JPMorgan Chase’s Jamie Dimon is really proud about giving his employees a raise, heartily patting himself on the back in a New York Times op-ed. JPMorgan will raise its lowest wage to $12, but over the next three years, and only starting in 2017. That’s a roughly 3.2 percent annual boost after taking projected future inflation into account. This hardly seems to deserve a parade.
Has it really come to this? Has providing a modest wage increase really become breaking news that corporate chieftains send crowing press releases about? Let’s be clear about this—this is not the way it’s supposed to be. Wages rising faster than the rate of inflation should be the norm in the American economy and should occur all the time, without fanfare and self-congratulation from employers. That wage increases are newsworthy even while unemployment is below five percent is quite telling. Even at such a low unemployment rate, all the power in the employment relationship still rests with employers.
Dimon points out that some of his current employees earn $10.15 an hour, and brags that this is $3.00 over the current federal minimum wage. Left unsaid is that the current minimum wage of $7.25 is roughly 25 percent below the inflation-adjusted value of the minimum wage in 1968, despite the fact that productivity has more than doubled since then. (Of course, the bank’s employees in New York City will be receiving $15.00 at the end of 2018 because of the recently passed minimum wage legislation that applies to the city.)
Gretchen Carlson is doing working Americans a real service by suing Roger Ailes, the CEO of Fox News, for sexual harassment. First, when a powerful, high profile CEO like Ailes is called out for disgusting behavior, it reminds workers and their bosses everywhere that women have a legal right to be treated with respect in the workplace.
Carlson is doing something else: she is boldly fighting the latest technique employers are using to avoid justice, to get away with sex or race discrimination, and to escape lawsuits for wage theft—putting binding arbitration clauses in employment contracts, which keeps cases out of the state and federal courts and push them into private dispute resolution systems that systematically favor employers.
Millions of working Americans are subject to arbitration clauses that they don’t even know about. More and more employers are forcing their employees, as a condition of being hired or of remaining employed, to waive the right to sue in a court if their employer violates the law. Workers must accept a process they often don’t understand, where the costs of seeking justice might be far higher even as their chances of winning or obtaining a just award of damages are reduced dramatically.
After the weakness in payroll job growth the last two months, this month’s Employment Report gives us reason to be optimistic about the future of the economy. Payroll employment grew by 287,000 jobs in June. As I discussed extensively yesterday, this is the kind of job growth that would likely get us to full employment within the next year. Specifically, if we saw job-growth in excess of 260,000 jobs per month over the next year, we could expect to see the unemployment rate approach 4.0 percent and the labor force boost up significantly. If instead we averaged closer to 100,000 jobs per month (not far below the average of the three months leading up to this report), this would only keep the economy in a steady state of labor market health, pulling in just enough workers to absorb new population growth.
Robust payroll employment is only one piece of the full employment puzzle, and other indicators are still lagging behind. Two key puzzle pieces are the prime-age employment-to-population ratio (EPOP) and nominal wage growth.
The share of the population 25-54 years old with a job fell significantly during the recession. For much of the last four years, the prime-age EPOP has been climbing, albeit in fits and starts. In June, it hit 77.8 percent, about where it’s sat the last few months. It still has a long way to go before it hits the most recent pre-recession peak of 80.3 percent from 2007 or the full employment peak of 81.9 percent in 2000. At 77.8 percent, the current prime-age EPOP is still below the lowest level reached during the last two business cycles we experienced before the Great Recession (78.1 percent).
What to Watch on Jobs Day: Putting employment growth in perspective in advance of Friday’s Jobs Report
Over the last several months, the pace of job growth has noticeably slowed, even after accounting for the large drag in last month’s payroll numbers exerted by the now-resolved Verizon strike. May’s payroll job growth of 38,000 brought average monthly job growth down to 116,000 jobs the past three months, and 150,000 this year so far. Adding the roughly 40,000 striking Verizon workers in May back in only pushes these numbers to about 129,000 and 159,000, respectively. Maybe these recent trends are just a blip, and we’ll soon return to a faster pace of job growth. But if not, we are looking at a marked slowdown compared to last year (which averaged 229,000 per month) and even slower than 2014 (which averaged 261,000 per month).
While the pace of job growth should be expected to slow as the economy approaches full employment, it’s not clear that we should rest easy that this is the explanation for any recent slowdown. After all, many indicators tell us we are still far from full employment (e.g. prime-age EPOPs and nominal wage growth) and May’s rate of growth was not even strong enough to keep up with growth in the working age population (again, even if we add in the striking Verizon workers). So, how much job growth do we need to not only keep up with population growth (which is the only job growth needed if the economy truly is at full employment), but to see lower rates of unemployment and greater participation in the labor force (assuming that we’re not yet at full employment).
In a couple of previous posts, I outlined some clear problems with Paul Ryan’s recent tax plan. The final major pieces of Speaker Ryan’s House GOP tax reform are the changes to the corporate income tax. The headline here is bad enough, cutting the top corporate income tax rate from 35 to 20 percent. But it gets worse, and as with the rest of this tax plan, it does so in a way that clouds how much of a giveaway Paul Ryan and the House GOP actually intend.
The corporate income tax is steeply progressive, making it an important tool for curbing inequality. This is because the vast majority of the incidence of the corporate income tax falls on the owners of capital, with capital income heavily concentrated at the very top of the income distribution. For instance, the Congressional Budget Office’s reading of the economic evidence assigns 75 percent of the incidence of the corporate income tax to capital owners. And taxes on capital income are eroding. Foreigners and retirement plans now hold 63 percent of U.S. stock and are nontaxable. So that erosion at the shareholder level has made the corporate income tax the main way through which shareholders are taxed, either explicitly or implicitly. Far from worries about so-called double taxation, Steve Rosenthal and Lydia Austin have shown that the percentage of corporate stock that is taxable has fallen from 83.6 percent in 1965 to 24.2 percent as of 2015. This makes pairing a reduction of the corporate income tax to 20 percent, along with the 50 percent tax exemption for capital gains, dividends, and interest that I touched on previously, a spectacular giveaway to the rich.
Despite its progressivity, and despite the erosion of other taxes on capital income, the corporate income tax base has also eroded substantially in recent decades. Since 2010 after-tax corporate profits have averaged 9.1 percent of GDP, while corporate income tax revenues have averaged 1.6 percent of GDP. Driving this erosion are business reclassification and income shifting, points we will make more detailed and visual in an upcoming joint Americans for Tax Fairness/EPI chart book. But for now, let’s focus on how Ryan’s House GOP tax plan would lock in current income shifting and worsen future income shifting considerably.
The most damaging part of Ryan’s corporate tax reform isn’t the stark cut in the headline rate—it’s the much less obvious change towards a territorial system of taxation. Territorial taxation gives multinational firms a quick and easy way to avoid all the taxes they owe on their U.S. profits, further eroding the corporate tax base.
Paul Ryan’s election-year tax reform agenda shocked some people with its 33 percent top marginal income tax rate on earned income. This is much lower than today’s rates—or even what prevailed after the George W. Bush tax cuts—but at the same time, it’s high relative to the world of wildly unrealistic Republican tax plans. Have Republicans realized that slashing taxes on the rich won’t lead to booming growth and hence be self-financing? Or have they realized that they shouldn’t exacerbate inequality by continuing to fight tooth and nail for enormous tax cuts for the rich? Sadly, no, they are still fighting for enormous tax cuts for the rich—they’re just being a bit more subtle about it now. One example of this subtlety was detailed in my previous post: the 33 percent statutory rate masks the fact that high-income individuals could easily pay a top rate of 25 percent under Ryan’s plan by simply reclassifying their income as pass-through income. So the extent to which the House Republican caucus is no longer calling for drastic cuts to top marginal income tax rates is highly exaggerated. They’ve simply traded in their very-apparent tax reductions for less-obvious tax loopholes.
Another example highlights how House Republicans are doubling down on tax breaks for an even-richer subset of high income individuals—people who make their income from capital earnings instead of working.
The Ryan tax plan drastically slashes taxes on both corporate income and income from capital gains, dividends, and interest. It cuts the corporate income tax to 20 percent and shifts the United States to a territorial system that would spur income shifting and tax avoidance. I’ll discuss the effects of those proposals in a later post, but for now I want to focus on Ryan and the House GOP’s 50 percent exclusion on income earned from capital gains, dividends, and interest.
Yesterday, presumptive Republican nominee Donald Trump gave a speech on trade, extensively citing EPI’s research which shows that trade deficits as a result of NAFTA and other trade deals, as well as trade with China, have cost U.S. jobs and driven down U.S. wages. It’s true that the way we have undertaken globalization has hurt the vast majority of working people in this country—a view that EPI has been articulating for years, and that we will continue to articulate well after November. However, Trump’s speech makes it seem as if globalization is solely responsible for wage suppression, and that elite Democrats are solely responsible for globalization. Missing from his tale is the role of corporations and their allies have played in pushing this agenda, and the role the party he leads has played in implementing it. After all, NAFTA never would have passed without GOP votes, as two-thirds of the House Democrats opposed it.
Furthermore, Trump has heretofore ignored the many other intentional policies that businesses and the top 1 percent have pushed to suppress wages over the last four decades. Start with excessive unemployment due to Federal Reserve Board policies which were antagonistic to wage growth and friendly to the finance sector and bondholders. Excessive unemployment leads to less wage growth, especially for low- and middle-wage workers. Add in government austerity at the federal and state levels—which has mostly been pushed by GOP governors and legislatures—that has impeded the recovery and stunted wage growth. There’s also the decimation of collective bargaining, which is the single largest reason that middle class wages have faltered. Meanwhile, the minimum wage is now more than 25 percent below its 1968 level, even though productivity since then has more than doubled. Phasing in a $15 minimum wage would lift wages for at least a third of the workforce. The most recent example is the effort to overturn the recent raising of the overtime threshold that would help more than 12 million middle-wage salaried workers obtain overtime protections.
Last Friday, Speaker Paul Ryan released his long awaited tax reform proposal, the final piece of the House GOP’s election year agenda, “A Better Way.” This agenda, as Ryan noted, is meant to highlight the policies Republicans are for, not simply what they are against. So what kind of tax reform are Republicans for?
It will come as no surprise that the consensus view of House Republicans is that tax reform means more tax cuts for the rich (a point I’ll highlight more in later posts). What is surprising, however, is how Paul Ryan and the House GOP propose cutting taxes for the rich.
Ryan has decided that the House GOP should take tax advice from noted fiscal policy experts Sam Brownback and Donald Trump. Specifically, Ryan’s House GOP tax reform agenda creates a new loophole for “pass-through” income. Pass-through entities are businesses whose incomes are not taxed at the corporate level, but instead “passed through” entirely to the business owners and then taxed at their individual income tax levels. Trump’s tax plan called for cuts to the top individual income rate that would reduce it from today’s 39.6 percent to 25 percent. But, on top of this already generous tax cut for the very top, he also introduces a special, lower rate for pass-through income—15 percent.
The British vote to leave the European Union is a watershed event—one that marks the end of an era of globalization driven by deregulation and the ceding of power over trade and regulation to international institutions like the EU and the World Trade Organization. While there were many contributing factors, the 52 percent vote in favor of Brexit no doubt in part reflects the fact that globalization has failed to deliver a growing standard of living to most working people over the past thirty years. Outsourcing and growing trade with low-wage countries—including recent additions to the EU such as Poland, Lithuania, and Croatia, as well as China, India and other countries with large low-wage labor forces—have put downward pressure on wages of the working class. As Matt O’Brien notes, the result has been that the “working classes of rich countries—like Brexit voters—have seen little income growth” over this period. The message that leaders in the United Kingdom, Europe, and indeed the United States should take away from Brexit is that the time has come to stop promoting austerity and business-as-usual trade deals like the Trans-Pacific Partnership (and the now dead Transatlantic Trade and Investment Partnership) and to instead get serious about rebuilding manufacturing and an economy that works for working people.
Conservative austerity policies in Britain over the past two decades, which have slashed government spending and limited government’s ability to deliver public services and support job creation, fueled the anger towards elites that encouraged Brexit. At the same time, the neoconservative, anti-regulatory views of public officials in Brussels—who are disdainful of government intervention in the economy and who consistently pushed for the “liberalization of labor markets” and other key elements of the neoconservative model—left Europe unprepared for the Great Recession. It’s no surprise, then, that there has been a revolt against the EU. When the financial crisis hit in 2008, EU authorities, especially banking officials in Germany and other wealthy countries that have a dominant influence over the European Central Bank, reacted by blaming public officials in Greece, Spain, Portugal and other countries hardest hit by the crisis. The budget cuts they demanded led to further contractions in spending and soaring unemployment which still persists in much of southern Europe, putting further downward pressure on employment in the UK and setting the stage for widespread populist revolts from the left and right that have gained traction across much of Europe.
Supreme Court immigration decision means millions of workers will be deprived of crucial labor protections
This morning the Supreme Court of the United States issued its decision in United States v. Texas, the State of Texas’s challenge to the most significant of the executive immigration actions—known as the DAPA and DACA+ initiatives—which were announced by President Obama on November 20, 2014. The Court was deadlocked in a 4-4 tie, which results in the Fifth Circuit’s decision being upheld, which had affirmed the District Court’s preliminary injunction that prevented the president from moving forward with DAPA and DACA+.
At issue in U.S. v. Texas was the president’s authority to defer the deportation of unauthorized immigrants who are the parents of children who are either U.S. citizens or legal permanent residents, if the parents have resided in the United States for at least five years, and are not an enforcement priority for deportation. This is known as DAPA—Deferred Action for the Parents of Americans and Legal Permanent Residents. The president also would have updated and expanded DACA, the Deferred Action for Childhood Arrivals initiative (in place since 2012), which to date has provided deferred action to over 700,000 people who entered the country as minors without authorization. Combined, over five million people are eligible for DAPA, DACA, and expanded DACA (sometimes referred to as DACA+), out of a total unauthorized immigrant population of 11 million.
Since implementation of the DAPA and DACA+ initiatives has been prevented, millions of unauthorized immigrants will not be eligible to apply for and obtain an employment authorization document from the Department of Homeland Security that allows them to work legally. This means that millions of workers will continue to lack access to basic labor standards and employment law protections—a terrible outcome for both unauthorized immigrants and American workers.
The substance and impact of the H-2B guestworker program appropriations riders some members of Congress are trying to renew
On June 8, the Senate Subcommittee on Immigration and the National Interest held a hearing on the H-2B temporary foreign worker program—a guestworker program that allows U.S. employers to hire workers from abroad for lesser-skilled occupations like landscaping, hospitality, seafood processing, and construction. It is a well-known fact the the program is rife with abuses, and I’ve shown how employers can legally underpay migrant workers in the program. News reports have revealed that employers use it try to avoid hiring American workers and that enforcement is lacking. (For more background, see EPI’s FAQ on the H-2B program.)
The hearing was timely because H-2B is currently a live issue on Capitol Hill. By that I mean Congress is considering provisions (also known as riders) to the omnibus appropriations bill that will fund the government for all of fiscal year 2017, which would extend riders amending the H-2B program that are currently in force during fiscal 2016. These riders deregulate the program by making it easier to exploit and underpay migrant workers while restricting the access of U.S. workers to jobs in their own communities. The riders also expand the program, allowing it to as much as quadruple in size. Members of Congress who want to grow the H-2B program, while keeping wages low for migrant workers, are again trying to hijack the appropriations process because there isn’t enough political support to pass the H-2B riders as a standalone bill.
Until now, very little has been written about the the substance of the riders and the H-2B rules they affect, or the impact they are having on the program and on the wages and working conditions of U.S. and migrant workers in the main H-2B occupations. The following is an excerpt from my congressional testimony on the H-2B program, which has been updated and edited for clarity; it explains in detail what you need to know about the H-2B riders.
From time to time researchers have raised technical measurement issues with our research showing that the compensation of a typical worker has diverged from overall productivity. The Heritage Foundation’s James Sherk—a repeat player—has a new entry.
Last September, Josh Bivens and I published a paper that provides a comprehensive review of the measurement issues and presents our estimates showing that rising inequality, both from greater inequality of compensation and an eroding labor’s share of income, drives the productivity-pay divergence, especially in this century. It easy to get caught up in a myriad of technical issues, none of which, as Bivens ably shows in his recent analysis, actually change the overall finding that hourly productivity growth has generally far exceeded that of a typical worker’s hourly compensation since around 1973 or 1979. As Bivens points out, Sherk actually ignores that we highlight the gap between a typical (median or “bottom eighty”) worker’s compensation and productivity and not the average compensation (including that of CEOs and the top one percent), which sets aside the main driver of the gap.
The following is a lightly edited transcription of a talk given by Josh Bivens at an AFL-CIO conference on the Implications of Globalization & Secular Stagnation for Monetary Policy.
The central question this presentation is “what are the implications of globalization and secular stagnation for monetary policy?” Let me tell you my final answer first and then I’ll work my way there.
My final answer is that globalization and secular stagnation make a sustained, coordinated fiscal expansion necessary for restoring growth to the global economy. Current politics in both the Unites States and Europe make this impossible in the short run. This means it’s likely to be a long time before we have a decent global economy, and that’s a real problem.
Let’s start out with some definitions. Secular stagnation is a chronic shortfall of aggregate demand that cannot be solved just by lowering short-term interest rates. It is obviously closely related to the problems of the zero lower bound (ZLB) on interest rates—it essentially says that this ZLB problem is not something that needs a one-time burst of policy activism to defeat, but that long-run forces (the rise of inequality, among other things) have lowered the long-term natural rate of interest that is consistent with full employment.
James Sherk at the Heritage Foundation has written a piece claiming that there has been no gap between growth in productivity and growth in pay. It’s written largely as an attempted debunking of our work, but since there’s not actually any bunk in this work, the attempt fails.
Sherk raises many issues. Some have a bit of validity to them, some do not. I’ll discuss some of the nitpickier bits of his piece a bit later. In the end, however, the difference between his findings and ours boils down to the fact that he ignores the effect of rising inequality in driving a wedge between productivity and pay. And it’s true that if you ignore inequality, you get a much sunnier view of American wage performance in recent decades. But that’s the whole point, no?
Past all the hand-waving, the difference between Sherk’s findings and ours is completely dominated by the same single point of contention that comes up in every debate about growth in productivity and pay: the difference between average versus typical pay growth. The title of our most recent piece on this topic is: Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay. That “typical” in the title is important. We look at two measures of hourly pay that we argue are relevant for typical American workers: average pay for private-sector production and non-supervisory workers from the Current Employment Statistics (CES) and the median worker from the Current Population Survey (CPS). Production and non-supervisory workers constitute 80 percent of the private workforce. We think that seems pretty typical. The median worker in the CPS is that worker who earns higher hourly pay that half of the workforce and lower hourly pay than half. This also seems broadly representative to us.
The system-wide budget for the University of Tennessee is more than $2 billion a year. Rep. Phil Roe (R-Tenn.) claims that the new Department of Labor overtime rule, which requires time-and-a-half overtime pay for many salaried employees earning less than $47,476 a year, will add $9 million in new costs. This is less than half of 1 percent of the annual budget, yet Rep. Roe claims this will force a 2 percent tuition increase. That does not add up.
Rep. Roe has not presented any evidence that the University of Tennessee will actually experience $9 million in new overtime costs, and given his math problems, there is reason to doubt. But to put his claims in perspective, we should note that without any new overtime or minimum wage costs, the University of Tennessee has been raising its tuition in response to falling state appropriations. As a recent University of Tennessee trustees’ report declared:
State appropriations to higher education have been stagnant or declining for several years… Higher education has responded to the decline in state appropriations by increasing tuition, providing no salary increases to faculty and staff, not filling or eliminating vacant positions, and becoming more efficient in the delivery of instruction, research, and public services.
In 2014, for example, tuition for various classes of in-state and out-of-state students increased between 2 and 6 percent, even though salaries were frozen. The drivers of rising tuition costs have nothing to do with Department of Labor regulations. But with appropriations shrinking, one can imagine that the desire of university officials to get uncompensated overtime work from its employees is increasing, and the updated DOL rules will provide significant protection from excessive overwork.
On June 23, British voters will accept or reject a proposal that Britain leave the European Union. The latest polls show the vote in favor of the British exit, or “Brexit,” narrowly ahead.
The case for getting out has largely been driven from the political right, on the grounds that dropping out of the EU would allow Britain to close off immigration and free British businesses from rules made in Brussels that protect labor and the environment. A liberated Britain, goes the argument, would have the freedom to pursue policies that would bring it more prosperity.
But after an initial shock, the prolonged economic uncertainty following a win for Brexit would hit the U.K. economy much harder than its promoters expect. It would take at least two years to negotiate the terms of the pullout with the remaining 27 countries, which are unlikely to give Britain anywhere near its current privileged access to member countries’ customers or financial markets. It will then take even longer for the U.K. to find and negotiate trade deals for other export markets at a time of spreading deflation and rising protectionism throughout the globe. Pile on the political complications of disentangling British business regulations from rules made in Brussels, and the adjustment process could take as long as a decade.
Not surprisingly, given the rash of ho-hum economic reports we’ve seen recently, the Job Openings and Labor Turnover Survey (JOLTS) for April 2016 was underwhelming. On the plus side, job openings ticked up slightly as layoffs fell. On the downside, the hires rate has fallen precipitously two months in a row, while the quits rate ticked down slightly. The figure below shows the dynamics of the key top-line numbers.
The positive news on layoffs is clear. The layoffs rate—the number of layoffs as a share of total employment—is now down to 1.1, better than the rate over the last entire business cycle, 2000-2007, when its trough was 1.2. That’s great news. Unfortunately, hires and quits remain below full employment levels—hires peaked at 4.0 in 2006 and 4.4 in 2001, while quits peaked at 2.2 in 2006 and 2.6 in 2001. It is particularly troubling that the hires rate has fallen for two months running, from 3.8 in February down to 3.5 in April, but it’s not surprising given the weak Employment Report for April. Unfortunately, the even weaker Employment Report for May suggests that hires may fall even further when the JOLTS report comes out in July. While increasing job openings is a good thing, it needs to translate into hires for workers to see the effects of that increase.
The quits rate fell slightly in April from 2.1 to 2.0. In a stronger economy, workers would feel more confidence to quit their job in search of a better one. For many years now, workers have continually stayed in their job rather than finding what might be a better match.
This morning’s jobs report showed that the economy added a disappointing 38,000 jobs in May. While this number is depressed by the 35,000 Verizon workers who were striking during the reference period, even adding those workers back into the mix gives us a total number that’s lower than recent trends.
Payroll job growth has averaged only 116,000 jobs the past three months, and 150,000 this year so far. This is a noticeable slowdown compared to the growth in jobs last year (which averaged 229,000 per month). While the pace of job growth is expected to slow as the economy approaches full employment, May’s rate of growth was not even strong enough to keep up with growth in the working age population.
The unemployment rate fell to 4.7 percent—typically a sign of a strengthening economy, but in this case, the fall is almost entirely due to would-be workers dropping out of the labor force. This is especially troubling for the prime-age workforce, those 25-54 years old (shown in the figure below). After hitting a low-point of 80.6 percent in September 2015, the prime-age labor force participation rate (LFPR) has been on the rise, reaching 81.4 percent in March. I expected the downward blip in April to be followed by a return to the recent upward trend. Unfortunately, it appears that the “blip” continued, with the LFPR falling 0.2 percentage points two months in a row down to 81.0 percent.
This piece originally appeared in the Wall Street Journal’s Think Tank.
Some policy makers and observers have urged raising interest rates in June. Proponents argue that some inflation measures show faster growth than the Federal Reserve’s preferred measure and that a potential bubble in the commercial real estate market justifies a rate increase. Ultimately, both arguments hinge on thinking that too-slow growth in real estate construction should be solved by raising rates. Here’s why that is not convincing.
The Fed’s inflation target is 2% annual growth in “core” personal consumption expenditures (minus food and energy prices, which tend to be volatile). The last quarter with annual growth of 2% in such expenditures was in 2012, and consistent price growth greater than 2% has not been seen since 2008.
Another measure, the core consumer price index, has shown growth exceeding 2% in recent months, leading some to declare that the Fed’s price inflation target has been met (and exceeded).
On Friday, when we get the latest jobs numbers from the Bureau of Labor Statistics, I’ll have my eye on a few measures of slack in the labor market. As the economy continues to add more jobs than are needed to simply absorb working-age population growth, I expect to see increases in both the overall and the prime-age labor force participation rates. This in turn should lead to a continuation of the slow but steady rise in the employment-to-population ratio, a metric that has been rising but which remains far below full employment levels.
Besides these key quantity measures of labor market slack, I’m also monitoring key price measures of slack—particularly nominal wage growth—which the Federal Reserve will also be looking at when it meets later this month. The year-over-year measures of nominal wage growth we get with each month’s employment report are the most timely measures of labor market slack, and while there has been some slight uptick recently, wage growth is still far below what we should be targeting for a truly healthy economy.
Year-over-year private-sector nominal wage growth was 2.5 percent in April 2016. After maintaining relatively slow growth, in the 2.0 to 2.2 percent range for several years, an increase of 2.5 percent is a welcome improvement. However, given the Fed’s target for price inflation of 2.0 percent, long-term trend productivity growth, the length of slow growth, and the failure of labor’s share of corporate income to rebound, the labor market should produce wage growth in excess of 3.5 percent for a consistent period before concerns over wage led inflationary pressures lead the Fed to increase rates. Tightening before a period of strong wage growth will lead to price and wage targets hardening into ceilings, and that will cause grave damage to the economy. Such premature tightening will be avoided if the Fed’s decisions truly are data driven.
A recent New York Times piece features some choice handwringing over the Labor Department’s new overtime rule, from executives in “prestigious” fields, like publishing, advertising, film and TV, and public relations. These are all fields where low-salaried junior employees are often encouraged or even expected to work well over 40 hours a week, and the executives quoted by the Times are worried that they will no longer be able to expect such long hours without paying overtime.
The change presents more than an economic challenge for the companies that rely on the willingness of young, ambitious workers to trade pay and self-respect for a shot at a prestige job down the road.
In the eyes of those who have survived the gauntlet of midday coffee runs and late-night emails, the administration’s overtime regulation represents nothing less than the beginnings of a cultural shift, and not necessarily a welcome one.
In order to ensure that low-paid employees are covered by the protections of the Fair Labor Standards Act’s overtime law, the Department of Labor mandates that workers must be paid time-and-a-half for every hour worked over 40 in a week, unless they qualify as an executive, administrator, or professional employee. In order to qualify for that exemption, a worker must make more than a salary threshold set by DOL and have sufficiently independent, high-level, and consequential duties, such that they truly are an executive, administrator, or professional worker. That salary threshold currently sits at $23,660 a year, but on December 1, 2016, it will be raised to $47,476 a year.
The American Enterprise Institute’s Aparna Mathur wrote an article claiming that the new overtime rules finalized recently by the Department of Labor could increase underemployment. The argument does not make much sense, however. Mathur tries to add to the wonky feel of her case by citing a recent (and good) Federal Reserve research note (or FEDS note, as they call it) on underemployment, but this is pure water-muddying; the FEDS note has nothing to do with the overtime rule.
First, a quick clarification because many are misunderstanding how the new rule works. The rule is only relevant to salaried workers—all workers paid by the hour are already eligible for overtime. Before the rule, only salaried worker whose pay was less than $455 a week were automatically eligible for overtime pay. This did not mean merely that salaried workers earning more than this didn’t earn time-and-half for hours worked in a week in excess of 40—t means they earned zero for each of those hours. The rule raises the threshold for determining automatic eligibility for overtime to $913 a week. Now, all salaried workers earning less than this amount must be paid (at time-and-a-half rates) for hours worked in a week in excess of 40.
Mathur argues that this rule will increase involuntary underemployment, and highlights findings from a recent FEDS note arguing that underemployment is currently even worse than traditional measures signal. However, Mathur’s description of the paper’s results highlights why her analysis of the overtime rule is so wrong. She writes about the FEDs note: “Relying on the more recent HRS data, the authors show that between 1992 and 2012, approximately 25 percent of workers reported that they had faced work-hour constraints, meaning they wanted more work but were unable to find it.”
Not quite. The Fed authors are very clear on a crucially important point: that the proper definition of underemployment is workers having fewer hours of work available to them “relative to the numbers they would prefer to work at current wages.”
Federal budget season came and went this year without any budget proposal hitting the floor of the U.S. House of Representatives. This was an odd (and ironic) bit of incompetence by the GOP leadership, who couldn’t even wrangle a majority to support their own budget proposal. But it was especially damaging to U.S. economic policy debates because it limited attention paid to the budget of the Congressional Progressive Caucus (CPC).
It’s true that political gridlock has meant the only live macroeconomic policy debate in DC in recent years has been around monetary policy. And the Fed’s decisions are important! But the abandonment of fiscal policy as a tool that could boost the economy, which began not soon after the recovery from the Great Recession began, is a real tragedy.
The need to resuscitate fiscal policy was usefully underscored in a widely-discussed speech by former Treasury Secretary and National Economic Council Chair Larry Summers earlier this week. Because the CPC and Larry Summers are perhaps not always thought of as completely in sync in policy debates, it’s worth noting that Summers’s remarks can be read as a ringing endorsement of the CPC budget. Some examples:
- “I am here to tell you that the most important determinant of our long term fiscal picture is how successful we are at accelerating the economy’s growth rate in the next three to five years, not the austerity measures that we implement.”
The CPC budget includes substantial upfront fiscal stimulus (mostly front-loaded infrastructure investments projects) precisely to accelerate the economy’s growth rate in the near-term.
Universities oppose paying their postdocs overtime, but will pay football coaches millions of dollars
Colleges and universities have made the indefensible argument that they can’t afford to pay their low-level salaried employees for their overtime under the Department of Labor’s new overtime rule. Universities have singled out postdoctoral researchers, many of whom spend 60 hours a week or more running the labs that turn out the nation’s most important scientific advances, as a group of employees that would just cost too much if they had to be paid for the extra hours they work each week.
Analyzed on their own, these postdocs—who are among the best-educated and most valuable employees in the nation, on whom our future health and prosperity depend, in part—obviously deserve to be paid for their overtime hours. After all, at a salary of $42,000 a year, these postdocs are being paid about $13.50 an hour (less than fast food workers are demanding).
When juxtaposed against the inflated salaries of university administrators with less stellar academic credentials making $200,000 to $3 million a year, the case for overtime compensation is only stronger. The comparison that really drives home how unfairly universities are treating their postdocs, however, is with the universities’ football coaches.
Note: The highest available head coach salary was selected for each state. Source: Data from USA Today and HKM Employment Attorneys LLP
Universities oppose paying their postdocs overtime, but will pay football coaches millions of dollars: Top NCAA College Football Coaches’ Salaries by State, 2015
University of Alabama
University of Alaska
University of Arkansas
University of Colorado
University of Connecticut
University of Delaware
University of Georgia
University of Hawaii
University of Illinois
University of Iowa
University of Kentucky
University of Maine
University of Maryland
University of Michigan
University of Minnesota
University of Mississippi
University of Missouri
University of Montana
University of Nebraska
University of Nevada
University of New Hampshire
University of New Mexico
University of Buffalo
North Carolina State
University of North Dakota
University of Oklahoma
University of Oregon
University of Rhode Island
University of South Carolina
University of South Dakota
University of Tennessee
University of Texas
University of Utah
University of Vermont
University of Virginia
University of Washington
University of West Virginia
University of Wisconsin
University of Wyoming
Note: The highest available head coach salary was selected for each state.
Source: Data from USA Today and HKM Employment Attorneys LLP
The recent settlements in the California Uber litigation demonstrate the perils of mandatory arbitration for our entire framework for regulating employment. Unfortunately, media coverage of the Uber controversies has not highlighted the damage that arbitration agreements have wrought to the individual workers involved and to our employment laws generally. But it is now more clear than ever that everyone who cares about employment rights and the fair treatment of workers should support federal legislation to end mandatory arbitration in employment and put workers and corporations on a more equal footing.
Uber has been in the news a lot lately. In the past month, it has settled a big class action lawsuit by California and Massachusetts drivers that was scheduled to go to trial in June, and it has agreed to permit its New York City drivers to form what they term a “drivers association”—that is to say, not a labor union. In each situation, Uber has preserved its right to treat its drivers as independent contractors. Uber also has pulled out of Austin rather than submit its drivers to the same fingerprinting requirements the city imposes on taxi drivers. Last fall, it pulled out of Alaska rather than provide its drivers with workers’ compensation.
This has also been a busy time for Uber litigation. There are currently dozens of lawsuits pending in state and federal courts, seeking to gain for its drivers all the various federal and state rights and benefits that accompany employee status. And the National Labor Relations Board is currently considering whether Uber drivers satisfy the test for employee status under the labor law.
The practices of Uber and other employers of on-demand workers raise many difficult issues under the labor and employment laws. The most important is the question of whether gig workers are employees or independent contractors. At stake is whether Uber has to provide the benefits of state and federal labor laws to its drivers. These include rights to minimum wage, overtime pay, and in many states, paid rest breaks, expense reimbursement, tips, workers compensation, and health and safety protections. The issue of employee status also implicates the ability of gig workers to form a labor union or whether their attempts to unionize make the workers liable for antitrust violations.
Last week, the Government Accountability Office (GAO) issued a misleading report on school segregation, which I discussed with NAACP Legal Defense Fund President Sherrilyn Ifill and others on the Diane Rehm Show.
The takeaway line of the GAO report was:
From school years 2000-01 to 2013-14, the percentage of all K-12 public schools that had high percentages of poor and Black or Hispanic students grew from 9 to 16 percent.
(When the GAO referred to “poor” students, it was not really speaking of poor students, but rather of those from families with incomes less than nearly twice the poverty line and who are eligible for subsidized lunches in schools.)
Not by coincidence, the GAO report was released on Tuesday, May 17, the 62nd anniversary of the Supreme Court’s Brown v. Board of Education decision banning school segregation. So it was not unreasonable for those who did not read the GAO report very carefully to conclude that it described a dramatic increase in racial segregation over the last 13 years.
But it did not, and could not.
The Department of Labor has issued a new rule, which expands the right to be paid time-and-a-half for overtime to salaried employees who earn less than $47,476 a year. Business groups that oppose the new rule claim that salaried employees will lose important work schedule flexibility when they become eligible for overtime pay. But the evidence shows this fear is unfounded, and, in fact, salaried workers who earn less than $50,000 a year currently have barely more flexibility at work than hourly paid employees.
An EPI analysis using General Social Survey data by Penn State labor economist Lonnie Golden shows that:
- Almost half—47 percent—of salaried workers earning less than $50,000 a year report that on a daily basis they “never” or “rarely” are allowed to change their work starting time and quitting times, while only 20 percent of salaried workers who earn $60,000 or more per year report never or rarely being allowed to change their schedules.
- Salaried workers earning less than $50,000 a year have no more ability to take time off during work for personal or family matters than hourly workers at the same level. Thus, “switching” employees from salaried to hourly status or requiring employers to track or monitor their hours for purposes of overtime pay would not reduce this valuable type of work schedule flexibility for employees. If we consider regularly being required to work overtime an indicator of inflexibility in one’s work schedule, salaried workers earning between $25,000 and $50,000 a year have about the same or an even greater likelihood of working mandatory overtime than their hourly counterparts. Thus, raising the overtime pay salary threshold for exemption to $47,476 should, if anything, provide the newly eligible workers somewhat greater flexibility to refuse unwelcome work beyond their usual number of hours per week.
In light of these conditions and findings, it is unsurprising that salaried workers generally report higher levels of work-family conflict and work stress than do hourly paid workers. It is also important to note that nothing in the new rule requires any employer to change any employee from salaried pay to hourly pay. That decision is entirely within an employer’s discretion. Many employers, including small business owners such as the National Retail Federation’s witness at a congressional hearing last October, already track the hours of salaried employees and provide comp time and bonuses based on overtime hours.
Explaining the differences between EPI and DOL estimates of workers affected by the new overtime salary threshold
In our report on the new overtime rule, EPI estimates that it will directly benefit 12.5 million workers. At first blush, our evaluation of the impact of the rule differs significantly from the widely circulated Department of Labor (DOL) assessment that 4.2 million workers will directly benefit from raising the salary threshold—meaning they are currently legitimately exempt because of their duties, but will be covered by the new threshold. DOL also notes that 8.9 million workers, meanwhile, will have their rights strengthened by the higher salary threshold, for a total of 13.1 million directly affected by the rule (600,000 more than our estimate). Additionally, of the 8.9 million salaried workers whose overtime rights would be strengthened, DOL notes that about 732,000 regularly work more than 40 hours a week, but are currently incorrectly classified as ineligible for overtime—bringing the total number of workers DOL estimates will be newly eligible for overtime pay up to 5 million.
We believe that many more workers will be newly eligible for overtime pay. Our assessment differs from DOL’s because the department assumes, incorrectly in our view, that overtime eligibility was not eroded by changes to the OT rules implemented by the Bush administration in 2004. We provided detailed evidence last year showing that overtime eligibility has been severely eroded since the late 1990s, when DOL computed the exemption probability estimates by occupation that it still relies on today. We concluded that:
…reliance on judgments made in 1998 provides an unreasonably sunny view of today’s workplaces that ignores changes in the law implemented in 2004, various court decisions, and the corresponding behavior of employers to limit the ability of workers to obtain overtime pay.
The 4.2 million employees DOL estimates will be newly entitled to overtime pay are limited to those who both meet duties tests establishing that their primary duty is executive, administrative or professional, and earn a salary higher than the old exemption threshold ($23,660 a year) but less than $47,476. For example, an accountant earning $40,000 or a bank branch manager earning $45,000 are legitimately exempt under the current rules but will be entitled to overtime pay because their salary is below the new threshold.