In an earlier issue of the Fox Valley Labor News, I wrote “What’s Wrong With the Economy,” about how the systematic suppression of wages for the working class and lower middle class wages since the late 1970s have contributed to the anemic recovery from the 2008 Great Recession. I cited several major factors that have contributed declining wages including:

A 28 percent decline in the minimum wage since 1968 (when factored into inflation),
Curtailing Defined Benefit Pension Plans
Free trade/capital flight to low wage nations,
Suppression of union organizing campaign,
Legal and judicial assaults on labor union rights and
Hiring of part-time and temporary labor.

I e-mailed the article to a retired economics professor at a major university. He was the valedictorian of my high school class. Included with my e-mail was the following personal note from me:

“In 1970, a younger brother dropped out of high school and enlisted in the Navy. While in the service, he obtained a General Educational Development (GED) certificate. He also learned welding and other mechanical skills while in the service. When his tour of duty ended in 1974, he took a job at Pepperidge Farm as a maintenance mechanic. At the time, he was paid $12.75 per hour. In today’s dollar, his wages translates into $62.47 per hour.

“In an interview for this article, I asked him whether it was a union job? He responded, “No, but they paid the union rate.” What about benefits, I asked. He stated he had health insurance, a (defined benefit) pension and other benefits that union workers received. Much has changed since then!

“Another close relative lost his full-time job in the 2009. He has a graduate degree in biology. For several years, he worked a seasonal full-time job and supplemented his income with several part-time jobs. The most he made was $12.75/hour with no health insurance. Last year, he found a full-time job. It pays $11.25/hour with no health insurance. He is 40-years-old and looking for something better.

In his response, the professor stated: “Here are a couple of thoughts about your essay:”

“A defined benefit pension is, I believe, inferior to a defined contribution pension.  There are several reasons — here are two. A defined benefit pension tempts the employer to underfund the pension. This is not possible with a defined contribution. And a defined benefit pension provides too little diversification for the employee.

“It is an empty accusation to blame free trade for the loss of manufacturing jobs. What is the alternative — how good would U.S. autos be if we had protected the auto industry from imports. And how many auto exports would we have? It is a fact there are many semi-skilled workers in Asia and elsewhere. The right strategy is to adapt to that fact, not to ask our government to make it go away.”

In my response back, I said, defined contribution plans such as 401(k) work well for those who make enough money to save for retirement and understand the basics of investment. For a highly compensated, career-minded employee, a 401(k) makes sense. They have the ability to save and the 401(k) are portable as they move up the corporate ladder from employer to employer.

Employers also like defined contribution plans because they shift pension risks to the employees. An employer contribution to a defined contribution is not guaranteed. Many employers contribute nothing and pay so little that the employee cannot save. Workers often retire without any pension but social security.”

Employers are always tempted to cut labor costs no matter what kind of pension they have. 

Working class people are better off with a defined benefit plan. A working class cousin had a defined benefit plan through Bell South. When he retired, he took out a cash settlement and put it in an IRA in 2007. Not knowing anything about investment, he lost it all when the stock market crashed. His broker did OK, since he made commission, even as my cousin loss everything. DCPs are a win-win for Wall Street.

ERISA does provide protection from under funding by the employer for defined benefit plan. In private industry, ERISA requires employers to contribute to the plan or face fines.Unfortunately, ERISA does not apply to state and local government plans.

On the free trade issue, I wrote I am not a protectionist. Trade can benefit everyone, but there should be enforceable environmental and labor standards as a condition for trade.

I support fair trade not unregulated “free” trade. International groups such as the UN, World Bank and IMF should closely monitor factories that collapse killing 1,000, the murders of labor organizers, unchecked pollution, child labor and other inhumane conditions.

Transnational corporations and the countries that allow such conditions to exist should be severely sanctioned. The current trade agreements have created a race to the bottom for many American workers.