Better Working Conditions Lead to a Better Economy

Which states are better for business? Colorado and Montana that received a top rating from the CATO Institute? Idaho and North Carolina that had the best metro areas in Forbes annual rating of Best Places for Business and Careers? Or is it South Dakota or Florida where the Tax Foundation found the most tax friendly climates?

Compared to this confusing and contradictory listing of business-friendly states, the Political Economy Research Institute (PERI) at the University of Massachusetts/Amherst recently completed a study, “Decent Work in America,” to compare the treatment of workers with the overall business climate in each state.

Viewed in this light, Delaware, New Hampshire and Minnesota rank at the top, while the bottom includes Arkansas, Texas and Louisiana. Additionally, PERI discovered that states with better working environment s have higher economic growth and lower poverty rates, while states with poor working environments have slower economic growth and higher poverty rates.

“We created reasonable measures of what constitutes a decent overall economic climate,” said Robert Pollin, professor of economics and co-director of PERI. “You can’t make a case that bad working conditions for workers are good for business. The correlation is stronger, that good working conditions make for a better business climate.”

The study ranked each state in three categories: Job opportunities, including unemployment and part-time work; job quality, including average wages, adjusted cost of living, and health and retirement benefits; and workplace fairness, including gender equality, minimum wages, collective bargaining rights, and right-to-work programs, to form a work environment index.

States at the bottom of the ranking, Pollin suggests, are in the South where workers are successfully divided along racial lines and have no history of workers organizing for better pay and working conditions. In addition, Texas has a large number of undocumented workers who can’t join unions or struggle for their rights, and immigrant labor pushes wages downward.

Officials in Texas immediately attacked the study when their governor charged that the study has “a liberal bias.” Pollin denies the indicators are biased. “The Texas ranking is low because the conditions for workers are bad in Texas,” Pollin said. New Mexico’s officials also thought they were given a poor rating because a large portion of their economy comes from mining, but Pollin said accident rates were excluded from the study because mining has a larger proportion of accidents than other industries and would bias the study. Rather than defending their states, Pollin would like to see states consider a different perspective on economic well-being and consider the implications of the results.

For example, the study doesn’t address globalization directly, although Pollin has studied the issue extensively. Currently, globalization is framed with a perspective that living standards for working people in the U.S. are too high and must be driven down for the U.S. to become competitive. This study proves that premise false.

“The states that have good work environments, higher wages, more job equality, and more rights for workers are not suffering from low job growth, fewer new business startups, or low economic growth rates,” said Pollin. “They are doing better on average. You can build decent institutions that support decent livelihoods in rich countries like the U.S. and still have healthy job growth, good business startup rates and economic growth.”

Overall, conditions are not good for working people these days. Household income set a record this year when it failed to increase for the fifth straight year in a row. Workers kept their income from falling only by working longer hours in 2003 and median pay for full-time male workers declined two percent in 2004.

Compared to their bosses’ pay, workers also fell behind last year, earning a dollar for every $431 their bosses made, although their bosses made over $500 for every dollar workers made during the High Tech Gold Rush in the 1990s.

Compounding the situation, living expenses increased. In San Francisco, for example, a family of four with two working spouses needs $55,740 a year, according to the California Budget Project, to afford housing, food and other basic necessities, while a family with one employed adult needs $40,544 in the less expensive Central Valley.

In September, the Economic Policy Institute found that basic family budgets for a two-parent, two-child family required an annual income of $31,080 in rural Nebraska and up to $64,656 in Boston, Mass. Unfortunately, 28 percent of families fall below the basic family budget after being adjusted for type of family and section of the country. Working people face outsourcing, globalization and corporate bankruptcies, which force them to take lower-paying jobs at large chains like McDonald’s and Wal-Mart.

Business studies rarely consider the conditions of employees. Priority is given to what’s best for business in studies by Fortune Magazine, The Small Business and Entrepreneurship Council, the Tax Foundation and the Cato Institute. Although these studies radically disagree in the ranking of states, they generally consider low taxes, low wages and lack of government regulation as beneficial. Conversely, union wages and worker’s rights are considered bad for business. Congress appears to be in sympathy with such pro-business views, as it recently defeated a minimum wage increase from $5.15 (or $10,712 per year), where it has been stuck since September 1997.

A study by the Pacific Research Institute, “The U.S. Economic Freedom Index: 2004 Report,” is an example of business-friendly attitudes, assuming that economic freedom can be measured by workers migrating to places where they can economically prosper and away from poorer areas. While recognizing that the study doesn’t deal with people who are attracted to urban areas for their diversity and many amenities, it defines migration as “a market-based response to economic freedom.” After measuring 143 “variables,” the study declares that changes in gasoline, cigarette and inheritance taxes, and increases in welfare payments, determined changes in states’ ranking since 1999. States that increased welfare and government regulation fell in the rankings, while those that cut taxes, welfare and regulation rose.

In such a system, the most populous states, which tend to have more government regulation, are low. Illinois, Rhode Island, Connecticut, New York and California anchor the list, while Kansas, Colorado, Virginia, Idaho and Utah are considered the best states for “economic freedom.” Little surprise here, for this libertarian-slanted “think-tank” promotes limited government, individual freedom and personal responsibility, while ranking worker’s rights and higher wages as less important.

The CATO Institute – dedicated to individual liberty, limited government and free markets – publishes a yearly report on the fiscal policies of state governments and rewards those that cut taxes and spending with the highest grades, while those that increase spending and taxes receive the lowest grades. Colorado and Montana governors received an “A” because they kept their budgets from growing and cut taxes, while Ohio and Missouri received an “F” for increasing state spending and increasing taxes when faced with deficits. For example, Montana Governor Judith Martz’s proposed tax cuts are called “a supply-sider’s dream” and “the most aggressive” income tax cuts in 2004.

CATO praised the many states that cut taxes every year from 1995 to 2000, while condemning those that increased taxes and spending. Mississippi, Arkansas and West Virginia scored low because they increased spending from 1991 to 2002, while Hawaii, Wyoming and Arizona scored high by increasing spending in lesser amounts. The calculations use 15 variables based on state spending, revenue and tax rates, and purport to show that states with the lowest taxes are best. Indeed, CATO finds the so-called Bush economic recovery, is based on Bush’s tax cuts for the wealthiest taxpayers.

This is the first year for “Decent Work in America,” and it will be reissued in the coming years. With the dearth of attention to the well-being of workers in most “what’s good for business owners” studies, the creation of an index to measure the working environment is a healthy contribution to a fair analysis of economic issues.

DON MONKERUD is an Aptos, California-based writer who follows politics. He can be reached at: