Saturday, January 10, 2015

The interests of high skill workers do not align with capital

Image: Meg Whitman, former CEO of eBay (source)

It is frequently assumed that high skill workers don't need labor protections because they can protect themselves. It's only those defective low skill workers who need help from minimum wage laws and unions. This flawed assumption is based on the idea that what is good for employers is also good for high skill workers. According to this logic, employers may indeed benefit from squeezing every last penny of profit out of low skill workers with low pay and zero benefits, but for knowledge-based information work, employers benefit from happy, productive, and well-compensated high skill workers. And anyway, high skill workers can negotiate high wages for themselves due to their skill set. They made all the right choices in life; with the human capital they have accumulated, they now benefit from a better bargaining position with their employer.

This misconception is as wrong as it is toxic to workers generally, both high skill and low skill. Employers use the same tactics to squeeze high skill and low skill workers, though these tactics are indeed more effective with low skill workers. Nevertheless, when high skill workers fail to acknowledge that employers have an incentive to exploit them, they don't realize that the policies that help low skill workers usually help them, too. By assuming that the interests of high skill workers align with their employers, high skill workers often support policies that actually hurt them.

A perfect example of this misconception can be found in Michael Teitelbaum's recent article arguing there is no shortage of college students studying science, technology, engineering, and math (STEM). Though well-researched and articulated, he fails to realize the broader context in which this debate takes place.

Teitelbaum begins by assembling an impressive array of research to argue that there is no STEM shortage (emphasis added):
A compelling body of research is now available, from many leading academic researchers and from respected research organizations such as the National Bureau of Economic Research, the RAND Corporation, and the Urban Institute. No one has been able to find any evidence indicating current widespread labor market shortages or hiring difficulties in science and engineering occupations that require bachelors degrees or higher...All have concluded that U.S. higher education produces far more science and engineering graduates annually than there are S&E job openings—the only disagreement is whether it is 100 percent or 200 percent more...
It is true that high-skilled professional occupations almost always experience unemployment rates far lower than those for the rest of the U.S. workforce, but unemployment among scientists and engineers is higher than in other professions such as physicians, dentists, lawyers, and registered nurses, and surprisingly high unemployment rates prevail for recent graduates even in fields with alleged serious “shortages” such as engineering (7.0 percent), computer science (7.8 percent) and information systems (11.7 percent). 
He actually missed a good one: A 2011 American Chemical Society survey found that 9% of recent graduates of chemistry and chemical engineering PhD programs were unemployed, and a whopping 18% recent graduates of masters chemistry and chemical engineering programs were unemployed. That survey did find that average pay had risen, but this was likely due to the elimination of lower paying positions, not actual pay rises. The survey also found the lowest number of students pursuing advanced chemistry/chemical engineering degrees. Underemployment was an enormous problem: Just 38% of recent chemistry PhD graduates were able to find full time work; just over a third of recent bachelors degree graduates found full time work--and not all of these chemists were actually working as chemists.

Teitelbaum's entire piece really is worth reading in full; he's assembled quite a round-up of research on the increasing difficulties of high skill workers. Nevertheless, Teitelbaum's arguments suffer because he fails to realize that labor and capital have opposing interests--even if labor happens to be highly skilled.

Several times in this piece, Teitelbaum gets incredibly close to acknowledging this inherent conflict, but he always falls short. For example, he explains who is responsible for perpetuating this "myth" of the STEM shortage:
Such claims are now well established as conventional wisdom. There is almost no debate in the mainstream. They echo from corporate CEO to corporate CEO, from lobbyist to lobbyist, from editorial writer to editorial writer. But what if what everyone knows is wrong? What if this conventional wisdom is just the same claims ricocheting in an echo chamber?
So--Teitelbaum calls the STEM shortage "conventional wisdom," yet moments later he explains that the STEM shortage really isn't conventional wisdom at all--it's the wisdom of 'corporate CEO's, lobbyists, and editorial writers.' In other words--Teitelbaum apparently fails to realize--the views he aims to refute are the views of the representatives of capital. Teitelbaum repeats this mistake later as he nearly stumbles onto the phenomenon of full employment:
Were there to be a genuine shortage at present, there would be evidence of employers raising wage offers to attract the scientists and engineers they want. But the evidence points in the other direction: Most studies report that real wages in many—but not all—science and engineering occupations have been flat or slow-growing, and unemployment as high or higher than in many comparably-skilled occupations.
The key here is rising wages, and it's nearly incomprehensible how Teitelbaum gets so close to the heart of the issue without realizing it. Full employment is a very basic concept, and I touched on it here, albeit with blue collar workers in mind. High unemployment leads to lower wages. Low unemployment leads to higher wages. If there are more jobs than workers, employers must compete for scarce workers, resulting in higher worker pay. If there are more unemployed workers than job openings, then wages fall because each employed or newly hired worker can be easily replaced and is therefore in no position to bargain for higher pay.

As a worker, whether you have a job or not, you want full employment. In full employment conditions, if you need a job, you can find one easily; if you have a job, you can threaten to leave to take an offer for higher pay at a competitor--and because you're fairly difficult to replace, your employer may have no choice but to give you a raise.

But as a shareholder, full employment is your greatest enemy. Shareholders always want there to be more job seekers than job openings. With high unemployment, employers can choose from a large pool of qualified yet desperate applicants. Since there aren't enough jobs to go around, employers are in a strong position to make very selective hiring decisions and--most importantly--negotiate lower wages. When there are more qualified job seekers than job openings, employers can cut wages without losing workers because the unemployed are desperate for a job, and the employed are desperate to avoid becoming unemployed.

If you're a STEM degree holder, we've got too many STEM degree holders; if you're a share holder, we don't have enough STEM degree holders
So, if we go back to Teitelbaum's original words, he argues--correctly--that a "genuine shortage [of] scientists and engineers" causes employers to increase wages of scientists and engineers. He uses this as evidence that the STEM shortage is a myth, but what this really shows is why the STEM shortage is the consensus view of capital. Obviously, shareholders don't want wages to rise, so--from their perspective--the STEM shortage isn't a myth.

Indeed, if a shortage of workers causes increasing wages, then the opposite is also true: a glut of workers will result in "flat or slow-growing" wages. And that is exactly what employers want. Thus, from the perspective of an employer or shareholder, there can never be too many STEM degree holders. Every out of work nuclear engineer is leverage in keeping wages of nuclear engineers low. Shareholders of companies that employ STEM degree holders will always favor policies to increase the number of STEM degree holders. They always want the number of biochemists seeking jobs to exceed the number of biochemistry job openings.

For capital, there can never be enough STEM degree holders. Thus, rather than debunking a myth, Teitelbaum is actually championing the cause of labor against capital, even if he doesn't realize it.

If this sounds to Machiavellian to be true, it's not. Next, we'll consider two examples of the extreme lengths employers will go to avoid full employment conditions in the high skill labor market.

Wage theft of 100,000 engineers
In 2005, the Steve Jobs and Eric Schmidt, the CEO's of Apple and Google, respectively, realized that the labor market (h/t) for software engineers was in full employment conditions--meaning that workers were in a stronger bargaining position than employers, so their wages would start rising. Obviously, employers of software engineers did not want to pay their workers higher wages, so they started looking for ways to circumvent full employment.

But how to circumvent full employment? Again, workers' advantage in full employment comes down to the fact that employers must compete for their labor. But if employers agree not to compete for workers, then capital's problem of full employment is solved. And that's exactly what they did:
Apple’s Steve Jobs sealed a secret and illegal pact with Google’s Eric Schmidt to artificially push their workers wages lower by agreeing not to recruit each other’s employees, sharing wage scale information, and punishing violators...These secret conversations and agreements between some of the biggest names in Silicon Valley were first exposed in a Department of Justice antitrust investigation launched by the Obama Administration in 2010...

In a related but separate investigation and ongoing suit, eBay and its former CEO Meg Whitman, now CEO of HP, are being sued by both the federal government and the state of California for arranging a similar, secret wage-theft agreement with Intuit (and possibly Google as well) during the same period...The secret wage-theft agreements between Apple, Google, Intel, Adobe, Intuit, and Pixar (now owned by Disney) are described in court papers obtained by PandoDaily as “an overarching conspiracy” in violation of the Sherman Antitrust Act and the Clayton Antitrust Act, and at times it reads like something lifted straight out of the robber baron era that produced those laws.
Such an agreement is illegal for good reason, as the representatives of capital knew full well:
Later that year, [Google CEO Eric] Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information "verbally, since I don’t want to create a paper trail over which we can be sued later?"
Such illegal wage theft arrangements were made by Intel, Adobe, Intuit, eBay, Pixar, and other high tech companies. These arrangements continued for several years until their wrongdoing was exposed. In all, a staggering 100,000 engineers were illegally robbed of $9 billion in wages.

These agreements show just how threatening full employment is to those who would put profits over people. Clearly, employers cannot be trusted to protect the interests of high skill workers--not when an extra dollar in wages is a dollar less in profit.

This incident is a perfect example of free market for thou. Silicon Valley's love of the free market is well known, but--like most free market acolytes--they really are only in favor of the free market when it benefits them. By agreeing not to compete for workers, they are violating the fundamental preconditions of a free market. Workers and employers are buying and selling labor; when employers prevent competition over that labor from occurring, they are destroying the parts of the free market they don't like while keeping the parts they do. Meg Whitman was the CEO of one of the offending companies during the time this wage theft was occurring; she obviously thinks very highly of the free market. Just listen to her gush about how eBay is set up like a free market, thus maximizing efficiency, and then extolls the virtue of price transparency and a level playing field:
Q: You've called eBay an economy. What do you mean?
A: It is in some ways a small economy. There are 62 million players [registered eBay members] that meet to do business every single day. The law of supply and demand absolutely works on eBay...It's an economy: Categories get hot, categories get cold. It's absolutely an efficient market that runs like an economy...

Q: So like a free-market economy, it somehow regulates itself?
A: It's a self-regulating marketplace that functions like a free economy, with increased transparency and a more level playing field than many national economies. Every day, we're struck by how the economy regulates itself...It's not something we can manage. The economy manages itself. Our users are on to the next idea, the next hot thing faster than we could ever be as a company. It's the millions of entrepreneurs who maximize their own business on eBay, which in turn maximizes the economy.
She thinks very highly of the free market--except when she has to pay her workers the market value of their labor.

The HB-1 Visa
Employers are willing to use illegal means to depress wages of high skill workers. More frequently, capital tries to manipulate the political system to do so legally.

Ross Eisenbrey of EPI argued this very point in a recent NYT op-ed. He was arguing against a proposal in the Senate that would increase the number of visas available to foreign doctoral graduates. The idea is sound in theory--why should we not want more people with PhD degrees in STEM fields? However, this is a smokescreen designed to flood the market with desperate PhD's who must work or get deported, thus avoiding the high wages associated with full employment.

Eisenbrey, like Teitlebaum, starts by assembling evidence arguing that there is not a shortage of STEM degree holders. Since I blockquoted much of Teitelbaum's case, I won't repeat it here. Nevertheless, it should be clear that there are already hordes of unemployed STEM degree holders who cannot find a job in their field, so the only possible reason to favor the influx of more STEM job searchers is to depress wages. Indeed, if the goal is to depress wages, there is hardly a better way to do so than the H-1B visa. H-1B visa holders cannot stay in the country without being sponsored by an employer. "Work for a lower wage or you will be deported" is a very strong bargaining position for an employer to be in. Indeed, the majority of H-1B workers have wages in the bottom quartile of similar workers (ie, all chemical engineers in the Kansas City metropolitan area). Wages of American-born high skill workers are depressed as well when they can easily be replaced by an H-1B visa holder.

For high skill or low skill workers alike, immigration law is unjust. That's not my point here. Rather, it is clear that capital favors immigration reform when it benefits capital, but opposes immigration reform when it doesn't. The deciding factor is the effect on wages. Normalizing the status of undocumented low skill workers would result in the extension of basic workplace protections like minimum wage laws. Obviously, this would increase the labor costs for hiring previously-undocumented workers; it would also raise wages for low skill workers generally. Thus, it's not surprising that capital generally opposes low skill immigration reform. But because immigration reform for high skill workers results in lower wages for high skill workers, capital favors this special type of immigration reform.

Both of these examples should serve as a cautionary note to high skill workers, who oppose labor protections at their own peril.

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