Thursday, July 16, 2009

Cont: Furlough Plan Analysis Shows Bias Against Low-Wage Workers

Fellow Workers (and others),

I have spent some time over the last two evenings analyzing Mark Yudof's proposal for UC pay cuts/furloughs. What I have found is troubling. The proposal tilts heavily against low wage earners. I think there are obvious better solutions, two of which I propose here.

Graduated Approach Biased Against Low Wage Earners

Although the proposed cuts are "graduated", an unnecessary burden is placed on those with lower salaries. Cutting more from the top makes more sense all around.

1. When your monthly gross salary is around $1,600 (Tier 1), a $70 pay cut is significant. It can force decisions like whether to buy food or pay an electricity bill. As we will see below, UC doesn't really need to take those $70 from you.

2. If, on the other hand, your monthly salary is anywhere from $16,000 to $40,000 (medians in Tiers 6 and 7), what difference would the cut make? Maybe your part time personal chef will have a "furlough" day as well, or you might have to spend your vacation in Athens rather than Paris.

3. The graduations are weak: Those making 10 to 25 times more than the lowest tier only have 2.2 to 2.4 times the pay cuts, proportionally.

Other Solutions are Available

For the sake of this analysis, let's assume that salary cuts (i.e. furloughs) are the appropriate response to this financial problem. One can make a convincing argument against that idea, but for now I will leave that aside.

I have created two alternative proposals, as examples of how the same shortfall could be accommodated with much less effect on people's lives.

Note how easy it would be for the higher salary tiers to absorb most of the cuts proposed for the lower tiers, without much effect on the lives of those with higher tier salaries. An extra $300/mo from a salary of $10,500/mo, or $800/mo from a salary of $37,000/mo, could drastically reduce the effects on lower wage earners. Even those in Tier 4 can be cut less, if those with extravagant salaries will put in a bit more.

In fact, the first three tiers in Yudof's proposal could avoid pay cuts altogether if the upper 4 tiers would accept modestly higher monthly cuts. There is little reason to cut the wages of those with lower salaries.

See For Yourself

You can obtain the spreadsheet I used to make these calculations from the email address below. Feel free to play around with the numbers. You will quickly see that Yudof's proposal masks unfair cuts with a language of fairness.

I welcome your thoughts, but I suggest that action is better. Contact UCOP. Better yet: If you're represented by a union, use it.

Answers to Predictable Questions/Arguments

"But we need to be fair."
  • It takes only a few seconds of thought to realize that the proposed cuts will have a much larger effect on the lives of lower wage earners than on those of higher wage earners. We should not confuse fairness with a numerical/statistical illusion of fairness.

"But we need to stay competitive."

  • As I demonstrate in my proposed alternatives, the extra sacrifice by high wage earners would be almost unnoticeable.
  • I'm sure most of us realize on some level that the myth of the "highly valued executive" is reaching its end in our society's collective consciousness. Let's face it: Highly paid administrative positions don't require rare talent. They would still be highly paid, and there will always be people who want the jobs.
  • As for other very high wage earners, e.g. coaches and certain medical professionals: They would still earn a lot. Just slightly less.
"30 days of furlough is too many."
  • Yudof already proposed 24-26 for the highest tiers. And I submit that temporary salary cuts may be more appropriate than furlough days, especially for high wage earners.

"This is unamerican."

  • Red baiting is so passé.

Data Methods and Caveats
1. I used the Sacramento Bee's data on UC salaries in order to measure the number of employees in each of Yudof's proposed tiers. In order to approximate the number of employees in each of Yudof's tiers, I linearly interpolated the ranges in the Bee's data. (The Bee has totals for those earning <$30K, $30-40K, $40-50K, $50-60K, $60-70K, $70-80K, $80-90K, and >$100K. I hand-counted the number of people in the $100-240K and >$240K tiers. See spreadsheet for details.)
2. Estimates of savings and salaries were made using the median of the low and high ends of each salary tier. This assumes a normal distribution of salaries within the range, which may (for example) slightly underestimate the actual savings from Tier 1 cuts. It may also underestimate savings from higher tier cuts as well. But on the whole the numbers are meaningful, especially given how little Yudof's Tier 1&2 salaries affect the budget in general.
3. I chose an upper limit of $750K for the highest tier somewhat arbitrarily. Some people earn more than that, but not too many. The goal was to make the median of the highest tier more representative.
4. The estimates mentioned most certainly introduce some element of error into the calculations; however, the foundation of the analysis is strong, and any errors introduced are unlikely to be significant.
Jeffrey Bergamini
Programmer/SysAdmin, Hart Interdisciplinary Programs, UC Davis / 530-752-9332


xicano said...

Thank you for this very useful analysis. The bottom line: "The graduations are weak: Those making 10 to 25 times more than the lowest tier only have 2.2 to 2.4 times the pay cuts, proportionally" should have been clear to anyone at the time the new "stratifications" were announced. And then there is the problem that wage earners are the bottom of each gradation will actually take a bigger hit than those at the top of the gradation below them.

Yudof can't stop patting himself on the back for shifting from the thoughtless two tier 4% and 8% plan to the multi-level plan. But he showed no leadership at all by not slowing down the process in order to devise a more equitable plan.

California Prof said...

This is something that occurred to me today and is reinforced by your analysis. Salary cuts are only supposed to bring to the University savings around $200M. Yudof has gone on an on again saying that salary cuts will account for only 25% of the projected $800M shortfall in general funds.

But as you can see from your calculation, the proposed salary cuts will bring in upwards of $600M!

In fact, if you just divide $200M by the number of University employees (180,000 according to some sources, 130,000 in your calculations) you get an average cut that is a lot lower than what Yudof proposed.

What gives?

Have we been lied to all along?

Greg said...

I'm tremendously grateful for this analysis, but I would suggest that a monthly cut of $500 or there abouts for those making salaries between $60-90k can be quite serious in terms of mortgages and daycare. Yes, having a house and daycare may be a luxury in the big picture, but the real issue is the tipping point that many will face. Savings may be used up to cover the reduction, putting an individual or family at considerable risk if any additional financial challenge occurs.

Natasha said...

I see you have used the tiers proposed by Yudof -- looking at the SacBee numbers, do you have sense of why the breakpoints for these tiers were chosen? Could lower-wage earners be protected by subdividing or otherwise changing the tiers?

Jeffrey Bergamini said...

@California Prof - Definitely, the numbers are very suspicious. This jumps right out.

@Greg and @Natasha - Agreed. This weekend I hope to get better salary data and come up with more meaningful salary brackets and finer-grained proposals.

More to come.

Kevin said...

The problem of stepwise changes was pointed out to the administration, and the solution of using piecewise linear scales (as has been used for income tax for decades) was explained to them. They seem to be too stupid to understand such simple math (they screwed up in the same way on the health insurance bands), so I don't understand why they are getting paid anything to do administration---they clearly do not have even the minimal math required of an accountant.

Jeffrey Bergamini said...
This comment has been removed by the author.
Jeffrey Bergamini said...

There are many things wrong with the proposal, but only from the standpoint of normal workers. It's great for administrators and other "highly compensated" individuals.

I've written a tool for full analysis:

This is step one: Getting the information out there.

Step two is action.

Anonymous said...

Freewheeling spending of $3 million for Consultants approved by President Yudof to do the work of the UCB Chancellor.
Do the work of the Consultants internally. World class faculty and staff and the UCB Academic Senate Leadership can save UCB $3 by doing the work of the consultants internally.

Has anyone in UC/UCB heard that California is in recession?1

allison@Berkeley said...

Also, last year Boalt Hall paid $1 Million to hire a consultant to come up with a new name for the Law School. The consultant came up with the name "The University of California, Berkeley School of Law." Wow, really worth a million dollars for that.

So what did they do with the new name, updated the website. The sign on the outside of the building still reads "Boalt Hall" and I was talking to some of the union workers in the building, and they said that everyone still uses the old letter head. So $1 Million to FTP a couple of words.

Thank you Administration/Regents for such thoughtful funding allocations. I can see your business experience is serving the public well.