Bloomberg: Wait Until Donald Trump Hears About the Carbon Border Tax

The climate crisis and trade conflicts are two of the world's biggest challenges and they might be about to collide in the EU's green deal.

By 

Chris Bryant

December 4, 2019, 4:00 AM EST

Next week, the European Union's leaders will commit to cutting net greenhouse gas emissions to zero by 2050. This historic pledge will require the continent to radically overhaul its entire economy, including a revolution in the production of steel, cement and chemicals — whose carbon emissions are particularly difficult to abate.

None of this will happen, however, unless European companies feel able to invest in making themselves greener without suffering a loss of competitiveness. So the European Commission has been toying with the idea of a so-called "carbon border tax," which would penalize imports from countries that don't meet the same environmental standards.

ADVERTISING

It's a sensible idea but one that's likely to cause the EU no end of grief. If U.S. President Donald Trump gets wind of a European "Green Deal" that includes a possible tax on American imports to help fight climate change (something he appears not to believe in), he'll no doubt hit the roof. The climate crisis and trade conflicts are two of the world's biggest challenges and they might be about to collide. 1

Relentless Rise

So long as CO2 emissions keep increasing, the climate crisis will worsen

Source: NOAA/ESRL and Scripps Institution of Oceanography

The logic of a carbon border tax is straightforward. To reach net zero emissions, Europe will have to expand the scope and effectiveness of its carbon trading system, which aims to to curb CO2 by making polluters pay. But if the price of purchasing pollution allowances keeps climbing (as it has been), businesses might decamp to countries with laxer emissions controls, a phenomenon known as "carbon leakage." 

"If necessary, if there is carbon leakage, we will have to think about a carbon border tax," European Commission president Ursula von der Leyen told the United Nations climate summit in Madrid this week. 

The risk of carbon leakage is much debated. There's been little evidence of it so far but that's probably because carbon prices have been low and heavy industry hasn't had to expend much effort on cutting emissions; the power-generating sector has done most of the work.

Slow Progress

Heavy industry emissions have barely declined since 2012

Source: Carbon Market Watch, Sandbag

Shows sector performance under EU emissions trading compared to 2012. "Industry" includes chemicals, steel and cement. These sectors tend to receive a lot of free pollution allowances.

Things are about to become much tougher for Europe's big industrial companies. In future, they'll have to shut down their most polluting plants or make them clean. Much of the technology to do the latter is still in its infancy and is expensive.  

By forcing non-EU businesses to pay the same carbon price as local companies via the border tax, the theory is that the EU could cajole other countries into following its climate lead, while ensuring a level  playing field for domestic industry. Naturally, large steelmakers such as ArcelorMittal SA are strongly in favor.

Structuring and policing such a tax would certainly be complicated; measuring the carbon content of imported products isn't simple. There are hints that it will be confined to just a few sectors at first. But the politics are even more nightmarish. Following the U.S. retaliation this week against  France's digital tax, there's a danger a carbon border tax would prompt Trump to ratchet up his trade crusades. German industry is particularly worried about this.

The EU says any border tax would have to be compliant with World Trade Organization rules. But Brussels needs to tread carefully and Trump isn't the only worry.

A decade ago the bloc tried to impose a carbon tax on flights landing in the EU, regardless of where they took off. International condemnation was brutal and swift. Then Secretary of State Hillary Clinton wrote a letter strongly objecting to the EU's unilateral approach. The U.S. Senate voted unanimously to block American airlines from complying. Amid fears that China would scrap a multi-billion dollar order for Airbus jets, Europe backed down. 2  

Is the EU about to overstep again? Maybe it has no choice. "The world is a different place than it was 10 years ago," says Andrew Murphy of the research group Transport & Environment. "With smart diplomacy there's no reason why a carbon border adjustment has to suffer the same fate as aviation did."

The urgency is certainly greater now and lots more countries have embraced emissions trading. But only last week China warned the EU against imposing a carbon tax on its exports.

Europe shouldn't let itself be dissuaded. Plenty of smart people think carbon border taxes are necessary, including Ben Bernanke and Alan Greenspan, both former heads of the Federal Reserve. As the birthplace of the industrial revolution, the continent has a unique responsibility to curb planet-heating carbon emissions, including those embedded in goods consumed here but produced elsewhere. 

So long as net carbon emissions keep rising the planet will keep getting hotter. Countries and companies leading the way shouldn't be punished for tackling this.

1. For more see this Centre for European Reform paperand this Bruegel blog postand paper. Carbon border taxes are also mentioned in the United Nations' Emissions Gap reportand by the Energy Transitions Commission.

2. Only intra-European flights were subject to emissions trading.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

Facebook

Trapped by the Firewall: Policy Changes Are Needed to Improve Health Coverage for Low-Income Workers [feedly]

Trapped by the Firewall: Policy Changes Are Needed to Improve Health Coverage for Low-Income Workers
https://www.cbpp.org/research/health/trapped-by-the-firewall-policy-changes-are-needed-to-improve-health-coverage-for-low

 -- via my feedly newsfeed

Dan Little: The second primitive accumulation [feedly]

A powerful argument about giant high tech and old style exploitation

The second primitive accumulation

Dan Little

http://understandingsociety.blogspot.com/2019/12/the-second-primitive-accumulation.html

Sunday, December 1, 2019

The second primitive accumulation

One of the more memorable parts of Capital is Marx's description of the "so-called primitive accumulation of capital" — the historical process where rural people were dispossessed of access to land and forced into industrial employment in cities like Birmingham and Manchester (link). It seems as though we've seen another kind of primitive accumulation in the past thirty years — the ruin of well-paid manufacturing jobs based on unionized labor, the disappearance of local retail stores, the extinction of bookstores and locally owned hardware stores, all of which offered a large number of satisfying jobs. We've seen a new set of bad choices for displaced workers — McDonald's servers, Walmart greeters, and Amazon fulfillment workers. And this structural economic change threatens to create a permanent under-class of workers earning just enough to get by.

So what is the future of work and class in advanced economies? Scott Shane's major investigative story in the New York Times describing Amazon's operations in Baltimore (link) makes for sobering reading on this question. The story describes work conditions in an Amazon fulfillment center in Baltimore that documents the intensity, pressure, and stress created for Amazon workers by Amazon's system of work control. This system depends on real-time monitoring of worker performance, with automatic firings coming to workers who fall short on speed and accuracy after two warnings. Other outlets have highlighted the health and safety problems created by the Amazon system, including this piece on worker safety in the Atlantic by Will Evans; link. It is a nightmarish description of a work environment, and hundreds of thousands of workers are employed under these conditions.

Imagine the difference you would experience as a worker in the hardware store mentioned in the New York Times story (driven out of business by online competition) and as a worker in an Amazon fulfillment center. In the hardware store you provide value to the business and the customers; you have social interaction with your fellow workers, your boss, and the customers; you work in a human-scale enterprise that actually cares whether you live or die, whether you are sick or well; and to a reasonable degree you have a degree of self-direction in your work. Your expertise in home improvement, tools, and materials is valuable to the customers, which brings them back for the next project, and it is valuable to you as well. You have the satisfaction of having knowledge and skills that make a difference in other people's lives. In the fulfillment center your every move is digitally monitored over the course of your 10-hour shift, and if you fall short in productivity or quality after two warnings, you are fired. You have no meaningful relationships with fellow workers — how can you, with the digital quotas you must fulfill every minute, every hour, every day? And you have no — literally no — satisfaction and fulfillment as a human being in your work. The only value of the work is the $15 per hour that you are paid; and yet it is not enough to support you or your family (about $30,000 per year). As technology writer Amy Webb of the Future Today Institute is quoted in the Times article, [It's not that we may be replaced by robots,] "it's that we've been relegated to robot status."

What kind of company is that? It is hard to avoid the idea that it is the purest expression that we have ever seen of the ideal type of a capitalist enterprise: devoted to growth, cost avoidance, process efficiency, use of technology, labor control, rational management, and strategic and tactical reasoning based solely on business growth and profit-maximizing calculations. It is a Leviathan that neither Hobbes nor Marx could really have visualized. And social wellbeing — of workers, of communities, of country, of the global future — appears to have no role whatsoever in these calculations. The only affirmative values expressed by the company are "serving the consumer" and being a super-efficient business entity.

What is most worrisome about the Amazon employment philosophy is its single-minded focus on "worker efficiency" at every level, using strict monitoring techniques and quotas to enforce efficient work. And the ability to monitor is increased asymptotically by the use of technology — sensors, cameras, and software that monitor the worker's every movement. It is the apotheosis of F.W. Taylor's theories from the 1900s of "scientific management" and time-motion studies. Fundamentally Taylor regarded the worker as a machine-like component of the manufacturing process, whose motions needed to be specified and monitored so as to bring about the most efficient possible process. And, as commentators of many ideological stripes have observed, this is a fundamentally dehumanizing view of labor and the worker. This seems to be precisely the ideal model adopted by Amazon, not only in its fulfillment centers but its delivery drivers, its professional staff, and every other segment of the workforce Amazon can capture.

Business and technology historian David Hounshell presciently noticed the resurgence of Taylorism in a 1988 Harvard Business Review article on "modern manufacturing"; link. (This was well before the advent of online business and technology-based mega-companies.) Here are a few relevant paragraphs from his piece:

Rather than seeing workers as assets to be nurtured and developed, manufacturing companies have often viewed them as objects to be manipulated or as burdens to be borne. And the science of manufacturing has taken its toll. Where workers were not deskilled through extreme divisions of labor, they were often displaced by machinery. For many companies, the ideal factory has been — and continues to be — a totally automated, workerless facility. 

Now in the wake of the eroding competitive position of U.S. manufacturing companies, is it time for an end to Taylor's management tradition? The books answer in the affirmative, calling for the institution of a less mechanistic, less authoritarian, less functionally divided approach to manufacturing. Dynamic Manufacturing focuses explicitly on repudiating Taylorism, which it takes to be a system of "command and control." American Business: A Two-Minute Warning is written in a more popular vein, but characterizes U.S. manufacturing methods and the underlying mind-set of manufacturing managers in unmistakably similar ways. Taylorism is the villain and the anachronism. 

Predictably, both books arrive at their diagnoses and prescriptions through their respective evaluations of the "Japanese miracle." Whereas U.S. manufacturing is rigid and hierarchical, Japanese manufacturing is flexible, agile, organic, and holistic. In the new competitive environment — which favors the company that can continually generate new, high-quality products — the Japanese are more responsive. They will continue to dominate until U.S. manufacturers develop manufacturing units that are, in Hayes, Wheelwright, and Clark's words, "dynamic learning organizations." Their book is intended as a primer. (link)

Plainly the more positive ideas associated with positive human resources theory about worker motivation, knowledge, and creativity play no role in Amazon's thinking about the workplace. And this implies a grim future for work — not only in this company, but in many others who emulate the workplace model pioneered by Amazon.

The abuses of the first fifty years of industrial capitalism eventually came to an end through a powerful union movement. Workers in railroads, textiles, steel, and the automobile industry eventually succeeded in creating union organizations that were able to effectively represent their interests in the workplace. So where is the Amazon worker's ability to resist? The New York Times story (link) makes it clear that individual workers have almost no ability to influence Amazon's practices. They can choose not to work for Amazon, but they can't join a union, because Amazon has effectively resisted unionization. And in places like Baltimore and other cities where Amazon is hiring, the other job choices are even worse (even lower paid, if they exist at all). Amazon makes a great deal of money on their work, and it manages its great initiatives based on their Chaplin-esque speed of completion (one-day delivery). But there is very little ability to change the workplace towards a more human-scale one, and a workplace where the worker's positive human capacities find fulfillment. An Amazon fulfillment center is anything but that when it comes to the lives of the workers who make it run.

Is there a better philosophy that Amazon might adopt for its work environments? Yes. It is a framework that places worker wellbeing at the same level as efficiency, "1-day delivery" and profitability. It is an approach that gives greater flexibility to shop-floor-level workers, and relaxes to some degree the ever-rising quotas for piece work per minute. It is an approach that sets workplace expectations in a way that fully considers the safety, stress, and health of the workers. It is an approach that embodies genuine respect and concern for its workers — not as public relations initiative, but as a guiding philosophy of the workplace.

There is a hard question and a harder question posed by this idea, however. Is there any reason to think that Amazon will ever evolve in this more humane direction? And harder, is there any reason to think that any large modern corporation can embody these values? Based on the current behavior of Amazon as a company, from top to bottom, the answer to the first question is "no, not unless workers gain real power in the workplace through unionization or some other form of representation in production decisions." And to the second question, a qualified yes: "yes, a more humane workplace is possible, if there is broad involvement in business decisions by workers as well as shareholders and top executives." But this too requires a resurgence of some form of organized labor — which our politics of the past 20 years have discouraged at every turn.

Or to quote Oliver Goldsmith in The Deserted Village (1770):

Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay.
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made:
But a bold peasantry, their country's pride,
When once destroy'd, can never be supplied.

So where did the dispossessed wind up in nineteenth century Britain? Here is how Engels described the social consequences of this "primitive accumulation" for the working people of Britain in his book, The Condition of the Working Class in England:

It is only when [the observer] has visited the slums of this great city that it dawns upon him that the inhabitants of modern London have had to sacrifice so much that is best in human nature in order to create those wonders of civilisation with which their city teems. The vast majority of Londoners have had to let so many of their potential creative faculties lie dormant, stunted and unused in order that a small, closely-knit group of their fellow citizens could develop to the full the qualities with which nature has endowed them. (30)

This passage, written in 1845, could with minor changes of detail describe the situation of Amazon workers today. "The vast majority ... have had to let so many of their potential creative faculties lie dormant, stunted and unused in order that a small, closely-knit group of their fellow citizens could develop to the full the qualities with which nature has endowed them."

And what about income and standard of living? The graph of median US income by quintile above in constant 2018 dollars tells a very stark story. Since 1967 only the top quintile of household income has demonstrated significant growth (in a timeframe of more than fifty years); and the top 5% of households shows the greatest increase of any group. 80% of US households are barely better off today than they were in 1967; whereas the top 5% of households have increased their incomes by almost 250% in real terms. This has a very clear, unmistakeable implication: that working people, including service workers, industrial workers, and most professionals have received a declining share of the economic product of the nation. Amazon warehouse workers fall in the 2nd-lowest quintile (poorest 21-40%). (It would be very interesting to have a time series of Amazon's wage bill for blue-collar and white-collar wages excluding top management as a fraction of company revenues and net revenues since 2005.)

Here is a relevant post on the possibilities created for a more fair industrial society by the institution of worker-owned enterprises (link), and here is a post on the European system of workers councils (link), a system that gives workers greater input into decisions about operations and work conditions on the shop floor.

 -- via my feedly newsfeed

Amplified Advantage: Why Education Is Not the Answer to Our Class Problems [feedly]

Amplified Advantage: Why Education Is Not the Answer to Our Class Problems
https://workingclassstudies.wordpress.com/2019/12/02/amplified-advantage-why-education-is-not-the-answer-to-our-class-problems/

hirty years ago, after having dropped out of college after just one term, unable to pay for my dorm room, I was unsure if I would ever leave the working class.  Two years later I was a student at Barnard College, an elite small liberal arts college three thousand miles from my parents' home.  To this day, I am not sure how I made that leap, but it was smoothed over by significant financial assistance from the college.  Unable to pay for my public university, I was able to graduate from one of the best private colleges in the country virtually debt-free.

Now I study higher education and its connection to what we call intergenerational social mobility, the movement (or lack of movement) between classes, comparing children and parents' occupational outcomes over time.

I have some bad news.  While the path I took was not easy, gaining social mobility through college education is much harder for young people today.  Ironically, even as more children of the working class go to college, the educational attainment gap between the middle class and the working class continues to grow.

How can this be?  For one thing, the bar for "being educated" continues to rise.  As more people earn college degrees than ever before, the kindof college degree increasingly matters.  What type of institution?  What major field of study?  Also important is the level of education – in many fields a four-year degree is no longer enough to assure a middle-class salaried job.  You need a master's degree, or even a PhD, for some work, even outside of academia.

Scholars of education (including sociologists like me) have known all of this for a while now, which is why so many of us have studied access to colleges and programs.  Colleges have struggled to open their doors to first-generation and working-class students.  They are paying more attention to ways of broadening access, sometimes pushed and shoved into doing so by state boards of higher education.  At the same time, budget cuts at public colleges and universities undercut many of these efforts.

But getting working-class students into colleges is only half the battle.  Keeping them and helping them thrive has proven difficult.  I explore some of the many reasons for this in my first book, The Burden of Academic Success:  marginalization, impostor syndrome, feeling out of place.  Even at open access two-year public colleges and universities that are the most open to working-class students, middle-class students predominate.

My experiences at Barnard reflect why that matters.  I rarely talked to anyone about my family, and, when I did, I regretted the ridicule, mockery, and disbelief.  I knew I was different.  Most of the time I was too busy juggling off-campus work and an overloaded academic schedule to care, but the isolated feeling was always lurking in the background.  If I hadn't an abundant scholarship, I know I would have left.  As Tony Jack reminds us, "access is not inclusion."

Getting working-class students into college and keeping them has proven difficult, but not impossible.  Successes – like me, Tony Jack, all the working-class academics out there —  do exist.  Here's the real problem: even when we succeed academically, the gap between us and everyone else increases after we graduate, as Debbie Warnock'sremarkably honest account of her move into and through the academy so poignantly demonstrates.

In Amplified Advantage: Going to A "Good College" in an Era of Inequality,I demonstrate the many ways that parental resources and class cultures amplify the preexisting advantages of some students, even as colleges provide all students a solid education, expanded social networks, and useful cultural capital.  Based on a national survey of college students attending small liberal arts colleges, interviews, and a follow-up survey with recent college graduates, I found that colleges like Barnard did a lot of things well for their students.  Students generally had frequent interactions with faculty and peers, ample opportunities for doing research outside of class, abundant extracurricular activities, and a lot of institutional support for individual growth.  Given the quality of education and opportunity provided, the average $50,000 annual price tag for elite schools actually seems worthwhile, especially when low-income and working-class students receive sufficient financial assistance.

And yet, for all these colleges do to provide an equal playing field for students (all live on campus, everyone takes small classes, almost everyone is involved in useful extracurricular activities), once students graduate, their experiences and opportunities deviate sharply.  More elite students can leverage their advantages and resources in ways unavailable to other students.  They may, for example, take a risk on joining a start-up company, knowing that they have resources to fall back on if this risk does not pay off.  Others may rely on parental financial assistance to spend a year in New York City working at an unpaid internship or working for a nonprofit in a position that pays very little, expecting that such work will eventually pay off in a more secure and remunerative position.  Still others call on the friends and social networks of wealthy parents in the financial sector to ensure them high-paying jobs immediately after graduation, despite relatively shaky grades. Where elite students can afford to take big risks with potential big payoffs, knowing that the risk is ultimately ensured, working-class students' choices are heavily constrained by circumstance and necessity.   Even compared with more middle-class peers, who may owe just as much in student loans, working-class students are much more likely to take jobs that they do not like and that do not match their skillsets in order to repay student debt. They may have accrued a ton of social and cultural capital while in college, but they can't make use of it in the way of their peers.

In an increasingly unequal world, where elites outpace all others, reforming higher education from within won't solve the problem. Class inequities shape students' opportunities from before they enter college and long after they graduate. To the contrary, if we focus on education as the primary tool to level the playing field, we lose sight of the larger battle. As Andrew Sayer cautions, even reform efforts with egalitarian motives "are likely to be twisted by the field of class forces in ways which reproduce class hierarchy."  In other words, the more we turn to education as a way out of class struggle, the more we may actually end up amplifying advantages of the few.

And we cannot afford to do that now. The time for ignoring the larger class struggle has passed, as we are all implicated in the game that is being played.  Simply put, expanding opportunities does not work because some players start off with extra resources, and they will use all the tools they have at their disposal to amplify their advantages.  Struggles might ensue over the value of those tools, which suit is "trump," and which advantages accrue the most chips, but as the pot grows bigger and the stakes get higher, the game is still rigged against those who begin with fewer chips.  Do we want to keep playing this game?  Do we know how to stop?  It's time to stop asking how we can get more people into college and start asking why it matters.

Allison L. Hurst, Oregon State Universit

 -- via my feedly newsfeed

Corporate America's debt load is nearing $10 trillion, a record 47% of the overall economy — and experts around the world are sounding the alarm [feedly]

Corporate America's debt load is nearing $10 trillion, a record 47% of the overall economy — and experts around the world are sounding the alarm
https://www.businessinsider.com/us-corporate-debt-10-trillion-record-percentage-economy-expert-warnings-2019-12?utm_source=feedly&utm_medium=webfeeds

 -- via my feedly newsfeed

Workers will lose more than $700 million dollars annually under proposed DOL rule [feedly]

Wage Theft Inc running the Department of Labor.....

Workers will lose more than $700 million dollars annually under proposed DOL rule
https://www.epi.org/blog/workers-will-lose-more-than-700-million-dollars-annually-under-proposed-dol-rule/

In October, the Trump administration published a proposed rule regarding tips which, if finalized, will cost workers more than $700 million annually. It is yet another example of the Trump administration using the fine print of a proposal to attempt to push through a change that will transfer large amounts of money from workers to their employers. We also find that as employers ask tipped workers to do more non-tipped work as a result of this rule, employment in non-tipped food service occupations will decline by 5.3% and employment in tipped occupations will increase by 12.2%, resulting in 243,000 jobs shifting from being non-tipped to being tipped. Given that back-of-the-house, non-tipped jobs in restaurants are more likely to be held by people of color while tipped occupations are more likely to be held by white workers, this could reduce job opportunities for people of color.

The background: employers are not allowed to pocket workers' tips—tips must remain with workers. But employers can legally "capture" some of workers' tips by paying tipped workers less in base wages than their other workers. For example, the federal minimum wage is $7.25 an hour, but employers can pay tipped workers a "tipped minimum wage" of $2.13 an hour as long as employees' base wage and the tips they receive over the course of a week are the equivalent of at least $7.25 per hour. All but seven states have a sub-minimum wage for tipped workers.

In a system like this, the more non-tipped work that is done by tipped workers earning the sub-minimum wage, the more employers benefit. This is best illustrated with a simple example. Say a restaurant has two workers, one doing tipped work and one doing non-tipped work, who both work 40 hours a week. The tipped worker is paid $2.50 an hour in base wages, but gets $10 an hour in tips on average, for a total of $12.50 an hour in total earnings. The non-tipped worker is paid $7.50 an hour. In this scenario, the restaurant pays their workers a total of ($2.50+$7.50)*40 = $400 per week, and the workers take home a total of ($12.50+$7.50)*40 = $800 (with $400 of that coming from tips).

But suppose the restaurant makes both those workers tipped workers, with each doing half tipped work and half non-tipped work. Then the restaurant pays them both $2.50 an hour, and they will each get $5 an hour in tips on average (since now they each spend half their time on non-tipped work) for a total of $7.50 an hour in total earnings. In this scenario, the restaurant pays out a total of ($2.50+$2.50)*40 = $200 per week, and the workers take home a total of ($7.50 + $7.50)*40 = $600. The restaurant's gain of $200 is the workers' loss of $200, simply by having tipped workers spend time doing non-tipped work.

To limit the amount of tips employers can capture in this way, the Department of Labor has always restricted the amount of time tipped workers can spend doing non-tipped work if the employer is paying the subminimum wage. In particular, the department has said that if an employer pays the subminimum wage, workers can spend at most 20 % of their time doing non-tipped work. This is known as the 80/20 rule: employers can only claim a "tip credit"—i.e., pay tipped workers a base wage less than the regular minimum wage—if tipped staff spend no more than 20 % of their time performing non-tipped functions; at least 80 % of their time must be spent in tip-receiving activities. The protection provided by this rule is critical for tipped worker. For example, in a restaurant, the 80/20 rule prevents employers from expecting servers to spend hours washing dishes at the end of the night, or prepping ingredients for hours before the restaurant opens. Occasionally, a server might play the role of the host, seating guests when a line has formed, or filling salt and pepper shakers when dining service has ended—but such activities cannot take up more than 20 % of their time without employers paying them the full minimum wage, regardless of tips.

The Department of Labor (DOL), under the Trump administration, has proposed to do away with the 80/20 rule. Workers would be left with a toothless protection in which employers would be allowed to take a tip credit "for any amount of time that an employee performs related, non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties" (see page 53957 of the proposed rule).

With no meaningful limit on the amount of time tipped workers may perform non-tipped work, employers could capture more of workers' tips. It is not hard to imagine how employers of tipped workers might exploit this change in the regulation. Consider a restaurant that employs a cleaning service to clean the restaurant each night: vacuuming carpets, dusting, etc. Why continue to pay for such a service, for which the cleaning staff would need to be paid at least the federal minimum wage of $7.25 per hour, when you could simply require servers to spend an extra hour or two performing such work and only pay them the tipped minimum wage of $2.13 per hour? Or, a restaurant that currently employs three dishwashers at a time might decide they can manage the dish load with only one dedicated dishwasher if they hire a couple extra servers and require all servers to wash dishes periodically over the course of their shifts. Employers could pay servers less than the minimum wage for hours of dishwashing so long as they perform some tipped work right before or after washing dishes.

The department recognizes that workers will lose out under this change, stating that "tipped workers might lose tipped income by spending more of their time performing duties where they are not earning tips, while still receiving cash wages of less than minimum wage" (see page 53972 of the proposed rule). Tellingly, DOL did not provide an estimate of the amount that workers will lose—even though it is legally required, as a part of the rulemaking process, to assess all quantifiable costs and benefits "to the fullest extent that these can be usefully estimated" (see Cost-Benefit and Other Analysis Requirements in the Rulemaking Process). The department claims they "lack data to quantify this potential reduction in tips." However, EPI easily produced a reasonable estimate using a methodology that is very much in the spirit of estimates the Department of Labor regularly produces; DOL obviously could have produced an estimate. But DOL couldn't both produce a good faith estimate and maintain the fiction that getting rid of the 80/20 rule is about something other than employers being able to capture more of workers' tips, so they opted to ignore this legally required step in the rulemaking process.

Below we describe the methodology for our estimate. The simplicity and reasonableness of this approach underscores that by not producing an estimate, the administration appears to simply be trying to hide its anti-worker agenda by claiming to not be able to quantify results.

Methodology for estimating tips captured by employers

The remainder of this piece describes the methodology for estimating the total pay transferred from workers to employers as a result of this rule described above. To evaluate how this rule change would affect pay, we use data from the Current Population Survey (CPS), restricted to states with a tip credit (i.e., that allow employers to pay a subminimum wage to tipped workers), to estimate how much employers might shift work from traditionally non-tipped to tipped staff. Doing so would allow them to spread out the total pool of tips received over more people for whom employers can pay less than the minimum wage, thereby reducing employers' wage responsibility. We then estimate the change in total earnings that would occur for food service workers if that shift in employment took place.

The CPS is a household survey that asks workers about their base wages (exclusive of tips) and about their tips earned, if any. One problem with the CPS data, however, is that earnings from tips are combined with both overtime pay and earnings from commissions. Researchers refer to the CPS variable that provides the aggregate weekly value of these three sources of earnings (overtime, tips, and commissions) as "OTTC." In order to isolate tips using this variable, we first restrict the sample to hourly workers in tipped occupations, to help ensure that we are not picking up workers who are likely to earn commissions. For hourly workers in these tipped occupations who work less than or equal to 40 hours in a week, we assume that the entire amount of OTTC earnings is tips. For hourly workers in tipped occupations who work more than 40 hours, we must subtract overtime earnings. We calculate overtime earnings for these workers as 1.5 times their straight-time hourly wage times the number of hours they work beyond 40. For these workers, we assume their tipped earnings are equal to OTTC minus these overtime earnings.

Some workers in tipped occupations do not report their tips in the OTTC variable; however, the CPS also asks workers to report their total weekly earnings inclusive of tips, and their base wage exclusive of tips. For those workers in tipped occupations with no reported value in the OTTC variable, but whose total weekly earnings is greater than the sum of their base wage times the hours they worked, we assume the difference is tips.

In other words, for hourly workers in tipped occupations we calculate tips in two ways:

1. For those who report a value for OTTC:

Weekly tips = OTTC for those who work ≤ 40 hours per week, and

Weekly tips = OTTC − [(base wage) × 1.5 × (hours worked − 40)] for those who work > 40 hours per week.

1. For those who do not report a value for OTTC:

Weekly tips = Total weekly earnings inclusive of tips – (base wage x hours worker).

In cases where tips can be calculated both ways, we take the larger of the two values.

Standard economic logic dictates that employers will spread out aggregate tips over as many workers they can—thereby reducing their wage obligations and effectively "capturing" tips. They will shift work from non-tipped to tipped workers until the resulting average wage (combined base wage plus tips) of their tipped workers is at or just above the hourly wage these same workers could get in a non-tipped job. For employers of tipped workers to get and keep the workers they need, tipped workers must earn as much as their "outside option," since, all else being equal (i.e., assuming no important difference in nonwage compensation and working conditions), if these workers could earn more in another job, they would quit and go to that job. But for employers to keep these workers, they do not need to earn any more than they could earn in another job (again, assuming all else is equal), since as long as they are earning what they could earn in another job, it would not be worth it to these workers to quit.

To calculate the "outside option wage," we use regression analysis to determine the wage each worker would likely earn in a non-tipped job. We regress hourly wage (including tips) on controls for age, education, gender, race, ethnicity, citizenship, marital status, and state, and use the results of that regression to predict what each tipped worker would earn in a non-tipped job. We set a lower bound on predicted hourly wages at the state minimum wage. We refer to the predicted value as the outside option wage—it's the wage a similar worker in a non-tipped job earns. We assume if a worker currently earns less than or equal to their outside option wage, their earnings cannot be reduced because if their earnings are reduced, they will leave their job and take their outside option. However, if a worker currently earns more than their outside option wage, their earnings can be reduced by the amount the worker earns above the outside option wage, since as long as their earnings are not reduced below their outside option wage, they will have no reason to leave. We also assume that if their base wage is greater than the state minimum wage—i.e. if their employer is not taking the tip credit—their earnings will not be reduced, since the 80/20 rule applies only to tipped workers who are paid a subminimum base wage. We calculate new average tips earned as the aggregate tips of all tipped workers minus the aggregate amount, just described, by which their earnings can be reduced, divided by the total number of tipped workers.

Using this estimate of new average tips earned, we can estimate how much employers might shift the composition of employment by reducing the number of non-tipped workers and adding more tipped ones. We assume that the total amount of tips earned remains the same— it is just spread out over more tipped workers (who are now doing more non-tipped work). In particular, we assume that the new number of tipped workers is the number that, when multiplied by the new average tips earned, is equal to the total aggregate tips before the change. We operationalize this by multiplying the sample weights of tipped workers by total aggregate tips divided by the difference between total aggregate tips and the aggregate amount by which earnings can be reduced. We then assume that the number of tipped workers added is offset one-for-one by a reduction in the number of non-tipped workers who have food service occupations. We operationalize this by multiplying the sample weights of non-tipped workers by one minus the ratio of the increase in tipped workers to the original number of non-tipped workers. We find that employment in non-tipped food service occupations will decline by 5.3% and employment in tipped occupations will increase by 12.1%, resulting in 243,000 jobs shifting from being non-tipped to being tipped as a result of this rule. The work that had been done by those non-tipped workers will now be done by tipped workers, with tipped workers spending less time doing work for which they receive tips.

The loss in pay is calculated as the difference between current aggregate food service tips and new aggregate food service tips using the new employment weights just described for tipped and non-tipped workers and the new average wages for tipped workers. We assume average wages for non-tipped workers do not change. We estimate that there will be a transfer of $705 million from workers to employers if this rule is finalized.

Finally, it should be noted that our estimate of the transfer from workers to employers is likely a vast underestimate for three reasons. First, tips are widely known to be substantially underestimated in CPS data, thus it is highly likely that we are underestimating the amount of tips employers would capture as a result of this rule change. For example, we find that 47.6% of workers in tipped occupations do not report receiving tips. Similarly, using revenue data from the full-service restaurant industry and updating the methodology from Table 1 here to 2018, we find that tips in full-service restaurants are $30.5 billion, which is roughly twice the amount of tips reported in food service in the CPS. This means the amount employers will really capture is likely roughly twice as large as our estimate. Second, we only estimated losses in food service. However, about 26.0 % of tips earned in the economy are not earned in restaurants or food service occupations. Combining these two factors together means what employers will really capture may be 2.5 times as large as our estimate. Third, our estimates assume that getting rid of the 80/20 rule will only have an effect if the employer is already taking a tip credit. This ignores the fact that some employers may be incentivized to start using the tip credit if the 80/20 rule is abolished, knowing that without the rule they will be able to capture more tips. Accounting for this factor would increase our estimate further.

 -- via my feedly newsfeed