Home > Uncategorized > Boring But Important Article Describes Pension Conundrum That Can ONLY Be Fixed by Raising Taxes… OR Abandoning Shareholder Primacy

Boring But Important Article Describes Pension Conundrum That Can ONLY Be Fixed by Raising Taxes… OR Abandoning Shareholder Primacy

January 10, 2020

A recent Forbes article by Elizabeth Bauer describes a conundrum faced by politicians in Illinois regarding underfunded pensions in that state… a conundrum that several states and our nation face… a conundrum that corporations faced decades ago… a conundrum that our nation faces… and a conundrum that virtually everyone in our country faces.

Here’s the problem in a nutshell: in order to fund retirement it is necessary to set aside enough money each year to ensure that one can stop working and have sufficient cash flow to pay one’s bills.

Decades ago the government created social security to ensure that every individual would have enough funds set aside to avoid falling into poverty when they reached an age when it was impossible for them to continue working. The individual worker and his employer were expected to send the government sufficient funds on an annual basis to ensure sufficient funds would be available. In the 60s that amount was increased and reserved for medical costs.

While the amount set aside assured the avoidance of poverty, it did not assure the ability for individuals to continue paying their bills or affording the level of income they had when they worked. To supplement social security, employers n the private sector offered pensions and the government followed suit. In the private sector, employers facing union demands for higher wages and/or enhanced benefits that required immediate out-of-pocket costs often offered increased the promised pensions ensuring workers that their earnings upon retirement would match the earnings in their final years of work. This enabled the employers to avoid eating into their profits and keep the costs of their products low. Again, the public sector followed suit, enabling them to avoid increasing taxes and maintaining the same number of workers.

In theory, the both the private sector employers and public sector employers should have set aside money each year to ensure that once the employees retired there would be enough money to pay the pensions. In reality, neither the private sector employers OR the public sector employers did so and the “pension crisis” was born.

In the private sector, the “crisis” was addressed by outsourcing and off-shoring of jobs, “right-sizing” by selling off portions of the business, the introduction of technology, and— in the worst case— bankruptcies. In each of these cases, especially the latter, pensions were diminished or eliminated altogether. By diminishing or eliminating promised pensions the private sector was able to maintain its profit levels and/or keep its prices low. In short, the problem was solved by short-changing the employees, especially those who performed tasks that required the least amount of education, tasks that could be done more efficiently by robots or computers who didn’t need to take sick days or vacations.

In the public sector, the crisis is now coming to the forefront and, as Ms. Bauer’s analysis intimates, it cannot be solved using the same strategies employed by the private sector. The people who plow roads, teach children in school, provide public social and health services cannot be replaced by robots or computers. Facing the aging of this population, public employers have three choices: they can raise taxes to provide the promised pensions to their loyal employees and set aside the funds needed to sustain these pensions in the future; they can push the decision down to the lowest level possible; or they can privatize these services.

It is not difficult to see which of these decisions is easier to make if you are a politician at the State or federal level: you pass the costs down to local government. And at the local level, privatization looks VERY attractive, especially when voters who have had their jobs and pensions cut or eliminated are asked to dig into their pockets to “keep promises” to public employees who are still gainfully employed or retired with defined benefit pensions.

And we are now witnessing the ultimate results of the privatization movement in our supposedly “healthy economy” where 44% of our “employed” workers are in low quality jobs. Here’s a description of the kinds of jobs that too many workers find themselves in:

The low-quality jobs offer an average of 24.6 hours of work per week at $14.65 an hour, which is $360 per week. These roles are also the 13.5 million retail jobs offering 30.3 hours a week at $16.73 an hour, which is $506 in weekly pay. About 83% of all private sector jobs—105 million workers—are in nonsupervisory jobs. More than half of those positions—58 million—pay less than the average weekly U.S. wage of $793. A good deal of these jobs don’t afford proper  healthcare or benefits. Unfortunately, for many Americans, these are the best jobs they could get.

To help you avoid reaching for a calculator, $360 per week works out to $18,720 per year if you work every week; $506 in weekly pay is $26,312 per year; and a weekly wage of $793 works out to $41,236. And, since many of these jobs do not provide healthcare or benefits those costs come out of the pockets of the employees. But since the health of our economy is measured by the quantity jobs as opposed to the quality of jobs everyone believes things are fine. But the children living in these low income households and the schools serving those children know better. The numbers on the spreadsheets in Washington look robust; the dinner plates, apparel and housing not so much. And the so-called “pension crisis” is pushing more and more people into the at-will workforce that makes day-to-day life difficult.



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