Mark Mullen's Blog
June 17, 2015
FIXING AMERICA’S ECONOMY: Give American Workers a True Paid Vacation
When politicians and the media talk of paid vacation, they speak of paid days away from work. I think corporate owes American workers more than that. Let me explain.
A smart investment for corporate America would be to provide each employee with a true annual paid (travel, accommodations, food, time) one-week vacation to anywhere in the U.S. Some may say that big business can’t afford this, but they can. According to the U.S. Bureau of Labor Statistics, average worker productivity has increased by 400 percent since 1950. In other words, it took just 10 hours per week in 2014 to produce the same results as a 40 week in 1950. More productivity means more revenue and higher profits for many industries. The New York Times reported that American companies earned $1.7 trillion after-tax profits, or 10 percent of the gross domestic product, during 2013. That is the highest level of profits since the government began tracking corporate profits in 1929. Now consider that employee compensation (as a percent of total expenses and including costs of all benefits and salary) was at its lowest since 1949. But wait, there’s more. Although the statutory top corporate tax rate is 35 percent, U.S. companies paid 20 percent in corporate taxes during 2013. When combined, increased profits, decreased employee compensation, and lower corporate taxes created a windfall of additional cash for corporate America. Let’s explore a little more to determine if corporate America can afford to provide a true week-long paid vacation for American workers.
USA Today reported that S&P 500 companies were “sitting on enormous amount of cash—a total of $1.25 trillion” during 2013. (This figure does not include S&P banks; just non-financial institutions.) Cash that was not used for operations or stock dividends. For all practical purposes, we are talking about extra cash just sitting in corporate vaults collecting a meager rate of interest and lots of dust. So what would it cost the S&P 500 to use some of this cash to support an employee week-long vacation with travel, lodging, and food expenses covered?
For the purposes of this argument, we will use $2,500 as the annual per employee vacation benefit. During 2013, S&P 500 non-financial corporations employed a total of 20,254,000 employees.
$2,500 per worker x 20,254,000 workers = $50,635,000,000
Fifty billion dollars may seem like a lot of money, but it is just four percent of the $1.25 trillion sitting idly in corporate vaults. Wouldn’t corporate America get a better return on its investment if it spent the four percent on employee health and welfare? The answer is yes. Assuming the $1.25 trillion is parked in interest bearing accounts, annual interest on the principal alone would more than cover the vacation pay out. Still not convinced corporate America could pay for week-long vacations for each employee?
Let’s examine corporate revenue through another lens—profit per employee (PPE). This is calculated by dividing the total profit by the number of employees. In this example we will use 116.6 million full time workers in the U.S. as reported for December 2013.
$1.7 trillion after-tax profits divided by 116 million workers equals a corporate profit of $14,579 per employee.
When you take into consideration that of the 116.6 million full time workers, 22.5 million of those were self-employed and another 35 million were employed by small business (less than 500 employees), you begin to realize the amount of money available to corporate America. So if we redo the PPE without employees of small business and the self-employed, we find that each full time employee working in corporate America is responsible for nearly $30,000 per year of after-tax profits for the employer. Once again, can corporate America afford to provide a better vacation experience for employees? Yes, they can and should.
America We Need A Raise(This also helps corporate America by reducing stress levels of employees which improves: (1) corporate productivity and profits, and (2) employee health resulting in reduced corporate health insurance premiums. This proposal would also support middle class workers employed in the travel industry. In 2013, there were 14.2 million jobs in travel related industries earning $209 billion in wages while generating $92 billion in tax revenue. A simple doubling of the tax revenue generated from leisure travel alone also has the potential to save the average household approximately $1,200 per year in taxes.)
A smart investment for corporate America would be to provide each employee with a true annual paid (travel, accommodations, food, time) one-week vacation to anywhere in the U.S. Some may say that big business can’t afford this, but they can. According to the U.S. Bureau of Labor Statistics, average worker productivity has increased by 400 percent since 1950. In other words, it took just 10 hours per week in 2014 to produce the same results as a 40 week in 1950. More productivity means more revenue and higher profits for many industries. The New York Times reported that American companies earned $1.7 trillion after-tax profits, or 10 percent of the gross domestic product, during 2013. That is the highest level of profits since the government began tracking corporate profits in 1929. Now consider that employee compensation (as a percent of total expenses and including costs of all benefits and salary) was at its lowest since 1949. But wait, there’s more. Although the statutory top corporate tax rate is 35 percent, U.S. companies paid 20 percent in corporate taxes during 2013. When combined, increased profits, decreased employee compensation, and lower corporate taxes created a windfall of additional cash for corporate America. Let’s explore a little more to determine if corporate America can afford to provide a true week-long paid vacation for American workers.
USA Today reported that S&P 500 companies were “sitting on enormous amount of cash—a total of $1.25 trillion” during 2013. (This figure does not include S&P banks; just non-financial institutions.) Cash that was not used for operations or stock dividends. For all practical purposes, we are talking about extra cash just sitting in corporate vaults collecting a meager rate of interest and lots of dust. So what would it cost the S&P 500 to use some of this cash to support an employee week-long vacation with travel, lodging, and food expenses covered?
For the purposes of this argument, we will use $2,500 as the annual per employee vacation benefit. During 2013, S&P 500 non-financial corporations employed a total of 20,254,000 employees.
$2,500 per worker x 20,254,000 workers = $50,635,000,000
Fifty billion dollars may seem like a lot of money, but it is just four percent of the $1.25 trillion sitting idly in corporate vaults. Wouldn’t corporate America get a better return on its investment if it spent the four percent on employee health and welfare? The answer is yes. Assuming the $1.25 trillion is parked in interest bearing accounts, annual interest on the principal alone would more than cover the vacation pay out. Still not convinced corporate America could pay for week-long vacations for each employee?
Let’s examine corporate revenue through another lens—profit per employee (PPE). This is calculated by dividing the total profit by the number of employees. In this example we will use 116.6 million full time workers in the U.S. as reported for December 2013.
$1.7 trillion after-tax profits divided by 116 million workers equals a corporate profit of $14,579 per employee.
When you take into consideration that of the 116.6 million full time workers, 22.5 million of those were self-employed and another 35 million were employed by small business (less than 500 employees), you begin to realize the amount of money available to corporate America. So if we redo the PPE without employees of small business and the self-employed, we find that each full time employee working in corporate America is responsible for nearly $30,000 per year of after-tax profits for the employer. Once again, can corporate America afford to provide a better vacation experience for employees? Yes, they can and should.
America We Need A Raise(This also helps corporate America by reducing stress levels of employees which improves: (1) corporate productivity and profits, and (2) employee health resulting in reduced corporate health insurance premiums. This proposal would also support middle class workers employed in the travel industry. In 2013, there were 14.2 million jobs in travel related industries earning $209 billion in wages while generating $92 billion in tax revenue. A simple doubling of the tax revenue generated from leisure travel alone also has the potential to save the average household approximately $1,200 per year in taxes.)
June 16, 2015
Fixing America's Economy
During his 2015 State of the Union Address, President Obama highlighted eleven proposals to reenergize the economy and the middle class. But are they the right ideas and can they improve middle class life? In this installment, we examine the first.
Proposal 1: Government Pays For the First Two Years of Community College
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The White House, politicians, and media in general would have you believe that America cannot compete with the rest of the world unless our citizens have a college education. When the government says we need better education to compete in a global economy, I hear this: competing with China, Mexico and other nations means we must lower American wages. For example, Mexican auto workers earn approximately $7.79 per hour including benefits. Chinese factory workers earn approximately $2.28 per hour. Since employee compensation is the single most expensive component of manufacturing costs, we must lower American wages to the same levels as foreign nations to be competitive. Is that the message politicians are sending us?
Or perhaps our politicians are telling us they think China’s child labor force is smarter that America’s adult workers? China has the smallest proportion of 15 through 19 years olds (34 percent) throughout the world enrolled in school. Columbia is next at 43 percent followed by Mexico at 53 percent. Mexico also has one of the poorest performing school systems in the developed world. Its 15-year-old students consistently perform last in the Program for International Student Assessment (PISA) tests of math, reading, science, problem solving, and writing. Are politicians telling us that Americans need a community college education to compete with the under educated workers of China and Mexico?
In 2014, Bloomberg.com ranked 215 countries on innovation. Seven factors were used: productivity, patent activity, research and development, high-tech concentration, number of researchers, tertiary efficiency, and manufacturing capability. Bloomberg ranked the United States third behind South Korea and Sweden. Japan and Germany finished fourth and fifth. China came in at number 25 while Mexico didn’t make the top 30 on the list. It seems that we are already smart enough to be extremely competitive in the world market.
So why community college? According to the National Center for Education Statistics, just 31 percent of full-time students who attended a two-year degree institution graduated within three years from beginning enrollment date. If this is the success rate for students paying tuition, we can expect the success rate for free community college education to be much lower. People do not commit to freebies the same way they do for services they actually buy. Free things are just not valued at the same level as things that require you to open your wallet.
If Washington thinks a free community college education will lower the cost of completing a four year college education, they haven’t done their homework. Although 80 percent of tuition paying community college students intend to graduate and transfer to a four year school, only 20 percent actually transfer. Of those who do transfer, 46 percent graduate with a bachelor’s degree after completing two additional years at a four year institution. This means that one of every 10 students who enrolls in community college transfers and graduates with a bachelor’s degree in four years. That’s equivalent to a baseball player with a batting average of one hundred, which is not good. Another 14 percent of community college transfers graduate with a bachelor’s degree six years after first enrollment in community college. For these students, community college did not save them any money as they attended a four year institution for four or more years after transferring from community college. One of the biggest problems for community college students is loss of course credits when transferring to a four year institution. According to David B. Monaghan, and Paul Attewell (The Community College Route to the Bachelor’s Degree.) “Only 58 percent of transfers are able to bring all or almost all (90 percent or more) of their credits with them. About 14 percent of transfers lose more than 90 percent of their credits. The remaining 28 percent lose between 10 percent and 89 percent of their credits.” This means that 42 percent of community college transfers will need to pay tuition to a four year institution beyond the 60 credits needed to complete a bachelor’s degree. For a few, community college is a cost effective way toward earning a bachelor’s degree. But the evidence suggests that community college is not the gateway to a bachelor’s degree, nor is it a cost effective way for almost half of bachelor-degree seeking community college students.
What is the real reason why Washington is pushing for free community college education for all? Post-high school job training? I don’t think so as our citizens are already better educated then our competitors. If the government wants post-high school education, why not promote MOOC (massive open online course) which is already free and classes are taught by professors from M.I.T., Harvard, Yale, Penn, Stanford, and most major top tier universities. Certainly these classes would be more valuable to individuals then classes taught by adjunct, underpaid instructors at a community college. And by the way, free MOOC class completion rates run at about 4.5 to seven percent.
No, the free community college proposal is not about education. It is not about training an alleged poorly educated workforce. It is not about helping the middle class. It is not about closing an economic inequality gap as a community college education will not produce more entrepreneurs, millionaires, or move the poor into middle class status. The proposal is just another thinly disguised tax the rich plan. Higher education is not the answer to a wealthier and healthier middle class. Increasing post-high school education attainment will not increase middle class wages. There are already millions of underemployed and unemployed workers who possess at least a bachelor’s degree. (Since 2003, the rate of four-year graduates working in jobs that do not require a college degree has remained constant at 34 percent while the unemployment rate held at 4.5 percent.)
The other battle cry of the politician is that the majority of new jobs that will be created by 2025 will require some postsecondary education. Truth be told, neither Washington nor economists know what jobs will look like in ten years. They can guess that with an aging Baby Boomer population that services related to elder care will be in high demand. Positions such as nurses, physical therapists, and home health aides are a given. But, as has always been the case, future unknown and unfolding technologies along with national events will help determine what jobs will be needed ten years down the line. American workers are more than capable to adjust to new methods and ideas like the workers who came before them. The proof is in productivity – up 243 percent since 1949 with no downturns.
America We Need A Raise
Free community college for all is not a solution for what ails America’s economy. It is simply another cleverly designed proposal to increase your taxes while providing no direct economic benefit to a struggling middle class.
Proposal 1: Government Pays For the First Two Years of Community College
T
The White House, politicians, and media in general would have you believe that America cannot compete with the rest of the world unless our citizens have a college education. When the government says we need better education to compete in a global economy, I hear this: competing with China, Mexico and other nations means we must lower American wages. For example, Mexican auto workers earn approximately $7.79 per hour including benefits. Chinese factory workers earn approximately $2.28 per hour. Since employee compensation is the single most expensive component of manufacturing costs, we must lower American wages to the same levels as foreign nations to be competitive. Is that the message politicians are sending us?
Or perhaps our politicians are telling us they think China’s child labor force is smarter that America’s adult workers? China has the smallest proportion of 15 through 19 years olds (34 percent) throughout the world enrolled in school. Columbia is next at 43 percent followed by Mexico at 53 percent. Mexico also has one of the poorest performing school systems in the developed world. Its 15-year-old students consistently perform last in the Program for International Student Assessment (PISA) tests of math, reading, science, problem solving, and writing. Are politicians telling us that Americans need a community college education to compete with the under educated workers of China and Mexico?
In 2014, Bloomberg.com ranked 215 countries on innovation. Seven factors were used: productivity, patent activity, research and development, high-tech concentration, number of researchers, tertiary efficiency, and manufacturing capability. Bloomberg ranked the United States third behind South Korea and Sweden. Japan and Germany finished fourth and fifth. China came in at number 25 while Mexico didn’t make the top 30 on the list. It seems that we are already smart enough to be extremely competitive in the world market.
So why community college? According to the National Center for Education Statistics, just 31 percent of full-time students who attended a two-year degree institution graduated within three years from beginning enrollment date. If this is the success rate for students paying tuition, we can expect the success rate for free community college education to be much lower. People do not commit to freebies the same way they do for services they actually buy. Free things are just not valued at the same level as things that require you to open your wallet.
If Washington thinks a free community college education will lower the cost of completing a four year college education, they haven’t done their homework. Although 80 percent of tuition paying community college students intend to graduate and transfer to a four year school, only 20 percent actually transfer. Of those who do transfer, 46 percent graduate with a bachelor’s degree after completing two additional years at a four year institution. This means that one of every 10 students who enrolls in community college transfers and graduates with a bachelor’s degree in four years. That’s equivalent to a baseball player with a batting average of one hundred, which is not good. Another 14 percent of community college transfers graduate with a bachelor’s degree six years after first enrollment in community college. For these students, community college did not save them any money as they attended a four year institution for four or more years after transferring from community college. One of the biggest problems for community college students is loss of course credits when transferring to a four year institution. According to David B. Monaghan, and Paul Attewell (The Community College Route to the Bachelor’s Degree.) “Only 58 percent of transfers are able to bring all or almost all (90 percent or more) of their credits with them. About 14 percent of transfers lose more than 90 percent of their credits. The remaining 28 percent lose between 10 percent and 89 percent of their credits.” This means that 42 percent of community college transfers will need to pay tuition to a four year institution beyond the 60 credits needed to complete a bachelor’s degree. For a few, community college is a cost effective way toward earning a bachelor’s degree. But the evidence suggests that community college is not the gateway to a bachelor’s degree, nor is it a cost effective way for almost half of bachelor-degree seeking community college students.
What is the real reason why Washington is pushing for free community college education for all? Post-high school job training? I don’t think so as our citizens are already better educated then our competitors. If the government wants post-high school education, why not promote MOOC (massive open online course) which is already free and classes are taught by professors from M.I.T., Harvard, Yale, Penn, Stanford, and most major top tier universities. Certainly these classes would be more valuable to individuals then classes taught by adjunct, underpaid instructors at a community college. And by the way, free MOOC class completion rates run at about 4.5 to seven percent.
No, the free community college proposal is not about education. It is not about training an alleged poorly educated workforce. It is not about helping the middle class. It is not about closing an economic inequality gap as a community college education will not produce more entrepreneurs, millionaires, or move the poor into middle class status. The proposal is just another thinly disguised tax the rich plan. Higher education is not the answer to a wealthier and healthier middle class. Increasing post-high school education attainment will not increase middle class wages. There are already millions of underemployed and unemployed workers who possess at least a bachelor’s degree. (Since 2003, the rate of four-year graduates working in jobs that do not require a college degree has remained constant at 34 percent while the unemployment rate held at 4.5 percent.)
The other battle cry of the politician is that the majority of new jobs that will be created by 2025 will require some postsecondary education. Truth be told, neither Washington nor economists know what jobs will look like in ten years. They can guess that with an aging Baby Boomer population that services related to elder care will be in high demand. Positions such as nurses, physical therapists, and home health aides are a given. But, as has always been the case, future unknown and unfolding technologies along with national events will help determine what jobs will be needed ten years down the line. American workers are more than capable to adjust to new methods and ideas like the workers who came before them. The proof is in productivity – up 243 percent since 1949 with no downturns.
America We Need A Raise
Free community college for all is not a solution for what ails America’s economy. It is simply another cleverly designed proposal to increase your taxes while providing no direct economic benefit to a struggling middle class.
