February 25, 2013

IBD: DOL Decision to Grant Hostess Workers ‘Trade Adjustment Assistance’ Is ‘Corruption’

An Investor’s Business Daily editorial on Friday confirmed a couple of items which seemed intuitively obvious but which I didn’t prove on Thursday in my post (at NewsBusters; at BizzyBlog) about the Department of Labor’s outrageous decision to grant unionized workers at now-liquidating Hostess Bakeries “Trade Adjustment Assistance” (TAA).

The first is that it will cost a lot of money, totaling an amount which appears to have a chance to come within striking distance of about half of the annual profits in the entire commercial baking industry. The second is that there is little if any evidence supporting DOL’s finding that imports have seriously harmed the industry. Excerpts from that editorial (do read the whole blood-boiling thing), followed by a bit of analysis by yours truly, follow the jump.

From the editorial:

After Bankrupting Hostess, Union Workers Rake In The Federal Dough

… (As Hostess threatened liquidation) most workers at the bread and pastry maker, famous for its Twinkies and Ho Hos snack cakes, were willing to tighten their belts until good times returned.

They included hard-line unions, such as the Teamsters, not known for making concessions.

But there was one exception: the AFL-CIO-affiliated Bakery, Confectionery, Tobacco Workers & Grain Millers International (BCTGM).

It refused to deal, taking the entire company, including fellow workers, down with it.

Turns out the union knew exactly what it was doing.

… TAA is a lavish program doled out by the Labor Department for laid-off workers who’ve lost their jobs due to “global trade.”

It provides worker retraining due to the supposed evils of free trade — plus moving expenses, baby-sitting expenses and as much as two years of unemployment pay. If a worker ends up making less than his union salary afterward, Uncle Sam spots the worker for 50% of the supposed lost wages in a “free” subsidy.

What’s more, “virtually anybody can qualify,” said TAA certifying officer Elliott Kushner in an interview with the Wall Street Journal.

(This result is) a reward for those who refuse to negotiate, and a sop to the manipulative unions that are most adept at gaming the system.

This doesn’t create value. It’s corruption.

From what I can tell, the industry segment in which Hostess operated — NAICS Code Number 1905, Baked Bread and Pastry — had sales of $24 billion in 2007, and has seen flat growth since. It had imports of $3.2 billion in 2012, up from $2.7 billion in 2010. Industrywide hours worked have changed little in the past decade. The numbers aren’t directly comparable, but a roughly 2-point increase in the market share of imports ($500 million increase divided by $24 billion or more) hardly makes the case for DOL’s TAA ruling. If the industrywide profit margin on sales is about 6.5%, which is typical for food-related businesses, industrywide profit would be about $1.56 billion. If the average total benefits paid to each TAA-affected worker amount to $45,000 — a seemingly conservative number given the two-year entitlement to unemployment benefits and the other identified perks — former Hostess workers will receive $810 million ($18,000 x 45,000), or about half of the industry’s profits in a full year.

When the government for no defensible reason distributes large amounts of money to members of one its key constituency groups — in this case, organized labor, whose members, as IBD noted, were making about twice what other workers in the industry typically make — it is indeed corruption.

National coverage of this travesty has been virtually non-existent, as is normally the case with corruption when a Democratic presidential administration is involved.

Cross-posted at NewsBusters.org.

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2 Comments

  1. Um, will this trade adjustment assistance be subject to the sequester? Just asking…

    Comment by dscott — February 25, 2013 @ 4:23 pm

  2. There should be congressional hearings on this

    Comment by Jim — February 25, 2013 @ 7:18 pm

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