"Idiot! "a short-short story

My Radio Conversation with Former Secretary of Labor, Robert Reich

This is an updated version of an earlier post. I've now recorded the conversation with Robert Reich and thought you might like to know what you'll hear when it airs this Sunday.

I rarely promote my NPR-San Francisco radio program (KALW-FM, 91.7 FM,) Work with Marty Nemko, but this coming Sunday's program is special.

I was honored that former U.S. Secretary of Labor, Robert Reich agreed to return for a second long-form conversation. I have now recorded that.

First, I asked about key moments and decisions in Reich's life. It turned out to be an exchange in which we each told tales, some funny, all instructive.

Most of the conversation was about whether it's wise for the government to additionally redistribute income, raise the minimum wage, and about the Obama Administration's increased use of Disparate Impact to abet minority employment. 

I aspired to the journalistic standard--tough but fair--for example, raising the best argument I could against his position and then simply letting him have his say. But I failed regarding Disparate Impact, on which Reich and I had a more extended, spirited exchange. So I was relieved today to receive a one-line but reassuring note from him: "Thanks, Marty. Enjoyed it immensely. Bob." 

After the conversation, I offered post-mortem musings.

The program airs this Sunday, April 27 from 11 AM to noon on KALW 91.7 FM (NPR-San Francisco.) Outside the Bay Area, it can be heard then on kalw.org  where it will be permanently archived. It will also be available for free download in  iTunes and on the National Public Radio website.

"Disparate Impact" Has Bad Impact on Society

Disparate Impact is yet another example of a well-intentioned government  initiative whose side effects are more damaging than its main effects are beneficial.

The Disparate Impact theory of law, being aggressively used by the Obama Administration's Dept of Justice and Equal Employment Opportunity Commission (EEOC,) asserts that even if intentional discrimination is not found, if a racial or gender group is underrrepresented, it's prima facie evidence of discrimination.

For instance, the EEOC and Department of Justice are arguing that employers may be discriminatory if they use credit checks or criminal record as a hiring criterion. For example, Pepsi recently had to pay more than $3 million plus offer jobs and training mainly to African-Americans because Pepsi's background checks would not give full-time employment to applicants with a pending criminal prosecution.

Disparate Impact's intent is reasonable: Because racism is often unconscious and no employer would admit to being racist, the theory says, "Let the proof be in the pudding." For example, let's say 30% of the African-American local population meets the basic requirements to become a manager but only 15% of the hired managers are African-American, that's evidence that the employer is guilty of racial discrimination unless the employer can prove the validity of his hiring criteria.

The problem is that it's very easy for a plaintiff to prove he's underrepresented--the EEOC requires all but the smallest employers to collect and make public those statistics. In contrast, it's very difficult and expensive for an employer to prove that all its employee selection criteria for all positions are predictive of job performance. For reasons too complicated to explain here (restricted range and sample size, for example) it would require a team of expensive psychometricians  to develop instruments sufficiently valid to hold up in court. And without such custom-validated instruments, the employer risks being sued, That's true even if the instrument is a highly validated national test of reasoning (e.g., SAT, LSAT, IQ, etc.) Even though reasoning is critical to all but menial jobs, plaintiffs have been able to argue that tests of cognitive ability are insufficiently related to the job to allow their use if, as there almost is, an adverse impact on underrepresented minorities.

Making employers' burden of proof even more onerous, Roger Clegg, president and chief counsel of the Center for Equal Opportunity, points out that the employer can prevail only if he can prove a “business necessity” for the practice and even then can still lose if the plaintiff can show an alternative with less disparate impact.

Plus, a lawsuit would have to (expensively) resolve such questions as "What constitutes the pool of qualified applicants?" For example, let's say I run a business in Oakland, CA, where I live. Oakland's population is 35% Black,  15% Latino. Using the government's 4/5 rule, if I had fewer than 30% Black executives or 12% Latinos, the EEOC could make me prove my selection criteria were valid. I'd likely respond, "But wait. The pool of people that are qualified are graduates of highly selective institutions such as Stanford or Harvard, and there are fewer minorities in that pool." The EEOC or court could deem that discriminatory unless I proved that that level of employee really was necessary and  that it would be an undue hardship to have to use all the other criteria needed to find people of Ivy caliber and that there was no more race-neutral such screening device. Months or years of expensive, stressful legal arguing could be spent merely on that.

In fact, few Disparate Impact lawsuits are filed, and most of those are won by the employer. But the fear of such lawsuits is significant and increasing because of the Obama Administration's recent actions. So employers are ever more likely to move merit toward the back seat in favor of selection criteria that are less predictive of job performance but that don't reduce the percentage of Blacks or Latinos selected in favor of whites and Asians.

Net, of course, when less predictive hiring criteria are used, we get worse employees and, in turn, worse products and services for all of us. That is hardly a formula for American success in an ever more competitive global economy.

Alas, the Obama Administration is extending Disparate Impact's use well beyond employment. For example, the U.S. Office of Education's Civil Rights division is investigating school districts in which African-American students are disproportionately disciplined. While  it's possible that racial discrimination is causal, it's more likely that, because of, for example, historical, cultural, and socioeconomic factors, African-American kids simply misbehave more often.  But because school districts fear having to defend an expensive and difficult burden-of-proof lawsuit, they're ever more likely to establish racial "targets" for discipline thus having to discipline more White and Asian students than they would have and/or to discipline fewer African-American students. Even more likely, they'll keep in school African-American students who deserved suspension or expulsion to protect innocent students from violence. They'll also reallocate yet more resources from the students with the greatest potential to profit to those students, in the form of yet more counseling and other programs. It seems clear to me that, as in employment, the Disparate Impact theory applied to the schools, will, net, do more harm than good.

As I've written before, decisions should more often be made on a cost-benefit basis, considering all the likely short- and long-term outcomes. I believe that if we did that, most of the redistributive "justice" laws and policies would be rejected or modified in favor of policies that distributed resources more purely on merit.

Why Double-Digit Unemployment will be Permanent

This week's Time magazine cover story asserts that double-digit employment is here to stay but, true to its ever more liberal bias, the article avoids the most potent reasons why:

• Government, advocacy groups, and the media pressure employers to hire candidates based not purely on merit but also on race, ethnicity, gender, and age. For example, courts are increasingly using the "disparate impact" standard to judge racial discrimination. If, for example, a smaller percentage of African-Americans pass an employee-selection test, even if no test items were evaluated to be biased against African-Americans, the test's disparate impact on African-Americans would be legally admissible evidence that the employer was discriminatory. Being pressured to hire on non-merit-based criteria, of course, reduces employers' desire to hire at all.

Government has vastly increased the dollar and human costs of hiring people. Of course, there are the employer-paid payroll taxes: unemployment tax, Medicare, Medicaid and half of Social Security plus all the associated paperwork. But mandates such as the Family Leave Act, which allows workers to take up to 12 weeks of leave every year(!) with guaranteeed rights of return, imposes onerous demands on employers. And President Obama has proposed making that leave paid! And for the coup de gras, health care cost, already a huge employer expenditure will grow far larger under ObamaCare, under which employer taxes will be used to subsidize the poor's health care.

Living-wage laws, for example, those in San Francisco, require employers to pay all workers $11.54 an hour (usually plus benefits). Employers who could use an employee that would add any less value than $11.54 an hour plus benefits won't hire anyone at all--few employers want to take a loss in hiring an employee.

• The hassle factor. Many American employees, especially in liberal cities, and especially young employees, feel a sense of entitlement and litigiousness. They view employers as necessary evils. Many employers find the hassles of dealing with such employees outweigh the profit they would generate.

• Increased government worker protections create yet more disincentives to hire. For example, California law requires that even if a non-exempt worker works only four days a week, if an employer wants an employee to work a 9th hour on even one day, the worker must be paid 50% more for that one hour. Another example: sexual harassment laws have been so liberalized that, for example, if a person merely perceives a coworker to be making unwanted advances or is offended by a photo of a sexily-dressed person in an employee's cubicle, s/he could have grounds to build a case against the employer for condoning a "hostile environment," even if the employer was unaware of the photo!

• It is very difficult to fire an unsatisfactory employee, especially if the employee is in a "protected class:" woman, minority, person over 40, person with a disability (everything from cancer to depression.) Many such employees file wrongful termination actions and the rate is growing. Those suits are not only costly and can take many years, they take a great psychological toll on employees being accused of or deposed about alleged racism, sexism, ageism, or a hostile environment.
• The overall cost of regulation is enormous. A study by California State University economists reported today by Governor Schwarzennegar finds that the regulations cost the average small business and $134,000 every year, a total cost of $493 billion and 3.8 million jobs. And, of course, President Obama is calling for yet more regulation.
  

Those are potent reasons why employers are ever more likely to not hire U.S. employees but rather to offshore or automate jobs, or simply to calculate that there's too little profit to justify the disadvantages of hiring. And to the extent hiring is necessary, employers are ever more often hiring workers on short-term contracts to reduce payroll costs and the risks of lawsuits.

Time magazine proposes the typical liberal solutions that have already been tried and failed: funding colleges more and job retraining. We already have the highest percentage of college graduates in American history and as discussed earlier, employers are yawning at them because all we've done is taken weak high school students, lowered standards in college, but radicalized them to demand the moon from employers. So employers offshore, automate, or temp as many positions as possible. Regarding job retraining, it's been tried and tried, and those federal training programs fail: cost a fortune per trainee and most trainees don't land a job in their new career or don't last.

In my view, two changes would have the biggest long-term impact on decreasing the unemployment rate:

Training more entrepreneurs, starting in elementary school. That would yield more successfully self-employed people, more new ideas for products and services, which would create the need for more employees.

Freeing business from most government regulation.

Fat chance.