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Friday, January 6, 2012

Job Flight from Canada Highlights U.S. Inequality and Low Wages

The fact that middle class living standards have been falling for decades is no secret. One way to put this in sharp relief, however, is through international comparisons. Alexander Eichler at the Huffington Post reports today that Caterpillar Inc. is demanding that its locomotive manufacturing workers in Canada take a 50% pay cut to bring them more in line with what its workers in Illinois make.

How is it that the Canadian Caterpillar workers get more than twice as much in wages and benefits as their Illinois counterparts when income per capita is lower in Canada than in the U.S.? According to the 2009 UN Human Development Report (Table M, p. 195), gross domestic product per capita in the U.S. in 2007 was $45,592 but only $40,329* in Canada. The first part of the answer is inequality. The same table shows that the U.S. has a Gini coefficient (an inequality measure in which 0 equals complete equality, and 100 when one person has all the income) of 40.8, compared with Canada's 32.6. The richest 10% of Americans make 15.9 times as much as the poorest 10%, while the figure in Canada is only 9.4 times as much.

The second part of the answer is unionization and union strength. As I noted in September, the U.S. has the fifth-lowest unionization rate of the 34 industrialized democracies in the Organization for Economic Cooperation and Development. Only 11.4% of the American workforce is organized, compared with 27.5% in Canada.

As Eichler points out, a third reason wages are often higher in Canada is that its unemployment rate is lower than the U.S. rate, 7.5% vs. 8.5%. Higher unemployment means lower bargaining power for workers.

Caterpillar is not an isolated example. As I discussed in September, Electrolux actually moved from the Montreal suburbs to Memphis, saving over $4 per hour by ditching its unionized workforce for right-to-work Tennessee, and getting a free factory in the bargain.

This comparison with Canada helps us see, from another angle, just how much pressure the middle class is under in this country. The fact that Canada is very similar to the U.S. economically suggests that it is not impossible to strengthen the union movement and hence, the middle class, here.

* Technical note: The comparison of GDP per capita is not adjusted for purchasing power parity. Companies have to pay their workers in actual U.S. dollars or Canadian dollars, so the adjustment is not appropriate for this comparison.

Thursday, January 5, 2012

Show Me an Emergency Room that Provides Chemotherapy

I don't usually post stuff I receive in fundraising emails, but the one I received from former Rep. Alan Grayson arrived at just the right time, emotionally, for me this afternoon. I had watched former Senator Rick Santorum's speech after the Iowa Caucus and was put out by his comparison of social welfare programs with Benito Mussolini's fascism. Indeed, Santorum specifically included Medicaid among the programs he said are making people more dependent, one element of how more government is fascism. (Yes, I know that makes no sense. He apparently doesn't.)

Grayson's email, which he also posted to Daily Kos, went after Santorum on health care. The best part, to me, was his takedown of the argument that people can always go to the emergency room if they need health care. Maybe it's an obvious retort, but it had never occurred to me before, and I try to follow this issue because it is close to my heart. Grayson said:
I remember the same response from right-wingers then as we hear from Santorum today – anyone can go to an emergency room.  I ask them to show me an emergency room that will provide chemotherapy to a cancer victim.  There isn’t one.
  If you need chemotherapy, your cancer is life-threatening, and the treatment is grossly expensive. According to the American Cancer Society, over 577,000 Americans will die of cancer this year. And as Grayson says, you can't go to the ER for treatment. So the view that all Americans can receive health care, and that lack of health insurance isn't bad for your health, is cruelly false.

Monday, January 2, 2012

Investment Incentives and the Global Competition for Capital

The Vale Columbia Center on Sustainable International Investment has just published my new article in its "FDI [foreign direct investment] Perspectives" series, "Investment Incentives and the Global Competition for Capital." This piece summarizes my book of the same name, and makes the following main points:

  • Investment incentives (subsidies designed to attract investment) are widely used around the world at all levels of government.
  • Incentives are expensive. As I have discussed before, the cost to U.S. state and local governments is $50-70 billion per year. In the Philippines, the cost has been estimated to equal 1% of gross domestic product.
  • Investment subsidies tend to be both economically inefficient and inegalitarian (average taxpayers pay subsidies to richer owners of capital), while some incentives subsidize environmentally harmful projects.
  • Companies have more information about governments than governments do about the companies with which they are bargaining ("information asymmetry"), leading to a tendency for governments to pay more for an investment than they need to.
  • Developing countries sometimes pay far more in incentives than developing countries do for a similar investment. Goias state in Brazil gave Usina Canada $125 million in tax breaks for a $25 million ethanol facility, for example.
  • The best control mechanism for controlling investment incentives exists in the European Union, where the "state aid" rules require advance notification of all subsidy programs and all large individual subsidies (which also provides the best transparency in the world), advance approval by the European Commission, aid limits no higher than 50% of the investment tied to specific regions' income per capita, and sharp reductions in the maximum aid available to projects over 50 million euro. As a result, large projects receive considerably less in the EU than they do in the United States.
  • Outside the European Union, transparency is the first important reform needed in most of the world.
The book, of course, goes into much greater detail on these and many more points I could not cover in the 850-word format of the Perspectives series. Thanks to Editor-in-Chief Karl P. Sauvant and Managing Editor Jennifer Reimer for their help in bringing this article to completion. You can browse the entire Perspectives series here.