The Dwindling Middle Class

By GREGORY N. HEIRES
The middle class is dwindling as the polarization between the rich and the poor in the United States deepens.

Middle-income Americans used to outnumber lower- and upper-income Americans four decades ago. But that’s no longer true.

Battered by stagnate wages and the loss of wealth, the middle class isn’t the economic majority anymore. Millions have fallen out of the middle class as the American Dream has become less attainable.

Losing Ground

“The hallowing of the American middle class has proceeded steadily for more than four decades,” says a 2015 study by the Pew Research Center, “The American Middle Class is Losing Ground.”

“Since 1971, each decade has ended with a smaller share of adults living in middle-income households than at the beginning of the decade, and no single decade stands out has having triggered or hastened the decline in the middle.”

The share of middle class constituted 61 percent of the adult households in 1971. That year, 80 million families were middle-income, compared with the total of 51.6 million families in the other tiers.

Today, the 120.8 million people in middle-income families make up 49.9 percent of the country’s adult population of 242.1 million as the rich and poor together (121.3 million people) have become the majority, the 73-page Pew report says.

As the middle class declined, the share of the adult population in the upper-income tier households increased from 14 percent in 1971 to 21 percent in 2015. The share of the lower-income tier increased from 25 percent to 29 percent during the same period.

The Pew report classifies a three-member family with an income range of $42,000 to $126,000 a year in 2014 dollars as middle-income.

Upper-income households lived on more than $188,000 a year, and the lowest-income families lived on $31,000 or less.

The Wealth Divide

Today, the wealth gap between middle-income households and upper-income households has reached a record high, according to the Pew report.

In 1983, upper-income families owned three times the wealth as middle-income families. That disparity climbed to seven by 2013.

The Great Recession of 2007-09 wiped out virtually 30 years of the wealth gains of middle-income families.

The median wealth of middle-income families climbed from $95,879 in 1983 to $151,050 in 2007, an increase of 68 percent. That sum dropped to $98,000 in 2010.

The median wealth of upper-income families rose from $323,402 to $729,980 from 1983 to 2007. They took a big hit in the Great Recession, but their median wealth nevertheless stood at $650,074 in 2013.

SIDEBAR

Income Status Varies Among Demographic Groups
The changes in income status from 1971 to 2015, according to the Pew report “The American Middle Class is Losing Ground,” has varied among demographic groups:

• People 65 years and older were the only age group with a smaller percentage in the lower-income households in 2015 (36 percent) than in 1971 (54 percent).

Seniors were the only age group whose share in the middle-income tier grew during that period. And their share in the upper-income group grew more than that of other age groups.

Social Security has insulated seniors from being victims of the growing polarization in recent decades. Social Security provides more than 55 percent of the income of the typical senior.

• Married couples have also fared fairy well. Marriage is linked to higher education, which is tied to higher income.

• Unmarried men became more likely to live in lower-income households and slightly less likely to be in the upper tier. More than half of single mothers with a child live in the lower-income tier.

• Black adults achieved the largest increase in income status from 1971 to 2015. Their share living in lower-income households declined from 48 percent to 43 percent during that period, and the percentage in the upper tier rose from 5 percent to 12 percent.
Despite the gains, blacks are still significantly less likely to make it into the middle-income and upper-income tiers. (Between 2007 and 2013, the median wealth of households headed by college-educated blacks fell by 60 percent, according to the Federal Reserve Bank of St. Louis.)

• The share of Latino adults in lower-income families has increased to 34 percent from 1971 to 43 percent in 2015. The Pew report attributes the rise to immigration, as foreign-born Latinos earn less than U.S.-born Latinos. The share of immigrants among Latino families rose from 29 percent in 1970 to 49 percent in 2015.

• The past four decades have been a disaster for young adults, ages 18 to 29, as their share among lower-income households increased to 32 percent in 2015 from 22 percent in 1971.

• College-educated adults are much more likely than others to be in the upper-income tier, yet the share of adults with at least a bachelor’s degree in the middle-income group fell from 56 percent in 1971 to 47 percent in 2015.

• High-skilled occupations (executives, managers, professional specialty jobs, such as engineers, and medical professionals) have experienced larger increases in income status. Job categories and workers experiencing losses include teachers, retail clericals, real estate agents, mechanics, laborers, as well as communications, business services and transportation.

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Plutocracy USA

blog forbes400-graphic1-2-01-400x200Plutocracy U.S.A.
By GREGORY N. HEIRES
Let’s be honest: The United States has become a plutocracy.

Reports about inequality typically focus on the country’s growing income gap, now the most skewed since the Great Depression.

But the country’s class and racial divide appears to be even more staggering when you examine the distribution of wealth.

Consider the following:

• The 20 wealthiest people in the United States own more than the combined wealth of the bottom half of the U.S. population, which is made up of 152 million people in 57 million households.

• The Forbes 400—the wealthiest group in the United States—own as much wealth as the entire African-American population and one third of the Latino population combined.

• The typical American family has a net worth of $81,000. The Forbes 400 own more wealth than the 36 million families who fit that financial portrait.

These are the findings of a recent report, “Billionaire Bonanza: The Forbes 400 . . . and the Rest of Us,” by the Institute for Policy Studies. The report is based on data from the recently released 2015 Forbes 400 magazine and the Federal Reserve’s latest triennial Survey of Consumer Finances.

The report acknowledges that many members of the Forbes 400 accumulated their wealth through successful corporations and innovation. Yet they have also benefitted from public policies—tax breaks, trade rules, regulations—that work in their favor at the expense of ordinary Americans. The accumulation of wealth is accompanied by an accumulation of political power.

The Wealth Space Needle

The concentration of wealth is at its most extreme since Forbes began its top 400 ranking in 1982.

The wealthiest 400 individuals in the country have amassed a total wealth of $2.34 trillion. That is more than the GDP of India, which has a population of 1 billion people. The small group could fit comfortably into a luxury Gulfstream G650 private jet.

The distribution of wealth is usually pictured as a pyramid. The IPS report says the country’s extreme distribution of wealth is better depicted by the Space Needle in Seattle.

The bulge atop the Space Needle represents the wealthiest 0.1 percent of the U.S. population. The Forbes 400 could fit in the luxury restaurant at the top of the Space Needle.

The elite 0.1 percent group, made up of 115,000 households, holds 20 percent of the country’s total wealth, about triple of what it held in 1972 (7 percent). With a net worth starting at $20 million, the group owns more than 20 percent of the country’s wealth. In fact, the top 0.1 percent owns more than the bottom 90 percent of the population.

The Racial Gap

The wealth accumulation of African-Americans and Latinos is significantly less than that of whites:

• The homeownership rate of white Americans in 2015 is 71.9 percent. The rate of African Americans is 42.4 percent and for Latinos it is 46.1 percent.

• About 55 percent of whites own some stock. But only 28 percent of African-Americans and 17 percent of Latinos own stocks.

The wealthiest 100 members of the Forbes 400 own as much wealth as the entire African American population of 42 million people, according to the report. The wealthiest 186 members of the Forbes 400 own as much wealth as the entire Latino population of 55 million people. The Forbes 400 has only two African-American and five Latino members.

“The United States has a persistent racial wealth divide, the result of a multi-generational legacy of discrimination in asset building that began during slavery and has continued right up to the present-day discrimination in mortgage lending,” the report says.

The Social Cost of Inequality

Why should we care about inequality?

• The wealth divide undermines the trust in our political and civic institutions. In the first phase of the 2016 presidential cycle, 158 wealthy donors accounted for half of all campaign contributions.

• The poor suffer disproportionately from health afflictions, and their mortality rate is higher than more wealthy people.

• Extreme inequality leads to less upward mobility. It creates disenchantment with the political system. And it fuels economic instability.

Over decades, the wealthy have rigged our political system and economic rules to serve their interests. Policy steps that would help reverse the rise in wealth concentration include: instituting progressive wealth and estate taxes; improving the safety net; raising the minimum wage; enacting campaign reform to allow for publicly financed elections; preventing corporations from depositing profits abroad to avoid taxes and taxing capital gains at the higher rate of ordinary income.

Restructuring student loans and creating a tuition-free public college system would allow students to start their careers with manageable loan payments or debt-free.

Creating “baby bonds” –investment accounts for newborns—would allow individuals to steadily accumulate savings from the day they are born. Affordable housing would help people with modest incomes purchase homes and accumulate wealth.

Unless we act, inequality will only continue to grow, the IPS report concludes, and we will continue to live in a plutocracy of gated communities, a shrinking middle class, a political system controlled by the rich, and an unconscionable racial divide.


Who are members of the Forbes 400?

The top 20 Forbes 400 includes:
Bill Gates ($71 billion, Microsoft)
Warren Buffett ($62 billion, Berkshire Hathaway)
Larry Ellison, $47.5 billion, Oracle)
Jeff Bezos ($47 billion, Amazon)
Charles Koch ($41 billion, Koch Industries)
David Koch ($41 billion, Koch Industries)
Mark Zuckerberg ($40.3 billion, Facebook), Michael Bloomberg ($38.6 billion, Bloomberg LP)
Jim Walton ($33.7 billion, Wal-Mart heir),
Larry Page ($33.3 billion, Google)
Sergey Brin (32.6 billion, Google)
Alice Walton ($32 billion, Wal-Mart heir)
S. Robson Walton ($31.7 billion, Wal-Mart heir)
Christy Walton ($30.2 billion, Wal-Mart heir)
Sheldon Adelson ($26 billion, Sands Casino)
George Soros ($24.5 billion, hedge funds)
Phil Knight ($24.4 billion, Nike)
Forrest Mars Jr. ($23.4 billion, Mars Candy heir)
Jacqueline Mars ($23.4 billion, Mars Candy heir)
John Mars ($23.4 billion, Mars Candy heir).

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Top 100 CEO Nest Eggs Worth Savings of 51 Million Families

By GREGORY N. HEIRES

As traditional pensions disappear and millions of Americans worry about being unable to enjoy a comfortable retirement, the typical CEO has a nest egg of nearly $49.3 million.

The largest 100 CE0 retirement packages were worth a combined $4.9 billion in 2014. That means the total nest egg of 100 individuals equals the retirement savings of 50 million families, or 41 percent of American families.

The country’s growing retirement divide is the subject of a recent report by the Institute for Policy Studies and the Center for Effective Government. The study analyzed the retirement packages of CEOs included in Security and Exchange Commission filings of publicly held Fortune 500 companies.

“The retirement divide is not the result of natural law, but rather the rules established that disproportionately reward company executives far more than ordinary workers,” according to the report, “A Tale of Two Retirements.” In other words, corporations have changed the rules at the expensive of millions of Americans while taking care of their CEOs.

In the early 1990s, 35 percent of private sector workers had defined benefit pensions, which guarantee lifetime monthly payments. Last year, only 18 percent of private sector workers had a traditional pension plan, a result the shift to 401(k) plans and other factors. Meanwhile, 52 percent of CEOs are covered by a company pension plan.

The Failure of the 401(k) Experiment

Unlike traditional pensions, risky 401(k) plans don’t guarantee monthly payments based on years of service and salary but rather impose the responsibility of saving and investment choices on employees.
Unfortunately, for millions of Americans, the 401(k) experiment has clearly failed:

• In 2013, the median balance of 401(k) plans was $18,433, enough to provide a monthly retirement payment of $104.

• Nearly 50 percent of American workers don’t even have access to a retirement plan at work.

• Among workers aged 50-64, 29 percent don’t have a defined benefit pension, 401(k) account or IRA, which means they will be wholly dependent on Social Security, which provides for an average monthly payment of $1,223.

Stagnant wages and the limited capacity of ordinary Americans to save for their nest eggs explain part of the retirement divide. But while ordinary workers with 401(k) accounts have a limit on the pre-tax pay they can put aside for their account (currently $24,000 a year for workers nearing retirement), CEOs are able to contribute however much they want to executive tax-deferred compensation plans in addition to their 401(k) accounts.

“While slashing worker pensions, CEOs take advantage of special loopholes that allow them to invest unlimited amounts of compensation into tax-deferred accounts set up by their employers,” the IPS and Center for Effective Government report says.

In 2014, 341 Fortune 500 CEOs had $3.2 billion in deferred compensation accounts. They saved $78 million in taxes that year by making deposits in their accounts.

“These massive nest eggs are not the result of CEOs working harder or investing more wisely,” the report says. “They are the result of rules intentionally tipped to reward those already on the highest rugs of the ladder.”

Corporations Target Employee Benefits After 1981 Traffic Controllers Strike

Today’s growing retirement divide dates from the 1980s as corporations began cutting employee benefits after President Ronald Reagan broke the air traffic controllers strike in 1981. Before then, in the decades after World War II, workers won traditional pensions and other benefits through strikes and collective bargaining. And by 1960, 41 percent of private sectors workers were covered by defined benefit plans, up from 15 percent in 1940.

Corporations aimed to boost earnings and stock prices by reducing their employee retirement costs. They have frozen defined benefit plans, closed the plans to new workers, adopted 401(k) plans and converted traditional plans to cash balance plans. (Cash balance plans don’t guarantee workers a monthly payment upon retirement.)

Over several decades, corporations have accomplished their goal of reducing their pension obligations, leaving millions of Americans uncertain that they will be able maintain their standard of living in their retirement years.

Today, many low-wage workers can’t afford to put enough into their 401(k) accounts even when companies offer generous matches. In 2014, one in four workers didn’t save enough to receive the $1,336 typical company match.

As CEOs enjoy multi-million dollar nest eggs, 37 percent of working age whites, 62 percent of African Americans, and 69 percent of Latinos don’t have any retirement savings.

“Our retirement crisis,” said National Jobs for All Coalition Chair Trudy Goldberg,”cannot be addressed in a political and economic vacuum. Full employment or jobs for all at living wages and a stronger labor movement are critical to the fight for retirement security. Low pay and periods of unemployment and involuntary part-time employment are all-too-common in today’s lean and mean labor market. And they obviously reduce pension and Social Security benefits. ”

“Living-wage campaigns and pressuring employers to provide better pension benefits are contributing to the struggle for pension rights,” Goldberg said. “It’s encouraging that some states are setting up pension plans. But we must continue to support policies that boost the standard of living of working families so that they can not only make ends meet but put aside money for an economically secure retirement. Because employment at living wages is the foundation of retirement security, pension advocates need to make full employment a key component of their struggle.”

Ending unlimited tax-deferred compensation for corporate executives, expanding Social Security, making it easier for unions to organize and establishing universal state-run pensions are key steps that would address the retirement divide, according to “A Tale of Two Retirements.”

But those policies will only be possible with a reordering of political power in Washington and the success of grassroots groups like the fast-food workers, whose prospects for a decent retirement will be brighter if they win their struggle for higher pay and union representation.

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Corporations Increase Offshoring to Dodge Taxes

By GREGORY N. HEIRES
Fortune 500 companies are increasingly using offshore tax havens, depriving the U.S. government of an estimated $90 billion in federal income taxes each year.

This corporate shell game puts a greater tax burden on ordinary Americans.

And in an era of stagnating wages and great inequality, the corporate tax dodging raises concerns about tax fairness and excessive corporate power, which are emerging as critical issues in the presidential race.

“Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt” says an October report by the U.S. Public Interest Research Group Education Fund and Citizens Tax Justice.

“When corporations dodge their taxes, the public ends up paying,” said U.S. PIRG Program Associate Michelle Surka. “The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers.”

All told, 72 percent of Fortune 500 companies used tax havens in 2014. U.S. multinational companies doubled the amount of cash they booked offshore for tax purposes from 2008 to 2014.

The Russell 1000 list of U.S. companies reported parking nearly $2.3 trillion overseas in 2014, about twice the amount in 2008, according to a study by the research firm Audit Analytics. This practice of using tax havens has allowed U.S. companies to increase their annual tax avoidance from $60 billion in 2007 to $90 billion in 2011, according to tax expert Kimberly Clausing of Reed College.

By and large, the cash booked overseas isn’t used for investing, according to the U.S. PIRG and Citizens for Tax Justice report, “Offshore Shell Games 2015.” Rather, it’s simply an accounting maneuver that allows companies to avoid their tax obligations. Corporations are able to disguise their profits by booking them to subsidiaries in tax havens.

Corporations Hold $2.1 trillion in Profits Overseas

Together, the 286 of the Fortune 500 companies that report offshore profits hold $2.1 trillion overseas. Thirty companies account for 65 percent of the profits held offshore. The top five companies are Apple, General Electric, Microsoft, Pfizer and International Business Machines.

Only 57 of the Fortune 500 companies have disclosed how much taxes they would have to pay if they did not book their profits offshore. A loophole in the tax code allows a company to avoid the disclosure requirement if it reports that it is “not practicable” to calculate the tax rate.

The U.S. corporate tax rate is 35 percent. But, on average, the 57 companies that disclose what they would owe on their offshore deposits apparently pay a tax rate of only 6 percent to foreign governments. Assuming the non-disclosing companies enjoy the same rate of tax savings, the total loss to the U.S. Treasury is $620 billion.

In 2010, U.S. multinationals reported to the IRS that they earned $505 billion in 12 of the most well known tax havens. That amounted to more than half of the profits that the companies reported earning abroad that year.

Profits Exceed Yearly Gross Domestic Product of Tax Havens

In the five tax havens–including Bermuda and the Cayman Islands–where the companies booked their profits, the total earnings were more than the value of those countries’ gross domestic product. “This illustrates how little relationship there is between where American multinationals actually do business and where they report they make their profits for tax purposes,” the U.S. PIRG and Citizens for Tax Justice study says.

In recent years, some companies have reported fewer subsidiaries in tax havens even while increasing the cash they hold abroad. They could be doing this to avoid media attention on their offshore tax dodging or the scrutiny of the IRS. On the other hand, the companies could simply be consolidating their offshore profit deposits.

Measures that the U.S.PIRG and Citizens for Tax Justice recommend for curbing the use of tax havens include:

• ending tax incentives to shift profits and jobs offshore. No longer permitting companies to indefinitely defer paying taxes on profits they attribute to foreign subsidiaries would raise nearly $900 billion over ten years.

• rejecting the creation of new loopholes

• closing the most egregious offshore loopholes. For instance, stopping companies from deducting interest expenses paid to their overseas subsidiaries would save $58.6 billion over 10 years.

• increasing transparency.

“All too often, corporations’ offshore cash isn’t offshore at all—it’s right here in the United States,” said Robert McIntyre, director of Citizens for Tax Justice.

“Corporations are using skilled tax attorneys to make it appear on paper that their U.S. profits, and their U.S.-based cash, are being earned, and kept, in foreign tax havens. The tax code makes this scam possible. Incredibly, Congress is considering pouring salt on the wound by giving companies a special low tax rate to ‘repatriate’ profits that, in many cases, are likely already here.”

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The Economic Recovery Leaves Behind Low-wage Workers

By GREGORY N. HEIRES
Wages have declined for most U.S. workers since the end of the recession in 2009, and there’s little hope for improvement without policy changes.

The largest real wage declines have hit workers in the most poorly paid occupations.

“The declines in real wages since the Great Recession continue a decades-long trend of wage stagnation for workers in the United States,” notes a September report by the National Employment Law Project. “If this pattern of real wage declines among the lowest-wage occupations persists, then we can expect the overall pattern of stagnating wages to continue.”

Certainly, there’s little ground for hope if a Republican is elected president next year. While the Republican candidates have expressed some concern about wage stagnation and inequality, they haven’t offered any solutions, except for their familiar prescription of tax cuts, which they claim will boost economic growth, thereby helping the poor and middle class. On the other hand, Democratic candidates are calling for a minimum wage increase and say they want to address inequality, now as bad as during the Great Depression.

Real median hourly wages—pay adjusted to account for inflation—fell 4.0 percent from 2009 to 2014 across all occupations, according to NELP, which is a national advocacy institution for low-wage workers.
The decline disproportionately affected workers in lower wage and mid-wage occupations. They experienced losses of 4.0 percent or higher, whereas the top 40 percent of workers saw declines ranging from 2.6 percent and 3.0 percent.

The Human Cost of Lost Income

Cooks and food preparation workers felt the greatest loss, as their pay dropped 8.9 percent and 7.7 percent, respectively. Other workers hit particularly hard included janitors and cleaners, personal care aides, home heath aides, and maids and housekeeping cleaners.

Too often, reports about wage stagnation are abstract and fail to point out the human cost of the loss of income. But the NELP study makes an effort to show how wage stagnation hurts the standard of living of working families:

• For a cook who works full time, an 8.9 percent drop in income from 2009 to 2014 means a loss of $2,185, or $437 a year. For an average household, that lost income is equivalent to two monthly grocery bills a year.

• The 7.7 percent wage decline of food preparation workers comes to $1,622 over five years. That $324 annual loss is what a family generally pays for two-and-a-half months of gasoline expenses for their car.

• Retail workers saw their pay drop by $1,125 in the five-year period. Their $225 annual loss translates into what they would typically pay each month on utilities.

Five of the ten occupations that the Bureau of Labor Statistics expects to add the greatest number of jobs to the economy from 2012 to 2022 are among the lowest-paying occupations that are especially affected by wage stagnation. These include personal care aides, retail salespersons, home health aides, food preparation and serving workers (including fast-food workers), and janitors and cleaners (except maids and housekeeping workers). The pay of these workers ranges from $8.84 an hour (food preparation and serving workers) to $10.97 an hour (janitors and cleaners).

An interesting finding of the report is that the five-year wage decline of the bottom 20 percent of the workforce was least among the lowest-pay workers. In fact, their real income actually grew between 2013 and 2014. Why? It’s likely because 22 states increased their minimum wage between 2009 and 2014.
Besides NELP’s economic briefing, the Allianz Global Wealth Report 2015 is another recent study that notes the recovery isn’t trickling down.

Financial Insecurity

The Global Wealth Report cites a Federal Reserve Bank survey to highlight the financial fragility of the typical U.S. household.

Forty-seven percent of the respondents said they would have to borrow money or sell something if they were hit with an unexpected $400 emergency. Only 53 percent said they would have no problem dealing with the emergency through their savings account or credit card.

“These results only go to show that there is still a long way to go before the recovery has trickled down to all Americans,” the report says.

“This has not been helped by what has been poor wage development in recent years on the whole or by the marked income disparity that continues to plague the US: almost 47 percent of total income goes to the population’s richest 10%, with as much as 30.5% of income concentrated among the top three percent of the income scale.”

What should be done to address stagnant wages? NELP offers a number of policy options:

• increasing the minimum wage

• bolstering the right of workers to form unions and bargain collectively
• enforcing wage protections more aggressively and

• raising the pay of low-wage workers in the public sector and at businesses receiving government contracts or subsidies.

“Addressing wage declines, especially for workers in the lowest-paid occupations, is urgent and critical; it should be a central focus of policymaking efforts at the federal, state and local leveling coming years,” the report concludes.

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The Threat to Black Public Sector Jobs

By GREGORY N. HEIRES
The Great Recession disproportionately harmed public sector black workers—and especially black women.

Job losses and growing racial inequality in the public sector threaten the gains that minorities and women have made over decades through government employment.

“Public Sector Employment Inequality and the Great Recession,” a study by sociology professor Jennifer Laird of the University of Washington, examines the impact of the state and local government downsizing resulting from the Great Recession, which officially lasted from December 2007 to June 2009. The study found that public sector black women were more likely to lose their jobs and leave the work force because of the government retrenchment.

Blacks were more likely than whites to lose their jobs because they are over-represented in the public sector. At the peak of the state budget cuts in 2010, 17 percent of black women were employed in the public sector, compared to 15 percent of white women, and 13 percent of black males had government jobs, compared to 12 percent of white men.

A Pathway to the Middle Class

The employment opportunities for blacks and women steadily grew in the decades following World War II. A series of executive orders and equal opportunity procedures opened up the door to public service to them.

Government service created a pathway to the middle class for millions of workers. Significantly, the jobs came with decent pay, health insurance, pensions and other benefits, and, often, union representation.

About one in five black adults work in the public sector. They are 30 percent more likely to have a government job than non-Latino whites and twice as likely as Latinos.

Blacks accounted for 27 percent of the new positions in federal government between 1960 and 1965 even though they made up only 10 percent of the country’s population. Women’s share of government jobs rose by 70 percent from 1964 to 1974.

Today, conservatives have been able to tap into the public’s resentment caused by the drop in pay and benefits in the private sector to promote their anti-tax and anti-government agenda. That agenda includes pension reductions, curbing the power of unions, downsizing and cuts in health-care and other benefits.

The Conservative Threat

If conservatives succeed in smashing public employee unions and further defunding public services, minorities and women may find their pathway to the middle class closed.

Historically, inequality between blacks and whites and between males and females has been lower in the public sector.

But the Great Recession has led to increase in employment inequality, as blacks and women in the public sector experienced higher post-recession job losses than other workers. The unemployment rate for black males returned to its pre-recession rate by 2013. But the prime-age unemployment rate for public sector black women remained 4.6 percent below that of 2008.

Stagnation in the pubic is driving down the jobs recovery, according to the the Brookings Institute. By September, the private sector had experienced 54 months of employment growth, adding 10.0 million jobs to the economy. Over the same period, government employment dropped by 500,000.

All told, the financial crash led to the loss of more than 700,000 government jobs as state and local governments adopted austere policies. A 2012 report by the Hamilton Project found that public sector employment was at its lowest point in four decades.

Unfortunately, with Republicans controlling so many state and local governments, it’s hard to be hopeful that a public sector rebound will come any time soon.

“The protective effect of working in the public sector decreased substantially for black workers—especially black women—after the Great Recession, while white workers were relatively insulated,” Laird says. She adds that, “without a course correction, further efforts to dismantle the public sector will most likely have a negative effect on the workers who have historically gained the most from public sector employment.”

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The Recovery Fails to Deliver Rising Wages

By GREGORY N. HEIRES
If you believe that the so-called economic recovery means that the living standards of workers have improved, you should think again.

The stagnation of wages—the defining characteristic of our economic times along with rising inequality—continues. Since the 1970s, wages have failed to grow along with productivity, fueling economic inequality not seen since the Great Depression.

“2014 Continues a 35-Year Trend of Broad-based Wage Stagnation,” a report by Elise Gould of the Washington-based Economic Institute, describes the pay crisis.

“Last year was yet another year of poor wage growth for American workers,” the EPI report says. “With few exceptions, real (inflation-adjusted) hourly wages fell or stagnated for workers across the wage spectrum between 2013 and 1014—even for those with bachelor’s or advanced degrees” The report adds that, “ever since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline.”

Yes, the economy shows signs of a rebound. But the recovery has left millions of workers behind. Millions of others are struggling to keep up with the cost of living. Record profits have benefitted only those at the top of the economic pyramid.

The EPI report’s conclusions:

• During 2013 and 2014, real hourly wages fell for the majority of Americans.

• Since the recession, only those at the top of the wage distribution have experienced a real increase in pay.

• People of color continue to experience falling wages significantly below that of their white counterparts.

• The most significant wage loss occurred among those with college and advanced degrees. That calls into question the belief that wage performance is rooted education and training.

• Workers with the least education actually experienced a growth in their wages. The growth was likely a result of increases in state minimum wages, demonstrating the impact public policy can have on wages.

The Roots of Our Economic Malaise

The Economic Policy Institute discusses the factors at the root our economic malaise in a Jan. 6 report called, “Causes of Wage Stagnation,” by Lawrence Mishel, the president of the progressive think tank. The factors include:

The abandonment of full employment: Policy makers’ obsession with inflation as opposed to unemployment has harmed wage growth. High rates of unemployment dampen wage growth, which in turn leads to greater inequality.

Declining union density: The decline of unions helps account for the increase in corporate profits in recent decades. The erosion of union power accounts for a third of the growth of inequality among men and a fifth of that of women.

Other labor market policies and business practices: The long-term decline in the federal minimum wage accounts for about two-thirds of the increase in the gap between lower- and middle-wage workers.

Growth in power of the top 1 percent, particularly finance and CEOs: Financial deregulation has allowed CEOs and other managers to earn excessive wages and bonuses, and

Globalization policies: Trade agreements have benefited U.S. corporations and driven down the wages of its United States-based workers. The government’s failure to maintain the value of the dollar has hurt domestic labor by encouraging imports from lesser-developed countries with lower-paid workers.

Unemployment and Wages

“As long as you have unemployment, employers don’t have to cater to their workers,” said Gertrude Schaffner Goldberg, chair of the National Jobs for All Coalition, which advocates for full employment.

Today, the official employment rate is 5.5 percent. Some 27.7 million workers are unemployed or forced to work part-time. Some 18.5 workers million workers make up the working poor, earning less than the $27,000 poverty line for a family of four. All told, 40.2 million lack good jobs.

“Until we have a tight labor market, we won’t we see lower unemployment or any significant increase in wages” Schaffner said.

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Our Growing Wealth Gap

By GREGORY N. HEIRES
The evidence keeps coming in that the economic recovery has benefited the affluent while leaving behind the rest of us.

Maybe it’s time to acknowledge that we live in a plutocracy.

The country’s wealth gap between upper-income families and middle-income families is the widest on record, according to a Dec. 17 analysis by the Pew Research Center.

Wealth inequality has also deepened along racial and ethnic lines since the end of the Great Recession.

“The wealth gap between America’s high income group and everyone else has reached record high levels since the economic recovery from the Great Recession of 2007-09, with a clear trajectory of increasing wealth for the upper-income families and no wealth growth for the middle- and lower-income families,” the analysis says. The report is based on data from the Federal Reserve Bank’s Survey of Consumer Finances.

Widest Wealth Gap

The PEW analysis shows that the wealth gap is the widest since the Fed started collecting the consumer data three decades ago.

The median wealth of upper-income families was nearly seven times that of middle-income families in 2013. Upper-income families are 70 times wealthier than lower-income families.

PEW classified 46 percent of Americans as middle income in 2013. One-third were lower income, and 21 percent were upper income.

The wealth gap between middle-income families and upper-income households has increased during the recovery from the Great Recession, which lasted from December 2007 to June 2009.

Between 2010 and 2013, the median wealth of upper-income households increased from $595,300 to $639,400 in 2013 dollars. The median-income of middle-income households stagnated at $96,500 during those years.

The wealth of all three groups declined from 2007 to 2010. But middle-income and lower-income families were hit harder than upper-income families.

From 2007 to 2010, the median wealth of upper-income families declined 17 percent, while lower-income families suffered a 41 percent decline and middle-income families lost 39 percent.

“The Great Recession destroyed a significant amount of middle-income and lower-income families’ wealth, and the economic ‘recovery’ has yet to be felt for them,” the analysis says. “Without any palpable increase in their wealth since 2010, middle-and lower-income families’ wealth levels in 2013 are comparable to where they were in the early 1990s.”

Growing Racial and Ethnic Disparity
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Outsourcing Torture

By GREGORY N. HEIRES
The U.S. Senate report on torture tells a tale of contracting out run-a-muck.

Two psychologists were awarded a no-bid contract to design the Central Intelligence Agency’s torture program set up after the 9/11 terrorist attacks, according to the U.S. Senate Intelligence Committee report.

Their company, Mitchell, Jessen & Associates, ran the CIA’s clandestine overseas “black sites” in such countries as Poland, Romania, Afghanistan and Thailand.

The Senate report did not name the owners. But press reports have identified them as James E. Mitchell and Bruce Jessen.

The CIA’s reliance their company reflects the classic pitfalls of farming out government responsibilities—in this instance interrogation—to contractors:

Wastefulness: Mitchell, Jessen & Associates enjoyed a no-bid contract worth more than $80 million from 2001 to 2009. Its employees included psychologists, interrogators, debriefers and security officers.

The contract workers were paid excessively, which is so often the case when government doles out work to the private sector.
Interrogators earned $1,800 a day for waterboarding, four times the amount of interrogators who did not waterboard detainees, according to the report. The contractors could earn up to $700,000 a year in tax-free retainers.

Inefficiency: The U.S. Senate Intelligence Committee report concluded that the torture didn’t work as advertised. FBI interrogation methods—based on building up a relationship with prisoners without physical coercion—is much more effective.

The Senate report disputed the CIA’s assertion that information gathered through torture helped significantly with the hunt for Osama bin Laden.
The Senate report described 26 prisoners as wrongfully held. One detainee froze to death.

A lack of accountability: The torturers are protected from lawsuits stemming from their brutal interrogation of alleged terrorists.
“No one has been held to account,” Sen. Mark Udall (D-Colo.), a member of the committee, said.

The CIA will provide the interrogation company up to $5 million for legal expenses related to investigations and lawsuits until 2021. The agency has already provided the firm with $1.1 million for legal expenses that were mostly related to U.S. Senate Intelligence Committee hearings.

Corruption: The contract workers had a conflict of interest. They were responsible for carrying out torture while also determining whether it was effective and safe.

In an email message, a CIA officer said Mitchell and Jessen had a “vested interest” in waterboarding.

Waterboarding, Sleep Deprivation, and Shackled Wrists and Feet

“You have a program where 80 percent—more than 80 percent of the people involved in it–were outside contractors, were not agency people,” said Ali H. Soufan, a former FBI special agent and critic of the CIA’s use of “enhanced interrogation techniques,” on the Rachel Maddow Show on Dec. 11. He is the author of “The Black Banners: The Inside Story of 9/11 and the War Against al-Qaeda.”

Soufan took part in the interrogation of Abu Zubaydah, believed to be the first major al-Qaeda figure captured. The contractors waterboarded Zubaydah at least 83 times. He was deprived of sleep for weeks as he was held with painful shackles on his wrists and feet.

“It’s not a CIA program,” Soufan said. “It’s a few CIA people with a few contractors that they brought to run the most sensitive program in U.S. history basically after 9/11. So they came over and decided to outsource the most important thing we have—getting information from detainees.”

Mitchell and Jessen had worked for the U.S. Air Force’s Survival, Evasion, Resistance and Escape school, which trains military personnel how to resist torture. The psychologists borrowed from the plate of torture techniques of SERE to establish the CIA interrogation program.

The government hastily sought their services after the 9/11 attacks. The CIA turned to them even though they lacked extensive knowledge of al-Qaeda, were not experienced in interrogation and didn’t speak Arabic.

Besides waterboarding, Mitchell and Jessen’s torture methods included sleep deprivation, cramped confinement, stress positions, stress positions, forced rectal feeding, beatings, mock burials, forced nudity and hypothermia.

Controversy over Professional Ethics

For years, the involvement of psychologists in the torture program has been the subject of sharp debate within the health-care community.

A past candidate for president of the American Psychological Association, Steven Reisner has questioned the group’s leadership over its unwillingness to make torture work a violation of the group’s code of ethics.

“The Bush administration’s Justice Department created a legal rationale for torture that required the presence of psychologists and medical professionals,” Reisner said on the Democracy Now! radio show. “And so, on the one hand, for legal cover, there had to be psychologists present. On the other hand—and even more horrifying for members of my profession—the torture regime itself was created at the CIA by these two psychologists, Mitchell and Jessen, and in the Department of Defense psychologists were involved in creating the torture program and in overseeing it from the beginning to the end.”

Pulitzer Prize-winning journalist James Risen, in a recent book, “Pay Any Price: Greed, Power, and Endless War,” charges that the APA colluded with the White House, Pentagon, and national security psychologists to ensure that its ethics policy would not prohibit psychologists from doing interrogation work. The association has now agreed to an independent investigation into the controversy surrounding the charges that it colluded with the Bush administration to provide an ethical justification for psychologists to participate in the torture program.

“Health professionals played a pivotal role in the abuse and brutality exposed in the CIA torture report and they must be held accountable,” said Dr. Vincent Iacopin, who is the senior medical advisor of Physicians for Human Rights. “They were complicit at every step, including designing the torture techniques, monitoring the infliction of severe physical and mental pain, and failing to document clear evidence of harm. What happened was unethical, unlawful, and immoral, and we must ensure it never happens again.”

The employment of doctors and psychologists in the interrogation program helped the government justify torture as safe, legal and effective, according to PHR. The “health professionals who were involved betrayed their ethical duties and profoundly harmed the people they should have been protecting,” PHR said in a written statement.

“For more than a decade, the U.S. government has been lying about the use of torture,” said Donna McKay, PHR’s executive director.

“The report confirms that health professionals used their skills to break the minds and bodies of detainees. Their actions destroyed trust in clinicians, undermined the integrity of their professions, and damaged the United States’ human rights record, which can only be corrected through accountability.”

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The War on Unions

By GREGORY N. HEIRES
As unions come under harsh attack nationwide, they need to do a better job mobilizing members, working together, building community alliances and strengthening their political operations.

Around the country, labor unions are fighting back as state politicians gut public employees’ collective bargaining rights, right-wing interests use the courts to undermine unions financially, and the American Dream collapses after decades of assaults on public services and working families’ pay and benefits.

Stanley Aronowitz, a professor of sociology and at the City University of New York Graduate Center in New York City, said unions today are “on the defensive” and “intimidated” in the face of well-funded attacks by conservatives. Unions can longer count on the support of the Democratic Party, which is controlled by center- and center-right people, he said.

Aronowitz’s most recent book is “The Death and Life of American Labor,” which charts a path for a new labor movement. He was a leader in a group of insurgents who took over the Professional Staff Congress in New York City in 2000. PSC represents the faculty at the City College of New York, in 2000.

The labor movement became too insular over the years, Aronowitz said. “And because of that, we have come to be regarded as an interest group, not a class movement.”

Unions need to be the voice of all workers, not merely members, he said. To accomplish that, they must be more aggressive and willing to take risks, such as striking even if it is illegal.

“The law is not on our side,” Aronowitz said, noting that most of the movement’s significant growth occurred when unions challenged the country’s legal framework.

Ultimately, a labor revival will require unions to change the way they operate by switching from the service model that Aronowitz likened to “an insurance company masquerading as a movement” to a more membership-based unionism that encourages greater activism.

Rebuilding the Labor Movement

“If labor unions are going to be catalysts for change, we need to look at ourselves,” said Henry Garrido, an associate director at District Council 37, an affiliate of the American Federation of State, County and Municipal Employees in New York City. At the end of the year, Garrido will become the first Latino to head DC 37, the largest union of municipal workers in the city.

Garrido jokingly — but tellingly — observed that unions often act like Ghostbusters, with union reps sweeping into the workplace when troubles erupt, putting out the fire and then disappearing. The practice in which “a staff rep flies in and then leaves has to stop,” he said. Unions need to restructure themselves to encourage more rank-and-file participation, he said.

“Unions have been reactive and on the defensive for too long,” said Garrido, who described the current attack on labor in the courts, governor’s mansions and legislatures as a wake-up call for organized labor. “We need to take advantage of the crisis we face to rebuild the union movement,” he said.

Today, only 6.7 percent of workers in the private sector are represented. The strongest unions are now concentrated in the public sector, where 35.3 percent of workers enjoy union representation. The country’s union membership rate was 11.3 percent in 2013, according to the Bureau of Labor Statistics.

“There is only one way to win and that is if we all fight together,” said Carol Pittman, associate director of political and community organizing at the New York State Nurses Association.

Pittman said that alliances with the community are critical as unions counter the anti-labor and anti-government agenda of right-wing interests like the billionaire Koch brothers, who bankroll organizations that work against Medicaid, support such environmentally harmful projects as the Keystone pipeline, aim to weaken women’s reproductive rights and seek to privatize medical services.

The Koch brothers are spending $16 billion to try to stop Medicaid from being expanded under the Affordable Care Act, according to Pittman. They have succeeded in several states where Republican governors have refused to accept federal aid for Medicaid, leaving millions of poor people without health care.

The top 10 unions spent $153,473,251 million during the 2012, according to the Center for Responsive Politics. The Koch brothers spent $412,670,666 on the 2012 elections dwarfed that.

CUNY Law School Professor Frank Deale said the Professional Staff Congress, which represents faculty at the New York City’s public universities and colleges, needs to shed its image as the representative of privileged workers as it reaches out to lower-paid part-time adjunct professors. His observation points to the challenge the labor movement faces of uniting workers of differing backgrounds and economic conditions. Many labor analysts believe that the revitalization of the union movement will hinge upon its success of forging alliances with such groups as fast-food workers, independent workers’ centers and immigrants.

Deale, Pittman, Garrido and Aronowitz spoke Oct. 16 in New York City at a forum called “The War on Labor in the Courts and State Legislatures.” The Metro NY Labor Communications Council, which represents communications workers of labor unions and labor-allied organizations, and the New York Chapter of the National Writers Union, sponsored the forum.

The Attack in the Courts

Garrido discussed the response of DC 37 and its parent union, AFSCME, to the assault on unions in the courts. If successful, current court cases will deeply weaken public service unions.

The U.S. Supreme Court’s decision in the Harris v. Quinn case in June stopped short of declaring unconstitutional the “fair share” practice that lets unions collect fees from non-members for the cost of legally mandated collective bargaining services. But other lawsuits now headed toward the Supreme Court could wipe out this right, crippling the unions financially, Garrido noted.

The National Right to Work Committee has a war chest of $75 million to support anti-union lawsuits, an effort that includes enticing workers to sue unions to escape from their dues obligations, Garrido noted.

Earlier this year, DC 37 joined AFSCME’s campaign to sign up agency-fee payers, workers who receive services but haven’t joined as members. After signing up thousands and cutting the number of agency-fee payers in half, DC 37’s goal is now to make its worksites wall-to-wall union, Garrido said.

Part of the challenge of fighting back is to educate the public and members about the benefit of unionism. Over the years, the relentless attack on unions as special interest groups and leaches on taxpayers has deeply scared their image, and the union movement’s key role in the creation of the country’s middle class has become all but lost.

The Union Advantage

Though deeply battered, unions still significantly improve the living standards of working families. In many ways, they are the last barrier standing up to the political and economic forces that have worked together during the last four decades to carry out a race to the bottom that has included stagnant and falling wages, the loss of traditional pensions and employer-provided health care, the destruction of the manufacturing base and a lack of good jobs.

Eighty-eight percent of workers in unions participate in pension plans versus 49 percent of nonunion workers, according to the AFL-CIO. Seventy-seven percent of union workers have guaranteed pensions, compared with 17 percent of nonunion workers. About 84 percent of workers in unions have paid sick leave, compared with 62 percent of workers who aren’t in unions.
Union workers continue to enjoy a significant pay advantage.

The median weekly pay of union workers is $950, while that of nonunion workers is $750. Among African American workers, the union advantage is $791 versus $606 a week; for women, it is $898 as opposed to $676; for Latinos, it is $838 compared to $547. For Asian Americans, the union advantage is $961 over $937.

A Big Electoral Setback

The 2014 elections were a big setback for unions, as Thomas B. Edsall noted in “Republicans Sure Love to Hate Unions,” a Nov. 18 article in The New York Times. It was an especially big blow to public employee unions.

“The anti-union alliance between the Republican Party and movement conservatives got a big boost on Nov. 4,” Edsall wrote. “The heroes of this anti-union drive, Scott Walker, the governor of Wisconsin, and Rick Snyder, the governor of Michigan, were re-elected in states with a long history of strong labor movements. Prospects for the enactment of additional anti-labor legislation also improved as Republicans made substantial gains in legislatures and governor’s races across the country.”

What’s more, despite organized labor’s support for Democratic candidates with millions of dollars in campaign contributions and an army of grassroots activists, the Democratic Party has supported public policies that have weakened unions and harmed working families. Free-trade agreements, the erosion of the minimum wage, the failure to pass labor law reform to encourage organizing, deregulation, charter schools and the bailing out of the banks following the financial crisis without a corresponding support for mortgage holders have all favored the country’s financial elite over the poor and middle class.

“The unions basically have become an A.T.M. for Democrats,” Steve Rosenthal, a former political director of the AFL-CIO, told Edsall. “There is a sense of taking unions for granted, no place else to go, don’t need to do much for them.”

At the public employees union’s legislative conference in 2013, AFSCME President Lee Saunders voiced the frustration of unions with politicians who take them for granted.

“I am sick and tired of the fair-weather Democrats,” Saunders said. “They date us, take us to the prom, marry us, and then divorce us right after the honeymoon. I am sick and tired of the so-called friends who commend us when they’re running for election, but condemn us after they’ve won. I am sick and tired of the politicians who stand with us behind closed doors, but kick us to the curb in front of the cameras.”

The results of the 2014 elections suggest that unions are likely to be under more pressure than before. And the betrayal of the Democratic Party is one reason causing unions to look inward to chart their path to a labor revival.

“The attacks on labor have been widespread,” said the moderator of the panel on the crisis facing labor, Timothy Sheard, New York Chapter chair of the National Writers Union. “They have been persistent and they are growing.”

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