2014 remainders: workers’ comp, freight plan, and the ports

Some end-of-year housekeeping — the following are some items I didn’t get around to blogging about over the past month:

  • The Department of Labor and Industries announced that workers’ compensation premiums will increase by an average of 0.8 percent. In September, L&I had proposed an increase of 1.8 percent.
  • The Washington State Department of Transportation released the 2014 Freight Mobility Plan. According to the plan, “In 2012, freight-dependent industries accounted for 44 percent of the state’s jobs.”
  • Regarding the labor dispute at the ports, Diana Furchtgott-Roth writes, “Currently, ports are governed by the National Labor Relations Act (NLRA), while airlines and railroads are required to abide by the 1934 Railroad Labor Act (RLA). The disruptions at the ports that are being used as a tactic of negotiation are allowed under the NLRA, but would not be permitted under the RLA.” Further, “Labor contracts under the RLA do not expire like the current West Coast contracts, but remain in force until a new agreement is reached.” (See also Douglas Holtz-Eakin in the Wall Street Journal.)

New NLRB complaints could impact all franchises

On Dec. 19, the National Labor Relations Board (NLRB)

issued complaints against McDonald’s franchisees and their franchisor, McDonald’s USA, LLC, as joint employers.  The complaints allege that McDonald’s USA, LLC and certain franchisees violated the rights of employees working at McDonald’s restaurants at various locations around the country by, among other things, making statements and taking actions against them for engaging in activities aimed at improving their wages and working conditions, including participating in nationwide fast food worker protests about their terms and conditions of employment during the past two years.

Considering a franchisor to be a joint employer with a franchisee represents a major change in practice; over the summer, the NLRB’s general counsel had said this could happen. McDonald’s responded to the charges:

The National Labor Relations Board’s actions today improperly and dramatically strike at the heart of the franchise system – a system that creates economic opportunity, jobs and income for thousands of business owners and their employees across the country.

McDonald’s is disappointed with the Board’s decision to overreach and move forward with these charges, and will contest the joint employer allegation as well as the unfair labor practice (ULP) charges in the proper forums. . . .

McDonald’s serves its 2,500 independent franchisees’ interests by protecting and promoting the McDonald’s brand and by providing access to resources related to food quality, customer service, and restaurant management, among other things. These optional resources help entrepreneurs operate successful businesses. This relationship does not establish a joint employer relationship under the law – and decades of case law support that principle.

Further, as the Wall Street Journal editorializes,

Under this suggested new standard, franchise companies in a swath of industries including hotels, retail and gymnasiums would be on the hook for workers at its franchisees. This could gut the franchise model. Companies that contract out services like cleaning or security could be held liable for and required to collectively bargain with workers employed by its subcontractors. Every business in America that utilizes a vendor or subcontractor would have to rewrite its contracts.

Diana Furchtgott-Roth has a good article on the joint employer change and its implications. She writes,

So the NLRB unilaterally changes the law without any notice or public comment, uses the change in the law to sue a major corporation, and tells the general public that the legal reasoning behind the change cannot be revealed. That’s Kafkaesque. . . .

The NLRB’s decision is indeed cataclysmic for America’s system of franchise business.  If the parent company is considered a joint employer, and sets terms of hiring, then the value of a franchise business is reduced. People with complaints can sue McDonald’s USA, not just their local franchise. A single employer franchise may not be worth suing.  But if the franchisor is a joint employer, such as McDonald’s USA, with a value of $100 billion, then every local franchise is worth suing. . . .

The franchise model is popular because it is the easiest way to launch a small business. Franchise businesses employ over 8 million workers. Entrepreneurs are less likely to want to buy a franchise if they are required to have unionized labor and if they do not have control over all the working conditions. And no company is going to want to sell franchises if they are going to be liable. One reason that companies sell franchises is to reduce liability.

Furchtgott-Roth also notes that “The NLRB is changing the definition of an employer to make it easier for unions to organize fast food workplaces.” A New York Times editorial gets right to that point:

Memo to McDonald’s: Wouldn’t it be easier just to bargain over the terms and conditions of employment?

Trade-offs of a higher minimum wage include automation

McDonald’s had a “dreadful” earnings report this week, according to a Wall Street Journal editorial.

So even one of the world’s most ubiquitous consumer brands cannot print money at its pleasure. This may be news to liberal pressure groups that have lately been demanding that government order the chain known for cheap food to somehow pay higher wages.


The McDonald’s earnings report on Tuesday gave a hint at how the fast-food chain really plans to respond to its wage and profit pressure—automate. As many contributors to these pages have warned, forcing businesses to pay people out of proportion to the profits they generate will provide those businesses with a greater incentive to replace employees with machines.

By the third quarter of next year, McDonald’s plans to introduce new technology in some markets “to make it easier for customers to order and pay for food digitally and to give people the ability to customize their orders,” reports the Journal.

Meanwhile, economist Adam Ozimek writes,

Policymakers may find it tempting to try and mandate good jobs through extensive regulation, but the workplace is a complex and constantly changing environment, and the risk of unintended consequences—such as increased unemployment—is high. As with most regulation, there are trade-offs. Demanding that jobs be “good” along some dimension may end up making them worse in other ways.

Harvard Business School on “An Economy Doing Half Its Job” and the Need to Improve Education, Workforce Skills and Transportation

My column today used a Harvard Business School competitiveness report as its launching point. It points out a signal danger to our economic future.

The report, “An Economy Doing Half Its Job,” is based on a survey of Harvard business graduates and the school’s own academic research. The research team writes that the nation is competitive when U.S. firms “can (1) compete successfully in the global economy while also (2) supporting high and rising living standards for the average American.” Our problem, unprecedented, is that today the “trajectories on those two goals point in very different directions.”

Here’s the problem and the solution.

They report that firms wanting to bring work back to the states “often struggle to find the skilled labor, the reasonable costs of doing business and the physical infrastructure they need.”

The finding leads directly to familiar recommendations to “take a smarter approach” to K-12 education, workplace skills and transportation.

Sounds a lot like discussions in our state, doesn’t it?

Dutch-style pensions may be a good example for the U.S.

The New York Times published an interesting story on Dutch pension plans over the weekend. They are very different from those in the U.S.:

The Dutch system rests on the idea that each generation should pay its own costs — and that the costs must be measured accurately if that is to happen. . . .

The Dutch approach bears little resemblance to the American practice of shielding the current generation of workers, retirees and taxpayers while pushing costs and risks into the future, where they can metastasize unseen. . . .

The Dutch central bank also imposed a rigorous method for measuring the current value of all pensions due in the future. Pensions are not supposed to be risky, so the Dutch measure them the same way the market prices very safe bonds, like Treasuries — that is, by discounting the future payments to today’s dollars with a very low interest rate. This method shows that a stable lifelong benefit is very valuable, and therefore very expensive to fund.

Notably, the Dutch central bank prohibited the measurement method that virtually all American states and cities use, which is based on the hope that strong market gains on pension investments will make the benefits cheaper. A significant downside to this method is that it lets pension systems take advantage of market gains today, but pushes the risk of losses into the future, for others to cope with. “We had lengthy discussions about this in the Netherlands,” said Theo Kocken, an economist who teaches at the Free University in Amsterdam and is the founder of Cardano, a risk analysis firm. “But all economists now agree. The expected-return approach is a huge economic offense, hurting younger generations.”

He explained that in the Netherlands, regulators believe that basing the cost of benefits today on possible investment gains tomorrow is the same as robbing tomorrow’s workers to pay for today’s excesses. . . .

But, as the story notes, “Going Dutch . . . can be painful.” Walter Russell Mead’s blog references G.K. Chesterton, saying that the Dutch solution “hasn’t been tried and found wanting; it has been found difficult and not tried.”

Measuring workers’ compensation costs

This week the Oregon Department of Consumer and Business Services released its workers’ compensation premium rate rankings for 2014. By this measure, Washington looks slightly better than in 2012, but still not good. Our premium rates rank 17th, compared to 13th in 2012, 26th in 2010, and 38th in 2008.

As Kris Tefft of the Washington Self-Insurers Association writes,

Oregon’s rate study is closely followed by the national workers’ comp industry, since for most states it is an accurate picture of where pure premium rates rank. Washington, a special snowflake in the workers’ comp world, is alone in charging premium by the hour rather than by payroll, and uses unique, rather than standard, industry classifications. A lot of assumptions and conversions have to be made to translate Washington’s system into something that can be compared plausibly countrywide. Further, as one of four monopoly states, Washington has a large self-insured community, covering about a third of the workforce, whose claim costs are not accounted for in the study.

We have written extensively about the reasons the Oregon study is not a good measure of Washington’s workers’ compensation system costs. Instead, benefit cost comparisons are more accurate. According to the National Academy of Social Insurance, Washington has the highest workers’ compensation benefits costs in the nation.

Links: King County “living wage,” WA cell phone taxes, and Microsoft predictions

1. Earlier this week the King County Council adopted a “living wage” for county employees and county contractors. The new requirement will be phased in to reach $15 in 2017. The Seattle Times notes that it “applies only to people working directly or indirectly for taxpayers, partly because the county has limited authority over how business is conducted in cities and towns within its borders.”

Further, “Most county employees already make at least $15 an hour. . . . County officials say they don’t know how many employees are working on those contracts and don’t know how many workers the legislation will affect.”

2. According to the Tax Foundation, Washington has the nation’s highest wireless tax, fee, and surcharge burden (18.6 percent). (Oregon’s is the lowest, at 1.76 percent.) From the report:

Local government taxes have a significant impact on the overall tax burden on wireless consumers in many of the states that have high wireless taxes and fees. . . . Washington State allows municipal governments to impose utility franchise taxes with rates as high as 9 percent.

3. Microsoft Research Lab has launched a new election prediction site. Economist David Rothschild and the Microsoft team are rethinking traditional polling:

The future is “moving away from the idea that everyone needs to be asked the same questions in the same setting to asking the right questions to the right person the right way,” he says.

Longer term, Rothschild’s hope is to take innovative predictive measures beyond elections to predict policy outcomes. “The real reason I care and you care about who’s going to win an election because that person or group of people are going to influence policy,” he says. “I hope to be talking to you in two years about what the likely tax rate is going to be if candidate A or candidate B wins.”

WA minimum wage to increase to $9.47

The Department of Labor and Industries announced today that Washington’s minimum wage will increase from $9.32 to $9.47 in 2015. The increase is due to a 1.59 percent increase in the consumer price index. According to L&I, this change will affect more than 67,000 workers.

Washington currently has the highest state minimum wage in the country, followed by Oregon ($9.10). Oregon’s minimum wage will also increase by 15 cents in 2015, to $9.25. Their increase will affect 142,000 workers.

Interesting points from The Economist on franchises and contract work

The Economist writes about contract workers and the NLRB general counsel’s recommendation to treat McDonald’s as a joint employer with franchisees. (More on that here.)

FEDEX, Walmart and McDonald’s are among America’s largest employers. Yet many of the people who drive FedEx’s delivery trucks, staff Walmart’s warehouses and serve McDonald’s hamburgers are not their employees. Instead, they work for subcontractors, franchisees or themselves.

Flexible work arrangements have long been a hallmark of America’s ever-shifting economy. Lately, though, they have drawn more criticism. . . .

Measuring irregular work is hard. Data are spotty; definitions vary. The OECD reckons more than 10% of workers in Japan and most of Europe are on temporary contracts. No comparable data for America exist, although a 2005 tally suggested that 1.8% to 4.1% of workers were on “contingent” arrangements.

If franchisors are determined to be joint employers,

the proposal could reshape the business landscape. Franchising is immensely popular: it enables companies to expand with limited capital and gives entrepreneurs, in return for a fee, access to an established brand with the supporting know-how and marketing. More than 10% of America’s roughly 4m business outlets are franchises, employing nearly 8m people (in 2007, the latest year available). If the brand owner is responsible for all of a franchisee’s employment decisions, what is the point of franchising? Neither party may see value in the arrangement, says Michael Lotito of Littler, a San Francisco law firm.

The magazine makes the good point that these issues are coming up even as current circumstances make non-permanent/non-full-time work inevitable:

Regulatory and court actions may force firms to recraft their relationships with contract and franchise workers, but probably not to scrap them. Obamacare has raised the costs of permanent full-time staff, even as technology such as online task markets and scheduling software offer more flexible ways to hire temporary and part-time workers. America’s labour market is not as polarised as Japan’s or Europe’s, but may be heading that way.

New workers’ comp numbers show that WA still has the nation’s highest benefits paid

Today the National Academy of Social Insurance released its annual report on workers’ compensation benefits. There is a data lag, so the new numbers are for 2012.

The report shows that Washington still had the highest benefits paid per covered worker in 2012, at $840.16. (Alaska follows with $797.65 and California with $783.94.) That is slightly lower than 2011, when Washington’s benefits paid per job were $855.78.

In terms of benefits paid as a percent of covered wages, Washington continues to rank third, behind West Virginia and Montana, at 1.63 percent. (In 2011, Washington’s benefits as a percent of covered wages were 1.72 percent.)

As we have noted consistently, benefits paid are the best indicator of workers’ compensation system costs for Washington.