Skip to comments.What I Learned in the Poverty War - Work, not welfare, uplifts the poor.
Posted on 12/29/2012 7:49:19 PM PST by neverdem
Nearly half a century ago, I dropped out of graduate school and enlisted as a foot soldier in Americas War on Poverty. Today, Im still on the front lines, working to move people out of dependency and into employment. But with an important difference: Ive become fed up with the useless policies that I once supported, and Im trying to change the strategy of our bogged-down army.
We know for certain that income transfers, the preferred tactic of generations of liberals, have utterly failed to end poverty. My firsthand experience with welfare clients has shown me why: being on the dole encourages dependency. Working at a real job, by contrast, is the surest way for a person to climb out of poverty. Accordingly, the surest way for the government to fight poverty is to eliminate cash assistance almost entirely and offer jobs instead.
During his all-too-brief presidency, John F. Kennedy signaled that he wanted to reform the nations Depression-era welfare system by giving a hand, not a handout to the poor. As Charles Murray noted in his magisterial study Losing Ground, Kennedys small initiative, which consisted of a few training programs and other rehabilitative efforts amounting to only $59 million in the 1963 budget, . . . represented a major departure nonetheless, since it shifted welfare policy away from the dole and toward escape from the dole. When President Lyndon Johnson expanded Kennedys program into the War on Poverty, he likewise wanted not to mire generations in dependency but to free them from it. The days of the dole in this country are numbered, Johnson promised at the signing ceremony for the War on Poverty legislation in August 1964.
Listening to his soaring rhetoric, I believed that our nation was on the cusp of one of the great peaceful revolutions of modern times: the elimination not only of welfare but also of poverty and want. After all, by the mid-1960s, America was the worlds most affluent society, and economists predicted that the economic boom and high employment rates would continue for many years to come. The conquest of poverty, the 1964 Economic Report of the President explained, was well within our power. About $11 billion a year would bring all poor families up to the $3,000 income level we have taken to be the minimum for a decent life. The majority of the Nation could simply tax themselves enough to provide the necessary income supplements to their less fortunate citizens. The following year, the government allocated even more than the report had called for—$14.7 billion—to transfer payments.
That money deployed an arsenal of supposedly innovative weapons, including community action organizations requiring maximum feasible participation by the poor. Social-policy elites and the media jumped onto the bandwagon, predicting that the war would finally overcome the structural poverty imposed by the existing economic order. That understanding of the causes of poverty had been bolstered by the success of Michael Harringtons 1962 book The Other America, which directly influenced JFK.
It was in this political and ideological atmosphere that I became a young antipoverty warrior, arriving in New York in 1965 to work for the Antipoverty Operations Board, a new agency created by Mayor Robert Wagner to manage the citys cut of the federal War on Poverty dollars. One of my first assignments was to help write the citys funding proposal to the federal government. I recall going to City Hall at 3 AM one day, getting a deputy mayors signature on that proposal, and then racing to LaGuardia Airport for the Eastern Airlines shuttle to Washington, D.C., so that I could deliver the document to the Office of Economic Opportunity just ahead of the official deadline. Through the first few years of the program, I worked for the city with other young, liberal policy analysts, making decisions about which local antipoverty groups deserved federal funding.
Its almost impossible to describe the excitement that we felt as we crafted plans for new entitlement programs with few budget constraints. The programs earmarked for federal funding offered health care, education and training, housing assistance, counseling, and other social services meant to prepare the poor for their new responsibilities. Inspired partly by our slain president, who had challenged us to ask what we could do for our country, and partly by our belief that the economic system needed to be humanized by compassionate social-justice policies, we believed that we were part of something great and good.
But the governments unprecedented expenditures failed to bring about the decline in poverty that Johnson had promised. Instead, they made things worse. Neither city hall nor I comprehended that the community action organizations on which we lavished taxpayer dollars would entrench dependency by urging people to get on the welfare rolls. War on Poverty funds paid for social workers, community activists, and lawyers to organize the poor, but these organizers, far from lifting poor people out of dependency, helped them sign up for more—and more expensive—welfare programs. For instance, the National Welfare Rights Organization urged single black mothers to protest the welfare systems eligibility restrictions, and the organizations goal was to flood the system with new clients.
The activists succeeded beyond their wildest imagination. By the end of the 1960s, during a period of economic prosperity and low unemployment, one out of every seven New Yorkers was on the dole. By 1975, War on Poverty spending (in inflation-adjusted dollars) had tripled, and the percentage of poor families income supplied by welfare had risen from 7.5 percent to 14.1 percent. Under the pressure of the advocates, government programs emphasized welfare rights, postponed self-sufficiency, supplied unproven and expensive services, and left most welfare clients out of the workforce. Thats perhaps the main reason that, as some pundits quipped, in the War on Poverty, poverty won. Yet my enthusiasm was undiminished; I had become a true believer. Along with my comrades on the left, I continued to think that income transfers were the most effective way to reduce the human pain of poverty.
What opened my eyes was a job I took in the mid-1970s at the Vera Institute in New York, led by the brilliant policy innovator Herbert Sturtz. Sturtz created small demonstration programs; researched them scientifically, sometimes with control and experimental groups; and, if they proved successful, asked governments or foundations to take them on and expand them. One of the demonstration programs, the Wildcat Services Corporation, was running employment programs for the most hard-to-place welfare recipients in all five boroughs, and Vera asked me to head Wildcats Manhattan and Bronx offices.
At Wildcat, we showed that the best way to get clients off welfare was to get them paid work immediately, rather than enroll them in training and education programs. I saw with my own eyes the value of work—any kind of paid work—in reducing welfare dependency and attacking poverty. I learned that if we helped welfare clients get jobs, even entry-level jobs, they would then attend to their other needs. By contrast, if the government gave them money and other benefits, they were likely to remain dependent.
The reasons should have been obvious all along. Work maximizes a persons capacity to achieve economic self-reliance. Work socializes people and instills a sense of personal responsibility in them. Work connects behavior and consequences. And it permits people, especially men, to obtain the admiration and respect of their spouses and children by supporting them.
Another signature achievement of Veras, by the way, was its practice of conducting research on its own initiatives, something practically unheard-of at the time. Almost all War on Poverty programs shied away from serious empirical research, since they were mainly run by people with an ideological belief in the redemptive power of their own programs. Measuring the performance of their antipoverty efforts threatened that belief.
I became so convinced that the evidence supported the work-first approach that in 1984, I created a for-profit company called America Works to carry it out. My wife, Lee Bowes, eventually became the CEO and has been responsible for its success. The plan was to offer employment services to state and local welfare agencies with the aim of placing welfare recipients in jobs quickly, with a minimum of time spent on training.
Around the same time, Wisconsin was experimenting with work-first approaches to welfare reform. But the conventional wisdom was that there was no place for a private, for-profit venture in the antipoverty field. Most activists believed that helping welfare recipients was Gods work, that making profits was dirty, and that a private company would inevitably rip off the profits and reduce services to the poor. I got a boost, though, from Ohio governor Richard Celeste, who let me secure a contract from his states social-services department to open welfare-to-work programs in Cleveland and Dayton. With that contract in hand, I raised $1 million in start-up money, betting that a for-profit company could do the job better than government welfare agencies could and simultaneously bring accountability to a field that desperately needed it.
America Works staked its survival on the proposition that welfare clients, properly motivated and helped with a limited amount of technical assistance, could be successful at getting and holding jobs. Our typical contract with a welfare department stipulates that we dont get paid our full fee until we place a client in a job and the client then completes a successful probationary period of four months. This arrangement motivates our trainers and employment specialists to perform well: they understand that if they are unsuccessful with job placements, America Works will fail, and theyll be out of a job.
Our experience has confirmed that the main obstacles preventing welfare clients from finding and retaining jobs are a lack of connections and gaps in interpersonal skills. Extended education and training programs are unnecessary, time-consuming diversions; clients with shaky self-confidence are best served by early success in getting a job, not by long periods of preparation. Our weeklong training sessions are narrowly focused on the attributes and skills needed to land an entry-level job. Our trainers work with clients on the basics, such as maintaining a businesslike personal appearance, speaking properly, preparing a résumé, and showing up on time. Clients quickly learn that success depends on self-discipline and their own motivation and effort.
In the past 27 years, America Works has placed more than 250,000 poor people, with an average of five to six years on the rolls, in private-sector jobs, with an average starting wage of $10 per hour plus benefits. In our New York program, to take one example, more than half of these new workers were still on the job after 180 days. The employers that we have worked with include prestigious companies, such as Time Warner, Cablevision, Aramark, J. C. Penney, and American Building Maintenance Industries. Most of these employers keep coming back, asking for more of our referrals.
Single parents, drug and alcohol abusers, the mentally handicapped, the homeless, military veterans with posttraumatic stress disorder, and others with disabilities have succeeded admirably in a wide variety of jobs and have lifted themselves out of a lifetime of poverty. Take Ann Marie Lynch, a welfare mother of two who was evicted from her apartment and entered a homeless shelter in 2009. Luckily, she came to America Works, where we helped her compose a résumé, prepared her for interviews, and sent her to meet potential employers. After two months, she began a job as a home health aide; she even began working on an associates degree in business administration, which she received this May.
Despite our track record, we were never fully accepted by the welfare-industrial complex. In Ohio, county welfare offices and traditional social-services agencies flexed their political muscles and successfully lobbied the state to discontinue our contract after two years. In New York, during the mayoralty of David Dinkins, city agencies rejected our bids for welfare-to-work contracts four consecutive times. At one point, we were accused of creaming—selecting only the ablest clients, who would have landed jobs on their own anyway. That claim was disproved by a study conducted by NYU political scientist Lawrence Mead showing that our clients were representative of the general welfare population.
But we achieved a breakthrough with the election of Rudy Giuliani as New Yorks mayor in 1993. Lee and I had first met him after he lost the previous election to Dinkins. Giuliani was initially skeptical that it was possible to move long-term welfare clients so quickly into employment and that there were many companies willing to hire them. But then he made a visit to our offices and became convinced. In his two terms as mayor, Giuliani reduced the welfare rolls by hundreds of thousands. He did this, in large part, by emphasizing work programs. At a celebration for the 25th anniversary of America Works two years ago, Giuliani remembered a Gotham that
was going into a second and third generation, in many cases, of people in families that hadnt worked, that didnt know the experience of work. It got me thinking that all the incentives in the welfare programs run by the city, the state, and the federal government were wrong. All the incentives were to put people on welfare. People put more people on welfare, they got bigger offices, they got bigger titles, they got more money, so in essence, failure in the lives of the people and failure in society became success for the welfare worker. I probably never would have thought of our own workfare program if I hadnt gone to America Works.
The winds of change soon reached Washington. In his first State of the Union address, President Clinton promised to end welfare as we know it. His reform plan, he said, would transform welfare from a way of life into a second chance on the way to employment. The following year, he signed the Personal Responsibility and Work Opportunity Reconciliation Act, the biggest change in welfare programs since the New Deal. Welfare activists and many Democrats were aghast at the mandatory work requirements in the legislation, as well as its threat that people who didnt move toward employment could be kicked off the rolls. Even Senator Daniel Patrick Moynihan, no bleeding-heart liberal, famously predicted that children will be sleeping on the gratings of sidewalks.
But such dire warnings were off the mark. Clintons welfare reform embraced the work-first ideal—at least in part—and the results were nothing short of remarkable. Welfare rolls plummeted from 12 million to 4.5 million nationally within one decade. In 2005, Congress reauthorized the reform by embracing work-first even more enthusiastically (see Welfare Reform, Phase Two, Winter 2009).
The success of welfare reform is widely acknowledged. Far less widely acknowledged is that the nation still has a tremendous work problem. In 2010, the latest year for which we have census data, a full 66 percent of poor people older than 15 did not work—a total of 21 million individuals. That isnt just a consequence of the economic crisis: in 2007, the number was 16 million individuals, or 64 percent of poor people older than 15. Nor does it imply a situation in which one parent works while the other raises the kids, since in 2010, 35 percent of all poor families had no working members at all. Though welfare reform succeeded in getting many poor people into jobs, millions remain on welfare today, to say nothing of such programs as Medicaid, public housing, and food stamps. And welfare reform itself has come under attack recently, with the Obama administration issuing waivers that free states from complying with the laws work requirements.
My experience with long-term welfare clients has led me to propose a radical solution: that we abolish all cash welfare, as well as food and housing assistance—except for the elderly and the physically and mentally disabled—in order to move from a dependency culture to one of work-first. This recommendation may sound impractical at a time of high unemployment. But the work-first principle can easily be implemented even in a down economy, as America Works proved by getting jobs for more than 500 ex-convicts in Detroit—a local economy with 14 percent unemployment—in the past two years. After all, despite the economic downturn, more than 3 million jobs per year go unfilled in the United States.
The federal government would use the huge savings from eliminating welfare to create or subsidize private-sector jobs, sending money to companies to reduce the cost of hiring and paying new workers. The government could also create programs similar to those run by the Depression-era Works Progress Administration, paying workers to build parks, refurbish bridges, clean streets, and so forth. The workers wages would pay for the basics—food, clothing, and shelter.
But once we dismantle cash welfare and other forms of aid and offer paying jobs in their place, what about the children of those few people who simply refuse to work? I think that we should seriously contemplate removing these unfortunate children from their irresponsible parents. Under current child-welfare laws, social-services agencies can already take kids away from their parents if their home environment is unsafe. Is it so extreme to extend that policy to homes ruined by willful poverty and neglect? I concede that the alternatives here are not pretty; government-regulated foster care, in particular, has its own risks of abuse. Adoption, however, works fairly well in most of the country. Another solution would be the establishment of government-funded institutions, operated by voluntary and religious nonprofits, to care for the children.
Jobs cant replace all welfare and poverty programs. There will always be some people who are emotionally or physically unable to work and who require government assistance. But even the so-called deserving dependents should be more carefully scrutinized. In the last ten years, the number of newly enrolled recipients of SSDI, a federal benefits program that provides aid to disabled people who cant achieve gainful employment, has risen 44 percent. That suggests that many people are abusing the system.
In public policy, we should deduce our theory from practice. Unfortunately, most people in the business of helping the poor turn that principle upside down, proposing theories first and then basing programs on them. Such people will surely oppose my proposals. Perhaps they should consider a concept from medicine—the word iatrogenic, which describes an adverse condition caused by the physician. Doctors take an oath not to contribute to iatrogenic conditions; they may not continue a treatment when that treatment itself causes harm. For the doctors of welfare policy, no such principle exists.
Can we finally confront the problem of entrenched poverty and dependency and make the difficult choices necessary to fix it? The cynic in me sees little chance that the public would seriously consider my proposals. But my optimistic side, the one shaped by finding jobs for supposedly unemployable welfare recipients, holds out hope that the nations fiscal crisis will allow serious consideration of policies that were once unthinkable. Stranger things have happened in America.
Heck no. I don't think 40 million new government employees in Obama's Civilian Army is a good idea.
Just one more rich racist white guy who wants hold the people down while projecting his own guilt feelings on the poor oppressed folks who have been deliberately crammed into the worst part of town because that’s the only place whites will let them live.
That’s why the rice fields are being cleared for planting, as we speak.
When you give someone a handout you lose wealth.
When you give them a job you still have the money you gave them because you have received production of equal value.
It would help if those posting ACTUALLY read the article. This guy was a big government socialist, but found a better way. He advocates WORKING first, and the elimination of cash welfare benefits.
We tried to get some common sense restrictions on their activities, only to be met by this well organized mob of professional do-gooders. The problem with attacking poverty is that you're dealing with a triple self-interest group: the “clients”, the people “serving” the clients, and the politicians pandering to the first two, all of them full of self-righteousness and spewing pseudo-morality, and none of them remotely concerned about the damage they're doing to the quality of life of the majority of the community.
He's not talking about getting them government jobs. He's had success in placing these supposedly unemployable welfare recipients in private sector jobs.
I'm with you. But I think there is still merit to this guy's ideas. The first thing we need to do is to get America working again. And that means raising import tariffs.
We are buying from the Chinese and employing them instead of buying American. And Governmental trade policy can change that.
Once there are private sector jobs available, then we can move welfare recipients to work. And in the process we will increase government revenues and decrease government outlays and much of our budget problem will go away.
Can’t buy a luxury car and nice place on welfare.
>> It would help if those posting ACTUALLY read the article.
I had a creative writing prof used to say “If you can’t shoot your wad in 1,000 words, you’re in the wrong business”. Care to do a word count in this tome?
>> well organized mob of professional do-gooders ... triple self-interest group: ... full of self-righteousness and spewing pseudo-morality, and none of them remotely concerned about the damage they’re doing to the quality of life of the majority of the community.
Well said, sir, well said.
>> well organized mob of professional do-gooders ... triple self-interest group: ... full of self-righteousness and spewing pseudo-morality, and none of them remotely concerned about the damage they’re doing to the quality of life of the majority of the community.
Well said, sir, well said.
Lets see, we have an out of control horde of regulatory agencies costing private industry $10 Trillion a year and we have the highest corporate tax rates in the industrialized world. Both are major factors in driving corporations to more business friendly economies.
As a solution you propose driving those punishing policies to foreign producers, driving prices up for your fellow Americans. I’d prefer making the US competitive once again by a major reduction in regulations and a complete elimination of corporate taxes!
The obamaphone class isn’t interested in being “uplifted”. It is ONLY interested in how much they can get for free.
“Another signature achievement of Veras, by the way, was its practice of conducting research on its own initiatives, something practically unheard-of at the time. Almost all War on Poverty programs shied away from serious empirical research, since they were mainly run by people with an ideological belief in the redemptive power of their own programs. Measuring the performance of their antipoverty efforts threatened that belief.”
Just like global warming, just like gun control.
It began as a housing marvel. Built in 1956, Pruitt-Igoe was heralded as the model public housing project of the future, "the poor man's penthouse."SOURCE: Amazon.com
Two decades later, it ended in rubble - its razing an iconic event that the architectural theorist Charles Jencks famously called "the death of modernism." The footage and images of its implosion have helped to perpetuate a myth of failure, a failure that has been used to critique Modernist architecture, attack public assistance programs, and stigmatize public housing residents.
The Pruitt-Igoe Myth seeks to set the historical record straight. To examine the interests involved in Pruitt-Igoe's creation. To re-evaluate the rumors and the stigma. To implode the myth.
Your CW prof was seriously off-base.
PS It worked then too.
It appears conservative anger with the MSM has hit home... You're forgiven for being a member of a liberal elite team...you're repented your ways and are forgiven.
It appears conservative anger with the MSM has hit home... You're forgiven for being a past member of a liberal elite team...you've repented your ways and are forgiven.
We need to lower the cost of government and lower the cost of doing business in this country. Shutting down dollar stores and raising prices to lower the standard of living isn't the answer. If you think we're ever going to produce low-priced widgets in this country just by raising the price, you are insane.
Which PROVES we do not need government involved to do that
On the other hand, if you can't read more than 1000 words at a sitting, you may have ADD.
>> On the other hand, if you can’t read more than 1000 words at a sitting, you may have ADD.
If I do, as an engineer with an M.S. (with a straight “A” average in grad school, BTW), things were just fine in the schoolhouse. The point here is at a greater than 3200 word count, posted on a staunchly conservative website, how much of it do you need to read to say “Yup, this guy’s got a point here - you’ve convinced me”?
Also, notice that he uses the “I” word 46 times. There’s a saying that goes Everyone has at least one good book in them, So - get an editor who will clean up the droning on and on, and publish it as a book.
Exactly. And this guy is running a PRIVATE business of his own. He is trying to privatize job placement services and take it out of the hands of government, which in my own experience does it very badly.
Excellent piece. The tens of millions of able-bodied adults not working is a lot of what lies at the heart of what ails our country at this time. A change in policy to push them into the labor force would go a lng ways towards improving the situation.
You can eliminate all taxes and regulations and you won't be able to compete with Communist China's $2/day wages.
By the way China has a 90% Tax rate, and they are doing just fine. Why? Because they have cheap labor and they can sell to us without buying hardly anything back except our debt and manufacturing know how.
If you block access to our markets, or raise the price of imports, things will get produced in our country. And our people will go back to work. Our founding fathers put import tariffs in place, and they worked well for most of our country's history. Now they are practically gone and our unemployment is through the roof.
You can eliminate all regulations and taxes and you still can't compete against Communist Chinese labor at $2/day.
"we have the highest corporate tax rates in the industrialized world."
China has tax rates of 90%. Yet everything in Wal-mart is still made in China? Why? It is the wage differential. China's high tax rate actually helps keep their labor costs down.
We have a choice. We can employ Americans or we can employee Chinese. If we employ Americans, our neighbors will be richer and buy more from us. U.S. government revenues will be higher, and U.S. government outlays for unemployed will be lower.
If we buy Chinese, we get cheap prices, but don't expect that money to come back and buy other U.S. goods. The Chinese government keeps the profits and uses it only to buy U.S. debt or more manufacturing know how.
You clearly do not understand the cost structure of goods. In addition, the typical wage for manufacturing in China is in line with Mexico, which is quite a bit lower than in the US but is not the $2 you reference. Plus, there is no 90% tax rate in the products that I am currently negotiating to be produced in China, so I don’t have any idea where you are getting that information.
Yes, in labor intensive products it would be most effected by labor, but once that product gets to be too difficult to ship (weight, size, lack of packing density, etc.) it is quickly no longer a benefit to outsource to cheap labor markets. In addiiton, in high capital low labor products, there is no general benefit to any particular region in the globe, hence you see them localize to the markets that they serve.
The other areas of costs are relatively equalized globally, unless there is some abundance of raw materials or if a government unfairly subsidizes an industry. So, yes a ZERO corporate tax rate and a very large reduction in regulations would go a long way to benefiting Americans by bringing manufacturing of high capital requirements and high skill labor back to the US. I’m OK with the Chinese making my tennis shoes, while we trade in more intellectual persuits and manufacture the next world changing innovation.
The difference between our positions can be explained in a macro way. I prefer supply side economics and you prefer demand side economics.
Well at least we've established that you stand to gain by maintaining the status quo.
"but once that product gets to be too difficult to ship (weight, size, lack of packing density, etc.) it is quickly no longer a benefit to outsource to cheap labor markets."
A quick trip to Walmart, shows that's shipping costs are not prohibitive for most products. This might prevent extremely durable goods like white bread from being produced in China, but not much else.
"Im OK with the Chinese making my tennis shoes, while we trade in more intellectual persuits and manufacture the next world changing innovation."
You and Obama both. During the debates Obama said he didn't want just any jobs, he only wanted high paying jobs. I'm sure that's a comfort to the 24% unemployed (shadowstats.com) in this country that Obama is going to hold out for only high paying jobs and let them starve and let government deficits soar in the mean time.
“Well at least we’ve established that you stand to gain by maintaining the status quo.”
As anticipated, you bit. The product I am negotiating for production in China will be produced in China and used in China, India, Thailand and Vietnam. It is also going to be produced in Europe, Brazil and North America for use in their respective regions. Hence, my current negotiation will actually positively impact employment in the US.
This particular product has a production cost of $45 in Germany, $41 in the US and $45 in China. Yet, the labor rate in the US is a little over 3x the cost as in China. If I equalized the cost by using China’s labor rate, the US price would be reduced by about $0.80 or just under 2%.
“A quick trip to Walmart, shows that’s shipping costs are not prohibitive for most products. This might prevent extremely durable goods like white bread from being produced in China, but not much else.”
The fact that you think that products in Walmart stores constitutes “most products” is indicative that you are purposefuly limiting your thinking in order to emote.
“You and Obama both. During the debates Obama said he didn’t want just any jobs, he only wanted high paying jobs. I’m sure that’s a comfort to the 24% unemployed (shadowstats.com) in this country that Obama is going to hold out for only high paying jobs and let them starve and let government deficits soar in the mean time.”
Baseless attacking me, especially considering that I have offered solutions that are in direct opposition to the current presidential policies. I have not seen a specific solution offered by you, but your posts seem to indicate that you are of the protectionist preference. We’ve seen the results of protectionism several times, so I’ll offer only one example of the difference to you; would you prefer a 57 Trabant P50 or a 57 Corvette?
If you truly want the US to become a manufacturing mecca again, you would support the elimination of corporate taxes and a very large reduction in reglations. If you prefer protectionism, then be prepared for life to become stagnent in a hurry.
There has to be another answer to the trade imbalance where we exchange our manufacturing and labor capability for expendable products. We need to protect America both militarily and economically. Lose in either case will hasten our destruction.
Prior to WW II if we had offshored our production capability to Japan, Germany and China we would have lost the war. It was our manufacturing capability that facilitated our triumph.
So it's not at all a typical product. Why did you even bring it up then? If US labor = 3x Chinese labor and US labor - Chinese Labor = $0.80, then the Chinese labor cost is $0.40 and the U.S. labor cost is $1.20.
Given that, we can calculate that in China the labor cost is < than 1% ($0.40/$45) of the total product costs. And in the U.S. labor is < 3% ($1.20/$41) of total product costs. That's not a typical product at all.
Again, you are showing your ignorance. Ever hear of mass production creating a lot of an item per hour? When you can name 4 of the 7 basic cost categories in the cost of a manufactured good, then get back to me.
In the meantime, enjoy your emoting.
Most products have a much higher labor component than 1%. Even among highly automated mass produced items labor costs are still usually much much higher than 1%. Your product is an exception. It is not the norm.
And typically U.S. Labor is much higher than 3x Chinese labor. Remind me not to have you negotiate labor costs for me.
“Most products have a much higher labor component than 1%. Even among highly automated mass produced items labor costs are still usually much much higher than 1%. Your product is an exception. It is not the norm.”
True and in the case I listed that cost is just under 10% of the production cost in the US, and that includes 10-12 direct labor heads.
“And typically U.S. Labor is much higher than 3x Chinese labor.”
Not true. Fully fringed “simple manufacturing” labor in the US ranges between $21-23 per hour, specifically in your state it is closer to the $21 range in Vonore, but is a little over the $23 rate in Nashville. The fully fringed rate in China for the same operations is $7 USD, which may vary as currency rates change.
“Remind me not to have you negotiate labor costs for me.”
No problem, however I would love to be across the table from you!
According to a special study by the U.S. BLS. Bureau of Labor Stats - Manufacturing in China China's manufacturing wage for 2008 was $1.36. And reports were estimating that wages were rising 20% a year.
The following information published by China and which is more recent, shows monthly compensation for 2011 ranging from $216 to $513 a month, excluding Hong kong and Macau. So conservatively estimating that Chinese only work 40 hours a week (and we know that's not true) then $216/mo equates to $216/(40hrs/wk * 4.3wks/month) = $1.25 per hour. So a range of $216/mo to $513/mo equates to $1.25/hr to $2.98/hr. And we know those are overstated because they work more than 40hrs a week.
Hey, but I'm sure the Chinese quoted you $7 an hour. LOL Is it too late to renegotiate?
Labor rate does not equal fully fringed labor rate.
Monthly compensation averaged for an entire province is not the same as a specific category fully fringed labor rate.
If that's true then the total labor cost in the U.S. for your product must be 10% * $41 = $4.10. If the difference in labor is 3x to 1x then assuming equal productivity I would have expected to see a labor difference of $4.10(3x) - $1.36(1x) = $2.54 not $0.80.
An $0.80 cent difference implies that you are having to hire ($4.10-0.80)/$1.36 nearly 3 times the number of Chinese to do the same job as workers in the U.S. That's a huge productivity gap. How do you explain that? Are you not providing the same tools as in the U.S.?
Oh that’s right, I forgot about the massive fringe benefits the Chinese companies provide. /s
OK, now you are being purposefully obtuse. If you are not willing to engage your mind, then I am done with you. You clearly have no understanding of manufacturing cost and you have no interest in learning.
Buying labor from China legally under the current rules doesn't make you a traitor. But advocating that the rules stay the same when our industries are being decimated and unemployment is at 24% and rising, does make you a traitor.