Creating an upscale service economy

Updated 30 November 2012
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Creating an upscale service economy

NEW YORK: The American economy is irrevocably shifting from manufacturing to services. Our workforce has gone from 28 percent factory workers and 72 percent service workers in 1978 to 14 percent factory workers and 86 percent service workers today.
But the service sector encompasses tens of millions of “bad” jobs that are unstable and offer low pay with few benefits — routine clerical work, for example, or retail sales, fast food or low-end human services such as nurse’s aides — alongside a relatively small number of well-compensated professional positions, including doctors, lawyers and scientists, as well as astronomically rich investors and plutocrats in the financial sector.
As we move into this service economy, there are political choices to be made — or evaded. We can allow our increasingly laissez-faire economy to take a low road of underpaid and under-professionalized service jobs. Or we can use social investment, taxation and public borrowing to create more high-level careers in the human services, which will, in turn, help stimulate an economic recovery and stem the tide of inequality.
Millions of jobs serving the very young, the very old and the very sick are now low-wage positions. This is a social decision, however, not the product of private supply-and-demand. For the qualifications and earnings for these occupations are determined by prevailing mores as much as by labor markets.
A person caring for 3-year-olds, for example, can be a glorified baby sitter with minimum certification as a day-care worker -— or a well-trained professional in child development. So the job can pay minimum wage, or it can be a middle-class occupation and career.
This social choice governs not just the quality of the job but also the quality of the early education — crucial for those children who lack the advantages of more affluent families. High-quality early childhood education and day care can also help mothers and fathers be better parents.
A nursing home worker, similarly, can be a nurse’s aide making $ 8 an hour or a licensed practical nurse or trained recreation aide earning almost twice that — closer to $ 30,000 a year. Well-qualified and trained nursing home personnel produce not just better career opportunities and economic stimulus but also better quality of life for the elderly. Having competent staff proves more efficient in the long run because there is less turnover, less need for outlays on recruitment, better morale and fewer incidents of neglect that require far more expensive medical treatment.
I’ve done a rough calculation and found that for an annual expenditure of about $ 100 billion to $150 billion — less than 1 percent of gross domestic product — we could set a national policy goal of guaranteeing that all human service jobs are professional jobs that pay at least $ 25,000 a year. This requires professionalyzing some occupations, as well as making some woefully underfunded services, such as early education, universally available.
As long as the current deflationary economy persists, this funding could come from additional government borrowing, since interest rates are extraordinarily low. As the economy recovers, the normal increase in revenue could pay for part of the cost, supplemented by increased progressive taxation. The increase in the supply of good service jobs would accelerate the recovery.
Historically, production jobs have paid better wages than service jobs. But globalization has increasingly allowed factory jobs to be done offshore by lower-paid workers. Most human service jobs, by contrast, must be performed at home. If we have a national policy of guaranteeing that they are well-paid jobs, there is no risk that they will move overseas.
Two of the fastest-growing job categories, according to the Bureau of Labor Statistics, are home care workers and nurse’s aides. These occupations suffer from shortages because the pay is low and the working conditions often frustrating. Nurse’s aides typically make slightly above minimum wage, whereas licensed practical nurses (usually a one-year certificate program) earn about $ 20 an hour, or $ 42,000 a year. Registered nurses, graduates of a two- or four-year college degree program are more highly trained still, with median earnings in excess of $60,000.
Extensive evidence shows that having home care or nursing-home care performed by workers with the lowest minimally acceptable skill levels is a false economy. The money saved on lower wages is lost in medical incidents, like increased bedsores on the part of nursing home residents or failure to diagnose medical conditions early. Both can result in the need for far more expensive hospital stays. At the same time these service workers are condemned to jobs that do not pay well.
More than 60 percent of all human service work is underwritten, directly or indirectly, by some level of government. Most care in nursing homes as well as home care is paid by Medicaid or by other state programs, while child care for the poor and pre-kindergarten programs are provided or subsidized by government. Thus, public policy determines whether these jobs are professional occupations or casual labor and whether they are adequate to the social need.
A national strategy of filling the holes in America’s social safety net could prove to be a countercyclical engine of recovery. It could also offer a permanent strategy for replacing our dwindling highly paid manufacturing jobs with domestic, well-compensated non-exportable service jobs. We would get the quadruple benefit of macroeconomic stimulus, better jobs, better quality services and (in the case of the young) improved lifetime opportunity and productivity.

— Robert Kuttner is a Reuters columnist but his opinions are his own.


Wells Fargo to pay $1B for mortgage, auto lending abuses

Updated 20 April 2018
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Wells Fargo to pay $1B for mortgage, auto lending abuses

  • Fine the latest in a series of setbacks for US bank
  • Federal Reserve in February prohibited lender from growing assets until governance issues addressed

Wells Fargo will pay $1 billion to federal regulators to settle charges tied to its mortgage and auto lending business, the latest chapter in years-long, wide-ranging scandal at the banking giant. However, it appears that none of the $1 billion will go directly to the victims of Wells Fargo’s abuses.
In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau.
The action by the CFPB is notable because it is the first penalty imposed by the bureau under Mick Mulvaney, who President Trump appointed to take over the consumer watchdog agency in late November. The $500 million is also the largest penalty imposed by the CFPB in its history, the previous being a $100 million penalty also against Wells Fargo, and matches the largest fine ever handed out by the Comptroller of the Currency, which fined HSBC $500 million in 2012.
The fine against Wells Fargo had been expected. The company disclosed last week that it was in discussions with federal authorities over a possible settlement related to its mortgage and auto lending businesses, and that the fine could be as much as $1 billion.
The settlement also contains other requirements that would restrict Wells Fargo’s business. The bank will need to come with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” said Wells Fargo Chief Executive Tim Sloan in a statement.
The $500 million paid to the Comptroller of the Currency will be paid directly to the US Treasury, according to the order. The $500 million paid to the CFPB will go into the CFPB’s civil penalties fund, which is used to help consumers who might have been impacted in other cases. But zero dollars of either penalty is going directly to Wells Fargo’s victims.
The bank has already been reimbursing customers in its auto and mortgage businesses for these abuses. Wells Fargo has been refunding auto loan customers since July and been mailing refund checks to impacted mortgage customers since December.
While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.
“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!,” Trump wrote on Twitter back in December.
The abuses being addressed Friday are not tied directly to Wells Fargo’s well-known sales practices scandal, where the bank admitted its employees opened as much as 3.5 million bank and credit card accounts without getting customers’ authorization. But they do involve significant parts of the bank’s businesses: auto lending and mortgages.
Last summer Wells Fargo admitted that hundreds of thousands of its auto loan customers had been sold auto insurance that they did not want or need. In thousands of cases, customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.
In a separate case, Wells Fargo also admitted that thousands of customers had to pay unnecessary fees in order to lock in their interest rates on their home mortgages. Wells Fargo is the nation’s largest mortgage lender.
Wells Fargo has been under intense scrutiny by federal regulators for several months. The Federal Reserve took a historic action earlier this year by mandating that Wells Fargo could not grow larger than the $1.95 trillion in assets that it currency held and required the bank to replace several directors on its board. The Federal Reserve cited “widespread abuses” as its reason for taking such an action.
This settlement does not involve Wells Fargo’s wealth management business, which is reportedly under investigation for improprieties similar to those that impacted its consumer bank. Nor does this involve an investigation into the bank’s currency trading business.
Consumer advocates have been critical of the Trump administration’s record since it took over the CFPB late last year. However, advocates were pleased to see Wells Fargo held to account.
“Today’s billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo’s fraudulent and abusive practices,” said Pamela Banks, senior policy counsel for Consumers Union.