There is much talk today of what many see as a troubling inequality of income and wealth. But there is little or no discussion of other, new and potentially troubling, inequalities that are arising. I have already talked about one of them, and it is being noticed a little: The old-style pensions that so many public employees have, compared to the various defined contribution and other retirement plans that the rest of us have. Public employees get a pension that is fixed to their highest several years of earnings and that often increases each year according to inflation. And in some jobs you can get the pension long before the rest of us even start thinking about social security.
It used to be that these pensions were justified on the grounds that public employees earned less than private employees and that private employees had pensions, too. Neither of those is true today. Public employees have caught up with, and in some cases passed, private employees in salary and benefits. And companies can’t afford pensions anymore. Private employees have defined contribution plans instead, if they have anything. The amounts that are contributed determine how much you have when you retire, but that total includes contributions for the low years, too, not just the high years. And once you retire? No increase except for the increases you get through your investments. And yet private employees are expected to pay, through their taxes, for the pensions of public employees.
There are a couple of other new inequalities I’d like to look at, too. Illinois’s new pension plan for state employees shows one of them. In an effort to try to do something about Illinois’s pension problem, or at least look like they were trying to do something, while getting as few people mad at them as possible, the Illinois legislature came up with the perfect idea: They would cut pensions for people who weren’t working for the state. Actually, it was a little different than that but it is pretty close. What they did was to establish new rules for pensions for new employees, for people who are hired in the future. Current employees would keep their current plan, but employees hired in the future would get a new plan. They would have to work longer before they could get the maximum pension, and their payment would be calculated on the average of their last eight years, instead of their last four years.
This is an attempt to deal with the problem of pension plans that states can’t afford, but I wonder how people are going to feel about it in ten or fifteen years. You will have two employees working right next to each other, doing the same job. One was hired just before the new plan came into effect, the other right after. That means one of them will get to retire on full pension seven or eight years before the other one. And not only will the first one get to retire earlier, but he or she will get a higher pension, too. Where is the fairness in that? Where is the equality?
I suppose one answer could be that the second person knew what he or she was getting into when they took the job. But is that really an answer? If that is true, why not say that, if a woman or a minority is willing to take a job for less pay than a white male, and they know it upfront, we shouldn’t complain? Obviously, that is not acceptable, and it is different because inequality based on sex or race is illegal. But what about the moral position? Is it ultimately fair to treat two people so very differently just because they were hired a month or two apart, years and years ago?
In some cases we are told that state constitutions won’t allow pensions to be cut. I can understand that for pensions already earned, but when a state constitution prohibits us from cutting the amount of pensions that have not yet been earned, then the constitution needs to be changed. Or, thirty years from now, somebody else can explain to the person hired just a couple of months after his or her co-worker, why they have to work years longer for a smaller pension.
Next. We have had, for years, agreements whereby new workers in plants would earn a significantly lower wage than the current workers. Management needed lower wage costs, and unions were sometimes willing to do this because at least it did not hurt the current employees (and the union’s current members). But an article in The Washington Post described a new variation on this theme:
“Last week, General Motors and the United Auto Workers announced agreement on a new two-tier wage structure that would allow the automaker to produce its next-generation subcompact car in Michigan rather than in South Korea. Sixty percent of the workers at the Orion plant, those with the most seniority, would continue to be paid $28 per hour, while the least senior 40 percent would have to settle for $14. For the company, that works out to an overall 20 percent reduction in wages.”
Wow. Previously, it was new employees who would get the lower wages. In this case, it appears that you are dealing just with current employees – or current employees on lay-off. And management said to the workers that, if 60% (the 60% with the most seniority) agreed to let management cut the wages of the other 40%, then the 60% could keep their jobs (or have their jobs back) at their old wage. Instead of everybody agreeing to cut their wages by 20%, from $28 an hour down to $22.40, a majority is agreeing to a plan which keeps their wages the same and forces those with less seniority to take a 50% cut. One wonders how many of those Chilean miners would have made it to the surface if that had been their approach.
One wonders about management, too. They are setting up a situation that, at least in my opinion, can’t be good for employee morale. Management plus 60% of the workers agreeing that the other 40% of the workers should take a 50% pay cut? Where is the fairness in that? Where is the equality?
I don’t know. The only thing that is clear is that these new inequalities will be raising some very interesting, and difficult, questions over the next few years and more.
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