The Anti-Jerk Law

You’ve probably had a boss who was a jerk.  Indeed, you may be working under a jerk of a boss right now.  Question: Would it be a good idea to pass an Anti-Jerk Law to protect workers from these jerky employers?  Like existing employment discrimination laws, the Anti-Jerk Law would allow aggrieved employees to sue their employer for jerkiness – and received handsome compensation if they prove their charge in a court of law.

I doubt many people would endorse this Anti-Jerk Law.  On what basis, though, would they object?

Libertarians might stand up for the “right to be a jerk,” but few non-libertarians would find that convincing.

Economists might appeal to the standard economics textbook conclusion that mandated benefits – including the right to sue your employer for jerkiness – are inefficient.  But few non-economists would find that convincing.

 

Why, then, would normal people refuse to endorse an Anti-Jerk Law?  If pressed, the reason would probably be along the lines of, “Jerkiness is way too subjective.”  If you call your boss a jerk, he’s probably thinking, “No, you’re the jerk.”  Even if a large majority of the workers at a firm consider their boss a jerk, a contrarian might insist, “The boss is tough but fair.  You folks simply don’t measure up.”   Other people might muse: “Personality conflicts are a fact of life.  You can’t legislate them out of existence.”

 

What happens if you scoff at the subjectivity of jerkiness and pass your Anti-Jerk Law anyway?  All of the following:

1. Bosses try to avoid the appearance of jerkiness.  But bosses with poor social skills or bad luck still get sued.

2. Since bosses try to avoid the appearance of jerkiness, litigious employees don’t have a lot to work with.

3. As long as judges and juries are sympathetic, however, they lower the de facto burden of proof, allowing the war on jerks to continue indefinitely.

4. Bosses, in turn, defend themselves by trying to pre-emptively discredit litigious employees.

5. Cynical bosses go a step further by trying not to hire employees who are relatively likely to cry “jerk.”

6. Human resource departments institute Orwellian anti-jerk training, where participants get punished for pointing out that the HR folks are domineering and insulting.  I.e., jerks!

7. If so-called jerky managerial styles enhance productivity (think: athletic coaches), society forfeits major benefits.

 

As far as I know, no country has an Anti-Jerk Law in place.  But many countries ban “discrimination,” and the effects are much the same.  Once you pass discrimination laws…

 

1. Bosses try to avoid the appearance of discrimination.  But bosses with poor social skills or bad luck still get sued.

2. Since bosses try to avoid the appearance of discrimination, litigious employees don’t have a lot to work with.

3. As long as judges and juries are sympathetic, however, they lower the de facto burden of proof, allowing the war on discrimination to continue indefinitely.

4. Bosses, in turn, defend themselves by trying to pre-emptively discredit litigious employees.

5. Cynical bosses go a step further by trying not to hire employees who are relatively likely to cry “discrimination.”

6. Human resource departments institute Orwellian anti-discrimination training, where participants get punished for pointing out that the HR folks are hostile and bigoted.  I.e., discriminators!

7. If so-called discrimination enhances productivity (think: standardized testing), society forfeits major benefits.

 

Why do the same patterns emerge in both cases?  Because “he discriminated against me” is about as subjective as “he was a jerk to me.”  In both cases, they feel very real to the accuser.  In both cases, they feel very unfair to the accused.  If you knew neither party, you’d probably decline to even express an opinion.

And with good reason.

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Warren Coats’s Experience with Unions

My experiences with unions have not been good. My father was a Shell Oil union member.  His union went on strike long ago when my mother was pregnant with my younger brother. After a few months on strike it was growing obvious (according to my father) that it would end soon in failure from the union perspective. The union bosses feared that my father and others would return to work before the union had formally given up. They came to our house and told my pregnant mother that it would be quite unhealthy for her if my father returned to work.

While a student at the U of C Berkeley I had taken jobs for three summers with Shell Oil, one of the perks they give their workers’ children. Two summers were [spent] roustabouting in the oil fields of Kern County, California with regular Shell employees who never spoke of labor relations with the company. Instead they talked about their families and non-work activities.  The middle of the three summers with Shell, I was assigned to the supply yard behind Shell’s Kern County headquarters. I assisted the one employee there who loaded pipes and other oil field equipment onto trucks that then delivered the equipment to the fields I had worked in the summer before. Much of the time the two of us just hung out there waiting for the next truck, very unlike digging ditches to repair leaking pipes as I had done the previous summer in 112-degree summer heat. We drove around in the small portable crane used for loading the trucks. The entire time my “companion,” an avid union member, complained about how Shell Oil was exploiting us. After a few weeks I dreaded having to be around him.

This is from Warren Coats, “Unions vs the Gig Economy,” Warren’s space, November 14, 2020.

This was not like my own experience with union workers, all of whom I liked. Maybe it was because we got a bonus for every foot we drilled, which made us very productive. I’ve written about one very positive experience here.

But Warren’s story is like many I’ve heard from people who worked in union jobs in the summer and then got out of them.

The whole thing, which is not long, is worth reading.

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Great News on Employment and Unemployment

On the first Friday of October I laid out the somewhat good news on employment and unemployment for September. This Friday (today), the news is fantastic!

1. The number of people employed increased by 2.243 million. A typical increase in normal times is between 0.2 and 0.3 million, so this is 7 to 10 times as large.

2. The employment to population ratio increased from 56.6 percent to 57.4 percent, a large increase.

3. The number of people unemployed fell from 12.580 million to 11.061 million, a drop of 1.519 million.

4. The unemployment rate fell from 7.9 percent to 6.9 percent.

5. The unemployment rate for people in every single category: black, white, men, women, teenagers, Asian, and Hispanic or Latino, fell. For many of those groups it fell by more than 1 percentage point.

The above are all data from the Bureau of Labor Statistics household survey.

The data from the establishment survey are also good, especially in the details.

1. Private employment rose by 906,000.

2. Leisure and hospitality, one of the sectors hardest hit by both the pandemic and the lockdowns, rose by 208,000.

3. Government employment fell by 268,000.

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Morning in America?

In November 1984, President Reagan said it was “Morning in America”. Good times were back again and the unemployment rate had fallen to 7.2%. He won 49/50 states (including Massachusetts) on the back of a booming economy.

Today, the unemployment rate is 6.9%.

In the Great Recession, it took more than 4 years for unemployment to fall from a peak of 10% to 6.9%. This time it took 6 months (from over 14%).

Lars Christensen might still be correct in his spring prediction that the unemployment rate would fall to 6% by November (these figures were for October.) At the time Lars made the prediction, most experts were highly skeptical.

People will say, “It’s much worse than the unemployment figures show”. Yes, but it’s much worse precisely because it’s a supply shock, not a demand shock.

Supply shocks are really weird.  And fiscal stimulus is not going to fix this problem (although it can provided needed relief to jobless workers.)  It’s won’t give a job to a parent staying home to take care of kids because schools are closed, and thus isn’t even counted as unemployed.

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Managing and Mismanaging the Covid Shock

An important lesson from both economic analysis and economic history is that when people are relatively unregulated and free to adjust, they can adjust quickly to various economic shocks, even large ones. But when governments heavily regulate people’s economic activities, these governments slow and often prevent adjustments. The good news is that in 2020, the federal government and many state and local governments have temporarily relaxed regulations to make adjustment easier. The bad news is that many of these same governments have added regulations that make adjustments difficult or impossible. And the further bad news is that many pre-existing regulations have not been loosened and, therefore, act to slow adjustment. One of the most extreme regulations is the Food and Drug Administration’s heavy requirements that limit testing for the Covid-19 disease.

This is from “Managing (and Mismanaging) the “Covid Shock,” my latest article on Defining Ideas, October 22, 2020.

Another excerpt:

However, there’s a responsible solution for restaurants and bars that want to serve drinks: insist that they serve people outside and insist that they require people to stay seated and socially distanced. But governments seem to have problems with letting people have fun. The California Department of Alcoholic Beverage Control insists that bars may open only if they offer “bona fide meals.” Those meals cannot be pre-packaged sandwiches and salads, side dishes like fries and chicken wings, bagged pretzels or popcorn, or, the horror, dessert.

And then one of the worst:

In the midst of a pandemic, one of the things we would like most to know is whether we have the virus. Testing can tell us that. But existing tests are expensive. After recently traveling, I decided, at my wife’s urging, to get tested. I paid $180 for results within twenty-four hours and got them in six hours. I can afford that. But that’s a lot of money for many people, and six hours is still a lot of time. Wouldn’t it be nice if we could have even cheaper tests that we can conduct on ourselves and get fast results? That way, each of us would know whether to isolate or go to work, bars, football games, or restaurants.

Actually, we can, but we may not, because the FDA stops us. These tests cost under $10 and give results within fifteen minutes. But the FDA won’t allow them because they’re not as accurate as tests it does allow.

Read the whole thing.

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Sir Samuel Brittan RIP

Tyler Cowen, over at Marginal Revolution, quite rightly laments the death of British economic journalist, the aptly named Samuel Brittan.

Like Tyler, I first heard of Brittan’s Capitalism and the Permissive Society from the late Roy A. Childs, Jr. You might think that “Permissive” in the title is used negatively. No. One of the things Brittan liked about capitalism was that it is permissive. I’m going from memory here; my copy was destroyed in my 2007 office fire.

It was either in that book or in something else that Roy Childs told me from another Samuel Brittan writing that Brittan told the story about how Milton Friedman, with one view on one issue, got him respecting free market views more: it was that Friedman was such an outspoken advocate of a free market in military labor–that is, Friedman opposed the draft.

Here’s another Brittan/Friedman story, from Wikipedia, that I hadn’t known:

[Friedman] mentioned to me a letter he had received from Arthur Burns saying that Eisenhower was turning out well as President. I expressed surprise, to which Friedman responded: “First, Burns has much better knowledge of Eisenhower. Second, given equal knowledge I would prefer his opinion to yours.” Against The Flow (2005)

 

 

 

 

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Five Books on the Future of Work

Do machines complement labor, leading to higher wages and better living standards for ordinary workers?  Or do they substitute for labor, driving down living standards for ordinary workers and concentrating wealth in the hands of the few?

We are now in the midst of what many economists call the Second Industrial Revolution.  The First Industrial Revolution introduced machines with physical power.  The Second Industrial Revolution induces machines with mental power.

The First Industrial Revolution began late in the 18th century.  Early on, observers such as Charles Dickens and Karl Marx focused on the harsh conditions of the working class.  But by the latter part of the 20th century, it was evident that most workers had achieved much higher living standards.  It now appears that industrial age machines turned out to be complementary with labor.  If there was a loser from the Industrial Revolution, it was the horse.

 

How will the Second Industrial Revolution turn out?  These five books offer differing perspectives.  In chronological order, they are:

 

Robert Reich, The Work of Nations, 1992.  Reich saw that the future did not bode well for America to have a large manufacturing work force.  He saw information-age technology as complementary with  workers whose skills involve manipulating symbols–words, numbers, and computer code.  But it would substitute for workers who manipulate things.  As he saw it, America needed to train its work force to be symbol analysts.

 

Neal Stephenson, The Diamond Age, 1995.  In this science fiction novel, Stephenson depicts a world in which nanotechnology, as described in Eric Drexler’s monograph “Engines of Creation,” has matured.  As a result, no one lives in hardship.  Any standard product can be  made cheaply by a “matter compiler,” what we would now think of as a 3D printer with superlative capabilities.  Machines have substituted for labor to the point where a lower class, called “thetes,” enjoys a coarse consumer lifestyle without having to work.  An upper class, called “Vickies,” has skills that complement the machines, and this elite indulges in a taste for old-fashioned hand-crafted goods.

 

Ray Kurzweil, The Age of Spiritual Machines, 1999.  This is not a novel, but to many it reads like science fiction.  Kurzweil depicted a future in which artificial intelligence would catch up with and surpass human intelligence.  At that point, computers would be a substitute for every current form of work but still complementary with the human race, as humans and computers would eventually merge.

 

Robert Fogel, The Escape from Hunger and Premature Death, 1700 – 2100.    Fogel, an economic historian and Nobel Laureate, points out that there is a long-term trend of a rising share of consumption devoted to education and health care and a corresponding decline in the share devoted to food and manufactured goods.  If he is correct—and I believe that he is—then the many politicians, commentators, and policy wonks who argue for trying to preserve American manufacturing jobs are engaging in a Canute-like exercise of trying to hold back the tide.

 

Tyler Cowen,

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Identifying monetary shocks

This post is a follow-up to my recent post on the “masquerading problem”. Recall that changes in interest rates are not a reliable indicator of changes in the stance of monetary policy. A new paper by Marek Jarociński and Peter Karadi discusses an interesting method of identifying monetary shocks:

Central bank announcements simultaneously convey information about monetary policy and the central bank’s assessment of the economic outlook. This paper disentangles these two components and studies their effect on the economy using a structural vector autoregression. It relies on the information inherent in high-frequency co-movement of interest rates and stock prices around policy announcements: a surprise policy tightening raises interest rates and reduces stock prices, while the complementary positive central bank information shock raises both. These two shocks have intuitive and very different effects on the economy. Ignoring the central bank information shocks biases the inference on monetary policy nonneutrality.

I see this as a promising first step toward the market monetarist goal of using asset prices linked to NGDP as an indicator of monetary policy.  To be sure, stock prices are a very noisy indicator of NGDP expectations, but they are better than changes in short-term interest rates, which often don’t even have the right sign.  Tight money can occasionally cause lower nominal interest rates, as NeoFisherians have pointed out.  In the Jarociński and Karadi paper, only interest rate increases associated with falling stock prices are identified as an actual move toward tighter money.  Ideally we’d replace stock prices with NGDP futures prices.

This article was sent to me by Basil Halperin, who also made the following comment about my earlier masquerading problem post:

The Wolf paper mentions the “sign restrictions” identification strategy that is usually credited to Uhlig (2005). . . .
I think of your 1989 JPE with Silver as having done a proto-version of this approach! Both your paper and the Uhlig paper use the idea that “monetary shocks should send output and inflation in the same direction” to identify which episodes are demand shocks, versus which are supply.
Readers who are studying economics might be interested in the background of our 1989 JPE paper.  In the late 1980s, I was interested in studying business cycles.  When I looked at the data, the 1920-21 depression seemed like the purest example I could find of a stereotypical business cycle.  It saw the steepest one-year drop in industrial production, the steepest one-year drop in the monetary base, the steepest one-year drop in the price level, and the steepest one-year rise in real wages.  This made me sympathetic to the sticky wage theory of the business cycle, which is based on the idea that a severe deflation is contractionary because wages fall more slowly than prices.
Later I discovered research that found real wages to be procyclical, falling during booms and rising during recessions.  This surprised me, so I tried to reconcile these results with the evidence from 1921.  It turns out that the more recent studies that found procyclical real wages tended to rely heavily on some business cycles associated with the two oil shocks (1974 and 1979), which were periods when inflation rose and real wages fell during recessions.
Steve Silver and I responded with a study that divided business cycles up into two types, those with procyclical inflation (like 1921) and those with countercyclical inflation (such as 1974 and 1979).  Real wages were countercyclical during demand-side recessions such as 1921 and procyclical during the supply-side recessions of the 1970s.  This pushed me even more firmly into the sticky wages camp, as both findings are consistent with the idea that nominal wages are sticky when the price level moves suddenly and unexpectedly.
This work also dovetails nicely with my general view that NGDP is a good measure of monetary policy.  During supply shocks, prices and output move in the opposite direction, and NGDP doesn’t necessarily change all that much.  In contrast, tight money causes both falling prices and falling output.  If nominal wages are sticky then this results in higher real wages and higher unemployment.  This is why I later switched my focus from price level shocks to NGDP shocks. NGDP measures monetary shocks better than does the price level. George Selgin also reached this conclusion a few decades back, albeit for a slightly different set of reasons.
Perhaps it might seem “unscientific” to base one’s views on a single episode like 1920-21.  But my view is that extreme events are very revealing.  Yes, you should not use data mining to test a model, but data mining is a very good way to develop a model.  Then test it with a completely different set of data.  I’d encourage younger economists to pay close attention to Fed announcements that led to unusually pronounced real time market reactions, such as January 2001, September 2007 and December 2007.  In those cases, the background “noise” is less likely to disguise the causal relationships.  In my book on the Great Depression I discuss numerous such natural experiments.

PS.  There was a slightly steeper drop in IP right after WWII, but that was clearly a very unusual business cycle.  There was a larger drop during the Great Depression, but spread over a much longer period of time.  So I believe 1920-21 is the purest negative demand shock.  Furthermore, the drop in demand was not endogenous.  It wasn’t partly caused by bank failures as in the 1930s; it was almost entirely due to the Fed sharply reducing the monetary base.

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Somewhat Good News on Unemployment and Employment

The Bureau of Labor Statistics data on employment and unemployment in September were released this morning. It’s not nearly as good news as in the last few months, of course, something you would expect as we get closer to full employment. But it’s good news nevertheless.

The overall unemployment rate fell yet again, this time from 8.4 to 7.9 percent. That reflects two facts. The first one, which is good, is that employment increased by 275,000 between August and September. The second fact, which is bad, is that 695,000 people left the labor force. So the main driver of the lower unemployment rate was people leaving the labor force rather than people getting jobs.

Beneath those aggregate data are two pieces of good sectoral news: sectors that were hit hardest earlier this year are recovering.

Here’s the BLS:

Employment in leisure and hospitality increased by 318,000 in September, with almost two-thirds of the gain occurring in food services and drinking places (+200,000). Despite job growth totaling 3.8 million over the last 5 months, employment in food services and drinking places is down by 2.3 million since February. Amusements, gambling, and recreation (+69,000) and accommodation (+51,000) also added jobs in September.

Retail trade added 142,000 jobs over the month, with gains widespread in the industry.Clothing and clothing accessories stores (+40,000) accounted for about one-fourth of the over-the-month change in retail trade. Notable employment increases also occurred in general merchandise stores (+20,000), motor vehicle and parts dealers (+16,000), and health and personal care stores (+16,000). Employment in retail trade is 483,000 lower than in February.

You might think that the big drop in the unemployment rate for black people and African Americans, from 13.0 percent to 12.1 percent, is wholly good news. What the data show, though, is that this group is treading water. 17.528 million black people and African Americans were employed in August, and 17.537 million were employed in September, an increase of over 9,000 people.

 

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The Missing Right-Wing Firms: A Beckerian Puzzle

I teach the economics of discrimination every chance I get.  Why?  Because the analytical framework, launched by the great Gary Becker in 1957, mightily illuminates so many questions that we care so much about.  When you see that almost all garbage collectors are male, for example, what should you conclude?  Perhaps women and men are equally able and interested in collecting garbage, but employers in the industry dislike women.  Perhaps male garbage collectors don’t like working alongside women.  Or perhaps customers don’t want women to touch their trashcans.  Alternately, perhaps men are better at collecting garbage than women.  (Statistically!)  Or maybe women dislike this line of work more than men.  (Again, statistically!)

One of these stories might be the whole truth; all five could have some merit; or anything in between.  The analytical framework can’t tell you the breakdown; you need empirics (and good judgment) for that.  Yet without Becker’s analytical framework, empirical researchers wouldn’t even know where to start.

One of the main insights of this Beckerian framework is that discrimination creates profit opportunities.  That includes employer-on-worker discrimination, worker-on-worker discrimination, and consumer-on-worker discrimination.  If most employers dislike workers in group X, depressing their wages below their productivity, employers who feel differently can profit by hiring them.  If most workers dislike workers in group X, similarly, employers can profit by giving the disliked workers “a firm of their own.”  If most consumers dislike workers in group X, employers can profit by keeping disfavored workers out of the public eye.  This doesn’t mean that market forces transform bigots into models of tolerance, though perhaps they do that too.  What the Beckerian framework implies, rather, is that market forces help neutralize bigotry’s effects.  With the right incentives and strategies, intolerance can be both prevalent and impotent.

Most research on the economics of discrimination focuses on race and gender, but Becker’s framework works equally well for political bigotry.  Which raises a series of awkward questions for anyone troubled by the rise of corporate-sponsored “social justice” in general, and “cancel culture” in particular.  In the current office climate, even many life-long left-wingers fear the career consequences of publicizing their doubts about evolving left-wing orthodoxy.  They’re afraid to share their views with co-workers, and afraid to express themselves on social media because their co-workers might find out.  Moderates and right-wingers feel an even stronger need to keep their political views to themselves.  Cutting-edge leftists, in contrast, now feel empowered.  When they speak out on the job, employers seem attentive and responsive.

This is not what the economics of discrimination would make you expect.  After all, the labor market is full of right-wing workers.  If left-wing employers don’t want to hire them, you would expect both pragmatic and right-wing employers to pick up the slack.  If left-wing workers don’t want to toil alongside right-wing workers, similarly, you would expect both pragmatic and right-wing employers to tacitly create politically segregated workplaces.  If left-wing consumers don’t want to buy products from right-wing firms, finally, you would expect both pragmatic and right-wing employers to keep politically disfavored workers out of the public eye.

In the real world, however, it seems very hard to find businesses that warmly cater to moderate and right-wing workers.  Sure, you can work for a right-wing think tank, a conservative church, Fox News, or Republican-allied lobbyists.  And I just visited a decidedly right-wing gift shop in West Virginia; it really stood out!  Yet all such establishments sum to a tiny sliver of GDP.

I understand, of course, why few businesses warmly cater to libertarians, or theocrats, or monarchists.  There aren’t enough monarchist barbers to economically justify a monarchist barbershop.  Where, though, are the firms where Republicans don’t look over their shoulders before they say they’re pro-life?  Where are the firms where moderates don’t look over their shoulders before they declare that affirmative action has already gone far enough?  Where are the firms where males don’t look over their shoulders before they express solidarity with the latest target of #MeToo?  Billions of 360-degree glances look like a massive profit opportunity.  Why then are so few businesses trying to capitalize on said opportunity?

Let’s name and ponder the leading explanations.

Explanation #1. My summary of the political climate of American business could be flatly wrong.

Tentative evaluation: I doubt it, but I freely admit that my data is poor.

Explanation #2. Perhaps I’m missing geographic variance.  Maybe leftists bully the right in firms in the Northeast Corridor and California, while rightists bully the left in firms in the South and Texas.

Tentative evaluation: There is probably some truth here.  There must be plenty of firms in the South and Texas with minimal left-wing propaganda.  Still, are there really many where the Human Resources Division hails meritocracy and condemns hypersensitivity?

Explanation #3. Perhaps I’m missing occupational and/or industry-based variance.  Leftists rule academia, and dominate law and tech.  But the right rules a bunch of other prominent occupations and industries.

Tentative evaluation: I struggle to convincingly name more than a handful of such occupations and industries.  In the past, you might say “doctors.”  Yet these days younger doctors seem like typical left-wing elites.  Engineers, similarly, seem more politically apathetic than right-wing.

Explanation #4. Few moderates or right-wingers care enough to create a major profit opportunity.  While they don’t relish looking over their shoulders, they prefer their current job to an alternative where they can shoot their mouths off but earn a $1000 less per year.  In this story, the left proverbially just “wants it more.”  And as usual, the market takes the intensity of conflicting preferences into account.

Tentative evaluation: Very plausible, especially considering how strong the age-ideology correlation has become.  When today’s conservatives encounter politics on the job, they don’t start polishing their resume to find a more politically hospitable home.  They tell themselves, “I’m too old for this @%!&!” and get back to work.

Note: A slight variant is that left-wing consumers are more willing to boycott firms they dislike than right-wing consumers.  The media’s liberal bias could easily amplify this: The left is more likely to hear about corporate policies they find objectionable than the right.  (Though this in turn raises the question, “Why does a highly competitive media market lead to such pronounced left-wing bias?”)

Explanation #5. Discrimination law covertly stymies the creation of right-wing firms.  Most obviously, any firm that openly and aggressively opposed #MeToo and #BLM would soon be sued into oblivion.

Tentative evaluation: Even more plausible.  Imagine what would happen if a firm’s top brass loudly declared that, “Discrimination simply isn’t a problem here” – and routinely fired complainers for contradicting the party line.  Picture a firm blanketed in propaganda telling workers to “Be color-blind,” “Laugh it off,” and “No one likes a tattle-tale.”  A small business in a conservative area might get away with this for a few years, but a Fortune 500 company that stuck to its right-wing guns would go down in flames.  This does not prevent firms from promoting a mildly right-wing corporate culture, but you won’t attract many politically homeless workers with such marginal improvements.

What’s the real story?  Any possibilities that I’ve missed?  I especially prize answers based on first-hand work experience outside of academia…

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