Of Private and Public Safety Nets
Monheit, Alan C., Inquiry
If any doubts remain regarding the necessity for health reform or for an enlightened and judicious process of addressing our social insurance and safety-net spending, one only has to observe our increasingly frail private, employment-related safety net and the tenuous employment circumstances that have characterized the last two decades. Once a critical component of middle-class economic and health security, the private safety net--consisting of employment-related health insurance, retiree health coverage and pension benefits, paid sick leave, and other valued work-related benefits--has developed gaping holes that are unlikely to be repaired in the foreseeable future.
As of this March writing, we are slowly emerging from the dismal employment prospects brought about by the Great Recession. While February's decline in the unemployment rate to just below 9% and the addition of 192,000 private-sector jobs are causes for optimism, the changing nature of employment contracts, employer commitments to job-related benefits, and the types of jobs the newly employed are likely to acquire should give us pause. At issue are whether many middle-class workers will acquire and continue to hold jobs that will yield both economic and health security.
As many families face continued uncertainty regarding their economic prospects, and as we await the nearly full implementation of health reform in 2014, Congress is going through its annual ritual of budgetary posturing, with each side making efforts to demonstrate its fealty to sound fiscal principles, not to mention valued political constituencies. With a budget gap of $1.5 trillion in 2011 and $1.1 trillion for 2012--9.8% and 7% of gross domestic product (GDP), respectively--and with public spending on Medicare and Medicaid, Social Security, and national defense the key contributors to this shortfall, Congress for now largely has avoided these substantial budgetary expenditures and the consequences of alienating critical political support. Instead, it has homed in on the relatively small component of the federal budget that is related to non-defense discretionary spending and which makes up less that a fifth of its total. At the same time, critics of health reform persist in their efforts to derail "Obamacare" while offering no viable reform alternative for coverage or cost containment, and exhibiting little response to the president's offer to states to waive some of the formal requirements of the Patient Protection and Affordable Care Act (ACA).
It is difficult to take seriously claims that we are at the day of fiscal reckoning when the best that some lawmakers can propose is to sharply curtail funding for such "big ticket items" as Head Start, Child and Maternal Block Grants, the Women, Infants, and Children (WIC) nutrition and health program, the Corporation for Public Broadcasting, the Legal Services Corporation, and Planned Parenthood. Add to this the sentiment voiced by some Republican governors that the way to address their revenue shortfalls is to curtail the ability of public employee unions to engage in collective bargaining. With most federal and state legislators unwilling to consider new sources of "revenue enhancements," even from small income tax increases on their most affluent citizens, there is reason to be concerned that the budget crisis is being used to support partisan ideology and to assault long-standing political targets. Such responses also reflect the deep chasm that exists between the "haves" and "have-nots" regarding the value of the public safety net and public amenities and the willingness to pay for such services by those fortunate enough to have access to the private safety net. With the recent recession demonstrating that even top earners are not immune from personal economic catastrophe, those unwilling to support the public safety net are misinformed at best and myopic at worst.
In what follows, I draw attention to our deteriorating private safety net of employment-related benefits, explore the implication for our health and financial security, and emphasize the importance of assuring adequate funding for our public safety net and social programs. In an era of tenuous job security, concerns regarding the ability of our public safety net to shore up or substitute for our private sources of health and financial security will likely gain new currency.
The New Employment Contract and Employment Security
A generation ago, American workers still were assured of relatively secure economic circumstances, with many having essentially life-time jobs accompanied by reliable health insurance for active workers and retirees, defined benefit retirement plans, paid sick leave, and vacation benefits. As Hacker (2006) notes, the workplace was characterized by an implicit contract between employers and employees where both shared in the uncertainty of market behavior and the rewards from increased productivity, skill, and innovation. Such sharing of risks and rewards implied that workers would remain loyal to their employers, exercising restraint in demands for pay and benefits when times were bad, and attaining gains in such compensation when times were good. Employers, in turn, willingly developed worker skills, provided generous workplace benefits, and to the extent possible, shielded workers from fluctuating economic conditions.
Since that time, the nature of the employment contract has been radically altered; job insecurity, non-standard employment, and limited pecuniary and non-pecuniary rewards (including the shift from defined benefit to defined contribution health and retirement plans) are now the "new normal" (Hacker 2006; Price and Burgard 2008). To save on labor costs, employers increasingly offer jobs characterized by relatively short-term contractual arrangements such as free-lance work, independent contracting, consulting arrangements, help from temporary agencies, and other forms of contingent employment. Such changes in the nature of employment have been accompanied by a rise in self-employment and the outsourcing by employers of technically oriented positions. With these arrangements, employers feel little obligation to provide job security or the promise of valued non-pecuniary benefits indicative of the traditional private safety net. Also note that the diminishing representation of labor unions in the private sector has contributed to the decline in the private safety net, and by some accounts, to the rising inequality of income over the last three decades (Levy and Temin 2007). Finally, before our recent economic collapse, unemployment was primarily the result of the previously noted structural changes in the nature of employment and from downsizing by firms rather than from the vagaries of the business cycle. Few employers exhibit the kind of loyalty to employees that existed in the past, and in turn, employees feel little obligation to remain with employers when better opportunities arise.
Recent empirical work by Farber (2010) and by Pierce (2010) corroborates these impressions. Farber concludes that job tenure and the incidence of long-term employment have declined sharply among private-sector jobs in the U.S., especially for men. Pierce documents the fact that total compensation inequality has increased over the last two decades on par with growing wage inequality, so that non-pecuniary benefits previously available to most workers are now increasingly concentrated in the upper half of the compensation distribution. Other research also has documented the decline in private safety-net benefits such as retiree health and pension benefits. Finally, Swartz (2006) observes that the change in the nature of the employment contract has had important implications for the rise in the uninsured among middle- and higher-income families and among well-educated workers.
Implications for Health and Labor Market Dynamics
As Price and Burgard (2008) have noted, the tenuous nature of employment contracts, specifically their insecurity and lack of benefits, can act as a pathway to illness. In this regard, ill health may result due to the stress associated with anticipation of job loss, economic hardship following a job loss, and with managing part-time or other non-standard employment situations that lack predictability and adequate benefits and income. The investigators" own research and other studies they cite indicate that non-standard work arrangements can contribute to greater psychological distress, poorer physical health, and increased risk of mortality.
The changing nature of employment, past structural changes that have led to downsizing and unemployment, and the fallout from the Great Recession have changed the dynamics of labor market behavior and job search. Highly skilled workers who have lost jobs involuntarily frequently join the ranks of the long-term unemployed (six months or more without re-employment), and when they do obtain employment, frequently fail to obtain the wage and benefit levels they previously held. Ironically, the recent recession has increased the appeal of short-term contingent employment among white-collar workers as they seek employment of any kind and as employers remain wary about permanent hiring (Luo 2010).
Herbert (2010) has noted the harsh reality of such tenuous employment. Citing survey data from the Rutgers University Center for Workforce Development, he reports that for workers jobless over a 15-month period beginning in the summer of 2009, only one-quarter had found full-time jobs, with nearly all who found jobs obtaining lower wages and fewer or no fringe benefits compared to prior employment. He further notes the report's assessment that a new class of "involuntary" retirees is emerging and that many over age 50 believe they will not again obtain a fulltime job commensurate with their education and training. This new reality makes efforts by relatively well-heeled members of Congress to withhold funding from the public safety net for political gain particularly callous. In this regard, recall the efforts of some Republican legislators who held hostage extended unemployment benefits for the long-term jobless in exchange for maintaining the Bush-era tax cuts for the wealthiest American families. Such action shows a blatant disregard for the vulnerabilities that have confronted families during a period of national economic distress.
The Attack on the Public Safety Net
The increasing challenge to obtain permanent full-time employment together with the unraveling of our private safety net should make assuring the soundness of the public safety net and social insurance systems a critical priority. In observing that the U.S. is the only major country where the private sector plays a key role in caring for the old and sick, Leonhardt (2007) has raised the very legitimate question of what will replace the private safety net that has served the country so well over the last half century.
In this regard, attacks on certain components of our public safety net in the name of prudent fiscal policy are all the more pernicious and short-sighted. As I have noted, the recent recession and preceding meltdown of our financial institutions have demonstrated that we are all vulnerable to the loss of employment, savings, health care coverage, and financial security. The rise in Medicaid enrollment corresponding to the increase in unemployment during the Great Recession should have illustrated the value and necessity of the public safety net in protecting all of us from economic shifts of fortune.
Next, the state of our private safety net also raises questions regarding the motives of those seeking to repeal or defund the ACA. While such critics point to the ACA's unwieldy complexity, rely on the oft-repeated canard of socialized medicine and death panels, and cite the costs to state governments and employers from the law's Medicaid and private coverage expansions, these efforts and concerns, especially about costs, appear disingenuous. Estimates by the Urban Institute (Holohan 2011) suggest that states, in fact, will gain federal funding from the ACA's Medicaid expansions (to 138% of the federal poverty line) and that the employer and employee subsidies and tax credits should significantly ease the burden of the individual mandate and new coverage requirements. Finally, Krugman (2011) observes that rising health care costs are a primary reason for our fiscal predicament. He notes that efforts by some opponents on the right to belittle the ACA's efforts to identify cost-effective health care, to encourage the use of some effective preventive services, and to apply innovations in the management of care are clearly against the public interest.
Doing the Public's Work?
The recent posturing by some Republican members of the House of Representatives regarding their commitment to trim around $61 billion from the federal budget questions whether these congressional members are acting in the public interest by slashing safety net and educational spending, or simply repaying an IOU to conservative and Tea Party constituents. Results from a recent Pew Research Center survey indicate that the public favors increases in spending for education, public schools, health care, aid to the needy, and college financial aid, and is nearly equally split between increasing or maintaining spending for Medicare and Social Security. Roughly 68% favor maintaining or increasing aid to the unemployed as well, with only 28% favoring a decrease.
To be sure, fiscal imperatives at the federal and state levels require a serious and thoughtful debate as to how to economize on public spending in an era of revenue shortfalls when public sentiment and political pressures preclude raising taxes, at least in the short run. Additionally, potential safety-net recipients could be better targeted and program incentives could be realigned to enhance program efficiency and reduce spending. However, assaults on social programs designed to protect the safety and economic security of vulnerable citizens (witness the draconian cuts in police and fire protection and education in some states) seem mindless when one considers both the short- and longer-run implications for social welfare. Moreover, as Leonhardt (2010) argues, such cuts in the federal budget more generally can reduce the impact of economic stimulus spending causing our fragile economic growth to sputter. Observing the retrenchments in social spending in Germany and Britain, he notes that such austerity has sidetracked their recoveries; estimates (Montgomery 2011) suggest that some 700,000 jobs would be lost in the U.S. as a result of such cutbacks, further straining our public safety net during a period of retrenchment.
Looking for a Scapegoat
Although our fiscal predicament has its origins in the tax and foreign policy initiatives of George W. Bush's presidency, budgetary shortfalls at both the national and state levels also reflect the catastrophic economic meltdown of the past few years. Having said this, perhaps the greatest challenge to policy seeking to restore our fiscal health is addressing the contribution of rising health care costs. Thus it has been somewhat disconcerting to see the policy debate focus on cutting spending for some public services that represent a relatively small part of the federal budget without regard to the consequences of such cuts, and to observe some state governors target labor unions as a prime cause of their state's fiscal distress.
As is well known, union membership has declined precipitously over the past few decades, and in the current economic and political environment, unions are not viewed especially favorably. However, I would also submit that the attacks on public unions can be construed as part of a more general strategy to limit their influence and support as advocates for both the public and private safety nets.
Pointing to labor unions as a key underlying cause of state fiscal crises remains controversial. For example, in its battle with the Wisconsin legislature, the public employees' union had already acceded to the state's demand for increased contributions to health insurance and pension benefits. The political acrimony over the demand that unions give up collective bargaining for all benefits once again appears to be a case of unfortunate political posturing since it is unlikely to resolve the gap in pension funding, let alone have any serious impact on the state's fiscal situation. One irony of the Wisconsin debacle was that selected public employees--specifically police and fire fighters--were excluded from the effort to end collective bargaining for non-pecuniary benefits. Moreover, there appears to be little correlation between the presence of collective bargaining and the generosity of a state's pension for public workers (Walsh 2011), and some research suggests that the pension crisis was driven largely by the poor financial market returns of the last few years (Baker 2011). As regards disparities between state and private-sector wages, this difference crucially depends on workers' education: government workers tend to be more highly educated than private-sector workers and this difference is reflected in wage levels. However, workers without college degrees do better in the public sector while those with higher education do better in the private sector. Additionally, since the 1990s, college-educated public-sector workers have seen their pay lag behind their private-sector counterparts (Luo and Cooper 2011).
While public employees could make additional contributions to their health and retirement funds and also address some of the rigidities in tenure that prevent the dismissal of incompetent and unproductive workers, it remains far from clear that past commitments to public employee benefits and collective bargaining are the primary forces driving states' fiscal crises. In the end, a sleight-of-hand parliamentary maneuver--removing the provision banning collective bargaining from the budget bill--resolved the Wisconsin stalemate. Such action illustrates that the effort to eliminate collective bargaining appears at best to be more about the exercise of political power against a traditional foe, and at worst, an unfortunate and dispiriting example of the underlying political and economic antagonisms that have detracted from resolving serious fiscal issues.
Reasonable observers of our fiscal dilemma have acknowledged that our present situation cannot be resolved by budget cutting alone and that tax increases are inevitable. After the political theatrics disappear and politicians have demonstrated their loyalty to valued constituents, we must get down to the serious business of evaluating which components of our public safety net are worth preserving and whether we are willing to pay for these services, either through higher taxes or through a reduction of other public spending. In making these critical decisions, we should keep in mind the vulnerabilities writ large by our recent economic crisis, the tenuous nature of current employment circumstances, the fragility of our private safety net, and the threat by some to dismantle valued public safety-net provisions. Whether we are willing to recognize the new realities of the private safety net and make informed choices in setting budget priorities will say legions about our commitment to social welfare.
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Alan C. Monheit, Ph.D.
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Of Private and Public Safety Nets. Contributors: Monheit, Alan C. - Author. Journal title: Inquiry. Volume: 48. Issue: 1 Publication date: Spring 2011. Page number: 3+. © Not available. COPYRIGHT 2011 Gale Group.
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