A self-described centrist friend asked me my position on Prop 487 the other day. I told him probably no, but I really hadn’t studied it intelligently enough yet to say with any certainty. Prop 487, for those who don’t know, is the so-called anti-pension spiking ballot initiative for voters in the city of Phoenix.
He then went offered his opinion how we can’t have people retiring at 58, which was kind of odd, because he and I both are about that age, and he’s retired while I’m not. In fairness to him, his retirement is not funded by a public pension, as far as I know. But still.
I kind of pounced a little, as I tend to do in these situations. I should be a little more deliberate. I said something like “Are you saying there is a shortage of labor, such that we need people to extend their careers?” My question was rhetorical. I continued. “No, it’s just the opposite. We have a surplus of labor. If we force people to work longer before retirement, it will mean twenty somethings won’t find work. It will make our surplus of labor worse, which will allow corporate America to screw workers.”
He then brought up life expectancies, noting that people will be living longer and longer, and we can’t afford to fund retirements based on the longer lives. I noted that life expectancies actually are going the other way, at least for the lower half of the population ranked by income. He was skeptical, so I explained that it’s because of the American diet. I’m guessing health care plays a role as well. It’s also about the kind of work we do. Paul Krugman once remarked in a column about the social security retirement age how conservatives expect janitors to extend their careers because lawyers are living longer.
I wish we’d had time for a lengthier conversation. The points I made were far too narrow. Here’s the larger picture:
Economics is of course about supply and demand. For the overall American economy, supply is productivity and demand is wages.
Until around 1980, wages and productivity rose in tandem, maintaining a very close relationship. After 1980, wages stagnated, while productivity continued to increase at roughly its historical pace.
Prior to 1980, when workers were benefitting from increases in productivity, life for workers improved. Wages increased relative to the cost of living; the length of the work week declined; and earlier retirement became possible for many.
With the stagnation of wages, that ended. Two-worker families became the rule, rather than the exception; the standard work week length stopped declining; and retirement plans for many were delayed.
But productivity continued to increase, remember? So, where did all the productivity gains go? They went to the wealthy. That’s why inequality in America is as extreme as it is today. The top 3% of Americans now hold close to 60% of our wealth. In other words, the wealth of the top 3% of Americans is about 50% greater than the wealth of the other 97% of Americans. Think about that.
So, what would have happened had we maintained the policies that allowed wages to rise along with productivity gains? The length of the work week, in all likelihood, would have continued to decline. That would have increased the demand for workers. (When you divide the same number of work hours into a lower number of hours per person, you have more jobs.) That would have reduced the number of unemployed. Which of course would have reduced the cost of safety net benefits and increased tax revenue, especially employment tax revenue.
All of which would now be allowing public sector workers to retire earlier.
The whole point of progress is to provide better lives for all Americans, by allowing for things like shorter work weeks, one-worker couples, and the early retirements my friend railed against. The point of progress is not to have ordinary people work long hours until they’re 90 so a few at the top can live extravagantly.
I’ll have all this in mind when I’m figuring out how to vote on Prop 487. For those who live in Phoenix, I hope you will too.
I disagree that pension spiking is reprehensible. Many employees, myself included, were unable to take vacation time simply because the volume of work and staffing levels meant the work wouldn’t have gotten done if I were on vacation. Or, that my one week vacation meant I would have to work at least 65 hours a week to catch up once I returned. Added to that the forced furlough days, which happened after my retirement, meant that compensation was cut. Payout for vacation and sick leave, over a certain amount, bumps up one’s pension a little. The real shocker was when city managers retired and were paid for their unused vacation time. The City of Phoenix is a corporation with a huge budget. Contrast city managers pay with a private corporation of similar size and budget and you would see that the city manager salary is a bargain for taxpayers. Newspaper articles and proponents of proposition 487 would have you believe that city retirees enjoy a $100,000 retirement package. Executive level retirees may, but the average retirement pension is $29,000. A minor bump in my retirement for compensation of my unused vacation time doesn’t equate to a $100,000 annual pension.
I feel bad for you, Kim. The truth, however, doesn’t mean much in this little rumble. Like so many liberal issues, it is driven entirely by emotions and actual facts never get in the way of the sheer satisfaction of screaming made up “statistics” that punish the wealthy. And this go round, Kim, YOU are the “wealthy”.
I genuinely feel bad for you, Kim, because I know you worked hard for what you have and now people you thought were on your side are now turning on you to take it away. They are saying you were just lucky and hard work had nothing to do with it. You can’t defend yourself because the loudest voices will drown you out. You have my deepest sympathies for the losses you are about to incur.
Thank you for weighing in here with your update on measures taken by the City of Phoenix to curb the “spiking” practice, your other important facts and you personal experience as a pensioner.
Addressed to commenter “Kim”, of course.
Thanks for the very good economic analysis, Bob. I took a quick look at the initiative which was sponsored by a group opposed to pension plans. The salient point on this initiative is that it would convert the pension plan (defined benefit) to a 403(b) (a 401(k) plan for government workers) or a “defined contribution plan”. IMHO, these groups are fronts for Wall St. brokerage houses who relentlessly pursue capital assets. The scheme to “privatize” Social Security is another of these efforts. Enormous sums of money will be pocketed in commissions and fees as the pension is “converted” into a 403(b). The analysis of the pension which showcases “unfunded liabilities” is designed to spook the public, pensioners and the general public so they will support the change. There can be two reasons for a pension fund to go aground. First, poor management of the fund can cause administrators to lock in losses during Market downturns. Second, (and I believe primary) is that privatization of municipal services reduces the number of payroll participants in the plan. If you contract out city services you have laid off pension participants and hired non-pension participants. As far as “spiking” goes, it is a reprehensible practice that is reserved for police and fire department personnel and city executives. The group known as “classified” are not eligible to game the system in this way. The “spiking” issue is a bogeyman designed to raise the ire of rubes who gleefully get on board to sabotage workers in the service of Wall St.
The proponents of 487 claim that it will end pension spiking, which was the practice of including payouts for unused vacation and sick leave when calculating compensation to arrive at the retirement payout. The 2013 pension reforms enacted by city council did, in fact, end pension spiking. This practice, for the average city employee would increase their pension payout by a very moderate amount. The brouhaha over pension spiking was raised when then City Manager David Cavasos retired with a $199,000 payout for unused sick leave and vacation time. Councilman DiCiccio has gone on record opposing pension spiking, yet vote to approve the payout to David Cavasos. To be fair, the city charter and retirement system required that it be approved.
http://blogs.phoenixnewtimes.com/valleyfever/2012/12/sal_diciccio_phoenix_councilma.php
Here are a few links to help with your research. http://www.azcentral.com/community/phoenix/articles/20131018cavazos-pension-details-emerge.html
https://www.phoenix.gov/citymanagersite/Documents/105231.pdf
https://phoenix.gov/AGENCY/PHXCOPER/CurrentPAFR.pdf
The average city retirement is around $29,000, which for many retirees barely covers expenses when factoring in medical costs. My retirement (yes, I am a Phoenix retiree) income is sufficient however, my insurance costs are nearly $800 a month for one person. I am unable to afford adding my husband to my insurance because the cost would more than double. I am not eligible for medicare yet. I know quite a few retirees, none of home are building fabulous vacation homes, buying yachts, and traveling around the world multiple times a year.
Blasting city employee’s pensions because you don’t have one (not you, specifically) seems to be the goal of this purported reform.
Taken to its logical conclusion this reform could bankrupt the city. Defined pension benefits are a legal obligation the city must fund. If the pension system is converted to a 401K style with no addition funds being contributed to the pension fund, it will eventually run out of money. It works the same way social security works, employees contribute, the funds are invested, employees retire and draw a pension. Not all employees stay until retirement age and cash out their retirement early. Many employees, sadly, die before enjoying a retirement. Without continuing contributions the fund would dry up and the full legal obligation would have to be funded by the city, cutting into budgets for services such as police and public safety, road repairs, sewer services, parks, libraries, and other human service needs. Look at the evidence in Detroit.