debt balances too. The result is that nearly 30 percent of Black Americans between the ages of 25 and 40 have a student debt-to-income ratio exceeding 0.5. Latinx student loan borrowers are less likely to have high debt, although this is in part because they are less likely to have attended college than other groups. (See Figure 3.)

Figure 3

A contributing factor to these trends is that more Black Americans are now attending college. But if we confine our analysis to only those who have attended at least some college, the results are very much the same. In 2001, about 5.5 percent of Black Americans who attended at least some college had a debt-to-income ratio greater than 1. In 2019, it was a whopping 24 percent.

Other data points echo our findings here. Analysis by the Institute for College Access and Success based on voluntary reporting by colleges found that Black recent graduates have the highest difficulty (about 40 percent of Black respondents) making federal student loan payments 12 months after graduation. Racial wealth divides between Black and White households mean that Black college graduates may not have a secure financial safety net in the event of financial crises, such as the one our nation is experiencing currently.

Institutional racism and discriminatory financial practices up until the 1970s suppressed the growth of household wealth among non-White families, with long-lasting implications for today's non-White millennial and zoomer students. Today, without the same financial cushion of generational wealth that is available to average White households, college graduates in Black and Latinx households may run the risk of defaulting on their student debt when the U.S. economy faces shocks, such as amid the current coronavirus recession and future economic downturns.

Policy implications

U.S. policymakers should be concerned by these trends. Income-based repayment plans enable some of these student loan borrowers to manage the repayment burden month to month. And many of these borrowers will be able to get forbearance from the U.S. Department of Education so they can pay $0 during periods where they are unemployed or have suffered serious declines in income. But even modest payment amounts (income-driven repayment plans cap out at 10 percent of discretionary income) are a drag on the ability of these individuals to buy houses, start families, become entrepreneurs, and engage in other activities that previous generations took for granted.

This drag, no matter how modest, was not faced by previous generations of college graduates and their families. Student debt will continue to weigh on the balance sheets of these households for 20 years in most cases. And although the overall ratio of debt payment-to-income has not increased in the way the ratio of debt balances-to-income have, this reflects, in part, the fact that debt has actually become more burdensome, and many students are in forbearance or are more likely to use income-based repayment than in the past.

One-time student debt forgiveness, proposed by both policymakers and academics, is one way to reverse the trends discussed above. As economist Darrick Hamilton at The New School and social scientist Naomi Zewde at the City University of New York's Hunter College argued earlier this year, full forgiveness of all existing student debt would significantly reduce the Black-White wealth gap, because Black households face higher balances and are far more likely to struggle to pay those balances back. It also has the significant advantage of being relatively simple to carry out, at least relative to proposals that include complicated eligibility requirements. These kinds of requirements have been problematic in the past. The Public Service Loan Forgiveness program, for example, approved only 3,400 out of 200,000 applicants for forgiveness in 2017, because the requirements proved complicated, and borrowers did not fully understand the program.

Other proposals have focused on forgiving a flat, across-the-board sum. Sen. Elizabeth Warren (D-MA), in her 2020 presidential campaign, for example, proposed eliminating $50,000 of debt. This would dramatically reduce the number of households with high student debt-to-income ratios. (See Figure 4.)

Figure 4

One-time debt forgiveness of any sort, however, is not a sufficient solution to the broader problem of increasing college costs. To prevent a recurrence of the creeping debt situation happening now, a college education needs to be made affordable for lower- and middle-class households. As demand for college has risen, per-student funding provided by states to public universities has fallen. Whereas tuition once accounted for just a bit more than 20 percent of revenue at public institutions, in 2017, it accounted for almost half of all revenue. Cuts in state budgets as a result of the Great Recession also exacerbated the issue, with some states still funding far less than they did before the crisis. States likely do not have the ability to reverse this trend themselves. To make college affordable, the federal government will have to step in and jointly fund public institutions with states.

As of fiscal year 2017, ending in September 2017, only 2 percent of the federal budget was allocated toward higher education. Since 2007, there has been no growth in federal and state education expenditures. In order to curb rising student loan debt, policymakers at both the state and federal level should invest in affordable and accessible higher education, especially 2- and 4-year programs. Prioritizing need-based student financial aid over merit-based aid benefits students who grow up in communities with poorly funded public Kindergarten through 12th grade education, allowing these students to experience economic mobility without the heavy burden of student loan debt after graduation. The Debt-Free College Act is an example of one bill that would implement some of these recommendations.

Much of the analysis of student loan debt fails to acknowledge that even when the burden of student loans is modest, it is a drag on income that previous generations did not face. The creeping increase in student debt-to-income ratios is evidence that the problem should be tackled now, before the student financial aid system becomes more dysfunctional. Federal support would ensure that no one is unable to get a college education due to their parents' financial circumstances, and that the nation continues to build a well-educated workforce.

 -- via my feedly newsfeed

CBPP: Court Decision Against Trump Rule Preserves SNAP for 700,000 Jobless [feedly]

CBPP: Court Decision Against Trump Rule Preserves SNAP for 700,000 Jobless

Sunday's federal court decision striking down a Trump Administration rule that would have eliminated SNAP (food stamps) for 700,000 low-income jobless workers means that the punitive, ill-conceived rule — already temporarily suspended due to the pandemic — can't take effect even when the public health emergency ends.

Cutting people off SNAP would have been especially harsh and short-sighted during the pandemic, given high unemployment and widespread food insecurity. As the court noted, "Despite the [Agriculture Department's] blinkered effort to downplay or disregard the predicted outcomes of the Final Rule, the backdrop of the pandemic has provided, in stark relief, its procedural and substantive flaws." The Administration has been "icily silent" about how many people would have lost benefits if the rule were in effect during the pandemic, the court wrote.

But the rule would have been flawed even without the pandemic. Along with faulting the Administration for not following its own rulemaking process, the court dismissed Administration claims that before the pandemic, too many unemployed adults were getting SNAP under long-standing policy.

At issue is a decades-old law limiting adults who aren't raising minor children in their home to only three months of SNAP benefits when they aren't working or in a training program for at least 20 hours per week. The law includes a safety valve for areas where there simply aren't enough jobs for this population: states can request waivers of the three-month limit so people looking for stable work can continue to eat. Virtually every state has used this flexibility at some point.

The Trump Administration sought to drastically reduce state flexibility beyond what the law allows, without providing any data or explanation for why that's necessary.

The 700,000 or more unemployed and underemployed workers who were at risk are among the poorest participants in SNAP, with incomes averaging only $187 per month. The Administration claimed that taking away their food assistance would spur them to find jobs, but the evidence didn't support this rhetoric before the pandemic and certainly doesn't support it now.

As we've explained, most SNAP participants, including those subject to the three-month limit, work when they can and rely on SNAP during periods of unemployment or to supplement low wages. The massive job losses over the last seven months have disproportionately harmed low-wage workers, who already face greater barriers to work than the average job seeker, such as less education and lack of transportation.

The court's decision reflects concerns that over 100,000 community groups, local leaders, and individuals raised in public comments on the rule since the Administration proposed it over a year ago. Events since then have shown how essential SNAP is in ensuring access to food for those who can't find work.

 -- via my feedly newsfeed

CBPP:ACA Repeal Lawsuit Threatens Medicaid Expansion Coverage for Millions [feedly]

ACA Repeal Lawsuit Threatens Medicaid Expansion Coverage for Millions

Aviva Aron-Dine

If the Trump Administration and a group of 18 states convince the Supreme Court to strike down the Affordable Care Act (ACA), its Medicaid expansion — which covers more than 12 million low-income adults across the country — would end along with the rest of the law. That would take health coverage away from millions, reduce access to care, increase premature deaths, and increase medical debt and uncompensated care costs, research shows. It would also exacerbate racial disparities in coverage and access to care, and it would harm children along with adults.

Oral arguments before the Court are scheduled for November 10. The lawsuit, which 18 state attorneys general filed and the Administration later joined, argues that an incidental effect of the 2017 tax law was to repeal the entire ACA — specifically, that when policymakers eliminated the ACA's tax penalty for not having insurance, the change made the entire ACA unconstitutional. While legal experts almost uniformly dismiss that argument as absurd, the case has made its way to the Supreme Court, raising a real risk that the Court could overturn the law.

The ACA's Medicaid expansion lets states cover adults with incomes up to 138 percent of the poverty line (about $17,600 a year for a single adult), with the federal government paying 90 percent of the cost (well above the regular federal matching rate for Medicaid) and the states paying the rest. Before the ACA, the typical state covered parents only if their incomes were below about two-thirds of the poverty line, and most states didn't cover non-elderly adults without children no matter how poor they were. If the ACA's enhanced federal funding disappeared, it's hard to imagine that states would provide meaningfully more generous coverage today than they did before the ACA — especially if the Court strikes down the law amidst an economic downturn that has fueled a major state budget crisis.

Twelve million people had Medicaid expansion coverage as of mid-2019, and the figure likely is significantly higher now due to the economic downturn: expansion enrollment rose almost 13 percent between February and July in states with available data, equivalent to 1.5 million people nationwide. The overwhelming majority of them would likely become uninsured if the Court strikes down the ACA. Overturning the ACA would also prevent the remaining 14 states that have not yet implemented the expansion from doing so, which could extend Medicaid coverage to over 6 million more people.

A large and growing body of research shows that coverage losses from ending expansion would cause severe harm, including:

  • Less access to care. Expansion has increased the share of low-income adults getting primary care, preventive care, mental health care, and treatment for substance use disorders, studies show. It's been especially important for the large share of expansion enrollees with significant pre-existing conditions, who have seen large increases in access to regular care and in prescriptions filled for conditions such as heart disease, diabetes, and depression.
  • More premature deaths. Medicaid expansion saved the lives of at least 19,200 older low-income adults from 2014 to 2017 in states that adopted it, while state decisions not to expand cost the lives of 15,600, according to a careful study by researchers at the University of Michigan, National Institutes of Health, Census Bureau, and UCLA. (Hover on the map below for state-by-state estimates.) Expansion was especially important in preventing premature deaths due to conditions responsive to medical care, such as cardiovascular disease and diabetes.
  • More financial insecurity. Studies have found that expansion reduces medical debtimproves households' access to credit, and reduces evictions, with one study finding that evictions fell about 20 percent in expansion compared to non-expansion states. Ending expansion would likely reverse these improvements. The effects would be especially devastating when millions of people are struggling to afford food, rent, and other necessities due to the economic downturn.
  • More uncompensated care. By increasing the number of uninsured, ending expansion would also increase hospitals' uncompensated care costs. Those costs fell by 45 percent as a share of hospital budgets in expansion states between 2013 and 2017, compared to 2 percent in non-expansion states, recent data show.

Medicaid expansion has been particularly important in expanding coverage for Black and Hispanic people and American Indians/Alaska Natives, so eliminating it would disproportionately harm those groups. Gaps in access to care have shrunk along with gaps in coverage, and preliminary evidence suggests that expansion has narrowed disparities in health outcomes as well, while improving outcomes for all racial and ethnic groups. For example, a 2018 JAMA study finds big reductions in the share of residents who died from kidney failure in expansion compared to non-expansion states, with larger improvements for Black people (who are at higher risk for kidney failure).

ACA Repeal Would Cause Large Coverage Losses and Widen Racial Gaps

And while ending expansion would directly harm adults, it also would indirectly harm children. Expansion has reduced uninsured rates and increased access to care for new mothers, research shows, almost certainly benefiting their children as well. And a recent study, based on another randomized trial, adds to the large body of evidence that Medicaid-eligible children are likelier to gain coverage when their parents become eligible.

The children's uninsured rate has risen over the past few years, with over 700,000 more children uninsured than in 2016. Ending expansion would be another major setback, undermining children's access to care and long-term well-being.


Lives Saved, and Lost, Due to States' Medicaid Expansion Decisions, Adults Aged 55-64

Expansion state
Non-expansion state
Early expansion state excluded from the analysis
State is party to lawsuit challenging ACA

Source: CBPP calculations based on Miller et al. supplemental estimates.


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Tuesday, October 20, 2020

Kate Bahn, Equitable Growth: Labor in the Boardroom: A Model for the United States? [feedly]

Good discussion of boardroom representation by labor' impact on bargaining power.
Labor in the Boardroom: A Model for the United States?

by Kate Bahn

Under U.S. law, corporate boards of directors represent the interests of companies' shareholders. This is reflected in the typical composition of boards, composed almost entirely of people from the business world, with some from the nonprofit sector and other elements of the private sector mixed in. Because boards of directors oversee the management of companies, they have fiduciary responsibilities to look at corporate strategy, hiring, and other decision-making through the lens of how these corporate activities affect the interests of the corporation, which, in recent decades, generally means the shareholders.

One group that boards do not look out for are the workers whose labor creates value for companies. Workers matter to boards only as they affect shareholder interests. That is not to say that boards don't care at all about the health, safety, and well-being of workers. For one thing, they are obliged to follow the state and federal laws affecting workers. But generally, their interest in workers—how many there are, what they are paid, how they are treated—is confined to how such decisions affect shareholder interests, such as stock prices and fulfilling firms' legal responsibility for workplace protections and rights.

It does not have to be this way. Building an economy with broadly shared growth can include corporate policy that considers a broader range of interests, including the voices of the workers, who make companies operate day-to-day, in decisions about both short- and long-term priorities. It's possible that federal law can be changed, as it has been in more than a dozen European countries, to require corporate boards to represent the interests of workers, as well as shareholders.

How would this affect companies and workers? New research on Germany, funded by the Washington Center for Equitable Growth, by grantees Simon Jäger of the Massachusetts Institute of Technology and Benjamin Schoefer of the University of California, Berkeley, along with Jörg Heining of the German Institute for Employment Research, seeks to answer these questions. The co-authors examine how changes to so-called co-determination laws (corporate governance speak for worker participation at the board level) affected employment and earnings. Despite predictions by business interests that giving workers more voice may run contrary to sustainable corporate strategy, the three researchers find that companies with co-determination perform well, do not have any significant changes to wage levels, and are less likely to outsource business functions.

Policies such as co-determination are increasingly relevant to the United States, where wages have remained essentially stagnant for decades, despite a long-term increase in productivity, which suggests that workers are creating value but are not reaping any of its benefits. As the U.S. labor market becomes increasingly fissured, with rising domestic outsourcing over time, workers find fewer opportunities for advancement, and declining unionization rates decrease workers' voices. Furthermore, wage stagnation was largely resistant to more than a decade of economic recovery and a historic drop in unemployment until the recent coronavirus recession.

As U.S. policymakers consider how to address this problem, serious thought is being given to how corporate structures might be changed to take workers' interests into greater account—on the assumption that this could help workers get a larger share of the corporate pie. Clean Slate for Worker Power, a project of Harvard Law School's Labor and Worklife Program, is advancing an agenda of U.S. labor law reforms designed to restore worker power, including requiring worker representation on corporate boards. And legislation is before Congress to establish such a requirement.

To help policymakers understand these proposals, it would be helpful to know what effect such reforms might have on wages and employment, as well as investment and capital stock, corporate profits, and the long-term success of individual businesses. Research by Jäger, Schoefer, and Heining begins to answer these questions.

It might be difficult for people in our nation to think of corporate boards representing anybody but shareholders since this is part of American corporate culture and precedent going back to the 1970s. In fact, boards are very different in some countries. A case in point is Germany, where, for nearly 70 years, the law required workers to be represented on some corporate boards. While that mandate existed in some form going back to 1951, it was abruptly abolished in 1994 for new firms. But the mandate remained, and remains, for firms that existed before that date.

This sudden change in German law created a so-called quasi-experiment that allowed Jäger, Schoefer, and Heining to examine how labor representation in corporate governance affects workers and companies. Operating side-by-side in Germany are companies still under the mandate and companies free of it. This raises numerous questions. How do they compare? Does having workers on the board result in higher wages? Lower capital stock? Reduced profits? More bankruptcies? That is what conventional economic theory might suggest. The researchers' working paper, "Labor in the Boardroom," examines these questions, with some very interesting conclusions.

First, some background. Like many other European countries, Germany has a two-tier board system, a supervisory board and an executive board. The executive board is equivalent to the senior management of a U.S. company, with day-to-day operational responsibilities. The supervisory board operates much like U.S. boards of directors, with responsibility for the selection, monitoring, auditing, compensation structuring, and dismissal of the executive board. It is involved in strategic planning, large financial decisions, and other fundamental decisions about the company.

Between 1951 and 1976, Germany passed a series of laws that mandated supervisory boards of companies—other than privately held firms or limited liability corporations—be made up of varying levels of workers' representatives, depending on the size and type of company. By 1976, the largest corporations and smaller companies in the mining, coal, and steel industries were required to have workers' representatives comprising one-half of their supervisory board membership. Other companies had one-third worker representation. Workers elected their own representatives, who were always workers, except in the largest companies, where workers were permitted to elect outsiders to supplement workers.

In the United States, one might expect co-determinant boards to be contentious, but in practice, in Germany, when worker and shareholder representatives hold equal or near-equal power, they tend to operate by consensus. One reason might be the existence of works councils, which have extensive consultation, information, and co-determination rights in areas such as work hours, safety, and organizational or staffing changes, and can directly negotiate with the employer. Works councils do not exist in the United States, but they have a purview similar to that of labor unions in the United States, except that they participate in setting principles of wage setting rather than engaging in direct negotiations over wage levels, as U.S. unions do.

Only roughly 9 percent of workplaces in Germany have works councils, but they are overrepresented at larger workplaces. This means they cover 42 percent of employees in the former West Germany and 35 percent in the former East Germany. In part as a result of these structural differences, with works councils present at many larger businesses, there tends to be, in general, greater cooperation between labor and management in Germany.

In 1994, all this changed abruptly. The German federal parliament, the Bundestag, passed legislation exempting all new corporations from the worker representation mandate while maintaining it for existing companies. The rationale for treating old and new companies differently was that existing companies had already become accustomed to shared governance. Researchers Jäger, Schoefer, and Heining, however, say this was a legislative compromise between those who wanted to retain the status quo and those who wanted to abolish the mandate entirely. (The new law made no changes in works councils.)

To understand the effect of this change and to estimate the impact of co-determination on company and worker outcomes, Jäger, Schoefer, and Heining measured a number of metrics for companies incorporated 2 years before and 2 years following the change in law. This creates a sample of companies created under more or less similar economic conditions and average productivity levels, but incorporated under different legal frameworks. Thus, all the firms were incorporated between August 10, 1992 and August 10, 1996. Those incorporated before August 10, 1994 were subject to the mandate; those incorporated after that date were not.

To ensure the robustness of their findings, the researchers tested a number of factors to ensure that nothing about that particular time period distorted the results. So, they also compared these firms with publicly held companies that were subject to the mandate and then released from it in 1994, and with limited liability corporations, which were never subject to the mandate. This helped to ensure that any changes post-1994 were not due to overall changes in the economy or other outside factors affecting business more generally. Jäger, Schoefer, and Heining did additional testing of other potential factors as well to ensure that changes were likely due to the boardroom legislation and not other issues.

It's also important to note that the legislative compromise was unanticipated, and that it was implemented literally the day after it was both announced and enacted. So, there was no gap in incorporations just prior to the change in the law, which might have suggested deliberate avoidance of the mandate. And there was no rush to incorporate immediately following it, which might have suggested the same.

Generally, Jäger, Schoefer, and Heining found no significant impact on overall wages or employment. In fact, they found a slight increase in capital assets and significant upward movement in capital share, not labor share, due primarily to an increase in worker productivity. In other words, under shared governance, the same number of workers being paid essentially the same amount produce more value per worker, and that value is accruing to capital, not labor.

There does appear to be a significant reduction in outsourcing as a result of co-determination. Outsourcing is credited with decreasing average labor standards and worker outcomes across an economy. But for firms and their shareholders, the bottom line is that there is a slight increase in capital assets, and neither revenues nor profits appear to be significantly affected.

This also suggests that giving workers a voice in corporate decision-making does not lead to deleterious outcomes, such as bankruptcy, due to workers' potential differing priorities. Important, too, is that corporate policy doesn't affect only shareholders' bottom lines. Companies also employ the workers and provide goods and services to the consumers who are both the bedrock of our economy.

Research like this can only speculate as to the reasons for these results and how they might differ if shared governance on corporate boards were adopted in the United States. Shared governance has existed in Germany for nearly seven decades, so the management and workers of firms that remained under the pre-1994 mandate had essentially known nothing different. Results could be different if new corporate governance rules were enacted for U.S. companies unused to shared governance.

More research could give policymakers, workers, and corporate leaders alike a stronger basis for projecting possible outcomes. But this new research by Jäger, Schoefer, and Heining does suggest that workers being given a greater voice in the workplace does not lead to the negative economic outcomes purported by anti-labor critics, such as unsustainable levels of pay or workers embracing luddite-like resistance to technological change.

Their findings also might reflect the more cooperative labor relations that are prevalent in Germany, although it may be that those cooperative relations are partly a result of shared governance. The consensus nature of supervisory boards in Germany suggests that shared governance—over the long run—can produce good results for workers, companies, and the economy. Here in the United States, researchers could look at the experiences of worker-owned companies or companies with significant employee stock ownership plans (so workers are essentially shareholders) to see whether parallels with the German experience are germane.

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