Economic Policy institute

September 16, 2016

RI says ‘no’ to excessive executive pay

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In 2016, Treasurer Seth Magaziner has voted “no” on executive compensation plans at 75 companies, including Facebook, eBay, and the parent company of Google, “due to a misalignment between CEO pay and company performance or because the compensation plans were deemed excessive or otherwise inappropriate.”

“My job as Treasurer is to deliver strong financial performance for the state’s pension fund. When the companies we invest in award excessive pay packages to executives, it comes at the expense of the pension fund and the public employees we serve,” Magaziner said. “Our say-on-pay effort reflects our position that executive compensation should be transparent and based on performance.”

Earlier this year Magaziner announced that he will use the power of the Treasurer’s office to “vote against appointing white men to corporate boards of directors that are already comprised of mostly white men.” This latest announcement can be seen as a continuation of Magaziner’s belief that corporate reform can come through ethical voting from progressive investors.

Magaziner says that since the 1970s, inflation-adjusted CEO pay in the U.S. increased by almost 1,000 percent, according to a study last year from the Economic Policy Institute. Six of the highest paid U.S. CEOs make more than 300 times the salary of their typical employee, according to the compensation analysis firm PayScale.

Facing increasing shareholder advocacy amid a volatile market and slower growth rates, many of America’s biggest corporations are under an intense spotlight to link chief executive pay to company performance, according to the Korn Ferry Hay Group 2015 CEO Compensation Study.

Magaziner has sent a letter to all companies that received “no” votes to inform them of Rhode Island’s opposition to their executive pay packages, and offer to open a dialogue about how they can make progress on this important issue.

July 14, 2016

CNBC’s state rankings flawed and anti-middle class

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From the headlines, you would think that CNBC is the gold standard economic authority. After the cable news network released its 10th annual “America’s Top States for Business 2016” listing, in which Rhode Island was ranked dead last, local corporate media raced to bring the bad news to readers and viewers. CNBC ranks R.I. worst state for business, CNBC: Rhode Island ranked ‘Bottom State for Business‘, and RI back to dead last in new CNBC rankings are typical examples from the Projo, Channel 10 and Channel 12 respectively.

Missing from the Cassandra-like coverage is any hint that the rankings are meaningless and based on metrics that rate our state on how well our policies kowtow to the whims of business, not on how well they benefit the poor and middle class. Only Ted Nesi even approaches this angle in his coverage, but he did so through the lens of competing political discourse. But what about the economics of the report? Does it hold up under scrutiny? I’ve tackled the subject of economic rankings before, here and here, trying to bring some sort of real economic analysis to bear.

I asked Doctor of Economics Douglas Hall, Director of Economic and Fiscal Policy at the Economic Progress Institute, for some insights. Hall said that many of CNBC’s economic indicators “have a lot of merit and point to the need to address matters via public policy, such as repairing the state’s crumbling infrastructure and the need to help Rhode Islanders improve their educational attainment. But when you deconstruct their aggregate groupings,” said Hall, “many of the categories are deeply flawed and point to policies that would severely undermine the well-being and quality of life of working families in Rhode Island.”

One indicator the report uses is “union membership and the states’ right to work laws.” Low union membership and strong anti-union right to work laws contribute to a higher economic ranking for a state in CNBC’s report, yet Hall says that “research clearly shows that as unionization rates have gone down, the well-being of the American middle class has gone down.” In Hall’s view, this metric “taints the entire aggregate measure.”

Another metric, the CNBC aggregate category for the cost of doing business, considers the cost of paying wages and presumably, says Hall, “a state in which every employee worked for sub-poverty wages would get a very high grade in this category, while those paying living wages that can sustain a family and support a viable business community through demand for goods and services, would get a low grade in this category.”

It seems clear that these rankings of states by various business interests, including corporate entities such as CNBC, puppet organizations such as ALEC and members of the State Policy Network (which includes the RI Center for Freedom and Prosperity) and various Chambers of Commerce are are not objective measures of a state’s economic well-being, but are tools crafted to shape public policy to the advantage of large business interests and to the detriment of the poor and middle class.

The most sensible tactic in dealing with such garbage is to file it accordingly.

June 16, 2016June 16, 2016

Income inequality in Rhode Island

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Between 2009 and 2013, the top one percent captured 85.1 percent of total income growth in the United States. To be included in the top one percent in Rhode Island your annual income would have to be $336,625. The average income of a Rhode Island one-percenter is $884,609. Since the bottom 99 percent makes $47,545 on average, the top one percent makes 18.6 times more than the bottom 99 in this state.

This info is gleaned from Income inequality in the US by state, metropolitan area, and county, a new paper published by the Economic Policy Institute (EPI) for the Economic Analysis and Research Network (EARN). The paper, by Mark Price, an economist at the Keystone Research Center in Harrisburg, Penn. and Estelle Sommeiller, a socio-economist at the Institute for Research in Economic and Social Sciences in Greater Paris, France, shows that the top one percent of income earners captured the majority of income growth since the Great Recession in 24 states—with the top one percent taking home all income growth in 15 states.

Rhode Island ranks 28 out of the states in income inequality, based on the ratio of top one percent to bottom 99 percent income. The situation in Massachusetts (ranked 6) and Connecticut (ranked 2) is far worse for inequality.

The top one percent in Rhode Island takes 15.6 percent of all income in Rhode Island. This number approaches or surpasses historical highs, tracked from 1917-2013.

“Rising inequality is not a new phenomenon, and it’s not confined to large urban areas or financial centers,” said Price. “It’s a persistent problem throughout the country—in big cities and small towns, in all 50 states. In the face of this national problem, we need national policy solutions to jump start wage growth for the vast majority.”

“The degree of income inequality differs from one city to another, but the underlying forces are clear. Inequality isn’t a regional issue. It’s the result of intentional policy decisions to shift bargaining power away from working people and towards the top 1 percent,” said Sommeiller. “To reverse this, we should enact policies that boost worker’s ability to bargain for higher wages, rein in the salaries of CEOs and the financial sector, and prioritize full employment.”

March 31, 2016March 31, 2016

Rich people have paid sick days. Poor people do not.

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Rhode Island’s House Committee on Labor is today considering H7633, An Act Relating To Labor And Labor Relations— Healthy And Safe Families And Workplaces Act, legislation that if passed would provide Rhode Island workers with earned paid sick days.

Among the basic provisions of this legislation are the following:

Annual accrual of 56 hours (equivalent to seven 8-hour work days) of earned sick leave.
Ability to make use of paid leave after 90 days.
Rollover of unused sick leave into new calendar year, with option to instead pay employees for unused time.
Protection of earned sick leave time in the event an employee is transferred to a different division of the same company, and in the event that “an employer succeeds or takes the place of an existing employer”.

Until national legislation is passed providing earned paid sick time, state and local provisions can provide this important family-friendly employment standard. As of March 2016, five states have passed earned paid sick time legislation, including three of our New England neighbors, Connecticut, Massachusetts, and Vermont. As well, at least fifteen cities and counties have passed legislation providing earned paid sick leave, including San Francisco, Washington, DC, New York, Philadelphia, Portland (OR), and San Diego.

The experience of those jurisdictions that have been leaders in enacting family-supporting earned paid sick leave is instructive. In San Francisco, the first jurisdiction to introduce earned paid sick leave, employment in the five years after implementation of their earned paid sick leave provisions grew twice as fast in the city than in neighboring counties lacking earned paid sick leave, and grew even faster in the food service and hospitality industries with significant concentrations of workers benefiting from the new provisions.

A report by the Center on Economic and Policy Research found that in neighboring Connecticut, the policy was implemented at little to no cost for business (consistent with findings from an Economic Policy Institute study prior to passage), and that two years after initial implementation, more than three-quarters of employers were supportive of the law.

Provision of earned paid sick days results in significant savings for both employers and government:

Employer savings are considerable, and include savings due to:

increased worker productivity,
Lower turnover rates
Reduced workplace contagion from reduced presenteeism (attending work while sick)
Fewer workplace injuries

Government saves through savings to public health insurance programs, through reduced reliance on emergency rooms for treatment of illnesses. With availability of paid sick time, an employee is able to schedule an appointment with his/her primary care provider for diagnosis and treatment. One recent study shows that extending earned paid sick leave to all currently uncovered would save over $1.1 billion annually, including savings of $517 million to public health insurance programs such as Medicaid. Other savings result from reduced reliance on public assistance, as nearly one in four employees report losing a job or being threatened with job loss for taking time off due to personal or family illness. Earned paid sick leave gives employees much needed economic security, which is critical to family stability.

One significant reason to pass paid sick leave legislation is that failing to do so further exacerbates disparities based on income. The Economic Policy Institute shows in stark terms that “rich people have paid sick days [while] poor people do not.” While only one in five (20 percent) of private sector workers in the bottom 10 percent of wage earners has earned paid sick time, nearly nine in ten (87 percent) of top-five wage earners have earned paid sick time.

The case for providing earned paid sick leave to workers in Rhode Island is strong. It’s good for businesses and workers, making Rhode Island a more family-friendly place to live and work.

March 11, 2016

Wage inequality worsened in 2015, despite real wage gains

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Wage inequality continued its rise unabated in 2015, according to a new report from EPI senior economist Elise Gould. In Wage inequality continued its 35-year rise in 2015, Gould analyzes real (inflation-adjusted) wage trends in 2015 and shows that, while real wages increased across the board, wage growth was faster at the top of the wage distribution than the bottom—the gap between top earners and the typical worker continues to grow.

Due to a sharp dip in inflation, real hourly wages grew for all workers in 2015. However, falling inflation is unlikely to be a source of durable wage gains in the future. Growth in nominal (non-inflation adjusted) wages has not accelerated, and there is no evidence to indicate that the Federal Reserve Board should raise interest rates in an effort to slow the economy and ward off incipient inflation.

“It’s no surprise that typical workers are frustrated with the economy since wage growth has been slow for so long,” said Gould. “Real wage growth in 2015 is welcome news, since it means workers’ standards of living increased. However, this comes with two large caveats. First, wage inequality showed no sign of slowing down last year. And, meanwhile, relying on falling inflation is an unwanted and unsustainable strategy for increasing living standards.”

The strongest wage growth in 2015 occurred among men at the top of the wage distribution and women at the bottom of wage distribution. Men’s wages at the 95th and 90th percentiles grew by 9.9 percent and 6.2 percent, respectively, compared with only 2.6 percent at the median. Low wage workers, meanwhile, saw greater wage gains in states that increased their minimum wage. Women’s wages at the 10^th percentile, which are lower than men’s at the bottom decile and therefore may be more likely to be impacted by changes in the wage floor, grew 5.2 percent in states with legislated minimum wage increases, compared with only 3.1 percent growth in states without increases.

[From an Economic Policy Institute press release]

February 8, 2016February 7, 2016

Increasing minimum wage reduces public assistance costs

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As corporations achieve extraordinarily high profit levels and executive pay reaches new heights, wages in certain sectors are so low that even those who work full time must rely on government assistance to make ends meet. A new report from EPI economic analyst David Cooper finds that raising wages for low-wage workers will significantly reduce government spending on public assistance, making billions of dollars a year available for improvements to other anti-poverty programs.

“When employers pay wages so low that working people have to turn to public assistance to make ends meet, they’re effectively receiving a subsidy from taxpayers,” said Cooper. “Policies that raise wages would free up resources that could then be used to strengthen anti-poverty programs or make investments in any number of other policy priorities. The simplest way we can do this is by raising the federal minimum wage.”

The majority (66.6 percent) of individuals and families who receive public assistance work or are in a family in which at least one adult works. This number grows to 71.6 percent when focusing on recipients under the age of 65. More than two-thirds (69.2 percent) of all public assistance benefits that go to non-elderly families go to families in which at least one adult works.

If the bottom 30 percent of wage earners received a $1.17 per hour pay raise, more than 1 million working people would no longer need to rely on public assistance. For every $1 that wages rise among these low-wage workers, spending on government assistance programs falls by roughly $5.2 billion. Because this estimate is conservative and does not include the value of Medicaid benefits, it has the potential to be even higher.

Other findings from the paper include:

Raising the minimum wage to $12 by 2020 would reduce public assistance spending by $17 billion. These savings could be used to make improvements other anti-poverty programs, such the President Barack Obama’s proposal to expand the national school lunch program to provide food for children during the summer months.
Workers in the arts, entertainment, recreation, accommodation, food services, and retail trade industries are disproportionately represented among public assistance recipients.
Roughly 60 percent of all workers making less than $7.42 per hour receive some form of government-provided assistance, either directly or through a family member.
More than half (52.6 percent) of workers paid between $7.42 and $9.91 per hour receive public assistance, either directly or through a family member.
Nearly half (46.9 percent) of all working recipients of public assistance work full time.

[From a press release]

August 31, 2015September 1, 2015

RI family of four needs $71,455 annually says EPI

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Over the weekend the Economic Policy Institute (EPI) released a “Family Budget Calculator” that “measures the income a family needs in order to attain a secure yet modest standard of living.”

To use the “Family Budget Calculator” simply enter your city, state or zip code. The budgets generated “estimate community-specific costs for 10 family types (one or two adults with zero to four children) in 618 locations,” says the EPI, “Compared with the federal poverty line and Supplemental Poverty Measure, EPI’s family budgets provide a more accurate and complete measure of economic security in America.”

Entering “Rhode Island” for two adults and two children brings results for the Providence/Fall River metro area, where monthly costs of living are estimated at $5,955, or $71,455 annually. This includes $913 for housing and $1338 for child care. One adult with no children needs to generate $2,543 monthly/$30,522 annually to maintain a “secure yet modest standard of living.”

Needless to say, many Rhode Island families are not meeting this basic income level. Locally, the Economic Progress Institute launched an online “Cost of Living Calculator” that showed that “Rhode Island’s recent move to raise the minimum wage from $9 to $9.60 is not nearly sufficient… since a ‘single adult without children needs to earn $24,640 a year or $11.85/hour to meet his or her basic needs.’”

The EPI report is one more indication that Rhode Island is not on the right track economically when it comes to working families. Members of the General Assembly need to take note.

The EPI describes itself as “an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.”

March 10, 2015March 11, 2015

RhodeMapRI and preventing future Fergusons

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A new report from the Economic Policy Institute (EPI) by Richard Rothstein titled The Making of Ferguson: Public Policies at the Root of its Troubles puts some of the recent brouhaha over RhodeMap RI into keen perspective. We all know the story of the police murder of Mike Brown in the St. Louis suburb of Ferguson, MO, the high profile demonstrations from the black community in response, and the heavy handed, militarized police reaction. The US Department of Justice released a shocking report of systemic racism and economic exploitation of the black citizens of Ferguson, but the report from the EPI provides insight into how a racially segregated, predominantly low income African-American community like Ferguson can develop in the first place.

Rothstein begins by blaming racial prejudice and racist public policy. “No doubt, private prejudice and suburbanites’ desire for homogenous affluent environments contributed to segregation in St. Louis and other metropolitan areas. But these explanations are too partial, and too conveniently excuse public policy from responsibility. A more powerful cause of metropolitan segregation in St. Louis and nationwide has been the explicit intents of federal, state, and local governments to create racially segregated metropolises.”

It’s important to understand that the policies Rothstein exposes in his report are not located only in the immediate area of St. Louis, these policies existed across the nation, and even where such policies no longer officially exist, their effects can still be felt today. These policies, according to Rothstein, include:

Government subsidies for white suburban developments that excluded blacks, depriving African Americans of the 20th century home-equity driven wealth gains reaped by whites;
Denial of adequate municipal services in ghettos, leading to slum conditions in black neighborhoods that reinforced whites’ conviction that “blacks” and “slums” were synonymous;
Boundary, annexation, spot zoning, and municipal incorporation policies designed to remove African Americans from residence near white neighborhoods, or to prevent them from establishing residence near white neighborhoods;
Urban renewal and redevelopment programs to shift ghetto locations, in the guise of cleaning up those slums.

RhodeMap RI was developed with an understanding of many of the problems Rothstein cites. The public review draft of RhodeMap has a section at the end concentrating on social equity that explicitly called on the plan to “implement a new economic model based on equity, fairness, and opportunity.” It is this part of the plan, the part that seeks to undo the kind of problems that plague communities of color like Ferguson, that seems to most bother RhodeMap opponents.

Rothstein takes a shot at offering possible solutions towards the end of his report, writing, “Many practical programs and regulatory strategies can address problems of Ferguson and similar communities nationwide.” For instance, governments might “require even outer-ring suburbs to repeal zoning ordinances that prohibit construction of housing that lower- or moderate-income residents – white or black – can afford. Going further, we could require every community to permit development of housing to accommodate a ‘fair share’ of its region’s low-income and minority populations…”

Rhode Island has something of a fair share law (as part of the Rhode Island Comprehensive Housing Production and Rehabilitation Act of 2004 and Rhode Island Low and Moderate Income Housing Act (Rhode Island General Laws 45-53)) which sets a 10% goal for each of the state’s cities and town to meet—the goal being that 10% of the units in a town are “affordable.”

Most of the pushback against RhodeMap comes from communities that have very little affordable rental housing and are predominantly White. Legislation to undermine existing laws requiring cities and towns to plan for affordable housing is part of that pushback , such as House Bill 5643, which would “eliminate the mandate requiring cities and towns to include an affordable housing program in their comprehensive plans” or House Bill 5644 which “would remove the mandate requiring cities and towns to include an affordable housing program in their comprehensive plans and would provide an opt-out provision regarding any provision in the state guide plan regarding affordable housing and any related land use provisions” are naked attempts to keep affordable housing, and those who need it, out of their communities.

The legislators who are introducing and supporting the bills are all Republicans, or in one case an “Independent” representing primarily suburban and rural communities like Richmond (Note: part of Rep. Justin Price’s district), West Greenwich (part of Rep. Sherry Robert’s district) Coventry, Hopkinton, Charlestown, Portsmouth, Exeter and East Greenwich. Note that Richmond and West Greenwich have made “no progress” and East Greenwich has made “no significant progress” in meeting the 10% goal.

Undoing the damage of decades of racist housing policy and preventing future Fergusons requires a plan. RhodeMap RI isn’t quite that plan, it’s more a collection of guidelines to help communities develop a plan, but it’s a good step in the right direction. Those opposed to RhodeMap like to put on their “free market” hats and declare that any government intervention into housing is some sort of fascist violation of property rights. However, racially segregated housing is the product of just the kind of government sponsored social engineering that RhodeMap opponents complain of, and many of those opponents have also waged fights to prevent construction of affordable rental units in places such as Barrington and East Greenwich.

To be consistent these defenders of the free market should be calling for a repeal of all zoning restrictions in their communities, but of course they will not. Instead, they will zealously guard the status quo by defending zoning laws that the prevent construction of low income housing too close to their safe suburban enclaves. Opponents of RhodeMap object to being called racists, but when their claims of defending property rights are not equally applied to property owners who want to build affordable housing on their land, what else are we to think?

January 22, 2015August 9, 2016

Wage theft leaves victims few options other than protest

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The recent protest outside Juan Noboa’s Olneyville residence by restaurant workers claiming that they were owed thousands of dollars in unpaid salaries for work at his Café Atlantic restaurant has provoked conversation about the propriety of such tactics. Noboa, though his lawyer, denies any wrongdoing and claims that one of his children was “terrified” by the crowd outside his house. His lawyer added that dissatisfied employees should not “protest at a man’s home in the dark” and suggested that a suitable location for protest might be the now closed restaurant.

It is true that no one would be disturbed by a protest at a closed restaurant. For Noboa and other business owners accused of misconduct by their employees, such an event would be perfect, because the media would not cover it, and no one would have to hear the protester’s demands. Those targeted by such protests and their defenders like to point out that there are proper channels through which to make such complaints. The protesters outside Noboa’s home, with the help of Fuerza Laboral, did file complaints with the Rhode Island Department of Labor and Training, so we can all rest assured, it is argued, that once the system has run its course, justice will be served and Noboa will be compelled to pay, or not, depending on the Dept. of Labor decision.

Yet protests like these are not about one business owner who may have stolen wages from employees, or even about two restaurants (the other being Gourmet Heaven, located in downtown Providence and formerly on the East Side) that have closed suddenly, leaving their employees high and dry. These protests are about what Phoebe Gardener, a Community Organizer for Fuerza Laboral, called, “…a pattern of Providence-based food establishments intentionally cheating workers of their wages.”

Statistics on wage theft are difficult to find. At the Economic Policy Institute (EPI) it is estimated that nationally, wage theft, “is costing workers more than $50 billion a year.” To put that into perspective, the EPI notes that “All of the robberies, burglaries, larcenies, and motor vehicle thefts in the nation cost their victims less than $14 billion in 2012, according to the FBI’s Uniform Crime Reports.” Wage theft is at least three times more costly than all other forms of theft combined, yet our prisons are filled with conventional thieves, not duplicitous employers.

Surveys indicate that most victims of wage theft never sue and never complain to the government. “A three-city study of workers in low-wage industries found that in any given week, two-thirds experienced at least one pay-related violation,” reports EPI, emphasis mine.

Wage theft is widespread, extremely profitable and easy to get away with.

Workers at the low end of the pay scale, or who are socially vulnerable, such as undocumented immigrants or former prisoners, are frequent victims. Reporting the crime of wage theft takes time, time the working poor need to be working in order to survive.

There is little reason for employers to properly pay what they owe workers. If caught, an employer will be ordered to pay the workers what they are determined to owe and may be fined a “maximum civil monetary penalty” of $1,100.

So let’s revisit the tactics of protest.

Having protesters arrive outside your home at 6am to accuse you of theft with a bullhorn is embarrassing and may be even a little frightening for your family. The very possibility that this might happen should serve as a deterrent to any business owner in Providence who might be considering cheating employees out of the money owed to them. As the Fuerza Laboral press release stated, “Workers and allies are bringing the message that they must be paid in full immediately or else they will continue to bring public attention on Noboa and the other owners.” [emphasis mine]

Workers, who used to be all but powerless in these situations, are finding ways to shift the playing field. This doesn’t mean that workers suddenly have the advantage, far from it, but if workers continue to use such tactics, business owners will no longer be able to steal from their employees so easily. Now offending employers risk something much more valuable than money: Their public reputations and the respect of their neighbors and family.

Laws could be passed that strengthen the rights of workers and make it easier to file claims of wage theft. Fines and penalties for non-payment or underpayment of wages could be increased to the point where they act as real deterrents, rather than as a cost of doing business. Our legislature could enact legislation that makes it economically worthwhile for unpaid employees to pursue their rightful claims.

However, in the absence of thoughtful legislation that protects the rights of workers, public protest must fill in to loudly proclaim a simple truth: Workers have dignity and deserve to be treated with respect.