Category Archives: Business

It’s Not What Employers Are Doing, But What They Can Do, That Matters

A few days ago, Buzzfeed reported that Staples, the large office supply chain, had stepped up its enforcement of a cap on hours worked for part-time employees. Despite the company’s unconvincing claim* that the policy is longstanding, it appears that Staples implemented the 25-hour-per-week cap in January of 2014 “to skirt impending rules requiring companies to provide health insurance” to employees who work at least 30 hours a week.

Staples' original memo to store managers, as published by Buzzfeed.

Staples’ original memo to store managers, as published by Buzzfeed.

Staples’ decision will undoubtedly renew arguments that the Affordable Care Act’s (ACA’s) employer mandate – the provision that requires companies with more than 50 full-time workers to insure employees who work at least 30 hours each week – has led to harmful effects on work. These arguments, like parallel narratives about minimum wage laws and paid sick leave ordinances, are largely inaccurate, and advocates of evidence-based, power-balancing policy are absolutely right to debunk them.

However, we cede too much when, as is often the case, we default to a defensive stance. “Yes, the negative incentive is there, but the data show such effects to be small or non-existent” should not be the full scope of our response.

Instead, it’s imperative that we change the nature of these conversations. As Thomas Pynchon astutely observed: “If they can get you asking the wrong questions, they don’t have to worry about answers.”

Opponents of an employer mandate, minimum wage, and paid sick leave want people to focus on what employers will do in response to each policy’s enactment. The more relevant question, however, is about what employers can do.

First, it’s important to remember that businesses can deduct employer-provided benefits from their tax bills, and that the employer contribution to health benefits is widely viewed as coming out of worker salaries. Providing employees with health coverage, decent wages, and paid sick leave costs less money than a lot of people think, though it’s certainly more expensive than offering meager wages and no benefits.

More importantly, providing such benefits is the right thing to do. And it is undeniable that a typical business, when confronted with the prospect of labor cost increases, has numerous options. The business can explore ways to improve its productivity. It can raise its prices. It can reduce the salaries of affluent executives, or maybe make a little bit less in profits.**

In the most recent quarter for which financial information is available, August through October of 2014, Staples made $216 million in after-tax profits. Their CEO, Ronald Sargeant, made over $10 million in total compensation in 2013, while other top executives raked in well over $2 million apiece. Barack Obama didn’t have those numbers when he was asked about Staples’ policy a few days ago, but his suspicion “that [Staples] could well afford to treat their workers favorably and give them some basic financial security” was clearly right on the money. The ACA didn’t make Staples cut its employees’ part-time hours; instead, Staples management consciously chose to prioritize a fifth car or third house for a few wealthy individuals over its part-time workers’ ability to put food on the table. Other large companies, from Starbucks to McDonald’s to Walmart, make similar callous choices on a range of issues all the time.

There are two ways to address this problem. The main mechanism currently at our disposal is to loudly call such decision-making what it is – greedy and unethical – and vote with our dollars for companies that treat their workers fairly. Opponents of labor standards focus on what businesses will do rather than what they can do in part because we let them avoid moral reckoning. We won’t win everyone over, but we must not underestimate the power that moral authority has to shape behavior.

The second mechanism is policy that addresses firms’ decision-making. Some recent legislative proposals, in fact, like Congressman Chris Van Hollen’s CEO-Employee Fairness Act, have the potential to begin to wade into these sorts of waters. If we’re worried that companies will choose to lay people off in response to a minimum wage increase, for example, we could raise taxes on the executives of companies that make this choice.

No matter the policy outcomes, it’s essential that we ask the right questions in these debates. It’s worthwhile and important to document the evidence that policies like the employer mandate, minimum wage, and paid sick leave have minimal consequences on work. But it’s also essential to point out that any consequences these policies do have aren’t inevitable.

*As Buzzfeed’s original coverage explained, Staples claims that their part-time hours policy has been in effect for over ten years, and that the memo Buzzfeed obtained only “reiterated the policy.” Yet the memo contained phrases like, “Beginning with the week ending 1/4/2014,” and “Staples is implementing a policy.” A Staples spokesperson did not respond to follow-up questions about the memo’s language.

**It’s possible, though I’ve never seen a study to prove it, that some businesses actually can’t afford to adequately compensate their workers, that they’re barely squeaking by as is with low executive salaries, non-existent profits, and the highest level of productivity they can possibly attain. To the extent these businesses exist – and I’m skeptical that many of them do – it’s worth asking whether a business’s right to keep its doors open should trump its workers’ right to make enough to provide for their families. I don’t believe it should.

Note: A version of this post appeared in The Huffington Post on February 16.

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Paid Sick Leave and the Three Lenses of Policy Analysis

Some political debates have two equally valid sides.  More often than not, however, the evidence is significantly more one-sided than journalists and pundits suggest.  AB 1522, a bill that the California Senate’s Committee on Appropriations just shunted into its Suspense File for consideration on August 14, is an example of legislation for which there is no ethical, intellectually honest opposition.  Three related lenses of policy analysis demonstrate why AB 1522’s minimum requirement of three paid sick days for all California workers deserves our support.

The ethical lens: The debate about paid sick leave, at its core, is about values.  It is undisputed that high percentages of low-income workers, particularly women and Latinos, currently lack the access to paid sick leave enjoyed by more privileged populations.  Supporters of a guaranteed minimum number of days recognize that low-income workers must often decide between working through illness and leaving bills unpaid.  Nobody should have to make that choice.

Opposition to guaranteed paid sick days, on the other hand, elevates considerations of employer profit and flexibility above the job security and subsistence of sick low-income workers.  No matter its professed motivation, therefore, anti-paid sick day activism is immoral by most people’s standards.

The factual lens: Few opponents of AB 1522 explicitly state a disregard for the plight of the working poor.  Instead, they call the bill a “job killer,” enumerating a long list of reasons that guaranteed paid sick leave will allegedly harm working Americans.  Some of the listed reasons are obvious fabrications; for example, the idea that employers who already offer paid sick leave “will have to completely change their existing policies and accounting procedures” is directly contradicted by the law’s provision that “an employer is not required to provide additional paid sick days…if the employer…makes available an amount of leave that satisfies the accrual requirements.”

Other opposition arguments, though slightly more time-consuming to debunk, are no less untrue.  To contend that AB 1522 “will reduce jobs,” its detractors, like those who oppose paying employees a living wage, embrace an economic theory that’s inconsistent with the facts.  Even studies that rely exclusively on the unverified assertions of employers fail to suggest negative economic consequences of paid sick leave laws.  The first report opponents of AB 1522 attempt to marshal in support of their claims concludes only that it was “too early to make a definitive judgment about” the economic effects of Connecticut’s paid sick leave law in February 2013.  A more comprehensive study of the Connecticut law’s effects in March 2014 notes:

most employers reported a modest effect or no effect of the law on their costs or business operations; and they typically found that the administrative burden was minimal.  [Despite] strong business opposition to the law prior to its passage, a year and a half after its implementation, more than three-quarters of surveyed employers expressed support for the earned paid sick leave law.

The findings from the opponents’ second citation, a 2011 report from the Institute for Women’s Policy Research, similarly contradict their claims.  The study finds that “most San Francisco employers reported that implementing the [city’s Paid Sick Leave Ordinance] was not difficult and that it did not negatively affect their profitability.”  While “a relatively small share of employers and employees” reported negative effects, the study concludes that the law “is functioning as intended.”  Just about every study on the economic effects of paid sick leave legislation, in fact, refutes the myths propagated by opponents of the laws.  Research studies also clearly demonstrate “that gaps in paid sick leave result in severe impacts on public health.”  This clear consensus helps explain why “the rest of the world’s rich economies have taken a legislative approach to ensuring paid sick days.”

The political lens: Despite the clear ethical arguments, research consensus, and overwhelming public support in favor of guaranteed paid sick day laws, several states have passed bills that preempt cities’ attempts to enact such legislation.  In 2008, a more robust sick leave bill (AB 2716) died after ending up in the Suspense File of the California Senate’s Committee on Appropriations, the same place in which AB 1522 currently resides.  A coalition of corporate lobbyists, led by chambers of commerce and the American Legislative Exchange Council (ALEC), is responsible.  This coalition has, in the words of David Sirota, successfully recast their “desire to exploit workers as fight-for-the-little guy altruism” by confusing the public and politicians with a relentless stream of unfounded claims.

A simple analysis of the broader advocacy decisions and agendas of the parties to a debate can help us assess the likely veracity of each party’s claims.  For several years now, the corporate coalition that opposes AB 1522 has been systematically “reshaping the fundamental balance of power between workers and employers.”  They have misled the public about a wide variety of issues and maintain clear power and profit motives for misleading the public about sick leave.  People unfamiliar with the specifics of AB 1522 could compare the backgrounds of its opponents with its supporters (typically academics, labor organizations, and other groups that advocate for low-income people) and recognize that proponents of AB 1522 are significantly more likely to be telling the truth.  This political lens heuristic isn’t failsafe – first impressions can be wrong and even the worst organizations sometimes endorse correct policy decisions – but it always provides valuable perspective.  Funding sources and political allies are especially important indicators of truth when topics involve complex research findings and/or similar ethical arguments from each side of a debate.

On the issue of guaranteed paid sick leave, however, each of the three lenses – ethical, factual, and political – is extremely straightforward; if anything, the three days required by AB 1522 are too few.  California lawmakers should rectify their predecessors mistakes and move the bill forward on August 14.

Note: Versions of this post originally appeared on The Left Hook and The Huffington Post.

Update (8/30/14): An amended version of the bill that “would exempt in-home caregivers from the requirement” has “cleared the legislature.”  The SEIU and other unions pulled their support because of the unnecessary and unethical exemption, and I believe they were correct to do so.

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Lessons About Gay Rights and Business from Arizona Bill’s Veto

On Wednesday, February 26, Republican Governor Jan Brewer vetoed S.B. 1062, a bill that would have helped Arizona businesses deny service to gay customers on religious grounds.  Brewer’s veto and the political controversy surrounding the bill illustrated several important developments in the gay rights movement.

First, US society is finally beginning to condemn religious opposition to gay rights; most of us now recognize that people who oppose gay equality, for any reason, are bigoted.  Though S.B. 1062 lacked explicit references to sexual orientation, most of the bill’s opponents correctly recognized it as an attempt to sanction discrimination against the LGBT population.  And while proponents of such discrimination continue to lie about their anti-gay animus and S.B. 1062’s impact, their influence on public perception is dwindling.  A recent poll conducted jointly by ABC News and The Washington Post found both that only 28% of Americans support the discrimination allowed by S.B. 1062 and that only 34% of Americans still oppose same-sex marriage.  Gay rights have “transformed from being a fringe, politically toxic position just a few years ago to a virtual piety that must be affirmed in decent company. This demonstrates why [defeatism is misguided]: even the most ossified biases and entrenched institutional injustices can be subverted.”

Second, the Republican Party platform is no longer uniformly anti-gay.  Not only did Brewer veto the bill, but John McCain and Mitt Romney also spoke out against S.B. 1062.  Mainstream Republican politicians at this year’s Conservative Political Action Conference (CPAC) “skirted around gay issues during the three-day gathering outside Washington, D.C” and focused on other issues instead.  Republican Party operatives seem to understand that opposition to gay rights is becoming more and more politically disadvantageous.

Third, Brewer’s veto indicates the potential impact of voting with our dollars.  The Hispanic National Bar Association, the Arizona Chamber of Commerce, the Arizona Lodging and Tourism Association, the NFL, and a plethora of large businesses including Apple, American Airlines, and Intel began to voice opposition to S.B. 1062 as pressure mounted from customers, clients, fans, and nonprofits.  Brewer’s anti-gay history suggests she only vetoed the bill because of the intense economic pressure to do so.

These developments are cause for optimism about the future for LGBT rights.  I bet a friend seven years ago that gay marriage will be legal in all fifty states by the end of 2023, and I am currently feeling pretty good about my chances.  However, proponents of gay rights must avoid calling business interests our “greatest ally in [the] LGBT equality pursuit.”

As Jon Stewart noted recently on The Daily Show, S.B. 1062 was “morally repugnant” and should have been vetoed based on ethical criteria alone.  Yet few opponents of the bill made ethics their central argument against it; critics of S.B. 1062 instead focused more on its economic impact.  That business interest has begun to align with the interests of the LGBT community is positive, but as Jeffrey Toobin mentioned in a recent piece for The New Yorker, that alignment only achieves the desired outcome “[w]hen, as with expressing opposition to S.B. 1062, it costs business nothing.”

In other words, it’s easy for businesses and politicians to support gay equality and non-discrimination because doing so furthers their economic and political self-interest.  Gay rights have become an issue that, like big philanthropy, “allows [politicians and business leaders] to preen as…great liberal champion[s] to…left-leaning voters, all while…simultaneously press[ing] an anti-union, economically conservative agenda that moneyed interests support.”  We should certainly celebrate the success of the gay rights movement, but we must simultaneously be careful not to enable what David Sirota calls “a bait and switch whereby social issues are increasingly used to perpetuate the economic status quo.”

So before we extol the virtues of the NFL for its opposition to S.B. 1062, let’s remember that the league and its owners routinely rob taxpayers.  Let’s remember, before we get too excited about Jan Brewer, that she supports racial profiling.  And let’s remember, before we pat the Arizona Chamber of Commerce on the back for defending the rights of the underprivileged, that the organization frequently lies about the impact of minimum wage laws.  Instead, let’s honor the success of the gay rights movement by calling its support what it is – the only ethical choice a business can make.  Let’s simultaneously demand that politicians and business leaders elevate ethics over greed in every other policy arena.

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Starbucks’ Greed Versus San Jose’s Living Wage

Living Wage Cartoon

The San Jose City Council will soon decide whether to condone corporate greed and poverty-level wages for workers or apply city law to Starbucks and a large developer who want to lease property at the San Jose Convention Center.  San Jose would normally require businesses leasing the property to pay employees a living wage, but the City Manager’s Office recommends an exemption for Starbucks and the developer because, among other reasons, the businesses “have indicated to City staff that imposing any wage policy requirements in [their] leases…creates financial and competitive hardships in the operation of their respective businesses.”

The dark irony is that Starbucks, the company claiming “financial hardship,” raked in hundreds of millions of dollars in profits in 2013 in “the best year in [its] 42-year-history” while the absence of wage policies like the one Starbucks is currently trying to circumvent consistently causes families to operate at or near the poverty line.  And though Starbucks is unwilling to sacrifice some of an individual store’s profits for the benefit of working families, the company is perfectly happy to sacrifice an individual store’s profits when doing so helps drive out neighborhood coffee shops.

That the San Jose City Council is even considering such a request speaks to the success of corporate think tanks in confusing the public about wage ordinances.  Even though the vast majority of recent research shows no downside to minimum wage laws and most economists support minimum wage increases, too many people still buy inaccurate and unsubstantiated claims that wage requirements hurt businesses, reduce available jobs, and must necessarily raise prices for consumers.  In addition to bad research, however, standard teaching of mainstream economic theory on price floors is also to blame for the misinformation about minimum wage and living wage laws.

Economist Jim Stanford describes the paradigm taught in most introductory economics classes:

I was taught early on at university that minimum wages screw up an otherwise efficiently-functioning marketplace for labour. You see, there’s a demand curve for labour, and it slopes down. There’s a supply for labour, and it slopes up. The two lines cross in the middle, at the sweet spot where supply equals demand.

Now draw the minimum wage: a horizontal line, positioned above the cross. It’s plain as day. Too much supply, too little demand, too much unemployment. Well meaning but foolish bureaucrats should leave the market alone to perform its autonomous, masterful balancing act.

The story is simple. It’s elegant. And it’s wrong. But you have to progress far beyond Economics 101 to find out why. And in the meantime, that simplistic supply-and-demand diagram gets deeply imprinted on too many impressionable minds.

As Stanford goes on to explain, the model doesn’t apply well to labor markets because supply and demand for labor work a lot differently than supply and demand for goods and services.  For example, employers don’t magically require fewer employees the moment wages increase.  But even if we pretend the model is accurate, the policy conclusions drawn from it would still be unwarranted.  First, the argument that the minimum wage is inefficient is based on a concept called deadweight loss, defined as the overall money that could have been made by both producers and consumers of some good under the free market equilibrium condition (in this case, the condition in which no minimum wage exists).  Deadweight loss is essentially meaningless when it comes to assessing the impact a minimum wage policy has on people’s lives.  Though it’s rarely discussed, even the deeply flawed, standard economic model generally shows a net increase in the overall money made by workers when a minimum wage is introduced.

Second, and more importantly, the standard model assumes that employers are willing to pay only what they can.  In reality, large employers frequently operate with enormous profit margins and award exorbitant compensation to executives.  The suggestion that minimum wage laws would force companies to raise prices or lay off workers is an outright lie – most companies can absorb the costs elsewhere quite easily.  Starbucks, for example, could hold prices and profits constant and hire over 1000 new workers at San Jose’s living wage by reducing the salaries of its top five executives to the measly total of $2 million a year each.

Opponents of minimum wage and living wage laws want us to believe, despite their faulty model and a large body of research suggesting otherwise, that wage requirements harm the people they’re designed to help.  They’re wrong.  Minimum wage and living wage laws are quite simply a choice between the welfare of lower-income people and the greed of a wealthy few.  So let’s challenge our professors when they falsely portray minimum wage as an economic problem.  And let’s hope the San Jose City Council keeps the living wage ordinance intact and strong – developer Don Imwalle and Starbucks can afford to pay their workers enough to make ends meet.

If you’re interested in having an impact on this issue, SumOfUs is circulating a petition asking Starbucks to drop its request; the company has responded to intense public pressure over unethical practices before.  You can also find San Jose City Council contact information here.

Update: This article ran on The Left Hook on Tuesday, January 28.

Update 2: The San Jose City Council voted later on Tuesday, January 28 to grant the exemption to Starbucks and Imwalle.  Though Ash Kalra, Kansen Chu, Xavier Campos, and Don Rocha voted in the interests of the citizens of San Jose, the rest of the council, led by Chuck Reed, Sam Liccardo, Madison Nguyen, and Rose Herrera, ignored the interests of their constituencies.

Update 3 (6/16): Starbucks apparently denied that they ever asked for the exemption on January 22, 2014, an assertion that is directly contradicted by the city memo that was also linked earlier in this piece.

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Financial Incentives and Social Good: Dan Pallotta’s Faulty Assumptions

At the suggestion of WOVIN founder Darius Golkar, I recently watched Dan Pallotta’s TED Talk on the nonprofit sector.  Golkar recommended this video to me when I asked him why WOVIN donates only 50% of its profits to charitable causes.

Golkar founded WOVIN because clothes we donate to Goodwill, The Salvation Army, and other charities rarely have the effect we intend.  Our hand-me-downs often enrich international “clothing recyclers” who exploit the poor in countries like Ghana and Nigeria.  WOVIN addresses this problem by reconstructing donated jeans into bags, key rings, cardholders, and wallets, selling these products, and then giving a portion of the proceeds to organizations that assist impoverished people.  I sincerely admire this work.

When I first read about WOVIN, however, the 50% number bothered me.  And while Pallotta’s TED Talk may explain why Golkar chose to incorporate WOVIN as a for-profit company, Pallotta’s paradigm reflects many inaccurate and problematic assumptions we have about business.  Several of these assumptions pertain to executive compensation.

Pallotta begins to discuss compensation 3 minutes and 11 seconds into his talk.  He says:

So in the for-profit sector the more value you produce, the more money you can make.  But we don’t like nonprofits to use money to incentivize people to produce more in social service.  We have a visceral reaction to the idea that anyone would make very much money helping other people.  Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people.  You know, you want to make fifty million dollars selling violent videogames to kids, go for it, we’ll put you on the cover of Wired magazine, but you want to make half a million dollars trying to cure kids of malaria and you’re considered a parasite yourself.  And we think of this as our system of ethics, but what we don’t realize is that this system has a powerful side effect, which is, it gives a really stark, mutually exclusive choice between doing very well for yourself and your family or doing good for the world to the brightest minds coming out of our best universities…[T]ens of thousands of people who could make a huge difference in the nonprofit sector [are] marching every year directly into the for-profit sector because they’re not willing to make that kind of lifelong economic sacrifice.

He then uses the chart below (the Stanford MBA figure is the median salary for someone ten years out of business school and the CEO figures are averages) to argue, “There’s no way you’ll get people with $400,000 talent to make a $316,000 sacrifice every year to become the CEO of a hunger charity.”

Executive Compensation Bar Graph

While I agree with one aspect of Pallotta’s analysis – current economic and social incentives in the United States disproportionately advantage businesses that contribute little to society over more altruistic endeavors – Pallotta erroneously suggests we can fix this problem and better promote social good by making charitable organizations more like typical U.S. businesses.  This paradigm recurs during his analyses of several topics and reflects an overarching view of economics I plan to address in future posts.  For the purposes of this post, however, I will focus on four faulty assumptions he makes while discussing executive compensation:

Faulty Assumption #1: The value individuals produce in the for-profit sector correlates highly with the salaries they earn.

We erroneously believe personal success indicates remarkable personal characteristics – that belief is a well-documented psychological fact.  Yet chaos theory, regression to the mean, and intelligent analysis indicate that luck and privilege influence success considerably more than talent – even narrow definitions of luck in recent economic analyses show that luck plays a much larger role in market outcomes than most people think.  Whether it’s even possible for someone’s “talent” to produce the kind of value Pallotta describes is a hotly debated question.

In US society, our lack of regulation and accountability for moneyed elites helps promote inflated CEO salaries even when the individuals receiving these salaries have very clearly reduced a company’s value.  The bank bailout of 2008 and the huge profits reaped afterwards by executives directly responsible for the financial crisis clearly demonstrate the inaccuracy of Pallotta’s assumption.

Faulty Assumption #2: People make career decisions based primarily on monetary incentives.

Money certainly drives some people’s career decisions, but many people care at least as much, if not more, about some combination of prestige and ethics.  Teach For America (TFA) is an excellent example of an organization that knows this fact – while TFA can offer corps members only beginning teacher salaries in its placement districts, the organization attracts the top graduates from the best colleges in the country.  Why?  Acceptance into TFA impresses nearly everyone, looks fabulous on a resume, and helps corps members feel like part of a larger “movement for educational equity.”  While it’s certainly possible that some corps members join in hopes of the long-term payout TFA’s connections might provide, the vast majority of corps members I know applied because of TFA’s mission and status.

Faulty Assumption #3: High levels of compensation promote increased productivity.

Education research suggests that incentives only improve performance when they focus on behavioral inputs– to improve, students and teachers need to know exactly what behaviors they must produce to receive rewards.  They must also have the ability to execute desired behaviors.  Examples of input-based incentives that have produced desired outcomes include paying students to read books or paying teachers to relocate to more challenging schools.  Students and teachers who are instead offered prizes for behavioral outputs like student grades or test scores, on the other hand, do not improve their performance. Executive salaries and bonuses, like student grades and test scores, are often based on outputs (like company economic performance) and therefore unlikely to increase productivity.  I believe this phenomenon helps explain why researchers agree that merit pay initiatives are misguided.

Even when incentives are offered for clear, achievable tasks, the magnitude of the incentive drastically changes its impact.  Recent research suggests that when incentives are very high, performance actually declines.  Behavioral economist Dan Ariely conducted an innovative study which found that individuals offered substantial amounts of money for winning games succeeded considerably less often than individuals offered low to moderate amounts of money (Ariely believes that the stress we experience when confronted with high stakes causes this effect).

Faulty Assumption #4: High levels of compensation in the nonprofit sector will motivate more people to work for social good.

Wealthier individuals are, on average, less empathetic than the rest of society.  As Chris Hayes (in Twilight of the Elites) and Daniel Goleman have suggested, powerful people tend to surround themselves with other powerful people and often forget about or are ignorant of the circumstances of those less fortunate.  But psychology also plays a role – the mere mention of money predisposes people to behave less altruistically.  Since external incentives also erode internal motivation, a focus on salary in the nonprofit sector could potentially diminish compassion in that sector.

Our current incentives are highly problematic regardless of the flaws in these assumptions – on that point Pallotta and I agree.  But the remedy isn’t to embrace a business model that promotes selfishness and greed while failing to generate clear economic value.  In terms of executive compensation, a better solution would reduce exorbitant salaries across the board, call selfish career decisions what they are, and use psychology and behavioral economics research to increase the prestige associated with more ethical jobs.

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Something for Nothing

College football bowl season is upon us once again and around this time every year there is the discussion of how screwed up the Bowl Championship Series system is (we’ll be able to argue about the playoff system next year), how corrupt and slimy the recruiting process is, and how college players should or shouldn’t be paid. All collegiate athletes in the U.S. have amateur status, meaning that they don’t (well, a more accurate phrase is “aren’t supposed to”) get paid for playing or from endorsements. The reason there always seems to be so much controversy with college athletics is because the fans are passionate and expect the world from their players, but they are also expected to be students first and athletes second. College athletes straddle the line between the glamorous world in which they are playing in front of thousands of adoring fans, and the drudgery of waking up before sunrise each day for training and conditioning while taking classes and attending practices. With what can seem like the weight of the world on their shoulders they are expected to act like every other teenager at their university. Pro athletes, however, are on an entirely different planet in terms of being pure physical specimens that they are totally and utterly unrelatable both in lifestyle as well as body dimension to the average fan. There is this feeling that college athletes are still pure and similar to the average 18-21 year old, that is until they transcend to the next level where endorsements and fame can take hold. Additionally, with college sports there is a more tight-knit community feel to the local team that doesn’t permeate to the big leagues. Most prominent public school college football coaches are among the highest paid state employees, so whenever you pay taxes you’re doing your part to get your team to a bowl game, or to a 2-9 record.

CF1

Earlier this season the high-profile quarterback for Texas A&M, Johnny Manziel, was accused of accepting money for signing autographs for a memorabilia company, which is considered payment, and therefore strictly prohibited by the NCAA. An investigation ultimately turned up nothing, but the bigger issue about whether or not college athletes should be paid took on a different angle as even former college football stars (who normally keep quiet concerning under-the-table payments) began to openly discuss the temptations to get paid early and the difficulty living on what is essentially a meager stipend, according to Houston Texans running back Arian Foster. In September, Time magazine ran a cover story proclaiming that now is the time that athletes should be paid and even Electronic Arts Sports, maker of the popular NCAA Football video game announced that it would no longer be partnering with the NCAA due to disputes over the use of player likenesses. The game will no longer be manufactured, and when such a big moneymaker has its production suddenly and unexpectedly halted, there must be big changes in the landscape of the college athletics on the horizon. Recent revelations show that the NCAA is now suing EA Sports because they were “unaware” that player likenesses were being used in these games for over a decade.

The NCAA understands that its stars drum up a lot of revenue and earlier this season when searching for a particular player’s name on the NCAA merchandise website it would take the user to the webpage where that player’s number (but not name) would be sold on jerseys and other items. When this was pointed out that the NCAA ended linking players names to their jersey number in order to distance themselves from the idea that they directly profit off of individual players.  It has become obvious that college sports, and more specifically college football and basketball, has too much money at stake and the NCAA is trying to pare any heads sucking at the teat of their revenue stream. Like the hydra, every time the NCAA cuts out one bad apple, two more programs replace it.

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The debate about whether collegiate athletes should be paid or not has been discussed ad nauseam but almost exclusively singles out football among the dozens of other sports, and is generally a very shallow take on the situation. Although football programs are the biggest revenue generator for schools, it only has a small slice of the number of student-athletes overall. What happens to the other students that train just as long and hard at their craft?

Whether or not student-athletes get paid is much bigger than the realm of sports. This has to do with how society views labor and what role universities should play as educational institutes or modes of producing wealth that also aim to educate as an aside. If someone or a body of people are producing a product or service that is not being compensated justly then this is considered exploitation. People will often cite that college athletes have their tuition, room, and board paid for, but what solace is that if they are generating millions upon millions of dollars for their school’s president and board members? This is akin to saying you get a $100,000 salary from your employer and you make your company $100 million on your own, but you should be happy because $100,000 is still a lot of money. This may not strike many people as inherently wrong but it is the definition of exploitation.

The national debate stops at whether or not to pay college athletes- some say yes, others say no- for a variety of well-intentioned reasons. The issue can get very complicated when you try a thought experiment on actually employing the payment of college kids in sports. If I were put in charge of ending the amateur status of college athletes, where do I begin to answer some important questions? First of all, who does the paying? Would the NCAA be in charge of paying the athletes by increasing each university’s entrance fee into the NCAA (a non-profit organization), in which the money then gets pooled together and evenly distributed to the schools to disburse to their students? Some schools are much more profitable than others and also have a much larger endowment from which to pay the players. Does this mean schools that are able to pay more to their athletes actually get to give them larger paychecks? Additionally, does each player on a team get paid the same amount, regardless of whether they are a starter or a backup, and regardless of the position played?

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Secondly, who gets paid? From a business standpoint (and as Temple University can attest to), very few sports teams within a school actually are profitable or break even. Does this mean that only the sports which provide capital for the university should be paying their sports stars? This may drive students from the sport that they love because they will try to pursue a sport in which they receive financial compensation and harms the spirit of intercollegiate athletics.

Perhaps the biggest question of all is how much should these “student-athletes” be paid? Johnny Manziel won the Heisman Trophy (awarded to the most outstanding football player in college) in 2012 and reportedly Texas A&M had fund-raised $740 million that year, surpassing its previous fundraising record by nearly $300 million. Texas A&M Foundation President Ed Davis had this to say regarding the extra fundraising boost in 2012 and its star quarterback:

“People ask me all the time if you have a winning football team, do you raise more money? In normal times, the statistical data wouldn’t support that, but in an era where we are in, effectively, in the news everywhere and you have a young man like our quarterback who has been a media magnet and you have the success you have, I do think that euphoria does spill over into success in fundraising. I’m hoping we can keep it up.”

From jersey sales, ticket sales, merchandising, TV contracts, and national recognition, Texas A&M can attribute upwards of hundreds of millions of extra dollars to their school, athletic program, and research facilities because this 18-year-old kid decided to throw the football in College Station, TX rather than Gainsville, FL or a number of other top tier football programs. While it is true that he will move on to the NFL to make tens of millions of dollars himself, not every National Championship team member or even Heisman winner will even be drafted to the NFL and cash in on their success, yet they will still make millions upon millions for their school. So it is clear that athletics bring in lot of money for schools, but how should these players be compensated? Should they be awarded bonuses specified in their contracts? Because the college players are between the ages of 18-22, many of them will require financial advisors or agents at this juncture because they need to be equipped to handle the pressure and adversity that comes with getting large sums of money as a teenager in college and handling it responsibly. Because the schools are potentially the employers of these students and won’t always see eye to eye on payment amounts or bonuses, these advisors must be third party, which also begs the question, will the student athletes form a union like in every other major U.S. sport, and what kind of structure would it take?

As a strong proponent of fair labor practices, if player A is producing at a higher level than player B and is in turn making more money for the school by his/her performance then I believe he/she should be adequately compensated. However, many sports in college are team sports and require teamwork for success. How would the NCAA or school gauge the value of different players on different teams? Would players sign three or four year contracts or would their salary be negotiated on a yearly basis? If they settle on a 4 year contract, is that money guaranteed if there is an injury, or even if the student performs poorly and is cut? Will academic standards become less rigorous for the athletes to ensure that the school’s investment can spend even more time away from the classroom so that sports will be even more of a main focus?

If every athlete within all schools and within all sports is paid the same amount (let’s say $30,000 a year), then what happens to the extra money raised by star players by the nature of them being on the team? Does this extra money simply go to the school or the NCAA to do whatever it wants with it (with the majority going into the pockets of the higher-ups), and isn’t this still a form of exploitation? Additionally, $30,000 to a student at West Virginia University will go a lot further than $30,000 in a school like Georgetown where the cost of living is much higher in Washington D.C., so schools in urban settings will be at a natural disadvantage in this regard when it comes to recruiting, which I’m sure they would fight against.

How will state schools pay their student athletes versus private schools? As a former taxpayer in New Jersey, I was well aware that I was paying the salaries for all the coaches, trainers, athletic directors, etc. involved in making athletics possible for my state schools. If all college players get paid, taxpayers will be forced to pay the salaries of teenagers to play a sport. I can imagine that a lot of people will have a lot of problems with this. Some state schools are much larger than others, so how can we reasonably expect the smaller schools to afford the salaries of the athletes, or will the state subsidize the shortfalls of these schools? It seems if college athletes were forced to be paid then even more schools would cut sports all together or make conditions nearly unplayable for the players and more team boycotts across the country may ensue.

Lastly, universities are no longer just institutions for higher learning, they are businesses and avenues for making money for those in the administration. Does paying student athletes make it the final straw in making the U.S. college system just a wealth-generating tool rather than a knowledge-generating tool? What does this mean for the psyche of the college student who is not playing a college sport? What would a student who is paying full tuition and saddled with hundreds of thousands of dollars in debt think of the basketball player sitting next to them in the same class learning the same material and getting graded in the same manner but actually making money while sitting there? Of course there is always the big man on campus stud athlete that everyone knows is the star player who you would know if they were in your class, but what about when you don’t know who is getting paid and who isn’t? This is not like a scholarship in which the athlete is getting housing and an education in exchange for their athletic prowess, this is getting paid to be there, which is something entirely different. The argument could be made that because of the athletes, your school is getting more recognition and will hopefully be able to fundraise more money which will go towards improving various facilities (that obviously you won’t be around to see) that will increase the prominence of the school to make your degree more “valuable”. I get that, I don’t necessarily buy it, but I get it.

I have only scratched the surface in discussing the challenges and questions that face an impending sea change in college athletics. This is a very complicated issue that is much bigger than sports. I have not even considered how paying college players will impact tuition rates, which could be an essay all on its own. The bottom line is that the NCAA and universities across the country are making billions of dollars off of their pupils on the sports field and this simply doesn’t sit right with me. It’s not as if the money is going back into the school system to promote better research facilities or libraries. Rather, the money is going to those with prominent roles in the university, and it is also going towards updating the athletic facilities in order to recruit better athletes in order to get better on-field performance in order to get more money from ticket sales/merchandise/TV contracts in order to line more pockets with money. How to go about implementation towards rectifying the situation is riddled with more ethical and logistical questions, but no doubt committees and other layers of bureaucracy will be involved. I would love to hear thoughts on any of the issues or questions raised in this post and what the ideal situation may look like for the future of college athletics.

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