The U.S. economy is chugging toward a new record for longest expansion, and middle-class families, finally, are seeing decent wage gains. Yet our political leaders, as if stuck in a time warp, keep peddling a bleak narrative of economic victimhood and defeatism. 2020 is Democrats’ chance to channel and implement radically pragmatic, empowering, and innovative economic ideas.
On the other side, the Demsocs want Democrats to reject free enterprise in favor of a left-wing version of Trump’s splenetic and divisive populism. Instead, Democrats should channel the spirit of FDR and present voters with a hope-inspiring plan for how a reinvigorated private sector and government can work together to restore shared prosperity.
When it comes to health care, Americans could not face a clearer choice. Progressives believe all Americans should have access to affordable, high-quality health coverage. Republicans want to kill the Affordable Care Act – thereby depriving an additional 17 million Americans of insurance – and have no credible plan to replace it. Too often, however, the health care debate focuses on how to pay for health insurance rather than how to deliver better health care.
PPI believes producing better outcomes at lower prices must be the first principle of health care reform, and share a vision for health care reform in Des Moines, Iowa on Friday, April 12th.
In Washington, D.C., D.C. Bilingual Public Charter School recently celebrated its 15thbirthday by throwing a quinceañera for staff, students and families. In the traditional fashion, this coming-of-age Latin American celebration involved a lot of food, music and dancing.
The school had good reason to celebrate. The Public Charter School Board, D.C.’s charter school authorizer, ranked D.C. Bilingual as one of the top three charter elementaries in the city, with a top score in academic growth.
The dual-language immersion school also ranked first for student achievement among charter elementaries whose students were more than 40% English language learners and first among those with more than 16% special needs students. Not surprisingly, thousands of students are on its waitlist.
D.C. Bilingual’s 15th birthday is a particularly special occasion because just four years ago, it nearly closed due to poor fiscal management.
The global App Economy started in 2007, when Apple introduced the first iPhone. Apple’s opening of the App Store in 2008 – followed by Android Market (later renamed Google Play), Blackberry App World (later renamed Blackberry World) and other app stores – created a way for developers to write mobile applications (“apps”) that could run on smartphones anywhere. These apps became an essential part of daily life for most people – and an indispensable tool for business.
The rise of the App Economy has unleashed an abundance of “app developers.” These workers create, maintain, and support an ever-expanding range of apps. Mobile games are the most visible part of the App Economy, but certainly not the only component of it. Mobile apps include such key uses as shopping applications, home banking programs, smart automobile interfaces, healthcare apps for monitoring patients, and sophisticated apps for running manufacturing plants.
The extent of the App Economy workforce in a country reflects how quickly that country is embracing the next stage of the Information Revolution, which depends on mobile technology to digitize physical industries such as manufacturing and healthcare.
However, official economics statistics do not provide an easy way to measure the size of the App Economy. In response, PPI developed a methodology based on a systematic analysis of online job postings. In particular, we look for job postings that call for app-related skills such as knowledge of the iOS, Android, or Blackberry operating systems (though support for the Blackberry operating system is currently scheduled to cease at the end of 2019).
Based on this methodology, in this paper we provide an employment analysis of Canada’s App Economy. We provide an estimate of the total number of App Economy jobs; a breakdown of the jobs among iOS, Android, and Blackberry ecosystems; and an estimate of App Economy jobs by province. In particular, we estimate that Canada has 262,000 App Economy workers as of November 2018.
THE DEFINITION OF AN APP ECONOMY JOB
For this study, a worker is in the App Economy if he or she is in:
An IT-related job that uses App Economy skills – the ability to develop, maintain, or support mobile applications. We will call this a “core” App Economy job. Core App Economy jobs include app developers; software engineers whose work requires knowledge of mobile applications; security engineers who help keep mobile apps safe from being hacked; and help desk workers who support use of mobile apps.
A non-IT job (such as human resources, marketing, or sales) that supports core App Economy jobs in the same enterprise. We will call this an “indirect” App Economy job.
A job in the local economy that is supported by the income flowing to core and indirect App Economy workers. These “spillover” jobs include local retail and restaurant jobs, construction jobs, and all the other necessary services.
To estimate the number of core App Economy jobs, we use a multi-step procedure based on data from the universe of online job postings. Then the number of indirect and spillover jobs is estimated using a conservative job multiplier. The methodology is described in detail in previous research (2).
CANADA’S APP ECONOMY
Table 1 presents two pieces of information. First, we estimate Canada has 262,000 App Economy jobs as of November 2018. We also break down the total by ecosystem, finding the iOS ecosystem includes 200,000 jobs, the Android ecosystem includes 199,000 jobs, and the Blackberry ecosystem includes 27,000 jobs. The three sum to more than the total because many App Economy jobs belong to multiple ecosystems.
Using a different methodology, the Information and Communications Technology Council (ICTC) estimated total App Economy and related employment in Canada at 51,700 in its 2012 report, “Employment, Investment, and Revenue in the Canadian App Economy” (3). We infer from this that Canadian App Economy jobs roughly quintupled from 2012 to today. That’s consistent with what we have seen for the United States over the same time period.
Now we compare Canada to some of its industrialized peers. In absolute numbers, Canada’s App Economy is relatively small. But, when we adjust for country size, Canada is doing very well. App intensity represents the number of App Economy jobs divided by total employment, where the latter figure is drawn from the International Labor Organization for standardization.
Canada’s app intensity of 1.4 percent ranks ahead of the United States, the United Kingdom, Germany, and Japan – and only slightly behind Korea.
Canada’s relative success can be attributed in part to its prioritization of digital connectivity and skills. Digital Canada 150 aimed to create jobs and economic growth by, among other things, connecting rural areas to high-speed Internet and investing in Canadian businesses and consumers through technology integration and skills development (4). Accomplishments include extending high-speed Internet to an additional 356,000 households, completing multiple spectrum auctions to improve wireless service, investing an additional $200 million to help entrepreneurs learn about IT technologies, and supporting up to 3,000 internships in high-demand fields. These types of policies help increase access to and employment in the App Economy.
GEOGRAPHIC DISTRIBUTION
Our methodology also allows us to look at the geographic distribution of App Economy jobs by province – breaking out the different ecosystems. If we estimate fewer than 500 jobs in a region, we don’t report the number. Not surprisingly, Ontario leads in App Economy jobs, followed by Quebec and British Columbia. Also not surprisingly, the Blackberry ecosystem jobs are concentrated in the company’s home province of Ontario.
EXAMPLES OF APP ECONOMY JOBS
The Canadian App Economy is vibrant across a wide range of industries and geographies. As of October 2018, digital studio Adfab was searching for a front-end developer in Montréal with App Economy skills. Mobile device solutions firm Asset Science was seeking a mobile application developer with iOS and Android experience. Mango Software Inc. was looking for an Android developer in Montréal. IT firm CORE Resources was hiring a senior software engineer with Android experience in Mississauga.
Looking at Ontario in particular, as of October 2018, mapping software company Avenza Systems Inc. was searching for a full stack developer with experience in iOS and Android app development in Toronto. Life insurance company Manulife was seeking a senior Android developer in Kitchener. Digital billing company Sensibill was looking for a software developer with Android and iOS experience in Toronto. Household labor marketplace AskforTask was hiring a senior Android developer in Toronto.
As of October 2018, commercial contractor Flynn Group of Companies was hiring a mobile iOS developer in Mississauga, Ontario. Airline software firm NAVBLUE was seeking a software developer in Waterloo, Ontario. Fintech company Borrowell was looking for a React Native developer with experience building iOS and Android apps in Toronto. Consulting firm Neel-Tech Inc. was searching for an iOS developer in Mississauga.
In Quebec, as of October 2018, drone company Microdrones was hiring a senior Android developer in Vaudreuil-Dorion. Event app company Greencopper was seeking a mobile developer with iOS and Android experience in Montréal. Mobile payment company Mobeewave was searching for a mobile Android developer in Montréal. IT firm SolidByte was looking for a programmer with knowledge of iOS and Android programming in Montréal.
British Columbia has plenty of App Economy activity as well. As of October 2018, payment technology firm Alpha Pay was looking for an iOS or Android mobile developer in Richmond, British Columbia. Financial cloud company Global Relay was hiring a senior Android developer in Vancouver. Shopping app company StylePixi was seeking an iOS developer in Vancouver. Digital development firm Atimi was searching for a senior native mobile developer with iOS experience in Vancouver.
Considering Alberta, as of October 2018, GPS company Trimble Inc. was hiring a software engineer with iOS and Android experience in Calgary. Digital production firm Division [1] Media Corp was looking for a mobile app developer in Edmonton. The University of Alberta was searching for a lead software engineer with experience in Android and iOS in Edmonton. Aviation company Air Trail was seeking an intermediate iOS developer in Edmonton.
And the App Economy has spread even further. In Winnipeg, Manitoba, Pollard Banknote Limited – a leading supplier of instant lottery tickets – was hiring a senior applications developer with experience in mobile app development. In Saskatoon, Saskatchewan, Affinity Credit Union was searching for an iOS developer. In Fredericton, New Brunswick, Welltrack – a company that provides a suite of interactive self-help tools – was looking for a mobile developer. And in Bedford, Nova Scotia, IBM’s Client Innovation Centre was hiring a mobile application developer for iOS and Android.
Canadians are developing apps for the rest of the world, not only Canada. One well-known Canadian app that has spread globally is the messaging mobile app Kik, which was created in 2009 by University of Waterloo students and has 300 million users today around the world. Another example: Public transit app Transit was developed in Montréal in 2012. Today, Transit provides real-time crowdsourced data to users in 175 cities across the United States, Canada, and Europe. And well-regarded password manager 1Password, which was developed by Toronto-based AgileBits, has a global user base.
POLICY DEVELOPMENTS
As shown in this report, the Canadian App Economy has fared better in terms of scale than some of its industrial peers. Its growth since the introduction of the iPhone over a decade ago (and app intensity today) demonstrate the country is embracing the digital age and is well positioned to be a global leader. A few reforms could catalyze the next round of growth.
Unlike in the United States, where a patchwork of laws govern privacy, one law applies at the federal level in Canada – the Personal Information Protection and Electronic Documents Act (PIPEDA). But, while PIPEDA covers all health data, personal information, and employee information in one comprehensive structure, if a province has passed legislation deemed “substantially similar,” the province’s law prevails. For example, Alberta, British Columbia, and Quebec have laws in place that have been deemed substantially similar, thus serving as the prevailing law. But, as PPI has previously recognized, cross-border data flows means multiple regulatory regimes can be burdensome, unclear, and even contradictory for app developers – slowing the digitization of physical industries and economic growth.
The Canadian government began a review of its Broadcasting and Telecommunications Acts in 2018, with the intent of modernizing its legislative framework after the invention of new technology – particularly streaming services otherwise known as “over-the-top” (OTT) providers (5). OTT providers are those companies delivering video streaming, voice calls, or messaging via the Internet, without requiring users to subscribe to a traditional cable, satellite, or phone service. Policymakers should be cautious of taking a heavy-handed regulatory approach that would slow growth and, instead, should opt for a balanced approach that both promotes competition without jeopardizing the cost savings this technology has afforded consumers.
Lastly, according to the Information and Communications Technology Council’s latest ICT Labor Outlook, Canada will need an additional 216,000 ICT professionals by 2021 (6). Programs designed to incorporate and lower the cost of ICT skills development could help close this shortage. To that end, in their recent report on innovation and competitiveness, Canada’s Economic Strategy Tables recommend expanding on existing work-integrated learning opportunities, adopting portable competency-based credentials, and consolidating and streamlining skills and talent programming (7).
CONCLUSION
Canada has a vibrant App Economy that spans the iOS, Android, and Blackberry ecosystems. Compared to most of its industrialized peers, Canada’s app intensity is high, and represents a wide diversity of locations and jobs. Policy reforms such as streamlining privacy laws, taking a balanced regulatory approach when it comes to OTT providers, and closing the skills gap could help catalyze future growth.
1) PPI has issued App Economy reports on the United States, Japan, Vietnam, Indonesia, Korea, Thailand, Mexico, Brazil, Colombia, Argentina, Chile, and most of the countries of the European Union, including the United Kingdom, Germany, and France. Most notably, we have not yet issued reports on China and India.
2) A description of the methodology can be found in the appendix to Michael Mandel and Elliott Long, “The App Economy in Europe: Leading Countries and Cities, 2017,” Progressive Policy Institute, October 2017. https://www.progressivepolicy.org/wp-content/uploads/2017/10/PPI_EuropeAppEconomy_17.pdf
3) “Employment, Investment, and Revenue in the Canadian App Economy,” October 2012, Information and Communications Technology Council. https://www.ictc-ctic.ca/wp-content/uploads/2012/10/ICTC_AppsEconomy_Oct_2012.pdf
4) “Digital Canada 150,” Industry Canada. https://www.ic.gc.ca/eic/site/028.nsf/eng/home#item5
5) Canadian Heritage, “Government of Canada launches review of Telecommunications and Broadcasting Acts,” June 5, 2018. https://www.newswire.ca/news-releases/government-of-canada-launches-review-of-telecommunications-and-broadcasting-acts-684595661.html
6) “The Next Talent Wave: Navigating the Digital Shift – Outlook 2021,” Information and Communications Technology Council. https://www.ictc-ctic.ca/wp-content/uploads/2017/07/ICTC_Outlook-2021-ENG-Final.pdf
7) “The Innovation and Competitiveness Imperative Seizing Opportunities for Growth,” Canada’s Economic Strategy Tables. https://www.ic.gc.ca/eic/site/098.nsf/vwapj/ISEDC_SeizingOpportunites.pdf/$file/ISEDC_SeizingOpportunites.pdf
WASHINGTON— The Progressive Policy Institute (PPI) today released an important update to the 2017 report, “The Rise of the Australian App Economy”. Our latest report shows the Australian App Economy has room to grow, and a broad base of opportunity continues to stay open for developers, entrepreneurs, and others who want to enter the economy and expand innovation. Based on our methodology that combines government occupational figures with comprehensive data on posted job openings, we estimate that Australia has 136,000 App Economy jobs as of January 2019, up from 113,000 in March 2017.
It’s not an exaggeration to speak of a global App Economy, with an army of app developers writing mobile applications for billions of users. For businesses, apps have become the essential front door for their customers, providing access to everything from shopping to customer service to banking services to entertainment to information to essential health knowledge. Additionally, according to our report, a 20 percent gain in App Economy jobs is partly driven by an increase in the overall number of ICT professionals, as reported by the Australian Bureau of Statistics, combined with a rising share of IT job openings that require App Economy skills, such as knowledge of iOS or Android.3
The growth of the App Economy is particularly important for Australia, because mobile apps can be exported globally. Australian-based apps such as Stashd, Procreate, iAuditor, Canva, and Invoice2go have significant global user bases. These revenue-generating global exports may be contributing to the rapid rise of Australian exports of information services in recent years.
Apple introduced the first iPhone in 2007 just as the Global Recession was about to begin. While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones and the wave of smartphones that followed provided a rare force for growth.
The smartphone also triggered a new era for job creation around the world. Apple opened the App Store in 2008, followed by Android Market (now Google Play) and other app stores. This unexpected “side-effect” of the smartphone quickly took on a life of its own, creating a whole new class of iOS and Android developers who were writing mobile applications that could run on smartphones anywhere.
It’s not an exaggeration to speak of a global App Economy, with an army of app developers writing mobile applications for billions of users. For businesses, apps have become the essential front door for their customers, providing access to everything from shopping to customer service to banking services to entertainment to information to essential health knowledge.
What’s more, the App Economy still has room to grow. Internet of Things (IoT) mobile connections are estimated to reach 4.1 billion by 2024, increasing at an annual growth rate of 27 percent.2 Consumers and businesses are increasingly interfacing with physical objects and processes through their smartphones and tablets via the IoT. Companies and individuals are utilizing apps to control everyday items and processes such as smart homes, e-commerce shopping, manufacturing analytics, smart. This report updates our 2017 paper, “The Rise of the Australian App Economy”.
Despite growth in gross domestic product, corporate profits, and the stock market over the past several years, American workers today capture a historically low share of those economic benefits. The labor share of income today is several percentage points lower than the postwar average and, after adjusting for inflation, median compensation today is only about 10 percent higher than in the mid-1970s.
More American workers would benefit directly from economic growth if they had an ownership stake in the companies where they work. To help achieve this goal, Congress should encourage more companies to adopt employee stock ownership plans (ESOPs), which provide opportunities for workers to participate in a company’s profits and share in its growth. Firms with ESOPs enjoy higher productivity growth and stronger resilience during downturns, and employees enjoy a direct stake in that growth. ESOP firms also generate higher levels of retirement savings for workers, thereby addressing another crucial priority for American workers.
While the tax code encourages employee ownership through certain policy incentives, not all businesses benefit equally from these measures. Expanding ESOP tax incentives for S corporations, a large and growing share of U.S. companies, can help ensure that more Americans have access to the economic benefits that ESOPs provide.
THE CHALLENGE: AMERICAN WORKERS AREN’T FULLY BENEFITING FROM ECONOMIC GROWTH
In the last two months of 2018, average hourly earnings for American workers rose by three percent (year-over-year). This was the first time that nominal wage growth had broken the three percent mark in nearly 10 years (1). Yet on an inflation-adjusted basis, the real hourly wages of American have been more or less flat for 40 years. Today, they’re only about 10 percent higher than in the 1970’s (2).
Wage stagnation fuels economic anxiety, as workers and their families find it difficult to pay bills and cover the basic costs of living. Partly as a result, Americans take on debt: aggregate household debt reached a new peak in September 2018, surpassing the previous high (in 2008), of $12.68 trillion (3). More and more people feel like they’re running faster but not getting ahead, and loading up on debt just to stay in place. This exacerbates political anger, as Americans get frustrated with government’s apparent inability to help them escape this vicious cycle.
Workers’ share of economic growth is historically low
From the late 1940s through the 1980s, the share of economic output accruing to workers as compensation was fairly constant at between 61 and 64 percent but has since fallen to between 56 and 58 percent (4). That translates into billions of dollars of economic value that would have formerly gone to workers. Meanwhile, GDP and corporate profits have grown strongly in recent years–thanks in part to corporate tax cuts–with the latter even setting new records in 2018 (5).
Wage stagnation has worsened workers’ retirement security
One especially worrisome consequence of the lack of wage growth is that workers have less capacity to save. In particular, Americans face a crisis in retirement security: nearly two-thirds of working-age Americans have no retirement assets of any kind (6).
The median amount saved for retirement is, in fact, $0; if only workers with retirement savings are counted, the median is only $40,000 (7). Just 51 percent of workers have access to an employer-provided savings plan, such as a 401(k) (8). Small business employees have the least access: according to some estimates, less than 20 percent of businesses with fewer than 50 employees offer retirement plans (9).
THE GOAL: PROVIDE MORE AMERICAN WORKERS WITH A CHANCE TO SHARE IN THE PROFITS AND GROWTH OF THEIR EMPLOYERS
How can workers get a bigger share of the economic growth they help create, along with stronger financial security? One way to achieve this goal could be to impose rigid top-down mandates on companies requiring higher wages or benefits, but this approach invites resistance, potentially stifles growth, and may not achieve the intended aims of improving workers’ economic security. A better approach is to encourage more companies to provide workers with an ownership stake in their employers, such as through an employee stock ownership plan (ESOP).
ESOPs are a proven way to help workers participate in business growth while generating a host of social and economic benefits, including greater opportunities for economic security. Research has consistently found that companies with ESOPs enjoy stronger growth in productivity and profits than other firms, so employees get a larger share of a faster-growing pie (10). The wage distribution at employee-owned firms is tighter than in non-ESOP companies, meaning that greater employee ownership can help put at least a small dent in income inequality (11). ESOP companies have also demonstrated stronger economic resilience and job stability than other firms, particularly during economic downturns (12).
Employee-owned companies also offer greater retirement security. Critics of ESOPs have raised the possibility of a lack of diversification in employees’ retirement holdings if a large share is concentrated in their company’s shares. Yet research has established that ESOP companies are actually more likely to also set up diversified 401(k) accounts as secondary retirement plans (13). And, ESOPs are legally required to help plan participants diversify their investments.
While ESOPs might have more public visibility in the context of large employers, more and more small businesses are discovering the benefits of employee ownership as well. Today, roughly 10 percent of private-sector employees in the United States work in ESOP companies (14). The fastest growth in ESOP adoption has been among S corporations, which are also a fast-growing form of business organization (15). The ESOP model is promising for employers of all sizes, boosting the ability of their employees to save for retirement. As the Chief Financial Officer of the engineering and construction firm MMC Contractors in Kansas City told PPI: “There’s no way [our employees] would have accrued the type of retirement benefits they have but for the ESOP. Some of them will have a nicer standard of living when they retire than they do today” (16).
THE PLAN: EQUALIZE TAX TREATMENT FOR EMPLOYEE-OWNED BUSINESSES TO ENCOURAGE WIDER SPREAD OF THIS MODEL
Originally authorized in 1974, policy incentives have expanded to encourage ESOP adoption by more companies (17). Just last year, the 115th Congress passed the Main Street Employee Ownership Act which, among other things, made employee-owned businesses eligible for Small Business Administration loan guarantees (18). States have also taken action to encourage more employee ownership: in 2017, bipartisan legislation passed in Colorado establishing a new office and revolving loan fund to support transitions to ESOPs (19).
Yet more can and should be done to incentivize the use of ESOPs–in particular, pass-through S corporations should have access to all the ESOP tax benefits that accrue to traditional C corporations. While they now represent a small fraction of U.S. companies, C corporations employ nearly half the workforce because they are typically the entity of choice for large companies and are subject to the corporate income tax.
An S corporation, on the other hand, does not pay the corporate income tax; rather, income is “passed through” to shareholders and taxed as ordinary income. S corporations are now the second-most common form of business organization in the United States (after sole proprietorships) (20). There are two-thirds more S corporations than C corporations, and S corporations have grown more rapidly in number and income over the past two decades. In fact, they have been the fastest-growing business entity since the 1980s (21).
Both types of corporations may sponsor an ESOP, but C corporations enjoy an ESOP tax benefit not currently available to S corporations. When a company transitions to an ESOP, its current shareholders sell their shares to the ESOP, which in turn distributes shares to employees. The difference is in the tax treatment of the profits from the sale of those shares to the ESOP. Under section 1042 of the Internal Revenue Code, the owners of a C corporation who choose to sell stock to an ESOP can put off the tax liability on the gains for that sale (22). But, when owners of an S corporation sell stock (or the entire company) to an ESOP, gains from the sale are taxed immediately.
This erects a barrier to ESOP adoption by S corporations and matters especially for business owners nearing retirement. In the United States, 57.5 percent of the owners of employer firms (that is, those with employees) are between the ages of 45 and 64 (23). Another 19.6 percent are over age 65, and more than half of the youngest companies are owned by individuals over 45 (24). When asked about their exit strategy, selling to employees is low in the list–14 percent say they will simply walk away, and nearly one-third have no exit strategy. Alarmingly, the businesses whose owners have no exit strategy employ the largest number of people (25). Facilitating the sale of S corporations to ESOPs will give business owners a stronger exit strategy option, and help businesses stay in their communities.
Extending to S corporations the same tax benefit that C corporations receive when adopting an ESOP will create broader awareness of this option for businesses, spreading the benefits of ESOPs to more people.
Congress should extend IRC 1042 to S corporations. This will continue to expand the benefits of ESOPs, not least because S corporations are much more numerous than C corporations. Additionally, S corporations with ESOPs (known as S-ESOPs) have been shown to have high resilience in recessions, higher wages than other firms, and stronger retirement holdings for employees (26). S-ESOPs are also more likely to offer additional retirement plans than other businesses are to offer any retirement plan. Uneven tax treatment potentially denies these benefits to millions of American workers and business owners.
Such a change was proposed in bipartisan legislation introduced in the Senate in January 2019 at the beginning of the 116th Congress: the Promotion and Expansion of Private Employee Ownership Act would allow S corporations to defer tax upon transition to an ESOP. Sponsored by Sens. Pat Robers (R-KS) and Ben Cardin (D-MD), the bill has attracted 24 co-sponsors from both sides of the aisle. In the House, in 2017, similar legislation was introduced by Reps. Dave Reichert (R-WA) and Ron Kind (D-WI).
American workers have endured wage stagnation for too long. They deserve a large share of the growth they help create. ESOPs help deliver that, and they help drive greater business productivity in the process. At the same time, ESOPs increase retirement security, and making their adoption easier will be good for business owners, too.
ENDNOTES
Economic Policy Institute, Nominal Wage Tracker (based on data from Bureau of Labor Statistics) https://www.epi.org/nominal-wage-tracker/
Drew Desilver, “For most U.S. workers, real wages have barely budged in decades,” Pew Research Center, August 7, 2018 https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, 2018:Q3, November 2018 https://www.newyorkfed.org/microeconomics/hhdc.html.
Michael D. Glandrea and Shawn A. Sprague, “Estimating the U.S. labor share,” Monthly Labor Review, February 2017 https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-labor-share.htm.
Robert Hughes, “Corporate Profits Hit a New Record as GDP Growth is Revised Higher,” American Institute for Economic Research, August 29, 2018 https://aier.org/article/corporate-profits-hit-new-record-gdp-growth-revised-higher.
Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
John Rekenthaler, Jake Spiegel, and Aron Szapiro, “Small Employers, Big Responsibilities: How Policymakers Can Address the Small Retirement Plan Problem,” Morningstar, November 2017
Steven F. Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
Jared Bernstein, “Employee Ownership, ESOPs, Wealth, and Wages,” Employee-Owned S Corporations of America (ESCA), January 2016
Phillip Swagel and Rober Carroll, “Resilience and Retirement Security: Performance of S-ESOP Firms in the Recession,” McDonough School of Business, Georgetown University, March 2010; Steven F Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
Jared Bernstein, “Employee Ownership, ESOPs, Wealth, and Wages,” Employee-Owned S Corporations of America (ESCA), January 2016
Alex Brill, “An Analysis of the Benefits S ESOPs Provide the U.S. Economy and Workforce,” Matrix Global Advisors, July 2012
Interview with Dave Cimpl, Chief Financial Officer at MMC Contractors. Cimpl is also the chairman of ESCA
Steven F. Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
Steve Dubb, “Historic Federal Law Gives Employee-Owned Businesses Access to SBA Loans,” Nonprofit Quarterly, August 14, 2018 https://nonprofitquarterly.org/2018/08/14/employee-owned-businesses-sba-loans/
HB17-1214, “Encourage Employee Ownership of Existing Small Business,” https://leg.colorado.gov/bills/hb17-1214
Scott Greenberg, “Pass-Through Businesses: Data and Policy,” Tax Foundation, January 17, 2017, at https://taxfoundation.org/pass-through-business-data-and-policy/; Aaron Krupkin and Adam Looney, “9 facts about pass-through businesses,” Brookings Institution, May 15, 2017, https://www.broookings.edu/research /9-facts-about-pass-through-businesses/#fact4
Richard Prisinzano, Jason DeBAcker, John Kitchen, Matthew Knittel, Susan Nelson, and James Pearce, “Methodology to Identify Small Businesses,” Technical Paper 4 (Update), Office of Tax Analysis, Department of Treasury, November 2016, https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/TP4-Update.pdf
To qualify for deferral, the proceeds of a section 1042 sale must be reinvested in “qualified replacement property” (QRP) defined as stock in another business. Once the QRP is sold, capital gains taxes apply
Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
Phillip Swagel and Rober Carroll, “Resilience and Retirement Security: Performance of S-ESOP Firms in the Recession,” McDonough School of Business, Georgetown University, March 2010
EY, “Contributions of S ESOPs to participants’ retirement security,” Paper prepared for the Employee-Owned S Corporations of America, March 2015
On Donald Trump’s watch, America is losing what is probably the most important new manufacturing opportunity in the world–the global race to produce affordable electric vehicles that people want to drive. The United States currently accounts for just 20 percent of global electric vehicle production, far behind China.
Jumpstarting U.S. production and purchase of Electric Vehicles (EVs) would produce an unprecedented set of benefits, including cleaner air and a reduction in greenhouse gas emissions; a resurgence of the U.S. auto industry and American manufacturing; the creation of millions of new, good, middle class manufacturing jobs; lower consumer costs for owning and operating vehicles; and the elimination of U.S. dependence on foreign oil. U.S. automakers are already moving toward EVs, but the pace of this transition is lagging behind our foreign competitors. A dramatic expansion of tax credits for EV purchases could go a long way toward boosting the U.S. EV industry as part of a broader agenda to promote the evolution of the transportation industry away from carbon-intensive fuels.
THE CHALLENGE: THE US ELECTRIC VEHICLE INDUSTRY IS FALLING BEHIND ITS GLOBAL COMPETITORS
Leading experts predict (1) that electric vehicles will be the key to global auto industry growth over the next years and decade—from about 1.1 million EVs last year to 30 million by 2030. Ominously, however, China is already dominating (2) the emerging EV market, with about 40 percent of global production, and plans to expand even more rapidly over the next few years. The United States, on the other hand, currently produces only about 20 percent of the world’s EVs and is moving too slowly on the EV transition.
Electric vehicles account for just 0.3 percent of the total U.S. fleet
U.S. EV production is small – fewer than 200,000 were manufactured (3) here last year, accounting for less than 0.3 percent of the total U.S. fleet. Production is also not growing nearly fast enough. Out of the roughly 350 million vehicles on the road today, a little more than 1 million are electric.
Electric vehicles are too pricey for most consumers or are not offered in models consumers want
Most Americans cannot afford more expensive EVs—like the high-end Tesla models—that have dominated (4) the market so far. For example, two of the top three selling models in 2017 cost well over $80,000 a vehicle. The second selling model, the more affordable Chevy Bolt (still more than $36,000), sold only about 25,000 units in 2017. And the EVs that are affordable are not available in the models—especially SUVs, minivans and light trucks—that most consumers prefer, and that provide higher profit margins for automakers. As a consequence, fewer than 2 percent of the more than 17.3 million new American car purchases in 2017 were of plug-in hybrid electric vehicles or battery-electric vehicles.
THE GOAL: MAKE AMERICA THE GLOBAL LEADER IN EV MANUFACTURING, PRODUCTION, AND DEPLOYMENT
The aim of America’s EV policy should be to quickly gain by far the largest part of the global EV market penetration by reaching the mass market of average domestic and international consumers of high volume models. Doing this can rapidly help lower consumer costs, cut emissions, end oil imports, reduce pollution, and prompt a resurgence of domestic auto manufacturing. Specifically, the United States should set a goal of producing more than 50 percent of the global EV production—or 15 million vehicles a year–by 2030.
Fifteen years ago, the U.S. allowed Chinese subsidies to displace U.S manufacturers and dominate the global race for solar panel manufacturing—and today China owns more than (5) 60 percent of the global market. America cannot allow that to happen with EVs, which under any scenario will be an essential part of the next generation of global clean energy technology and auto manufacturing.
Electric Vehicles at scale will bring America remarkable, one of a kind benefits. For instance, EVs can dramatically reduce air pollution, which is among the leading causes of lung disease, lower life expectancy and asthma among Americans. Transitioning to EVs will also reduce America’s largest source of greenhouse gas emissions—transportation. EVs have less than half the GHG emissions of gasoline-powered cars, and are getting even cleaner every year (6). An average U.S. EV today has greenhouse gas emissions equivalent to a gasoline car getting 80 MPG (7). EVs will only get higher gasoline equivalent mileage over time.
At the same time, EVs will save U.S. consumers money because of much lower fuel and vehicle operating costs (8). The total cost of owning and operating an EV is already cheaper than oil-fueled cars (9). The U.S. average price per gallon of gasoline is $2.50 while it costs less than half that–$1.10 per eGallon–to charge an electric car, according to the U.S. Department of Energy (10).
Finally, widescale deployment of EVs will also help end America’s reliance on imported oil. Today, the US imports about 20 percent of its oil, including from non-Democratic petro-states like Saudi Arabia and Venezuela.
Gaining American global leadership in one of the world’s the fastest growing major manufacturing sectors will provide the United States a huge economic boost and create an export market for U.S. EVs around the world. Boosting the American EV industry will also bring ancillary benefits to the nation’s overall efforts for a clean-energy transition. For example, large scale EV deployment will enable the creation of a huge distributed network of electricity storage units—that is, car batteries themselves plugged into the electricity grid, especially at night. This network will allow greater electricity storage at scale that in turn will allow major electric grids around the country to integrate higher percentages of clean solar and wind energy. In essence, electrifying transport will therefore help reduce emissions from both the transport and electricity sectors, the two highest emitters in the U.S. economy.
THE SOLUTION: DRAMATICALLY EXPAND AND IMPROVE TAX CREDITS FOR CONSUMER PURCHASES OF ELECTRIC VEHICLES
There is no doubt America has the capacity to lead the EV revolution. America has unrivaled technical expertise, a skilled work force, and innovative entrepreneurs and investors (11). But current half-hearted U.S. tax policies on EVs are not coming anywhere near immediately seizing this massive opportunity as other countries threaten to pull so far ahead that we cannot catch up.
One powerful way to speed the revolution is through more robust tax incentives that can boost the pace of technological evolution of U.S. companies and adoption of EVs by the transportation sector as a whole.
For example, existing federal tax credits are not nearly enough to drive the change and scale of EVs that are needed to gain full benefits. The current federal tax credit system, while well intended, has so far been ineffective. It offers $7,500 for the purchase of any all-electric vehicle, but caps the credit at 200,000 vehicles per manufacture, with rapidly reduced credit amounts after that threshold. Several Members of Congress have proposed (12) extending the existing $7,500 credit with no cap per manufacturer, but do not propose changing the overall structure of the credit. These changes are highly unlikely to drive large rapid electrification of the US fleet.
What Congress should do instead is provide American consumers with much more generous tax credits for the purchase of more affordable EV models that Americans actually want and can afford, including minivans, SUVs, and light trucks.
In particular, Congress should provide a consumer tax credit that is the more generous for cheaper vehicles than for expensive ones, thereby encouraging the sale of more affordable electric vehicles. For instance, this credit could be structured on a graduated scale as follows: $7,500 for vehicles priced under $35,000; $5,000 for those under $50,000; $2,500 for those under $75,000; $1,500 under $100,000.
Opinion polls find that nearly three quarters of consumers say a tax credit would affect their decision to buy an EV, and 63 percent say a credit is an important measure to support EV adoption. However, the tax credit must be applicable to cars Americans want to buy to achieve volume and scale (13).
In addition to the graduated tax credit described above, Congress should also provide an extra consumer tax incentives for “trading-in” low mileage “gas guzzlers” for the purchase of an EV to quickly turn over fleet and eliminate the most inefficient, polluting vehicles. Moreover, Congress should provide manufacturer tax credits within each class of vehicle, including SUVs, minivans and light trucks, to drive rapid production and demand for popular models. Finally, to encourage rapid growth and large-scale production, the manufacturer tax credit should become greater for production over a certain high total threshold of vehicles produced.
The tax credits described above can go a long way toward speeding the nation’s transition to EVs while boosting U.S. EV leadership. Nevertheless, these tax credits cannot be effective if offered alone. Rather, they must be offered in concert with a robust, comprehensive agenda to accelerate electric vehicle adoption.
Crucially, the federal government and the states will need to invest in public and private incentives for building out a network of electric charging stations through much needed infrastructure modernizing legislation. Congress should also require that the federal government purchase US-made EVs for most purposes (and other alternative vehicles like Compressed Natural Gas or Fuel Cells as needed for other uses like buses and heavy-duty trucks);
The federal government could also raise Corporate Average Fuel Economy (CAFÉ) standards for an added push toward EVs. And in order to gain the full reductions in air pollution and greenhouse gas emissions, Congress will need to make sure that the electricity sector relies on increasingly clean energy sources.
America cannot afford to lose the EV race, the most important manufacturing opportunity of our time. By creating a comprehensive program to jumpstart the production and purchase of the electric cars and trucks Americans want and can afford, Congress can help the nation take a dramatic, yet pragmatic, step forward toward growing the economy, cutting oil use and consumer costs, improving air quality and combatting climate change.
ENDNOTES
1) “Electric Vehicle Outlook 2018 | Bloomberg New Energy Finance.” Bloomberg NEF. https://about.bnef.com/electric-vehicle-outlook/.
2) Niu, Isabelle. “Your next Car Could Be Electric-and Chinese.” Quartz. November 15, 2018.
3) Kane, Mark. “US All-Electric Car Sales Charted: November 2018.” Inside EVs. December 30, 2018.
4) “Top-selling Electric Cars in the United States 2017 | Statistic.” Statista. https://www.statista.com/statistics/257966/best-selling-electric-cars-in-the-united-states/.
5) Beinhart, Larry. “Why China, and Not the US, Is the Leader in Solar Power.” Al Jazeera. August 22, 2018.
6) Nealer, Rachael, David Reichmuth, and Don Anair. “Cleaner cars from cradle to grave: How electric cars beat gasoline cars on lifetime global warming emissions.” Union of concerned scientists report (2015).
7) Reichmuth, David. “New Data Show Electric Vehicles Continue to Get Cleaner.” Union of Concerned Scientists (blog), March 8, 2018. https://blog.ucsusa.org/dave-reichmuth/new-data-show-electric-vehicles-continue-to-get-cleaner.
8) Richardson, Jake. “Electric Vehicles Reduce Toxic Air Pollution – Pollution That Hurts & Kills Humans.” CleanTechnica. May 12, 2018.
9) “Electric Vehicles Have Lowest Total Cost Of Ownership, Study Finds.” CleanTechnica. February 05, 2018.
10) “EGallon: Compare the Costs of Driving with Electricity.” Energy.gov. February 9, 2019. https://www.energy.gov/maps/egallon.
11) Kljaic, Vanja. “U.S. Electric Car Battery Production Is Lacking, Says Expert.” Inside EVs. October 7, 2018. https://insideevs.com/us-electric-battery-production-lack/.
12) U.S. Senate. Jeff Merkley. “MERKLEY, HEINRICH, CORTEZ MASTO INTRODUCE LEGISLATION TO EXTEND ELECTRIC VEHICLE TAX CREDIT FOR 10 YEARS.” News release, September 17, 2018. U.S. Senator Jeff Merkley of Oregon. https://www.merkley.senate.gov/news/press-releases/merkley-heinrich-cortez-masto-introduce-legislation-to-extend-electric-vehicle-tax-credit-for-10-years.
13) “EV Statistics of the Week: Range, Price and Battery Size of Currently Available (in the US) BEVs.” EVAdoption. January 21, 2018. https://evadoption.com/ev-statistics-of-the-week-range-price-and-battery-size-of-currently-available-in-the-us-bevs/.
Only about 500 of the approximately 5,000 Montessori programs in the U.S. are located within public schools. The spread of public school choice has expanded the number of public Montessori programs, from about 130 at the end of the 1980s to around 500 in 2015. Public school choice and charters have allowed the Montessori model to return to its roots of educating low-income students. And because the Montessori model has historically been popular with middle-class families, many districts and public charter school leaders have been using it as a means to create economically and racially integrated public schools. However, as the demand for the model continues to increase, some of these leaders struggle with ensuring that public Montessori schools are serving the children most in need of high quality and different educational options.
He has broken every one of those promises over the last two years. What’s more, the White House campaign to sabotage the Affordable Care Act (ACA) sparked a voter backlash that cost Republicans dearly in last year’s midterm election.
The president apparently has learned nothing from that rebuff. Having failed to pass legislation to kill the ACA, the administration is now turning to judicial activism and the courts. The Department of Justice (DOJ) announced yesterday that it is endorsing a Texas court ruling striking down the entire ACA.
Worker safety is absolutely crucial. Driving down both nonfatal occupational injuries and workplace fatalities is one of the most important goals of government regulation. Since 2003 the rate of nonfatal occupational injuries and illnesses has dropped from 5.0 to 2.8 (per 100 FTE), according to a BLS survey.*
Despite this decline, jobs in physical industries are still more dangerous than office jobs. I say this as someone who respects the extra strain and danger faced by people who work in factories or hospitals, driving trucks or working on construction sites, or any other risky occupation.
From that perspective, I want to assess the current level of occupational injuries and fatalities in the warehousing industry. Driven by the rise of ecommerce fulfillment centers–which are mainly classified by the government as warehouses–this industry shown tremendous growth in recent years, creating jobs for hundreds of thousands of workers without a college degree. These are “mixed cognitive-physical” jobs: They require both physical labor, and also the ability to work with technologically sophisticated equipment.
One criticism of ecommerce fulfillment centers is that they are dangerous for workers. For example, we have all heard the story of how some workers in an Amazon fulfillment center in New Jersey were sent to the hospital after a can of bear mace fell off a shelf and discharged when a robot drive unit moved against it. Not a pretty picture!
But our question here: How does the safety record of the warehousing industry–including ecommerce fulfillment centers–stack up overall?
The first thing to note is that the rate of nonfatal occupational injuries in warehousing has fallen almost in half since 2003, going from 9.5 in 2003 to 5.0 in 2017 (per 100 FTE) (see chart below). The rate of nonfatal occupational injuries with lost days–a measure of the severity of the injury–has declined as well, going from 3.0 in 2003 to 1.8 in 2017 (once again, per 100 FTE) (not shown in chart).
How does warehousing compare to other industries, in terms of safety? Warehousing has a somewhat higher injury rate than warehouse clubs, supermarkets, or agriculture, and somewhat lower than hospitals, nursing homes, and air transportation.
Finally, we come to fatal occupational injuries. This is a small but obviously important category. All told in 2017 there were 22 fatal occupational injuries in warehousing, out of 5147 total occupational fatal injuries across the economy (construction, by comparison, had 971 fatalities). In 2006, warehousing had 17 fatal occupational injuries.
The increase in fatalities, though, is purely reflective of the enormous growth of the industry. The fatality rate in warehousing fell from 4.9 in 2006 to 3.8 in 2017 (per 100,000 FTE). How does that compare to other industries? The chart below reports on occupational fatality rates for selected industries. We see that warehousing is slightly above average (the private sector had a fatality rate of 3.7). Interestingly, the fatality rate in warehousing is lower than newspaper publishing (4.8). Truck transportation had a stunning-high fatality rate of 28 (per 100,000 FTE).
How we interpret the data: Like the economy overall, the safety record of the warehousing industry has gotten better, even as ecommerce fulfillment centers have become an increasingly large share of employment. And as we think about how to further improve the occupational safety performance of ecommerce fulfillment centers, they should be judged against other physical industries such as healthcare and trucking, rather than against office environments.
*These statistics come from a BLS survey of employers. It’s clear that the survey undercounts injuries and illnesses, but the undercounts mostly seem to be concentrated among the smaller establishments. Research suggests that larger establishments (over 1000 workers) tended to be much less prone to undercounts. Moreover, the transportation/warehousing/utilities sector seems to have a relatively good track record for reporting occupational injuries and illnesses.
Freshman Rep. Alexandria Ocasio-Cortez recently drew big cheers at the South by Southwest conference in Austin, Texas, earlier this month when she dissed the views of political moderates as “misplaced.” “Moderate is not a stance. It’s just an attitude towards life of, like, ‘meh,’” she told a standing-room only crowd. “The ‘meh’ is worshipped now — for what?”
Ocasio-Cortez’s remarks reflect an old line of attack from the progressive left: that moderates are “mushy” — timid, if not cowardly; that they value incrementalism over true progress; and, worst of all, that they are guilty of “triangulation” — the unprincipled pandering to swing voters by pushing off both left and right.
A common view among the left is that the “skills gap” – a shortage of workers with the skills employers want – is a mirage.
A new PPI report decisively debunks this myth. As author Ryan Craig explains, the skills gap is real: employers are having trouble finding enough workers with digital skills and “soft skills.”
Craig attributes these shortages to two factors: “Education friction” – the failure of higher education institutions to turn out job-ready graduates — and “hiring friction” – digital screening practices that cause employers to overlook qualified workers.
Craig offers a fresh take on why skills gaps persist, the consequences for economic growth and what he calls “economic alienation” among workers feeling left behind in today’s economy.
Most people who know me know that I’m a big believer in public school choice. To me, it’s a no brainer that when school districts create school attendance zones based on students’ home addresses, they are creating systems in which poor students will most likely attend poorly performing schools. Forcing students to attend a chronically failing school because of where they live sets them up for failure and reinforces cycles of generational poverty. When students have the option to attend any public school that they choose, it helps to unshackle their education — and by extension their future — from their family’s financial history.
But another reason I like public school choice is that it often leads to a variety of school models that can meet the needs and interests of a variety of students. Systems of public school choice usually have many unique learning models — computer-science focused, dual-language, diverse-by-design, arts-based, project-based, policy-oriented, and more — within their public schools. Districts that assign students using their home addresses rarely attempt to create an abundance of schools with innovative learning models. Imagine a district trying to force a parent to send their child to an arts-based school or a single-sex school, and you’ll understand the difficulty. It’s far easier for these districts to create cookie-cutter, one-size-fits-all schools and hope that most kids succeed in them.
And so, without public school choice, it’s only affluent families — the ones who can pay for their children’s education or help them test into a selective public school — that have access to this menu of options.
A bill working its way through the Minnesota state legislature would prohibit drugmakers from “price gouging” for essential prescription drugs. The law seeks to end some pretty egregious behavior by bad actors in the biopharmaceutical industry.
Like any industry, the drug industry has its share of bad actors. The loathsome “pharma bro” Martin Shkreli is now serving time in prison after his company, Turing Pharmaceuticals, increased the cost of a lifesaving AIDS drug by 5,000 percent. And one pharma executive has defended prices increases as a “moral requirement to sell the product at the highest price.” These examples of price-gouging, and more, are inexcusable.
In response, states have been looking for ways to curb this type of behavior. Maryland passed a first-of-its-kind anti-price gauging law. The law sought to stop drugmakers from hiking generic drug prices in an “unconscionable” way as determined by the state. It allowed the state attorney general to sue the makers of off-patent and generic drugs for particularly egregious price increases that could not be justified by new production or distributing costs.
However, the law has since been challenged in court and a federal appeals court ruled that it violated the commerce clause of the constitution because it forced manufacturers and wholesalers to act in accordance with Maryland law outside of the state. The Supreme Court decided not to take up the appeal, so the lower ruling stands.
Now a similar law is under consideration in Minnesota. SF 1518 would authorize the state to publish a list of “essential” generic or off patent drugs, defined as drugs which treat “a life-threatening health condition or a chronic health condition that substantially impairs an individual’s ability to engage in activities of daily living.” In other words, almost every drug. If a manufacturer increased the drug price more than 50 percent within a year without legitimate market considerations to substantiate the price increase, it would allow the Board of Pharmacy to take disciplinary action against the manufacturers or wholesale distributors. This law may end up having the same legal trouble as the Maryland one.
While intended to protect consumers, this law would add another level of bureaucracy to the already challenging and low-margin generic drug market. The passage of various state-level drug pricing laws may be counterproductive – with lawsuits challenging the legality of each one, conflicting rules, and a patchwork system across states, smaller companies or generic producers with small margins may find it too expensive to participate in the market.
As a result, as Michael Mandel and Elliott Long argued in a paper published last year by PPI, state price gouging and drug transparency laws may end up raising health care costs, which is not what the sponsors want at all. Indeed, state legislators are focusing too much on pharmaceutical prices and not enough on other drivers of health care costs: hospitals and providers.
The West Virginia House of Delegates recently voted against Senate Bill 451, which would have allowed for the creation of public charter schools throughout the state. Critics of charter schools claim that they “drain money” from traditional local public schools. However, West Virginia has been draining money from its local public schools for years.
Since the 1900s, West Virginia has closed thousands of its schools. Smaller, rural schools were consolidated into larger, regional schools to increase efficiency and save money. In 1989, Governor Caperton accelerated school consolidation by forming the School Building Authority (SBA) which only provided funding for school-building maintenance and renovation if a school met SBA’s minimum enrollment requirements. Unsurprisingly, SBA’s one-size-fits all approach predominantly affected small rural schools, forcing them to consolidate. SBA and Governor Caperton claimed that this would save money, increase efficiency, and improve educational quality. What really happened was quite different.
Maintenance and transportation costs increased as thousands of students endured longer bus rides– sometimes up to two hours a day– on rough terrain. Students had less time for extra-curriculars. Grades dropped while student stress and unhappiness rose. School officials promised to offer more course options, including advanced placement, but these courses were eliminated.
Meanwhile, the number of state administrators increased as did their salaries. Ultimately, the consolidation did not save any money. On the contrary, it cost the state 1 billion dollars from 1990 to 2002.
School consolidation is an old solution to the enduring problem of cutting costs in rural areas. However, increases in transportation costs and bureaucratization often offset any savings so consolidation rarely results in lower per-pupil spending. To make matters worse, school consolidation negatively affects communities both socially and economically. Rural schools often act as the center of the community, and losing a school leaves a hole in the community that rarely gets filled.
Many rural communities want to keep their local schools; however, they need innovative 21stcentury solutions to overcome their respective challenges in doing so.
Charter schools, with their school-level autonomy and increased flexibility, could have been an innovative solution to the problem of consolidation in West Virginia.
Other rural communities have used the flexibility of charter schools to address state-forced consolidation initiatives. For example, the community of Tidioute, PA, with a population of only 654 had success in establishing a charter school when the district proposed closing its school as a part of a consolidation. Because of their remote geography, distance from other communities, and the icy conditions they face in winter, the community members felt it was important to have a school located within Tidioute. Their charter school capitalizes on their tight-knit community and local natural resources to offer their students place-based education and a family-like culture.
Community support, however, is hard won in rural communities. As in urban and suburban areas, traditional local schools are often at the heart of a rural community. Children attend the same school that their parents and grandparents attended, and community members sometimes view a new charter school as an invader. Sometimes, new charter schools in rural areas initially face opposition. That was the case with Upper Carmen Charter School in the remote ranching community of Carmen, Idaho. Carmen had lost its local one-room school in the 1950s after consolidating with neighboring Salmon school district. In 2005, Sue and Jim Smith used Idaho’s charter law to reopen the school as a charter school. Unsurprisingly, Salmon public school district strongly opposed this idea, making the Smiths fight a long uphill battle. However, with persistence and a dedication to understanding Carmen’s needs, the Smiths convinced community members that the charter school was the best option for their children. Sue and Jim’s hard work has paid off. Out of the state’s 490 K-8 public schools, Upper Carmen Charter School is in the 85th percentile for ELA and Math achievement, and Idaho’s State Department of Education recognized the school as a 2018 Top Performer in ELA growth.
Difficult problems require innovative solutions. Rural communities need a system that is flexible and responsive. Letting charters open doors that consolidation closed can bring schools back to the center of a rural community.
