In Case You Missed It: Downward Mobility and Beyond

In Case You Missed It

In this issue, the fall of the middle class, opportunity hoarding and unpaid interns, the poverty of bank tellers, and the debate over unrestricted funds for nonprofits.

Downward Mobility and Beyond

According to a recent Brookings post, upper middle class parents are afraid of downward mobility for their kids and pursue opportunity hoarding as a result:

It is natural and laudable for parents to want their children to prosper. It is also understandable that they’ll use the resources and means at their disposal to try to reduce the chances of their children being downwardly mobile. They are likely to try even harder if the drop looks big, in economic terms...As the income gap has widened at the top, the consequences of falling out of the upper middle class have worsened. So the incentives of the upper middle class to keep themselves, and their children, up at the top have strengthened. It looks like a long drop, because it is.

McKinsey has a new report looking at the downward mobility of families in advanced economies between 2005 and 2014 showing the United States' decline in disposable income:

These findings provide a new perspective on the growing debate in advanced economies about income inequality, which until now has largely focused on income and wealth gains going disproportionately to top earners. Our analysis details the sharp increase in the proportion of households in income groups that are simply not advancing—a phenomenon affecting people across the income distribution. And the hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents.

Over at Fortune, Chris Matthews says that the report highlights an important point but the methodology may be missing how people actually experience the decline:

A huge swath of the world’s population, one that had been taught to expect their material wealth to grow through their lifetimes and across generations, has learned that this promise was a lie. No wonder voters in the rich world are being seduced by radical politics and specious solutions to their economic problems...

McKinsey researchers didn’t conduct a longitudinal study that tracks the individual fortunes of specific people over the course of many years... A 2015 study of the American middle class by sociologists Thomas Hirschl of Cornell University and Mark Rank of Washington University show what a difference this can make. They found that because of large variances in income over a lifetime, individual earners spend part of their lives as top earners and parts of their lives on the bottom heap. Therefore what can seem like a slow and steady decline of economic fortunes for the middle class might not feel that way for many members of that class.

Speaking of class ire, the result of the Brexit vote last month led to a shake up of the British government. Here is what incoming Prime Minister Theresa May had to say about the future of Britain after the vote highlighted signficant political fault lines based on economic experience:

 [T]he mission to make Britain a country that works for everyone means more than just fighting these injustices.

If you're from an ordinary working-class family, life is much harder than many people in Westminster realize. You have the job, but you don't always have the job security. You have your own home, but you worry about paying the mortgage. You can just about manage, but you worry about the cost of living and getting your kids into a good school.

If you're one of those families. If you're just managing. I want to address you directly. I know you're working around the clock, I know you're doing your best, and I know that sometimes, life can be a struggle. The government I lead will be driven not by the interests of a privileged few, but by yours.

Working for Peanuts and Your Interns for Free

Do you pay your interns? Let's start with the Ford Foundation's Darren Walker whose op-ed in the New York Times argues unpaid internships are a form of opportunity hoarding:

We often hear that success is “all about the people you know” — as if it’s just a matter of equal-opportunity relationship building. We rarely talk about how one knows them, or about the privilege that has become a prerequisite to knowing the right people [...], in which contacts and money matter more than talent, contributes to an economy in which access and opportunity go to the people who already have the most of both.

The stakes of America’s broken internship system are high. As report after report reminds us, this generation of students faces significantly worse job prospects than its predecessors. Without the short-term opportunities to help them learn, grow, connect with mentors and begin climbing the earnings curve, many promising young people with limited means are denied the chance to rise as high as their talent will take them.

The result is not limited to the labor market. The broader implication is privilege multiplied by privilege, a compounding effect prejudiced against students who come from working-class or lower-income circumstances. By shutting out these students from entry-level experiences in certain fields, entire sectors engineer long-term deficits of much-needed talent and perspective. In other words, we’re all paying the price for unpaid internships.

Meanwhile, the Economic Policy Institute's Ross Eisenbrey finds that paid internships also yield better employment outcomes:

Did you know that bank tellers don't make very much money? In the New York Times, JPMorgan Chase's Jamie Dimon announced their plans to raise the wage floor of about 18,000 employees from the current $10.50 an hour plus benefits to between $12 and $16 per hour plus benefits:

 A pay increase is the right thing to do. Wages for many Americans have gone nowhere for too long. Many employees who will receive this increase work as bank tellers and customer service representatives. Above all, it enables more people to begin to share in the rewards of economic growth.

And it’s good for our company, helping us attract and retain talented people in a competitive environment. While businesses, including ours, are understandably cautious when it comes to expenses, there are good expenses (investments that will pay off in the long run) and bad expenses (waste and inefficiencies). We have never hesitated to invest aggressively if we thought it would improve our long-term prospects.

Sound good? Well some people, such as the New Yorker's Mark Gimein, say not so fast:

The Harvard Business Review questioned whether Dimon is more likely to get points for generosity or lose them for hypocrisy—a reasonable question when a man paid twenty-seven million dollars a year makes a big deal of raising his lowest-paid workers’ salaries by two to six dollars an hour. New York magazine’s Annie Lowrey dismissed the raises as puny. Indeed, the bank could do a lot better.

Nonetheless, despite the modest size of the wage increase, the announcement does address a real problem: the trap in which many working-class women try to support themselves, and often children, in traditionally underpaid jobs. The eighteen thousand employees who are to get raises at the bank are mostly bank tellers and customer-service representatives. These are heavily gendered jobs; eighty-seven per cent of bank tellers are women, as are sixty-five per cent of customer-service reps...

Over a relatively short time, we’ve witnessed a historic bifurcation: the upper middle class agonizes over how to make time for leisure and children in two-income families. It takes for granted that one income is no longer enough to support a family. Meanwhile, for a big part of the country, life on one income—increasingly, a woman’s income—is a permanent reality. 

This Lil Piggy Went to Market

Apparently the nonprofit Architect for Humanity had an expenditure oopsy when it used restricted funds for overhead costs and its board is being sued reports Fast Company:

As the so-called "looting" was beginning, Architecture for Humanity was warned that it was doing something wrong by its legal counsel. If it had heeded those warnings and shut down in early 2014, it could have taken the $3 million it had left in its coffers and redistributed that money to the donors who gave it. Instead, AFH kept operating, even going after new donations, until it declared bankruptcy a year later. When it shuttered, it had only $200,000 left. That's seemingly where the lawsuit gets its price tag—it's the amount of money that the nonprofit had left when it was warned that it was committing "gross negligence." If the suit is decided against them, that money will be distributed to a long list of 170 different creditors, including Nike and Amazon.

In short, Architecture for Humanity should have shut down a year before it actually did, as it grew too fast and took on too many projects to manage.

In February, the Nonprofit With Balls blog noted that restricting funds for nonprofits is ultimately a destructive practice:

Restricting funding is not just annoying, it runs counter to many values that we hold as a sector, especially the value of Equity. Funding Sudoku may be easier for larger nonprofits that have Finance Directors or CFOs, but for most of us, we don’t have full-time people devoted to this area of work. Many organizations that are led by communities of color, LGBTQ, disabled, or rural communities tend to be smaller, and the burden of financial management is greater on these organizations. Add that to the fact that many funders refuse to pay for, or limit what can be spent on, accounting and other admin expenses, and it becomes a logistical nightmare...

If you don’t trust an organization and its leaders to use your money wisely, don’t fund them: Just like if you don’t trust a job applicant to do their job effectively, don’t hire them. Otherwise, you hire them on, micromanage them, and it makes for a terrible relationship where everyone is unhappy. If you don’t trust a nonprofit to spend your funds wisely, then don’t fund it. But first, determine if your definition of “wisely” makes sense.

The New York Times continues its series on private equity's Main Street creep with this article about its power at the state-house level, using the example of one firm called Fortress:

Since the 2008 financial crisis, Fortress and other private equity firms have rapidly expanded their influence, assuming a pervasive, if under-the-radar, role in daily American life, an investigation by The New York Times has found. Sophisticated political maneuvering — including winning government contracts, shaping public policy and deploying former public officials to press their case — is central to this growth...

Private equity firms often don’t directly engage with legislators and regulators — the companies they control do. As a result, the firms themselves have emerged as relatively anonymous conglomerates that exert power behind the scenes in their dealings with governments. And because private equity’s interests are so diverse, the industry interacts with governments not only through lobbying, but also as contractors and partners on public projects.

Over at Newsweek, Alexander Nazaryan takes a look at the evolving role of Amazon's Jeff Bezos in American life, including his purchase of the Washington Post and his record as an employer:

 Bezos is a rich person in a country that despises rich people nearly as much as it worships them. Now 52, he is no longer the ambitious quant who thought he could roll Barnes & Noble. But what is he, exactly? Certainly not a public philanthropist like Bill Gates, who becomes an ambassador for causes he believes in, like fixing public education in the United States or improving sanitation in developing nations. Bezos is too shy for such campaigns. Yet some sense of civic responsibility seems to be tugging at him, perhaps a yearning for a legacy beyond that of the world’s greatest retailer...

[E]xamples of Bezos’s ruthlessness abound. If you’re the vice president of European distribution logistics making seven figures, an unpleasant run-in with Bezos might fairly be considered a part of the job. The workers at Amazon’s distribution centers, however, seem to suffer from more profound indignities, according to many reports. In 2014, Amazon achieved a victory at the Supreme Court when the justices ruled unanimously that an affiliated staffing agency did not have to pay workers for the time they spent each day undergoing anti-theft screening. 

In the National Interest, Kevin James is back to defend his push for income-sharing agreements in lieu of traditional student loans:

Some commentators have unfairly analogized ISAs to indentured servitude. This comparison, however, misunderstands how this type of agreement works. ISAs don't require students to work for the organization that financed them; that is, students are not selling their future labor. Instead, they are simply agreeing to make payments linked to their income for a defined period. Students are ultimately free to make their own career decisions, including choosing not to work at all. In this sense, students have far more freedom with an ISA than with a traditional loan, which constrains all their financial decisions due to the need to ensure they can always meet their payment obligations. In short, ISAs offer students an alternative to the anxiety and risks — and inflexibility — of traditional debt.



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