Raising wages is the right thing to do, and doesn’t have to be bad for your bottom line – Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From Harvard Business Review 

The “working poor” are a growing problem in America — one that is increasingly embarrassing to the corporate elite. Business leaders who are morally inclined to do the right thing should and can play a stronger role in solving this problem by raising wages to a level where their employees’ earnings cover the cost of living.

Jamie Dimon, CEO of JPMorgan Chase, was recently stumped in a U.S. House Financial Services Committee hearing when California Congresswoman Katie Porter asked him what advice he could give to a constituent — one of his own bank’s tellers, who makes $2,425 a month and lives with her daughter in a one-bedroom apartment with a $1,600 rent in Irvine. Food, utilities, childcare, and commuting cost about another $1,400, leaving her $567 short every month. Dimon had no good answer.

Yet Dimon is one of a number of corporate leaders — others include Warren Buffett, Ray Dalio, and Paul Tudor Jones — who have expressed public concern that the version of capitalism that has allowed them to be so successful is not sustainable for our society. The data are daunting. Between 1980 and 2014, while the pre-tax income doubled for the top 1% and tripled for the top 0.1%, there was little change for the bottom 50%. In 2017, more than 45 million Americans worked in occupations whose median wage was below $15 an hour. Although wages increases have finally been accelerating, 40% of Americans are living so close to the edge that they cannot absorb an unexpected $400 expense—not much, as car repairs or dental work go.

For business leaders operating in settings like that of JPMorgan Chase, where profit margins are high and low-wage employees are a small driver of overall costs, doing the right thing morally is not even that risky. Some wage increases would even pay themselves by increasing productivity and reducing turnover — employees would be more motivated, less distracted with life problems, and less eager to find a better job. For those leaders compelled by the same moral argument but operating in businesses with low profit margins and a high percentage of low-wage employees, doing the right thing morally is still possible. But it requires a lot more work.

Read More »

How to increase retirement savings of 60 million employees – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Pensions & Investments

Senate Republicans are voting to repeal the Labor Department’s recent rules that would have expressly allowed states and cities to sponsor a type of individual retirement account, called an automatic IRA. These votes will rescind those rules, because they already have been rejected by House Republicans and the administration supports rescinding them.

While Republicans objected to a patchwork of state-sponsored retirement plans, Congress should promptly pass a federal automatic IRA invested by the private sector. This vehicle, developed by conservatives, is the most feasible way of substantially increasing retirement savings in the U.S.

About a third of all Americans have no retirement savings, and most don’t have enough to retire comfortably. The main reason: More than 60 million American employees have no retirement plan offered to them by an employer.

Such employees are eligible to set up an IRA at a qualified financial institution and receive a tax deduction. But very few get around to filling out an application and making regular contributions.

Read More »

Good gig? New employment proposals for contract workers could make it better — Thomas A. Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From WBUR Cognoscenti

Last week, Sen. Elizabeth Warren unveiled a comprehensive set of proposals to provide basic employment policy protections and income security benefits to those working in the so-called “gig” economy and others in subcontracted or franchised arrangements. Whether one agrees with her specific ideas or not, the nation owes her a debt of gratitude for putting these issues front and square on the table for a discussion that is long overdue.

The gig economy, best embodied by Uber, Lyft and Task Rabbit, may account for less than 1 percent of the workforce, but it has sparked a debate over what to do about all those who make their living outside of standard employment relationships.

Standard employment relationships are ones in which there is a clearly defined and identifiable employer that is responsible for complying with the range of employment laws put on the books since the New Deal: unemployment insurance, Social Security, minimum wage and overtime rules, and the right to unionize and gain access to collective bargaining. To be clear, the vast majority of American workers, about 85 percent to be exact, still work in this type of employment relationship.

Read More »