The Right to Work Is Right for Oregon: A Comprehensive Analysis of the Economic Benefits from Enacting a Right-to-Work Law
By Randall Pozdena, Ph.D. and Eric Fruits, Ph.D.
Cascade Policy Institute • February 2012
Click here to read the full report.
Click here to listen to the testimony. Christina Martin’s testimony to the House Interim Committee on Business and Labor starts at 41:00.
Co-Chair Garrett, Co-Chair Kennemer, members of the Committee:
My name is Christina Martin. I am a policy analyst with Cascade Policy Institute.
I am here today to talk about unemployment accounts. The heart of the unemployment account concept is that incentives matter.
In 1991, Michael Sherraden published Assets and the Poor: A New American Welfare Policy, which sparked an entire movement of non-profit and government funded programs. In his work, Sherraden showed how the key to getting ahead is not so much income as it is in building assets or wealth. Assets, as you know, include savings, homes, cars, and intangible things like human capital.
Sherraden observed, as many did in the 90s, that decades of welfare had largely failed to help individuals leave poverty, and instead had created cycles of poverty and government dependance by creating disincentives to success. For example, welfare discouraged asset accumulation by limiting how much savings an eligible individual could have. This encouraged people to think hand to mouth, and day to day, not long term. Sherraden and others’ observations helped stoke some good reforms, but much of that problem still exists today.
One intriguing result of Sherraden’s asset building movement was the creation of matched savings accounts called Individual Development Accounts. When an eligible individual saves a dollar in an Individual Development Account, a non-profit (often government subsidized) will match the savings, with usually one or two dollars. The savings can later be used to buy a home, start a business or go to school. In other words, the savings can only be used for the purpose of investing in certain important assets.
These accounts have proven that people with very small incomes can and will save when the incentives are strong. And it has led to life-changing choices – like buying a house, starting a business, or going to school.
Government programs tend to focus on income levels. But assets not only provide financial security, they actually can change the way people behave. Decades of research have shown that asset owners tend to lead more stable lives, think in longer time frames and have more hope for the future. They are also more likely to be involved in community affairs and to plan for their children’s futures.
The children of asset owners are more likely to succeed in school and to escape poverty. The effect of assets on education and test scores is more significant than that of income. Research by the Center for Social Development shows that most likely owning assets actually causes individuals to have greater expectations and, in turn, those expectations cause them to accumulate more assets.
One main focus of the asset building community has been to get rid of some of the asset limits that discourage saving. Similar to asset limits, government programs themselves, like unemployment insurance, cause individuals to save less.
Government safety nets themselves decrease the amount individuals feel they need to save. This effect is very strong with unemployment insurance.
Economists Eric Engen and Jonathan Gruber found that unemployment insurance decreases private savings for the typical unemployment spell by up to one-half. Some may argue that this is not a problem since these workers may need less precautionary savings because of the government safety-net. But such a simplistic answer neglects the importance of owning an asset to individuals’ psychological well being.
Of course, unemployment insurance has more problems than just discouraging savings.
Last month, an owner of a bakery near Medford, Oregon told me about some of the problems his company faced due to the disincentives in Oregon’s unemployment insurance system. Two years ago, in the middle of the recession, this entrepreneur offered a job to a man who responded that he would not be able to start work for another month. Why? Because his unemployment benefits did not run out until then.
This example is one of many stories I’ve heard about the incentive problems created by unemployment insurance. I had a friend who only applied for highly competitive jobs that she knew she had little chance of getting. She really preferred to stay on unemployment benefits. She was expecting her child to be born soon, and it didn’t seem make sense to start a new job, particularly since her husband was gainfully employed.
Peer reviewed research shows that people receiving unemployment benefits commonly take longer to find a job. Unemployed workers who receive benefits take more than twice the time to find a job than those who do not. The instances of recipients finding a job increase strikingly just before UI benefits are exhausted (see graph) That does NOT mean that individuals who use unemployment benefits are dishonest, lazy, or bad. It DOES mean that incentives and logic play roles in their job searches. A new job is not only work, but it is full of risks and uncertainty. In some cases, a new job may pay less than unemployment benefits.
Unemployment benefits come with certain requirements precisely because of these incentive issues. Workers must actively search for work and accept appropriate full-time employment. However, requirements are frequently ignored or misunderstood. A U.S. Department of Labor report showed overpayments in unemployment benefits across the nation amount to almost $19 billion in waste.
Beating the national average of 11%, Oregon overpaid an estimated $392 million over the last three years―about 12.2% of all state unemployment benefits paid during that period, according to the Labor Department. About one third of overpayments involved workers receiving benefits when ineligible because they were not available for work or because they failed their work search requirements.
So what’s the solution?
Chile’s unemployment insurance savings accounts have cut back on the disincentives that slow the job search for many who receive unemployment benefits. Chile’s workers and employers pay a portion of wages into Unemployment Insurance Savings Accounts. Each worker has his or her own account. When a worker becomes unemployed for any reason (even if it is voluntary), he or she may draw from the personal unemployment account. Workers who are laid off with small account balances receive help from a more traditional unemployment insurance safety net. When they retire, workers may use any remaining balance in their unemployment accounts
Chile’s experience is demonstrating that these accounts create an improved safety net that also improves some of the disincentives within the U.S. system. The personal accounts system motivates workers to return to work faster so they can have more money upon retirement. This system may not solve all overpayment problems, but it would prevent a significant portion of overpayments, since ultimately workers are first paid from their own accounts first.
Chile’s system also broadens the pool of eligible recipients, since workers own their personal accounts. That means workers who cannot accept full-time employment (like a working mother or student) and workers who quit their jobs for personal or professional reasons (who are not covered under our current system) would have more coverage under Chile’s system.
The question is then, not whether unemployment accounts can make things better, but rather what kind of unemployment account system would improve things for Oregon workers and businesses. Bill will discuss that more.
As you listen, please consider that this is about more than some pragmatic improvement to an old system.
This is about taking a system that has bad incentives and that teachers bad lessons, and turning it into something with healthier and more natural incentives. Remember that merely possessing a savings account can transform how people think. Studies by people like Sherraden have shown that building savings can actually cause people to make better decisions and think in longer terms. So the impact of something like this extends far beyond merely dollars and cents, into hearts and minds.
A helping hand makes all the difference to elementary school children who need a chance. Last spring I attended a luncheon at Central Catholic High School in Portland to honor graduating seniors with athletic scholarships to college. I was invited by a young man who began to be sponsored by the Children’s Scholarship Fund-Portland when he was in grade school.
“I have learned that nothing’s going to be handed to you and that you’ll succeed through hard work,” Kidus told me. “[Private school] was challenging, but it has gotten me ready for college and life.”
One of Central Catholic’s star basketball players, Kidus now attends Portland State University and plays for the Vikings. He was able to attend private schools because of scholarship assistance from caring Oregonians.
January 22-28 is the second annual National School Choice Week. A collaboration of more than 200 organizations across the country, National School Choice Week highlights the need for effective educational options for all children, especially those most in need of increased educational opportunity. Participating groups believe parents should be empowered to choose the best educational environments for their children and support a variety of school choice options, including increased access to high-performing public schools, public charter schools, magnet schools, virtual schools, private schools, and homeschooling.
Scholarship programs like the Children’s Scholarship Fund-Portland help put private and parochial schools within the reach of elementary children like Kidus. Because of the Children’s Scholarship Fund and its local partner programs, more than 123,000 low-income children nationwide have attended the private and parochial schools of their parents’ choice. In fact, the Children’s Scholarship Fund is the only national K-8 scholarship organization in the country, providing help and hope to kids who are eager to learn and to achieve.
Believing that every child, regardless of family income, should have access to a quality education, Ted Forstmann and John Walton cofounded the Children’s Scholarship Fund in New York City in 1998. Forstmann and Walton challenged local donors across the country to join them in funding the initial 40,000 K-12 scholarships worth $200 million. The Children’s Scholarship Fund remains the country’s largest charity helping parents to send their children to the schools of their choice.
Here in Oregon, local donors made pledges sufficient for Cascade Policy Institute to launch a $2 million CSF partner program, the Children’s Scholarship Fund-Portland, which has given more than 600 students a “hand up.” “CSF-Portland scholars” have chosen a diverse range of Oregon private and parochial schools, but they are united in their gratitude to each and every benefactor who made their individual dreams come true.
To be eligible for scholarship assistance, families must have incomes low enough that they would qualify for the Federal Free and Reduced Price Lunch Program; but every parent must pay part of their children’s tuition themselves. Making the scholarship a “hand up,” rather than a “handout,” ensures that parents stay engaged with their children’s education, a key component of student success. In fact, CSF-Portland parents pay, on average, more than half the cost of their tuition (they pay $1,900 per child this year). By choosing to pay for private education, they forgo the $10,000-per-child which Oregon currently spends on public education in favor of a better chance for their children.
CSF-Portland scholarships average only $1,700 per child, but this often makes the difference between children attending a public school where they are not thriving or a private school where they are. Scholarships are funded by local donors here in Oregon, whose gifts are matched by the national Children’s Scholarship Fund in New York, so a $100 gift to CSF-Portland can sponsor a low-income child’s tuition for a month.
Ted Forstmann said, “Every child, regardless of their parents’ income, should have access to a quality education – an education that will not only prepare them for successful private lives, but help them to build cohesive communities and a strong democracy. We believe if you give parents a choice, you will give their children a chance.”
He also truly believed, “If you save one life, you save the world.” While Americans engage in necessary debates on education reform, we cannot wait to help the children sitting in classrooms today. The Children’s Scholarship Fund-Portland empowers lower-income Oregon children to get a “hand up” early in life through a quality elementary education, a simple step that puts kids with limited choices on a path to success that gets them “ready for life.”
This is National School Choice Week. Every January, National School Choice Week highlights the need for effective educational options for all children.
Planned by a diverse and nonpartisan coalition of individuals and organizations, National School Choice Week features special events and activities that support school choice programs and proposals. The effort is a collaboration of more than 200 partner organizations, which each advance their own messages of educational opportunity while uniting with like-minded organizations across the country.
National School Choice Week believes that parents should be empowered to choose the best educational environments for their children and supports a variety of school choice options, including increased access to high-performing public schools, public charter schools, magnet schools, virtual schools, private schools, homeschooling, and more.
The Wall Street Journal recently called 2011 “The Year of School Choice.” And here in Oregon, our legislature passed a bill to allow open enrollment among public school districts. Starting this March, parents may enroll their children in another district as long as the receiving district is accepting transfers. This arrangement can promote increased enrollment in schools with empty seats while offering additional opportunities to out-of-district children.
It’s becoming increasingly evident that allowing families more freedom in educating their children is the way of the future. In a pioneer state, Oregonians should be proud of the ways we are innovating to give students more diverse choices in education.
Watch Cascade Policy Institute founder, Steve Buckstein, talk about how he and Cascade got their start in the school choice movement.
Why is school choice such an important part of Cascade Policy Institute’s agenda? Partially, because it is the issue that got us started back in 1991.
In 1990 a small group, including myself, got together and placed a citizen initiative on Oregon’s ballot. Measure 11 would have provided refundable tax credits to every K-12 student in the state, which they could use to attend any public, private, religious, or home school of their choice. No state had ever voted on such a sweeping reform before, and we felt it was time for Oregon to lead the way.
We gathered over 130,000 signatures to place our measure on the ballot, more than any other measure that year. We raised over $500,000 from Oregonians and donors around the country to get the school choice message out in our state.
But on election night that November, we came up short. We only earned about one-third of the vote for our school choice measure. That didn’t surprise us, because through polling we realized that school choice was a new concept to most people, and it was easy for our opponents to scare voters into saying No.
Before the votes had even been tallied, we began thinking about how we could move our school choice agenda forward in the future. We decided that Oregon needed a free-market think tank to advocate for school choice as well as other limited government ideas. That’s why, barely two months after Measure 11 lost at the polls, we incorporated Cascade Policy Institute in January 1991.
In the 21 years that have now passed, we have made some significant progress on the school choice front. We worked hard to introduce the charter school concept in the state in the mid-1990s. By 1999 the Oregon legislature passed, and in his first administration Governor Kitzhaber signed, a charter school bill that has now resulted in more than 100 public charter schools operating in the state.
Also in 1999 we evolved from just talking about school choice to actually providing choice to hundreds of low-income kids in the Portland area through our Children’s Scholarship Fund-Portland program. We initially raised $1 million of private money that was matched by $1 million nationally to provide partial scholarships to over 500 kids for four years at the schools of their choice. The fact that over 6,600 kids applied for those 500 slots demonstrated that the demand for school choice is great in Oregon. We can’t help them all, so we continue to advocate for broader programs that will.
In 2011 Governor Kitzhaber 2.0 signed three school choice bills as part of an education reform package, including expansion of online charter schools, more options to sponsor new charter schools, and open enrollment between public school districts.
We will continue bringing national speakers to the state, talking about the benefits of school choice elsewhere. And we will continue to bring realistic school choice funding proposals to the legislature in the hope that soon a majority of both houses will agree that we can’t wait any longer to provide real school choice for most Oregon children.
Cascade won’t stop advocating for school choice until every student in the state has the real choices they deserve. We appreciate the help of everyone who shares our vision of a freer, better education system in Oregon. It can’t come too soon.
In his recent State of the State address, Governor John Kitzhaber argued that legislators must “lock in” his education system changes so they then can move on to other important issues such as tax reform and public safety.
Notice that he did not mention the last two big educational changes he helped “lock in.” Both the 1991 Education Act for the Twenty-First Century (CIM and CAM) and the 1999 Quality Education Model arguably failed to deliver on their grand promises. Now we have the Oregon Education Investment Board (OEIB), headed by the Governor, which promises to centralize education policy more than either of the two big past reform efforts. This is the perfect time to consider applying the “three strikes and you’re out” concept to public policy.
The fatal flaw in all these reform efforts is that they rely on really “smart” people centralizing control over educational policy and decision making. The first two efforts concentrated on Kindergarten through high school. Apparently, their failure led the Governor to conclude that they simply didn’t control a broad enough swath of the education spectrum to work. So now, his latest effort seeks to control everything from pre-Kindergarten through graduate school.
As I discussed in Forced Participation: Public Education’s Fatal Flaw (June 2010) and The Oregon Education Investment Board: Top Down on Steroids (December 2011), centralizing control over education policy and forcing students to attend schools chosen for them by others are destined to fail because they fly in the face of one of America’s most cherished values: choice. Parents don’t appreciate politicians, bureaucrats, or experts making decisions for them about what is best for their children. Advise? Sure. Command? No way.
Rather than wait years to judge the latest big reform a failure, it is time to try another path: the school choice path. The Governor should be amenable to such a path since he signed the initial charter school law in 1999 and three limited school choice bills in 2011. What he needs to realize, however, is that such a path is in conflict with his command-and-control efforts. He needs to make a choice – and allow parents and students many more educational choices.
To see the flaw in the command-and-control approach, consider an example I have used before. Consider what our world would be like if the government owned our grocery stores:
We can only shop at the store nearest our house, unless we can afford to move into another neighborhood. We elect food boards to oversee our grocery stores. We pay through taxes, not directly, so few notice that the government spends eight dollars for a gallon of milk and six dollars for a loaf of bread. We do notice that the bread is sometimes stale, and the milk is sometimes sour. But we get no guarantees, and we certainly get no refunds. Each food district has a central office staff working hard to design store shelves, checkout lanes, and the nutritional content of each food item.
Now, imagine voters approving less money for the public food system than its employees demand. Suddenly, stores can’t keep all the clerks employed. Food Superintendents are faced with the difficult task of eliminating some items from the shelves.
Customers are angry when stores stop offering extras like cookies and candy. Until taxpayers give food stores more money, only nutritious staples will be available, and checkout lines will be longer. How could we feed ourselves without government taxing us, building big brick food buildings, and telling us where to shop?
If this scenario sounds familiar, you’re way ahead of me. It’s the world of our public school system. It’s the world most of us grew up in. Future generations deserve to grow up in a better world, where we no longer dump money into a system that celebrates the status quo and operates more for the adults that make their living in it than for the students.
Why not worry about a tax revolt decimating our grocery stores? Because they are privately owned, yet serve the public. They’re subject to intense competition, and each of us has virtually unlimited shopping choices. For those who can’t afford food, we don’t build government food stores. We give them food stamps, and they shop in the same stores and for the same products as the rest of us.
Our public schools are the equivalent of the former Soviet Union’s collective farms. Communism said government should own and run the food stores – and the farms. The result was a nation that couldn’t feed itself. To avoid becoming a nation that cannot educate itself, we need to let education dollars be spent where consumers think they should go. We need to find ways to put the children first, the system second.
School choice opponents want us to wait to see if the Governor’s latest centralized approach will eventually improve public schools. But we’ve seen what centralized control does to education already. Waiting longer won’t help struggling students today.
When public schools fail students, they often demand more money to make improvements. Imagine if grocery stores acted that way; you return a stale loaf of bread and the store charges you more so it can try better next time. That’s unacceptable for grocery stores, and it should be unacceptable for schools.
In a school choice world, if the school fails students it doesn’t get more money, it gets less as students leave and take their allocated money with them to other schools. This is the world that finally will put students first. Before the Governor’s third strike takes a further toll on students, let’s encourage him and the legislature to take another path – the school choice path.
Nine months ago I happily testified (twice) on behalf of a legislative bill that would allow the creation of a privately operated car sharing program in Oregon. I liked the idea of using cars more efficiently, and I loved the fact that the price of rentals would be determined entirely by the market.
A model for this program exists in San Francisco; and as one of the legislative proponents described it, private vehicles there rent for about $9 per hour. But a Tesla electric vehicle frequently rents for $50 an hour, just because some people think it’s fun to drive.
I wouldn’t pay that much, but I’m glad the law allows someone else to.
Unfortunately, a good idea has been ruined by subsidies. Recently, the federal government awarded a $1.7 million grant (requiring $431,250 in local match money) to the City of Portland to promote car sharing and to measure the results. The regional government, Metro, will vote on Thursday to accept the grant.
Car sharing is a great idea, but tax sharing is not. Metro Councilors should reject the federal money and allow the “invisible hand” of the market to work exactly as the legislature intended.
Listen to Christina Martin as she talks with Portland radio host, Victoria Taft, about school choice and its parallels to health and pain.
Policy Analyst Christina Martin discusses her latest commentary on a desire for control leading to the fall of education.
Click here to see her full commentary.