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April 5, 2007

Books, Journals & More/ A closer look: Susan B. Hansen

Political science professor Susan B. Hansen has studied state politics for decades, but she turned her most recent attention to the impact of the nation’s economic policy choices on American workers as the country adjusts to a global economy.

Her 2006 book “Globalization and the Politics of Pay” challenges the idea that cutting labor costs enhances competitiveness and examines the social costs that arise as labor costs fall.

While the book takes a broader view, from her vantage point as a professor at Pitt for 27 years Hansen has had a front-row seat for the economic changes that struck the Pittsburgh region hard as its manufacturing base crumbled and people, through no fault of their own, found themselves without jobs.

Although the Reagan era’s trickle-down economics theory called for a hands-off approach, local governments were faced with unemployed workers in their own backyards who called for something to be done.

The birth of the economic development industry in the 1980s with its goal of job creation hasn’t solved the problem, Hansen says, adding that the common belief that restraining labor costs is necessary to stay competitive in a global economy hasn’t proved true.

In her book, which examines trends in labor costs from 1970 to 2000, Hansen states:

“The strong link between high labor costs and productivity growth provides a competitive advantage in the increasingly specialized global economy. But reducing labor costs has had adverse social consequences in the states: slower rates of job creation, slower declines in poverty rates, stagnant growth in personal income, rising inequality, lower voter turnout, higher crime and suicide rates and instability in family life. Many states are indeed pursuing a ‘race to the bottom’ in terms of labor costs and social policies. However these trends are not justified by either globalization or economic benefits.”

Calling it a “stealth issue,” Hansen notes that the concept of cutting labor costs has been cloaked behind such buzzwords as competitiveness and enhancing local business climates. “You can’t say, ‘I’m going to pay you less,’” she noted.

Job creation alone isn’t enough. “You may get more jobs, because people may be working two jobs or longer hours, because they can’t make it on one job,” she noted, citing the dilemma inherent in the creation of low-wage jobs.

In her research, Hansen has found there have been gains in jobs in the United States compared with Europe, and has found that within the U.S., the states that are doing well in the global economy are those that have high wages and more educated populations.

“The real dilemma I was able to highlight is that low-wage states are not gaining improvements in personal income,” she said.

Within the United States, Hansen has found that political factors have proven to be strong predictors of labor cost trends, adding that she was intrigued to find “the single best explanation was voter turnout,” she said.

“I was frankly surprised,” she said, admitting that it was gratifying to find a political variable. “It was a lovely finding for a political scientist to find that politics matters, people have choices and it’s not an economically deterministic world,” Hansen said.

Adding that she still doesn’t know the full mechanism and that it’s difficult to demonstrate that voters view labor costs as an election day issue, she posits that increased voter turnout may make an election more representative of middle-class and working-class people. When that happens, she said, “Politicians have an incentive to take their interests into account.”

She added that the simplistic red-state/blue-state distinction is “overdrawn,” adding that “the margin of difference in so-called red states and blue states is really quite small” and that many of them might more accurately be characterized as “purple” — containing some elements that support more conservative ideology.

If voter turnout is high, Republicans and Democrats alike have incentives to move toward the center. “They can read the polls,” she said.

“All it takes is a swing in the vote in marginal districts to get politicians to pay attention.”

The other surprise she found in her research was not in the economic impact of reduced labor costs, but in the social consequences. Citing crime rates and the number of children living in poverty as examples, Hansen said, “I’m just amazed you could really show you reduce labor costs and there are social consequences in all these instances.”

She noted that companies that offer decent wages and benefits such as flextime have lower turnover, saving them money in the long run.

Better paying jobs, she said, generate revenue in their neighborhoods: higher paid workers buy homes and stabilize communities. Living wage initiatives align with that theory. “The argument is if you pay people a living wage, they spend more money and the government spends less on welfare, housing assistance and crime,” she said, adding that the net effect of a living wage may actually create jobs.

Hansen said long-term investment in human capital is needed. Drawing from her experiences teaching in Korea last summer, she noted that the Asian nation’s investment in its people has helped it to catapult ahead of its neighbors economically.

And even China has realized its future as a low-wage country is limited, Hansen said, noting that Chinese jobs now are being lost to Burma or South Vietnam. To combat the loss, “They’re investing in education,” she said, “turning out engineers and computer scientists.”

And while American society is more individualistic than China or Korea, Hansen believes there are incentives such as scholarships or loan forgiveness that could fill the needs for high-tech workers here.

While she describes a handful of policy recommendations in her book, Hansen said those she feels would have the most impact against the downward spiral of low wages are the strengthening of labor unions and encouraging voter turnout.

She admits unions aren’t without their problems, but they’re of long-term benefit to working class people, giving them more control and forcing business to come to the table to negotiate pay and benefit issues.

A related issue is encouraging voter turnout, adding that it ensures some representation of a broader range of interests.

And, she said, using other regulatory incentives could have an effect, noting that companies get tax breaks for moving their headquarters offshore. “We can rewrite the tax code to pay a penalty instead of tax breaks for outsourcing,” she said. “There may be perfectly good economic reasons for locating to other parts of the world, but let’s not add tax incentives to the mix.”

—Kimberly K. Barlow

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