Articles of Interest

  • 09 Jan 2017 10:18 AM | Daniel Mitchell (Administrator)

    The Cap-and-Trade Solution to Our Trade Dispute With China

    Warren Buffett’s Three-Decade-Old Plan Could Finally Be the Right Idea

    BY DANIEL J.B. MITCHELL | JANUARY 9, 2017 | Zocalo Public Square

    President-elect Trump’s criticism of our trading relationship with China and our trade deficit with that nation has produced predictable reactions. Economists warn against “protectionism” and the dangers of trade wars. Alarmed diplomats remind us of the American interest in maintaining good relations with China to deal with such matters as North Korea’s threatening behavior.

    These reactions are predictable because we have heard them all before. Back in the 1980s, the trade villain de jour was Japan. (China was just emerging into world markets.) Proposals to address trade deficits with Japan provoked the same reactions from professional economists and foreign policy experts that we hear today.

    But there was one exception in the 1980s. On May 3, 1987, famed financier Warren Buffett published an essay in The Washington Post entitled “How to Solve Our Trade Mess Without Ruining Our Economy.” His solution was thoughtful and new.

    He proposed a market-based system similar to the “cap-and-trade” arrangements currently in use to limit greenhouse gas and other pollutants. Very simply, Buffett suggested that for each dollar of exports from the U.S., the exporter would receive a government voucher entitling the bearer to import a dollar’s worth of goods or services.

    The vouchers could be used directly by the exporter or sold to some third party (an importer). That is, there would be an open market for vouchers. But, since no one could import without the requisite vouchers, the value of imports would be limited to the value of exports. U.S. trade with the entire world would be balanced.

    The idea seemed to find a middle ground in the arguments over trade deficits. It was neither protectionist (it included no tariffs or quotas) nor did it involve Japan-bashing (the analog of today’s China-bashing). But Buffett’s piece, after causing a brief flurry of interest among the D.C. chattering class, was quickly forgotten.

    Why? Perhaps it was because Buffett was not an academic economist, so his view could be dismissed as an amateur’s musings. Perhaps it was because there wasn’t enough of a consensus that a trade deficit is a problem. Perhaps it was because even among those inclined to be more worried about deficits, Buffett’s proposal was seen as a solution to a problem that would soon go away without further action. At the time, the dollar’s value in international currency markets happened to be falling. It was easy to argue that a declining dollar would correct the trade imbalance by making American goods more affordable in world markets.

    But the problem didn’t go away. Moreover, within a few years, China joined Japan in running large trade surpluses with the U.S. Now, when Trump’s complaints are discussed, we again hear that the problem with China is yesterday’s issue, and that the problem will soon disappear, as wages in China go up, along with the value of its currency. But it didn’t in the 1980s and it won’t now. Which is why we should revive Buffett’s idea.

    The problem of America’s trade imbalance isn’t specific to one or two countries—our nation runs a massive “$500 billion net export deficit” with the rest of the world.

    There are two ways such a significant trade imbalance hurts us. The first—but lesser—element is the displacement of American manufacturing jobs. That issue is clearly the one with the most political salience. Manufacturing would definitely benefit from a correction of the U.S. trade imbalance, but trade isn’t entirely to blame for the fact that only about one in ten U.S. jobs are in that sector nowadays (down from three out of ten after World War II); technology has played a major role in that downsizing as well.

    The second, more significant if less politically salient problem with all those deficits is that it forces the country to sell off its assets and/or run up its debt—which is just what the U.S. has been doing for decades. In one way or another, this generation’s imbalanced consumption will be paid for by future generations. There is a fundamental unfairness in that intergenerational transfer which correcting the trade balance would alleviate.

    The Buffett proposal addresses both these economic ailments. The Buffett system also doesn’t require negotiating “great” trade deals. And there is no need to bash any country in pursuit of such deals; the impersonal voucher market brings about the zero-trade balance, not some hardline negotiation. And if any one country tries to grab a bigger share of the U.S. market for imports through tactics such as currency manipulation, it can only do so by reducing the market shares of other countries. So the pressure is on those other countries, not the U.S., to enforce rules of fair trading. If you’re an American diplomat worried about the international political effects of China-bashing, the Buffett plan is ideal for you.

    But what if you’re a professional economist worried about “protectionism”? Your first reaction to the Buffett plan is likely to be that, given the current trade imbalance, the vouchers amount to a subsidy to exports and a tax on imports. You want to holler protectionism! But instead take a deep breath and think it through.

    The Buffett voucher plan is equivalent to resetting the dollar exchange rate to a level that would bring about balanced trade. It is equivalent to a sufficient devaluation of the dollar to accomplish that end. Note that under current arrangements, the dollar regularly goes up and down in currency markets although it has never been low enough to create a zero trade balance (exports = imports). Is every drop in the dollar’s value a move into protection? Is every dollar appreciation a move toward free trade? Such up-and-down labeling makes no sense. Indeed, one nice feature of the Buffett plan is that you could in principle lower or eliminate remaining U.S. tariffs and other trade barriers and still end up—due to the voucher system—with balanced trade.

    In short, it’s time to dust off the Buffett plan of three decades ago before the U.S. embarks on a road to frictions with China and other trade partners. Sometimes, when it comes to people and ideas, there is wisdom in the old.

    Daniel J.B. Mitchell is professor-emeritus at UCLA Anderson School of Management and at UCLA Luskin School of Public Affairs.

    A version of this op ed also ran in the Houston Chronicle, 1-8-17:

  • 06 Jul 2016 11:57 AM | Daniel Mitchell (Administrator)

    The abortive firing of Los Angeles County Coroner Thomas Noguchi in 1969 led to a major shift in the Japanese-American community of that era. The community had previously been largely quiet since the return from the World War II internment experience. Link below:

    [Draft chapter for California Policy Options: 2017]

  • 09 Apr 2016 7:16 AM | Daniel Mitchell (Administrator)

    Can Socialists Lose an Election and Still Get Their Revolution? 

    Upton Sinclair Failed in His 1934 Bid to Govern California, but His Radical Campaign Left a Lasting Mark on Politics


    A self-proclaimed socialist decides to run for high office. And, for practical political reasons, he becomes a Democrat to do so.

    Soon he attracts enthusiastic supporters to his cause with his unconventional ideas for transforming the economy. His campaign is portrayed as a revolution, upsetting received wisdom about politics and media. And, despite strong opposition from the party’s establishment, he goes on to win the Democratic nomination. 

    Is this the future of Bernie Sanders in 2016? No. It’s the past: Upton Sinclair in California’s race for governor in 1934. 

    The U.S. has had its share of socialist candidates and socialist politicians, but Sinclair’s was among the most consequential. Sinclair’s candidacy is also among the most closely studied. The Campaign of the Century is the title of Greg Mitchell’s now classic book about Sinclair’s run. Mitchell—no relation, alas—showed how the 1934 governor’s race changed politics, opening the door to the national media-driven, consultant-managed campaigns we still have today. This was Sinclair’s inadvertent revolution—and more revolutionary than anything Sanders has done yet. 

    Sanders is echoing Sinclair’s message: The capitalists have too much power and must be stopped. “Capitalists will not agree to any social progress completely eliminating unemployment because such a program would reduce the supply of cheap labor,” Sinclair said. “You will never persuade a capitalist to cause himself losses for the sake of satisfying people’s needs.” 

    Sinclair was a famous crusading journalist and novelist when he ran for governor, and his campaign was different in form from today’s anti-establishment bid. For one thing, it had far more infrastructure—and was more of a true movement—than Sanders’ effort has been.

    Sinclair’s campaign was part of the larger “End Poverty in California” campaign. It swept up the nation, and was the subject of books and media coverage. More than 1,000 EPIC clubs were launched, giving Sinclair a network far deeper than an online fundraising database. 

    While Sanders has specific policies, they pale in specificity to Sinclair’s. He published a short book called: I, Governor of California and How I Ended Poverty: A True Story of the Future. It was full of ideas—from state takeovers of farms and factories, to the establishment of a state-managed cooperative economy, to a $50-a-month pension for the elderly, all to be financed by a California monetary authority. 

    Sinclair won the Democratic primary easily. Despite the fact that history does not necessarily repeat, what is most interesting to note, in light of current political facts, is what happened after Sinclair won the nomination. 

    Sinclair’s Republican opponent, incumbent Governor Frank Merriam, was a rather lackluster personality, not a Trump-type or a Cruz-type firebrand. Merriam had been lieutenant governor and assumed the governorship on the death of his predecessor only a few months before the 1934 general election. Despite his limitations, Republicans and many conventional Democrats felt so threatened by the prospect of a radical Sinclair governorship that they rallied around, and voted for, Merriam. With the aid of a major (and pioneering) negative campaign, including Hollywood-produced attacks against Sinclair, Merriam won the 1934 election. 

    That result, however, was not the end of the story. The EPIC campaign had substantially boosted Democratic registration in California and some EPIC Democrats were elected to the legislature, even as Sinclair lost. Four years later, an EPIC Democrat, Culbert Olson, was elected governor. Olson was something rarer than a socialist in American politics—he was an avowed atheist. 

    So you can read this tale in various ways. On the one hand, Sinclair lost the 1934 election. On the other, he brought new voters into the political process and generally tilted California toward the left. 

    Olson was not a particularly effective governor and on key issues often was opposed by members of his own party in the legislature. For example, Olson’s plan for a state health insurance program was quickly killed. In 1942, Olson was defeated for re-election by Republican Earl Warren. Republicans then held the governorship until 1959 when Jerry Brown’s dad, Democrat Pat Brown, became governor. For decades thereafter, Republicans and Democrats each had their share of governors. 

    So is there any lesson from Sinclair and his aftermath? Sinclair himself published an account in 1935, I, Candidate for Governor: And How I Got Licked, that entertainingly repeated his themes, and portrayed the campaign as a success, despite its defeat. 

    So yes, a losing socialist can change politics. But another lesson is that the general electorate tends to reject perceived radicalism, even when such candidates attract a cadre of loyal enthusiasts. And even if elected, such candidates would have to face the complex checks and balances of the American political system that make it easier to block great plans than to enact them. 

    Daniel J.B. Mitchell is professor emeritus at the UCLA Anderson School of Management and the Luskin School of Public Affairs.

  • 10 Aug 2015 2:42 PM | Emily Smith (Administrator)
    By Françoise Carré | June 8, 2015


    Executive summary

    Numerous state-level studies show that between 10 and 20 percent of employers misclassify at least one worker as an independent contractor. Independent contractor (IC) misclassification occurs when a worker who should be considered a direct employee of a business—and receive a W-2 form to file with tax returns—is treated as a self-employed, “independent” contractor, and receives a 1099-MISC (miscellaneous income) form instead. The overall numbers have likely increased in recent years as workers in such traditional industries as construction, trucking, and stagecraft have been joined by a growing cadre of “on-demand workers,” who often get their assignments via the Internet (Weber and Silverman 2015). Independent contractors working in the on-demand economy include technical workers, house cleaners, drivers, and scores of others—some of whom are misclassified employees. All independent contractors, in old or new industries, are ineligible for benefits such as the minimum wage, overtime pay, unemployment insurance, and workers’ compensation.


    Misclassified workers can now be found in almost every sector of the economy, working for small companies to publicly traded multinational corporations. For example, Atlanta stagehands for concerts produced by Live Nation, a company listed on the New York Stock Exchange that has held shows for such artists as Maroon 5 and Billy Joel, have been misclassified as ICs by a staffing provider (Vail 2015; DePillis 2015). An estimated one-third of construction workers in Southern states such as North Carolina and Texas have been misclassified (Ordonez and Locke 2014a). And roughly 20,000 employees of CrowdFlower Inc., a San Francisco–based startup that breaks down digital jobs such as data entry, are misclassified, alleges a case now moving through the courts (Weber and Silverman 2015).


    The costs to tax and social insurance systems and to workers add up. Businesses that misclassify fail to pay mandatory payroll taxes—Social Security and Medicare (FICA) and unemployment insurance (UI)—and workers’ compensation insurance. The independent contractor is made responsible for the full FICA tax (rather than half). The loss of billions of dollars in tax revenue creates a significant financial burden for local, state, and the federal governments, not only due to lost revenue but also because of the added cost of providing social services to uninsured workers. Businesses also are harmed by the practice of worker misclassification. Law-abiding firms that pay their taxes and properly classify their workers as employees face a competitive disadvantage and may feel pressured to cut corners with their workers’ employment status if they wish to remain competitive.

    As a rule, companies found to be misclassifying workers and violating tax laws by the Internal Revenue Service usually do not get penalized by federal authorities due to legal constraints on the IRS. Not only are they not fined, they are often allowed to continue misclassifying workers under a tax loophole known as “Safe Harbor,” according to an investigative report by McClatchy (Ordonez and Locke 2014b). When companies are found in violation of state unemployment insurance laws, they are fined and assessed retroactive taxes. The issue, however, is that states have limited audit capacity. Improvements in coordination of state and federal efforts to uncover misclassification have begun in recent years to boost enforcement.


    Beyond the dollars in play, there are millions of Americans wrongly left uninsured, without benefits and without job security.


    This paper presents state and federal evidence on the magnitude and severity of IC misclassification and recent trends. It looks at related tax issues and other public policy considerations. In addition to more systematic research and existing and planned improvements to the enforcement of labor standards, mixed policy approaches are needed. The scale of the problem will require solutions that go beyond individual worker complaints or court cases, and that include a combination of prevention, information, inspection, and collective worker rights.


    Following are some of the major findings of the report:

    • Misclassification is most common in industries where it is most profitable (such as construction, where workers’ compensation insurance premiums are high), and in industries with scattered worksites where work is performed in isolation. Housecleaning, in-home care, and trucking are industries in which misclassification is particularly common. New “sharing economy” businesses create cause for concern about possible misclassification because it is unclear how “autonomous” these workers really are.
    • Employers who misclassify avoid paying payroll taxes and workers’ compensation insurance, are not responsible for providing health insurance, and are able to bypass requirements of the Fair Labor Standards Act, as well as the 1986 Immigration Reform and Control Act.
    • Misclassified workers are ineligible for unemployment insurance, workers’ compensation, minimum wage, and overtime, and are forced to pay the full FICA tax and purchase their own health insurance.
    • Misclassification undermines worker bargaining power and leaves workers more vulnerable to wage theft.
    • When workers are misclassified, federal and state governments lose out on revenue from income taxes. Federal and state unemployment insurance, worker compensation, and disability insurance systems are adversely affected.
    • Employers who play by the rules are disadvantaged by higher labor and administration costs relative to employers who misclassify.
    • There are a number of policies to address misclassification, including stepped-up enforcement, higher fines, information campaigns, and stronger collective bargaining.
    For the full paper, (In)dependent Contractor Misclassification, click HERE.

    About the author
    Françoise Carré is research director at the Center for Social Policy in the University of Massachusetts at Boston’s McCormack Graduate School of Policy and Global Studies. She has written extensively about temporary and short-term work in the United States and cross-nationally and about low-wage employment, particularly in retail trade. She also contributes research to the global research and action network WIEGO, which focuses on informal employment. Carré’s most recent book, coedited with Chris Warhurst, Patricia Findlay, and Chris Tilly, is Are Bad Jobs Inevitable? (Palgrave, 2012). She has coauthored articles in the journals Work, Employment, and Society and The British Journal of Industrial and Labor Relations, among others, and authored numerous book chapters. She currently is preparing a book manuscript titled “Retail Work Round the Globe,” coauthored with Chris Tilly. Carré holds a Ph.D. in urban and regional studies from the Massachusetts Institute of Technology. She can be reached at

    Economic Policy Institute
    EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.

  • 06 Aug 2015 11:11 AM | Mike Lillich (Administrator)

    Tom Kochan sent this article from "The Street." One of the GE retirees bringing the suit is LERA's Dennis Rocheleau.

  • 09 Mar 2015 9:34 AM | Emily Smith (Administrator)
    Middle Class Incomes Suffer Without Collective Bargaining

    A report from the © 2015 Economic Policy Institute
    1333 H Street NW, Suite 300, East Tower, Washington, DC 20005

    By Ross Eisenbrey | March 4, 2015

    As a broad attack on unions continues, with Republican politicians leading efforts to eliminate unions or weaken them in Illinois and Wisconsin, Missouri and West Virginia, and county-by-county in Kentucky, it’s wise to think about what’s at stake. We now know what happens when employers hold most of the cards and employee power is diminished: profits and CEO pay skyrocket, and worker pay flat lines.

    It is no coincidence that, as the Figure shows, the share of income going to the broad middle class began to fall as union membership and power were reduced. The middle 60 percent of families depend primarily on wages for their income, so as the unions’ ability to raise wages diminished, so did the ability of middle class families to earn a fair share of the nation’s growing income. Research has shown that as unions were less able to establish wage standards the wages of nonunion workers in the same occupations and sectors were also reduced. Politicians who care about the middle class should be looking for ways to help workers gain access to collective bargaining and restore union strength. They certainly ought not weaken them further and limit or forbid collective bargaining.

  • 26 Feb 2015 12:30 PM | Mike Lillich (Administrator)

    This paper empirically examines the widespread belief that voluntarily negotiated agreements produce better long-run relationships than third-party imposed settlements, such as arbitrator decisions or court judgments. Two key outcomes are analyzed—subsequent player performance and the durability of club-player relationship. Major League Baseball provides a compelling setting for these analyses because individual performance is well measured, there is the possibility of relationship breakdown, and both voluntary and imposed settlements are routinely used. While the results clearly show that a third-party imposed settlement is not better than a voluntary one, the evidence in support of the widespread belief is mixed. 


     Baseball arbitration paper v.3 (1) (1).pdf





  • 15 Sep 2014 11:49 AM | Harry Holzer (Administrator)
    Abstract for Postsecondary Education and Labor Market Outcomes for the Disadvantaged

    By B. Backes, H. Holzer and E. Velez

    In this paper we examine a range of postsecondary education and labor market outcomes, with a particular focus on minorities and/or disadvantaged workers. We use administrative data from the state of Florida, where postsecondary student records have been linked to UI earnings data and also to secondary education records. Our main findings can be summarized as follows: 1) Gaps in secondary school achievement can account for a large portion of the variation in postsecondary attainment and labor market outcomes between the disadvantaged and other students, but meaningful gaps also exist within achievement groups, and 2) Earnings of the disadvantaged are hurt by low completion rates in postsecondary programs, poor performance during college, and not choosing high-earning fields. In particular, significant labor market premia can be earned in a variety of more technical certificate and Associate (AA) programs, even for those with weak earlier academic performance, but instead many disadvantaged (and other) students choose general humanities programs at the AA (and even the Bachelor’s or BA) level with low completion rates and low compensation afterwards. A range of policies and practices might be used to improve student choices as well as their completion rates and earnings.

    For the full paper click here.

  • 05 Jun 2013 9:56 AM | Harry Holzer (Administrator)

    I am very pleased to be here today and to have the opportunity to address important questions about the future of our nation’s workforce system.

    I’d like to make the following points:

    1.   The need for effective education and workforce services that would improve the skills of American employees and thus serve the interests of workers, employers, and the overall economy has never been greater than it is today.

    Having the educational levels and occupational training valued by employers is clearly a precondition for any worker who wants to achieve family-sustaining earnings in our current economy. But large percentages of American workers lack such education and skills.[i] The fact that many millions of workers today suffer long-term unemployment that further erodes their skills and labor market information (because of the Great Recession) only exacerbates this problem. And, even with today’s high levels of unemployment, many employers seem to have difficulty finding sufficiently skilled workers to fill vacant jobs.[ii] Employers who face or anticipate these difficulties have incentives to create fewer jobs in America, and fewer good-paying ones at that.

    2.      Ironically, we continually invest fewer resources in workforce services over time to meet this need, and we invest much less than do most other industrial nations. Program consolidation and budget sequestration both threaten to aggravate this disturbing trend.

    By almost any measure, funding for workforce programs in the U.S. has fallen dramatically over time, and especially in the past few years. Such expenditures now constitute less than .1% of GDP, which is less than what virtually any other industrialized country spends on such services.[iii] The capacity of our One-Stop offices to provide needed services to millions of workers under current budgets is often limited, and longer-term training funded within this system has become almost nonexistent. An ongoing budget sequestration, which threatens to further reduce discretionary spending of many kinds, could severely exacerbate this trend; and consolidation might exacerbate it as well, since it is often used as justification for cutting budget appropriations in the workforce area.[iv]    

    3.     Consolidation of many small employment and training programs into one clearly has potential benefits, in terms of savings on administrative costs, as well as potential costs, in terms of particular populations being less well-served than they are today. Both the benefits and costs of any approach to program consolidation should be carefully considered before it is implemented.

    As the recent report by the U.S. Government Accountability Office (2011) indicated, there are potential savings that could be achieved by consolidating administrative structures and colocating some workforce services between the many small employment and training programs now in existence.[v] But the report also points out that we currently have virtually no evidence on how large these potential benefits of consolidation really are. Furthermore, merging such programs might make services less accessible to many groups considered hard-to-serve, such as ex-offenders or disconnected youth, than they are today.  The adage “one size does not fit all” applies very strongly to different demographic groups with different levels of skill deficiency and different kinds of barriers to participation in the workforce, and it is important that our programs recognize these differences and account for them. 

    4.     It is very important that we institute reforms to better integrate and coordinate our nation’s education programs with our workforce systems, and make both more responsive to the needs of the U.S. labor market and economy. But a simple consolidation of many programs into one does not necessarily help us achieve this goal.[vi]

    Our nation’s career and technical education, higher education and workforce programs should operate together to better enable workers to gain the credentials valued by employers. Industry-specific partnerships between employers, education providers and workforce agencies are a proven way of achieving this goal, while the existence of clear “career pathways” for students and workers to gain these credentials seems critical as well. Using available data to inform students and educators of which sectors and jobs are in high-demand, and incenting our education and workforce agencies to better meet this demand, is important as well. In my view, the proposed Workforce Investment Act of 2013 contains several key provisions that would move us towards achieving these goals, though it is less clear that the recent consolidation proposals would do so as well. This should be the primary goal of any new workforce legislation in the coming years.    

    [i] Claudia Goldin and Lawrence Katz, The Race Between Education and Technology, Harvard University Press, 2008; Harry Holzer and Robert Lerman, America’s Forgotten Middle-Skill Jobs, The Workforce Alliance, 2007.

    [ii] Michael Elsby et al., “The Labor Market in the Great Recession,” National Bureau of Economic Research Working Paper, 2010; Harry Holzer, Testimony before the Joint Economic Committee of Congress, July 2011.

    [iii] Chris O’Leary et al. eds., Job Training Policy in the United States, W.E. Upjohn Institute for Employment Research, 2004.

    [iv] For example, Budget Committee chair Rep. Paul Ryan frequently uses consolidation as justification for cutting funding for WIA and other workforce programs in his proposed federal budgets.

    [v] Multiple Employment and Training Programs: Providing Information on Colocating Services and Consolidating Administrative Structures Could Promote Efficiencies. United States Government Accountability Office, 2011.

    [vi] For a new proposal to promote more such integration and coordination see Harry Holzer, Raising Job Quality and Skills for American Workers: Creating More-Effective Education and Workforce Development Systems in the States,  the Hamilton Project, Brookings Institution, 2011.

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