In 2014, President Obama directed the Department of Labor to update the threshold under which all workers are eligible for overtime pay. Today, the Department of Labor announced that it will raise the overtime salary threshold from $23,660 to $50,440 by 2016. The threshold will also be indexed, guaranteeing that the law’s important protections will not be diminished by inflation.
We applaud President Obama and Secretary Perez for this bold action. The new threshold will protect more workers from being taken advantage of by their employers, giving some higher pay for working overtime and others reduced hours without any reduction in pay. This is a significant victory for American workers and will ensure that they get paid for the work they do.
More from EPI on Overtime:
This higher threshold will guarantee 15 million more workers overtime pay on the basis of their salary alone, in addition to the 3.4 million workers who are already guaranteed overtime pay. It will boost wages, which have been largely stagnant for the past 35 years, create hundreds of thousands of jobs, and give more family time to millions of working parents. Overall, 3.1 million mothers and 3.2 million fathers will be guaranteed overtime pay under the new threshold, and 12.1 million children will benefit from their parents’ overtime coverage.
In 1975, the overtime salary threshold covered about 62 percent of all salaried workers–today, it only protects 8 percent. Had overtime kept pace with the 1975 level, it would be about $52,000 today adjusted for inflation, about equal to the U.S. median household income. The new salary threshold puts us back on track to reconnect workers’ wages with gains in productivity.
With today’s announcement, the DOL is opening a comment period that will give workers an opportunity to express their support of the proposed rule change. FixOvertime.org allows workers to use their voice and submit their comment for consideration as the Department of Labor decides whether or not to actually boost overtime in accordance with the proposed rule changes. It also lets workers calculate how much extra they can earn per week under the new overtime rules.
If salaried employees are paid less than the overtime salary threshold (currently $23,660 in annual salary), they are entitled to overtime pay when they work more than 40 hours in a week. If however, they make more than the salary threshold, they are entitled to overtime pay only if their primary duty is not executive, administrative, or professional.
In a 2014 analysis, former EPI economist Heidi Shierholz estimated the share of salaried workers who were covered by the overtime salary threshold in 1975 and in 2013. She found that, despite an increase in the threshold in 2004, the share of the workforce covered by the threshold declined from 65 percent in 1975 to just 11 percent in 2013. This is because most of the value of the threshold was eliminated between 1975 and today due to inflation. As a result of Shierholz’s findings, EPI recommended that the overtime salary threshold be increased to the 1975 threshold in today’s dollars (in 2013, this was $51,168), which would have covered 47 percent of the workforce.
Because the analysis focused solely on the salary threshold test–i.e., because the analysis focused on just the salary of workers without regard for the duties of their occupation–increasing the threshold to reflect an amount into today’s dollars wouldn’t mean that all of the workers who fell in between $23,660 and $51,168 would gain overtime protections. Many of these workers would already have been entitled to this protection because their primary job duty was not executive, administrative, or professional.
Now, in updating this analysis, we want to be as precise as possible in identifying the workers who will be affected by the updated salary threshold rule. To do this, we narrowed the sample to those workers who are full-time workers (usually work 35 hours or more at their primary job), expanded the age of the population to all workers 18 years or older (previously limited to those 18-64), and removed certain occupations that are automatically exempt from overtime protections (e.g., medical professionals, lawyers, judges, teachers of all levels, and religious workers).
The National Retail Federation (NRF), a lobbying organization for department store corporations, sporting goods and grocery chains, and other large retailers, is opposed to the Department of Labor’s update of the rules governing the right of salaried workers to overtime pay. The reasons the NRF gives are somewhat contradictory and are sometimes surprising. But they boil down to this: the retail lobby doesn’t think businesses should have to pay for the overtime hours most of their employees work.
In March 2014, President Obama directed the Secretary of Labor to update the rules intended to exclude high-level employees like executives and professionals from overtime protections. The rules are currently so out of date that they define even workers earning below-poverty salaries as exempt, even though the pay of true executives and professionals like lawyers and CPAs has been soaring for decades. To fix this problem, the Labor Department is reportedly considering raising the threshold for exemption from $23,660 a year to $42,000 or more. Some advocates are calling for a threshold as high as $70,000 a year, which would protect the same share of the salaried workforce as was covered in 1975.
If the threshold is raised to $42,000, the NRF predicts significant changes in retail employment: while some employers will raise salaries for employees near the threshold to guarantee that they continue to be excluded from overtime protection, many salaried employees (some of whom work 60-70 hours a week for no extra pay) will have their hours reduced and as a result, 76,000 new jobs will be created averaging 30 hours per week. Altogether, half of the retail workforce that is currently excluded from coverage will be guaranteed coverage by the law’s overtime protections. That all sounds pretty good to me.
The common wisdom on Capitol Hill, carefully nurtured by corporate lobbyists and campaign cash, is that America needs more high-tech guestworkers, requiring a big increase in the number of H-1B guestworker visas made available each year. A number of senators, including Amy Klobuchar and Orrin Hatch, have introduced legislation to double or triple the number of non-immigrant tech workers who can be imported each year, despite evidence from the U.S. Government Accountability Office, independent researchers, and various media reports that the H-1B is used to lower wages and displace U.S. workers.
The senators endlessly proclaim that H-1B employees are good for our economy, that businesses can’t find enough talent here, that the H-1Bs are innovative, the “best and the brightest,” and that importing them leads to more job creation. In support, they cite a paper by Agnes Scott College researcher Madeline Zavodny, which found that hiring H-1Bs creates jobs for Americans: specifically, that “adding 100 H-1B workers results in an additional 183 jobs among U.S. natives.”
The problem is that it isn’t true. Zavodny’s research couldn’t discern whether the H-1Bs were hired because the economy was growing and jobs were being created—for natives and guestworkers alike—or whether the H-1Bs were responsible for the job growth. (The weakness of her results is demonstrated by another, completely implausible finding she reports, that H-2B unskilled guestworkers are associated with two-and-a-half times greater job creation than the college-educated H-1Bs: 464 jobs for every 100 H-2B guestworkers. The notion that hiring low-wage-earning landscapers and groundskeepers, hotel maids and dishwashers—most of whom have little or no college education—spurs spectacular job growth is ludicrous on its face.)
While policy makers in Washington are at least paying lip service to the need to lift the stagnant wages of America’s middle class, politicians in state capitals across the country are cutting the wages and benefits of public employees and school teachers, passing so-called “right-to-work” laws to weaken unions, and cutting back on unemployment insurance with the aim of forcing jobless workers to take any job, no matter how poor.
Indiana is a leader in this sorry parade. It passed right-to-work two years ago, and now the legislature has repealed (with the support of a governor with aspirations for national office) the state’s eight-decade old prevailing-wage law, which required contractors on state-funded construction projects to pay their construction workers the average wage in the locality where the work is done. Like the federal Davis-Bacon Act, the rationale for the law was straightforward: The state government should not be in the business of driving down wages. When it pays for construction work, rather than forcing a race to the bottom, it should respect local area standards.
But powerful interests, from the Koch Brothers and the American Legislative Exchange Council to the Associated Builders and Contractors, like the idea of a race to the bottom. From their perspective, the best wage is the lowest wage they can get away with, since companies’ profit margins will be higher with every dollar that isn’t paid to a construction worker. Indiana politicians are dancing to the tune the Kochs are calling.
After more than five years of litigation in numerous jurisdictions by immigrant and worker advocates who challenged the Bush administration’s illegally promulgated regulations for the H-2B temporary foreign worker program, the Department of Homeland Security (DHS) and the Department of Labor (DOL) have jointly promulgated two new rules—the H-2B “Comprehensive Interim Final Rule” and the “Wage Methodology Final Rule”—which establish important but modest protections for low-wage U.S. workers and guestworkers.
The H-2B temporary foreign worker program—which has been only minimally regulated since 2008—has facilitated the exploitation and human trafficking of guestworkers who work for U.S. employers in various industries, including landscaping, hospitality, forestry, seafood, fairs and carnivals, and construction. A judgment of $14 million in damages was recently awarded to five Indian H-2B guestworkers by a federal jury in Louisiana; the case is just one example of the many abuses that have been inflicted upon H-2B workers over the years.
EPI applauds the new worker protections provided by the H-2B Comprehensive Interim Final Rule, which goes into effect immediately but will be finalized after a 60-day comment period. This rule was originally proposed and finalized in 2012, after notice to the public and the collection and analysis of comments, but was postponed by congressional appropriations riders and enjoined by federal courts at the request of employer associations. While the rules impose some new duties on H-2B employers, the burdens are minimal and justified. The rules will result in more U.S. workers being hired for open positions and prevent the exploitation of H-2B workers. We echo the sentiment of 10 senators who asked DHS and DOL to “mirror the 2012 rule as much as possible” when the rule is finalized after 60 days.
The new protections for H-2B guestworkers include: the right to a copy of their work contract in a language they can understand; a guarantee that they will be paid for at least three-quarters of the hours promised in their work contracts; and reimbursement for inbound travel expenses after a worker completes 50 percent of the employment contract, and employer-paid outbound transportation if the worker remains employed until the end of the job order or if the worker is dismissed before the end of the job order.
In 1993, it seemed obvious to me that NAFTA was about one main thing: providing a huge new (and much cheaper) labor force to U.S. manufacturers by making it safe for them to build factories in Mexico without fear of expropriation or profit-limiting regulation. But the Clinton administration claimed it would open a new market to U.S. business, and U.S. Trade Representative Mickey Kantor, President Clinton, and even Labor Secretary Bob Reich argued that it would create jobs for American workers and even increase job creation in the U.S. auto and steel industries. They said NAFTA would benefit Mexican workers and help create a bigger Mexican middle class, while deterring migrant workers from crossing the border to seek jobs in the United States with better wages. They also argued an alternative theory: that NAFTA would help keep U.S. manufacturers from moving to Southeast Asia, and that it was better to keep that off-shored work in our hemisphere and along our border.
What actually happened?
- The trade balance with Mexico went from positive to very negative, resulting in the loss of more than 600,000 jobs in the United States.
- Mexico’s corn farmers were overwhelmed by a flood of cheaper U.S. corn and almost 2 million agricultural workers were displaced. Most of them migrated illegally to the United States and remain here as exploited, undocumented workers.
- Wages fell for Mexican industrial workers, to the point that autoworkers in Mexico now make less than Chinese autoworkers. Some Japanese carmakers start paying Mexican workers at 90 to 150 pesos per day, or $6 to $10.
- U.S. auto companies shifted investment to Mexico to exploit its much cheaper labor. AP reports that “Mexican auto production more than doubled in the past 10 years. The consulting firm IHS Automotive expects it to rise another 50 percent to just under 5 million by 2022. U.S. production is expected to increase only 3 percent, to 12.2 million vehicles, in the next 7 years.” Since NAFTA’s enactment, employment in the U.S. motor vehicle and parts industry has declined by more than 200,000 jobs.
More recent claims about the expected benefits of free trade agreement with Korea have proven hollow, too. Instead of creating 70,000 jobs, the net effect has been a higher trade deficit and the loss of 60,000 jobs. Worse, the harshest impact of that deal won’t be felt for several more years, when protective tariffs on pickup trucks are eliminated, making Korean imports 25 percent cheaper than they are today. U.S. auto workers will be hard hit.
And then there’s Permanent Normal Trade Relations with China and China’s admission to the WTO, which led to an explosion of imports and the loss of more than 3 million jobs, mostly in manufacturing and mostly in occupations that paid more than the jobs created in exports industries.
One bad experience after another: that’s why so many are so opposed to fast track and more NAFTA-style free trade deals.
Here are a few recent reports about the grim toll of industrial fatalities and the hazards workers are exposed to every day, from the Cal-OSHA Reporter and other sources. Hopefully, they will remind you why we need a strong federal enforcement effort and much better programs of workers compensation for occupational injuries and illnesses. A recent NPR/ProPublica report was a wake-up call about how state legislatures are gutting the programs that compensate employees for lost limbs, lost eyes and damaged hearing, compensate them for lost wages, and pay for the medical care of injured workers.
Bumble Bee Foods facing criminal charges over worker death: “Los Angeles County District Attorney Jackie Lacey on April 27 announced that Bumble Bee Foods LLC and two others are facing criminal charges related to willfully violating worker safety rules and causing the 2012 death of an employee who became trapped inside an industrial oven at the company’s Santa Fe Springs plant.”
OSHA: York workers exposed to asbestos: “A York County company is facing a nearly half-million-dollar fine for allegedly failing to protect employees from asbestos. The York City-based First Capital Insulation Inc. allowed workers to remove asbestos improperly, failed to make sure employees’ respirators fit correctly and did not decontaminate employees and their clothing before they left a work site, the Occupational Safety and Health Administration stated in a news release this week.”
Police: Man dies in Oklahoma City industrial accident: “Oklahoma City police say a worker has died at an area commercial printing business after being trapped under a piece of machinery.”
Worker killed in cinder block wall collapse, Ramsey police say: “A 56-year-old construction worker was killed in a wall collapse at a Ramsey, New Jersey building on Wednesday, officials said.”
It’s a scary thing when powerful government officials misuse their power, and especially when they misuse it to afflict the needy and comfort the comfortable. This appears to be what’s happening now as the chairmen of the two congressional tax-writing committees seek to change the tax status of various worker centers that have annoyed politically active corporations like Walmart, Darden Restaurants, and McDonalds.
I am not a tax lawyer and can’t say with any certainty whether a worker center formed to provide services such as job training, education, and legal assistance to low wage workers should suddenly be transformed from a 501(c)(3) charity into a labor organization if it challenges wage theft or other labor problems caused by a store or corporation. I don’t think the law should operate that way, but the law has a lot of problems.
What I can say is that it’s a shame that Sen. Orrin Hatch and Rep. Paul Ryan are spending their time on a matter of importance only to huge corporations that need no help from Congress in crushing worker organizations, fighting wage increases, and profiting immensely from weak labor standards and high unemployment. As their letter to IRS Commissioner John Koskinen shows, Ryan and Hatch don’t like the fact that worker centers have exercised their constitutionally protected right to “protest and picket against targeted businesses.”
One of the protests the congressmen cited was a Restaurant Opportunity Center protest over the takeover of Olive Garden restaurants by a hedge fund, Starboard, that wanted to cut labor costs by $48 million and transfer the savings to the pockets of investors. The workers and the worker center weren’t asking for the right to be the exclusive bargaining representative: they just didn’t want their wages cut and didn’t want to be changed from waged employees to tipped employees. But Ryan and Hatch want the IRS to investigate the workers.
Right to Work (RTW) laws weaken unions by depriving them of the funding they need to be effective, and workers, both union and non-union alike, in RTW states have lower wages. No one really disputes the first fact—workers in non-RTW states are more than twice as likely (2.4 times) to be in a union or protected by a union contract. And wages in RTW states are far lower—almost 16 percent on average. This isn’t surprising, since RTW’s proponents are anti-union hate groups and business organizations that oppose every effort to help workers organize or raise wages. In fact, their key pitch to legislators (outside of campaign contributions) is that RTW will lower labor costs, improve the “business climate,” and encourage out-of-state businesses to relocate.
So it was surprising to see the Heritage Foundation challenge the notion that RTW has no effect on a state’s wage levels. Yes, they say, wages are lower in RTW states, but it isn’t because of RTW. If true, it would leave proponents with no argument for RTW except its core purpose—weakening unions.
But in fact, it’s not true. EPI senior economist Elise Gould and co-author Will Kimball examined the Heritage report and found it to be deeply flawed. Heritage’s finding depends on statistical tricks—the removal of relevant and standard labor market controls such as the worker’s industry, and the inclusion of nonstandard and irrelevant worker characteristics and state-level amenities. Using only standard and relevant factors in the regression analysis yields a consistent finding: wages in RTW states are 3.1 percent lower than those in non-RTW states, after controlling for a full complement of individual demographic and socioeconomic factors as well as state macroeconomic indicators. This translates into RTW being associated with $1,558 lower annual wages for a typical full-time, full-year worker.
The widespread, flagrant abuse of the H-1B visa, which allows employers to hire non-immigrant foreign workers for IT jobs and other skilled work, is drawing bipartisan attention in Congress. In particular, the case of Southern California Edison (SCE), which used two Indian outsourcing firms to replace 400-500 well-paid U.S. workers with cheaper guestworkers, has caught the attention of leaders from both parties. 10 senators sent a letter to the Obama administration calling for an investigation by the Departments of Justice, Homeland Security, and Labor.
As we have pointed out many times, the biggest users of the H-1B visa are not small businesses looking for a rare scientist or information technology wizard. Rather, they are big corporations like Disney, SCE, and Northeast Utilities that want to reduce their labor costs by hiring younger, cheaper foreign workers. They hire “body shops” like Tata, Infosys and Wipro to import Indian college graduates to replace U.S. workers who might be paid $30,000 or $40,000 more. And it’s legal! It’s wrong and it’s appalling, but it’s legal.
Microsoft, Google, and the other high tech companies that want to increase the number of H-1B visas available to private employers by 120,000 or so claim they can’t find the tech workers they need in the U.S. and don’t have access to enough foreign workers. There is not much evidence to support their claim. But one thing is clear: if the H-1B visa weren’t used to replace U.S. workers, there would be a lot more available to Microsoft et al. Congress should reform the H-1B and prevent its abuse before it gives any thought to expanding the number of visas available.
This piece originally appeared in The Hill.
The April Fool is anyone who reads Alex Nowrasteh’s column about H-1B guest-workers and believes his bunk. If he had actually read the paper he cites about the effect of H-1B workers on American productivity he’d know that his claims are ludicrous. The paper doesn’t find that H-1B workers “have increased American productivity by 10 to 25 percent from 1990 to 2010”; it makes that estimate for the entire foreign STEM workforce, which includes one hundred thousand foreign students in the Optional Practical Training program who graduated with STEM degrees from U.S. schools, L-1 visa holders, and 300,000…
The National Retail Federation Hates the Proposed Overtime Rules (Even Though No One Knows What They Are)
The National Retail Federation (NRF) doesn’t know what the U.S. Department of Labor’s new rules concerning exemptions from overtime protections will be, but they know they’re against them. Claiming to speak on behalf of managers who might be affected by the not-yet-released rules, NRF says: “Retail managers say the proposed changes to the federal Fair Labor Standards Act regulations show the Department greatly misunderstands their roles in the workplace and would effectively strip retail managers of their salaried status, generating negative consequences for the entire industry.”
But unless someone has leaked the proposed rule to them, NRF is just making things up! What are “the proposed changes to the federal Fair Labor Standards Act regulations” that the managers disapprove? NRF doesn’t say. Equally important, what did NRF tell the managers it surveyed? Why do “75 percent of respondents” say “the changes would diminish the effectiveness of training and hinder managers’ ability to lead by example”? I personally doubt very much the proposed rule, if it is ever issued, will say anything about training.
Some of the NRF report’s “key findings” are pretty wild. For example, “Duties and salary are not effective litmus tests for successful management.” The Fair Labor Standards Act requires employers to pay an overtime premium to all employees, including managers, unless they are bona fide executives, administrators, or professionals. The definition of “executive” has always, since the FLSA was enacted in 1938, used duties tests and the salary level to determine who is a bona fide executive. That is the case today, so the “key finding” is nonsense. The question for the Department of Labor is what salary level is an executive salary? Is it $70,000 a year, or is it the current $23,660 threshold set by the Bush administration in 2004?
The Senate Judiciary Committee explored important economic questions this week. Should businesses be able to lay off qualified U.S. tech workers and replace them with lower paid foreign workers? Is there a shortage of skilled Science, Technology, Engineering and Math (STEM) workers—or an oversupply? And even if there is such a shortage, should we import temporary non-immigrant labor from abroad, or would it be better to let the free market work long enough for wages to rise and more students to be attracted to these fields?
The committee’s Republican and Democratic members disagreed with each other without regard to party labels. No senator, in fact, seemed more concerned about the rights of U.S. workers and their economic outcomes—and more skeptical of claims made by the business community—than Sen. Jeff Sessions of Alabama, a conservative, anti-union Republican. Two Democrats, Sen. Amy Klobuchar (D-MN) and Sen. Chuck Schumer (D-NY) took the side of big business, along with Sen. Orrin Hatch (R-UT), Sen. John Cornyn (R-TX) and Sen. Jeff Flake, while Sen. Dick Durbin (D-IL) and Sen. Chuck Grassley (R-IA) defended the interests of U.S. workers.
Most Americans probably think it is illegal to lay off an U.S. worker and replace him with a temporary foreign worker. Yet Prof. Ron Hira and several other witnesses testified that this is not just a common practice, it is the primary use of the H-1B visa program. (Hira points out that most of the top 10 users of the H-1B visa are firms that outsource and offshore U.S. IT jobs.) When Ben Johnson of the American Immigration Council said replacing U.S. workers should not be prohibited, Sens. Hatch, Klobuchar, and Flake all agreed; in fact, they voted in 2013 to remove language from the immigration bill that would have made it illegal to use the H-1B visa to replace U.S. workers. And all three are sponsors of the “I-Squared” bill, which would triple the number of temporary non-immigrant foreign workers replacing Americans.
Republicans in Congress are trying to pass a joint resolution of disapproval to prevent the National Labor Relations Board (NLRB) from updating the rules that govern union elections. Republicans used fast track procedures to pass the resolution in the Senate, and held a hearing on Wednesday to begin moving the resolution through the House. If it were to pass, it would repeal the NLRB’s updates and prevent the agency from ever issuing a similar rule.
The House Education and Workforce Committee hearing was a painful experience. The NLRB is updating obsolete election rules that fail to recognize modern developments like e-mail, and which encourage excessive litigation and delay. Yet a panel stacked with anti-union lawyers attacked the rules as if they were ending American democracy. Meanwhile one witness, a registered nurse from California, offered an opposing view.
What do the new NLRB rules do? First, they require employers to share e-mail addresses and phone numbers with the union seeking an election, so that the union will have more equal access to voters. For many decades the law has required employers to share home addresses, and the NLRB sensibly thinks it is less intrusive to have union supporters call or email than to have them visit you at home. But the panel and the Republican members treated this as if it were the end of privacy as we know it (has even one of them complained about NSA spying on Americans’ phone records or calls?). Brenda Crawford, the registered nurse who testified, said her employer bombarded employees with e-mails and texts in the weeks before the election, in addition to daily anti-union messages at work, including captive audience meetings where nurses were called away from patient care to hear anti-union harangues. When she tried to put out union literature in the employee break room, it was removed. She testified that the company’s ability to campaign throughout the workday, and electronically when the workday ended, overwhelmed the nurses and their union, who had no way to respond.
The fact that unions are responsible for workplace benefits, higher wages, and the right to overtime pay is the very reason Wisconsin Governor Scott Walker, the Koch Bothers, and other corporate interests hate them. Walker hates unions so much he compared them to ISIL terrorists, so it’s no wonder that he and Wisconsin’s Republican legislature are rushing through a “right-to-work” (RTW) bill.
RTW laws were originally designed by business groups in the 1940’s to reduce union strength and finances, and over the years they’ve been successful. As Melanie Trotman of the Wall Street Journal pointed out to me this morning, none of the 10 states with the highest rates of unionization are right-to-work. The Illinois Economic Policy Institute calculates that RTW reduces union coverage by 9.6 percentage points, on average. Unsurprisingly, weakening unions leads to lower wages and salaries for union and non-union workers alike. Heidi Shierholz and Elise Gould showed that RTW is associated with a $1,500 reduction in annualized wages, on average, even when the analysis takes into account lower prices in those states. (On average, wages in RTW states are nearly $6,000 less.)
Nevertheless, RTW supporters look at the very recent experience of Michigan and Indiana, which passed RTW laws in 2013 and 2012, respectively, to argue that RTW doesn’t inevitably lead to wage reductions. It’s a misguided argument, since no critic claims that the effects of RTW are immediate: It takes a little time for RTW to reduce dues collections, weaken union finances, undermine organizing, and weaken the bargaining position of workers. The law hasn’t even begun to apply to many contracts in Michigan.
Dear Mr. Secretary:
Several newspapers and journals, including Computerworld and the L.A. Times, have reported that Southern California Edison (SCE), a public utility, has laid off hundreds of its U.S. employees and replaced them with H-1B guestworkers employed by the India-based IT services firms Infosys and Tata Consultancy Services. As my colleague, Ron Hira, has written, “Adding to the injustice, American workers losing their jobs are being forced to do “knowledge transfers,” an ugly euphemism that means being forced to train your own foreign replacement.”
As you know, the law (the Immigration and Nationality Act) forbids the hiring of H-1B temporary foreign guestworkers whose employment would “adversely affect the wages and working conditions of U.S. workers comparably employed.” Clearly, taking away the jobs, wages and benefits of the laid-off SCE employees does adversely affect their wages and working conditions.
You have authority under the Immigration and Nationality Act to investigate this case, but I have seen no announcement that you intend to do so or that you share my sense of outrage that the H-1B program is being abused in such an egregious way. I hope that we will soon learn that the Department of Labor intends to investigate and remedy this harm to skilled U.S. workers who have pursued education and training in a technical field, worked hard, and played by the rules. Our government should, at the very least, ensure that its programs, including its visa programs, are not used to destroy the careers and financial security of its people.
Economic Policy Institute
Rampant wage theft in the United States is a huge problem for struggling workers. Surveys reveal that the underpayment of owed wages can reduce affected workers’ income by 50 percent or more. Most recently, a careful study of minimum wage violations in New York and California in 2011 commissioned by the U.S. Department of Labor (DOL) determined that the affected employees’ lost weekly wages averaged 37–49 percent of their income. This wage theft drove between 15,000 and 67,000 families below the poverty line. Another 50,000–100,000 already impoverished families were driven deeper into poverty.
The extensive weekly minimum wage violations uncovered by the DOL study in California and New York alone amount to an estimated $1.6 billion–$2.5 billion over the course of a full year. Given that the combined population of California and New York is 18.5 percent of the U.S. total, it is reasonable to estimate that minimum wage violations nationwide amount to at least $8.6 billion a year, and as much as $13.8 billion a year. On the one hand, violations in these two states might be less frequent because the wage and hour enforcement effort in New York and California is greater than in most states and violations might be deterred (Florida, for example, does not have a state labor department). But on the other hand, their large immigrant populations might increase the prevalence of wage theft—the DOL study found that non-citizens were 1.6 to 3.1 times more likely to suffer from a minimum wage violation.
The DOL study vastly understates the total impact of wage theft because it reported only on minimum wage violations, which are more frequent than overtime violations but usually involve smaller per violation dollar amounts than many overtime pay violations. A bookkeeper, for example, earning an annual salary of $45,000, who works 10 hours of unpaid overtime a week might lose $325, whereas a minimum wage worker forced to work “off-the-clock” unpaid for 10 hours would lose “only” $72.50, or ten times the state minimum wage if it were higher than the federal minimum. (Overtime violations are very frequent among low wage workers: a 2009 study found that on a weekly basis, 19 percent of front-line workers in low wage industries were cheated out of overtime pay to which they were entitled.)
DOL’s new study shows the need for much greater efforts to ensure employer compliance. Helpfully, the president has called for increases in the budget and staffing of the Wage and Hour Division, but Congress should revisit the obsolete penalties for non-compliance: repeated or willful violations of the minimum wage and overtime requirements are subject to a maximum fine of only $1,100.
In March 2014, President Obama directed Secretary of Labor Tom Perez to prepare an update of the regulations that govern exemptions from the Fair Labor Standards Act (FLSA) requirement that employers pay time-and-a-half for work beyond 40 hours in a week. The so-called “white collar” exemptions for professionals, executives, and administrators include a threshold salary below which every employee is guaranteed overtime pay regardless of his or her work duties. Above that salary level, the employer doesn’t have to pay anything for overtime hours—not even minimum wage—if the work performed meets certain criteria.
The salary threshold has rarely been increased, and since 1975, its real value has been eroded by inflation. It currently stands at $455 a week, or $23,660 a year—below the poverty level for a family of four and nothing like a true executive or professional salary. Whereas 65% of salaried workers were guaranteed overtime coverage by the salary threshold in 1975, just 11% are covered today.
In the past year, four significant proposals have been made to update the salary threshold, and each would guarantee coverage to a different number of workers. The figure and table below show that as the threshold increases, millions more employees are guaranteed overtime coverage.
For 5 years, the Obama administration has been trying to make reasonable improvements to one of the United States’ main guestworker program for lower skilled workers. The H-2B visa is used by businesses that want low-cost gardeners, hotel maids, cooks and dishwashers, forestry workers, workers to pick and pack crab meat, and various other kinds of laborers. The businesses that hire H-2B workers don’t want U.S. workers who expect a decent wage and they don’t want U.S. workers who might get sick of poor working conditions and quit to find a better job. They want migrant laborers from abroad, who may think being paid a poverty-level wage is a great windfall and who can’t quit—no matter how abusive the working conditions are—because they will be deported if they try to switch jobs. Many H-2B workers secure their temporary jobs in the United States by paying labor recruiters thousands of dollars to connect them to U.S. employers. The employers that ultimately hire them benefit from this arrangement because H-2Bs workers are so indebted to recruiters that their lives will be in danger if they return home before their contract is finished. Businesses call this a “reliable” workforce.
The Bush administration issued rules for the H-2B visa that gave businesses what they wanted: below-market wages so they could discourage U.S. workers from applying and underpay the migrants who did apply. EPI’s analysis has shown that the Bush rules led to wages that fell more than 25 percent below the true prevailing wage. Migrant advocates sued to have the Bush rules thrown out, and a federal court agreed. So the Obama administration set out to rewrite the rules to protect both U.S. workers who might want some of these jobs and the mostly Mexican migrants who come to work with H-2B visas. The Department of Labor issued rules to require more honest recruiting of U.S. workers before a business can look abroad, rules to protect the migrants against exploitation by recruiters and businesses, and—most importantly—a rule to set a true prevailing wage that businesses using the H-2B visa have to offer and pay to U.S. and migrant workers alike.
Matt O’Brien hit the nail on the head in a Wonkblog post about non-compete agreements for doggy day care workers yesterday. Camp Bow Wow, as Dave Jamieson reports, forces new hires to agree not to work for a competing business within 25 miles of their location’s “franchise territory” for two years after leaving the company. Dog sitters obviously don’t learn valuable trade secrets that have to be protected from competitors, so something else is motivating the chain’s non-compete clause—just as trade secrets were not driving Jimmy John’s to restrict where its employees could work when they moved on from the sandwich shop. That motivation is wage suppression. As O’Brien puts it:
“Non-competes create a Balkanized labor force where you’re not a sandwich maker, but either a Jimmy John’s or Subway sandwich maker. Workers, in other words, are being forced to pledge fealty to companies that can still fire them at will. The payoff, of course, is that workers who, practically-speaking, can’t switch jobs are workers who can’t ask for raises.”
It’s common sense that increased experience in an occupation should eventually lead to higher wages and that if, for example, Camp Bow Wow doesn’t sufficiently reward an employee’s experience, some other dog care chain will. The employee might look around and find that experienced dog sitters are paid $1.00 an hour more at Camp Canine. But a non-compete agreement keeps the employee from jumping ship to take the better-paying job. A two-year restriction on competing dog-care employment means the employee has to leave the area to get the benefit of her experience. It’s not slavery, but as O’Brien points out, it’s not the kind of freedom capitalism promises, either. (If the National Right to Work Committee weren’t simply a union-hating sham, it would take up the cause of workers who are being forced to accept such contracts.)
Limiting the right to quit and take another job leaves the employer with ever more bargaining power. How do you negotiate a raise if your employer knows you can’t take your experience and knowledge elsewhere?
American workers are increasingly concerned about how their employers schedule their work time, and for good reason. The spread of just-in-time scheduling, facilitated by computer programs that match employee shifts with customer traffic, is making life harder for the employees whose schedules are constantly changed, who report for work after long commutes only to find their hours have been cut—say from an expected eight that day, down to only one or two—and right at the last minute. That can make it close to impossible for workers to plan arrangements for child care, class schedules, or even transportation to and from work. Other employees are taken advantage of by employers who schedule them for long hours without advance notice, disrupting the same child care, education, and transportation schedules(though at least the excessive hours result in higher pay, if they’re covered by overtime protections and entitled to time-and-a-half for hours in excess of 40 in a week).
Politicians have two kinds of responses to these problems. Some are interested in real solutions, like the San Francisco Predictable Scheduling ordinance approved yesterday, which outlaws unpredictable scheduling practices at retail chain stores and promotes equal treatment of part-time workers. State law in California already requires employers to compensate employees who report to work but are given less than half their scheduled hours, and requires employers to pay for an extra hour of work when there are unpaid interruptions of the work day longer than a bona fide meal period.
Other politicians only pretend to do something for workers without doing it—or even make matters worse. A perfect example of that kind of fraudulent response is H.R. 1406, the House Republicans’ perennial answer to demands for improvements in the work-family balance. They call their bill the “Working Families Flexibility Act,” but the only flexibility it provides is to employers, rather than to employees. It gives employers the right not to pay anything for overtime hours in the week in which they are worked, but to instead consider giving time-and-a-half off with pay at some later point in the year. If it never turns out to be convenient, the employer has to repay the employee for her overtime at the end of 12 months. In effect, the bill authorizes an interest-free loan of the employees’ overtime pay with no guarantee of any time off.
Twenty years ago, the radical wing of the Republican Party announced its “Contract With America,” a set of policies and actions Rep. Newt Gingrich and his caucus pledged to accomplish if they were elected to a majority in Congress. The Contract included eight internal reforms to change congressional operations (things like applying labor laws to Congress and putting term limits on committee chairmen) and ten bills affecting national policy that would be brought to the floor and voted on within the first 100 days of the new Congress.
Gingrich’s early battles ultimately ended in victory for the public and for the environmental and consumer protections he wanted to undo. Gingrich’s bills were made worse as they moved through committee and were amended in the House and Senate, finally resulting in what one senior Republican Senate staffer called “a revolution”—a system that would allow any corporation to escape enforcement through legal or procedural loopholes. Every regulation would be effectively voluntary, and the polluters and producers of unsafe products would have nothing to fear from the EPA, the Consumer Product Safety Commission, OSHA, or any other regulatory agency.
The vehicle for this revolution was one of the first bills considered and passed in the House in 1995, “The Job Creation and Wage Enhancement Act.” Its goal was to subject federal regulations—regardless of statutory mandates to the contrary—to new risk assessment and cost-benefit analysis requirements and to create multiple opportunities for businesses to block federal rules and interfere with their enforcement. Big chemical and pharmaceutical manufacturers didn’t want clean water laws interfering with their profits, the meat industry wanted to prevent new rules about bacteria and contamination, and construction companies didn’t want to have to comply with new workplace safety standards. The legislation would have stopped new rules in their tracks.
When I read recently that General Mills had tried to impose binding arbitration on people who used Facebook to like its cereals, I thought the company was stupid, and didn’t much care because I don’t buy their products anyway. But when I learned that an ever-increasing number of corporations are sneaking forced arbitration clauses into the fine print of their purchase agreements, I became more concerned. How can I be forced to give up the right to sue if a product hurts me or my family, just because I bought the product?
Today, I’m totally alarmed and outraged, after watching the Alliance of Justice’s film “Lost in the Fine Print.” The film tells the story of consumers who were harmed by for-profit schools, credit card companies, and employers, but were then prevented from suing in court by the arbitration clauses hidden in the fine print of their contracts. Denied any access to the courts, their only choice was arbitration before an arbitrator hand-picked by the company. The consumers all lost, but one of them lost more than just her case: she was forced to pay the company’s $362,000 in legal fees and costs! It’s no surprise the outcomes are so lopsidedly in favor of the corporations, given that they choose and pay the arbitrators, who depend on the corporations for business.
AFJ’s Nan Aron, who hosted a showing of the film at the Women’s National Democratic Club, told us that 93% of consumers who try to use company-mandated arbitration lose. Worse, when a small business in California challenged the imposition of a forced arbitration clause by American Express, the US Supreme Court upheld the clause last year, despite a stinging dissent by Justice Elena Kagan. Now, as far as the companies are concerned, there’s nothing to stop them: Comcast, Wells Fargo, AT&T, Amazon, and Verizon are just a few of the companies that impose binding arbitration on their customers. The Court vindicated the arbitration clause even though by requiring individual arbitration actions it made it so expensive for Amex’s small business customers to challenge unfair fees that they effectively had no remedy. According to Justice Scalia, under the Federal Arbitration Act, the fact that there is no remedy is irrelevant. Now, as far as the companies are concerned, there’s nothing to stop them: Comcast, Wells Fargo, AT&T, Amazon, and Verizon are just a few of the corporations that prohibit class actions and impose binding arbitration on their customers, without their knowledge.
The last barricades in the right wing’s fight to prevent increases in the minimum wage are starting to fall, as even the businesses that minimum wage opponents are supposedly protecting from having to pay a decent wage are saying, “Enough! It’s time to raise the minimum wage.”
The American Sustainable Business Council and Business for a Fair Minimum Wage conducted a national phone poll of 555 small business employers and found support for raising the minimum wage to $10.10 an hour in every region of the country. Two thirds of surveyed businesses in the Northeast were in favor, and even in the South, 58 percent of small businesses approve of President Obama’s proposal to raise the minimum wage in steps and then index it to inflation.
Unsurprisingly, these business owners are not simply being altruistic. Most of them understand that their businesses will benefit in two ways when millions of poorly paid employees get a raise. First, higher pay would mean lower employee turnover, increased productivity and higher customer satisfaction—all of which helps employers’ bottom line. Second, most of the owners surveyed agree that a higher minimum wage would increase consumer purchasing power and help the economy. Putting money in the pockets of millions of potential customers means more sales and higher profits.
Integrity Staffing Solutions, which runs a warehouse operation for Amazon, makes employees go through a “security check” at the end of each working day, where they are searched for stolen goods. Even though employees spend 25 minutes being processed—and would be fired if they tried to skip the screening—Integrity doesn’t pay them a penny for their time. The employees sued and won, and the case has gone to the U.S. Supreme Court. Now, the Justice Department and Labor Department have filed a brief that takes the side of the Amazon subcontractor over its employees. This is a shame.
Over the past year, President Obama and Secretary of Labor Tom Perez have seemingly done everything within their power to lift wages and discourage the exploitation of workers. Obama has issued executive orders raising the minimum wage and requiring decent labor practices from federal contractors, Perez has issued a rule covering home-care workers under the minimum wage and overtime rules, and Obama directed Perez to update overtime rules so more salaried employees would have the right to overtime pay. So why are they fighting the employees in this case?
It doesn’t look like a matter of legal principle to me. Certainly, the application of the Portal to Portal Act, which frees employers from the obligation to pay for certain preliminary and postliminary activities such as traveling to the work site or changing from a uniform into civilian clothes, isn’t obvious in this case. The court of appeals found that the search for stolen property was integral and necessary to the business operation of the warehouse, and that seems right to me. If the screening isn’t “integral and necessary” to the business operation, why would the employer fire employees who skip it? If making employees remove work clothes and shower after work to remove toxins has to be compensated (and the Supreme Court has said that it does), why isn’t making them remove belts and shoes and other clothing to prevent theft? (Cases finding that making employees—and everyone else—go through airport security screenings aren’t analogous because the employees are only being required to do what everyone has to do. It isn’t integral and necessary to the business operation, it’s a general requirement of federal law.)
So if it’s a close legal question, why didn’t the Obama administration side with the workers and ask the Supreme Court to uphold the Court of Appeals decision in their favor? I’m afraid it’s because the federal government is doing the same thing as Integrity, and doesn’t want to be sued. The brief of the United States includes a “Statement of Interest” explaining why it wanted to file a friend of the court brief. Here’s what it says, in part:
“The United States also employs many employees who are covered by the FLSA, 29 U.S.C. 203(e)(2)(A), and requires physical-security checks in many settings. The United States accordingly has a substantial interest in the resolution of the question presented.”
In other words, as an employer, the government wants to be able to get away without paying its own workers for their time. This is wrong.
The Los Angeles City Council’s vote to raise the minimum wage for hotel workers is another herald of big changes coming in the way the United States deals with low wages and inequality. The Council voted 12 to 3 to raise the minimum wage for workers at large hotels to $15.37 an hour by 2017, which is more than the national median wage for women ($15.10 in 2013). Mayor Eric Garcetti will sign the bill after it receives a confirming second vote next week.
The LA County AFL-CIO, UNITE HERE Local 11 (the LA area union of hospitality workers), and the Los Angeles Alliance for a New Economy, which led the campaign, don’t intend to rest on their laurels and will push for an across-the-board minimum wage increase to $13.25 an hour, far above the national minimum wage of $7.25 an hour. Mayor Garcetti strongly supports that bill, too.
As in Seattle, where a union-led coalition won a $15 minimum wage, the people of Los Angeles realize that many businesses will not share revenues fairly with their workers unless they are required to do so. Even businesses that want to pay their employees a living wage feel constrained by their competitors: How can they compete with a competitor paying its workers $5.00 an hour less? The only way to break through these constraints is to reset labor standards to a level that provides a decent living. As Franklin Roosevelt said when he first sent minimum wage legislation to Congress in 1933: “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country… By living wages, I mean more than a bare subsistence level. I mean the wages of decent living.”
The National Association of Manufacturers (NAM) is a cynical organization. It knows that few journalists will read a lengthy paper on the cost of regulation and realize that it is dressed-up junk economics, so it has published a re-run of the truly meretricious report that Mark Crain and Nicole Crain issued four years ago. The new report is even worse than its predecessor, in the sense that the authors have chosen not to respond to any of the criticism of their earlier work—even though it has been shown to be based on bad research, unreviewable and probably biased data, and faulty assumptions about the relationship between regulation and GDP.
EPI’s Josh Bivens and others will deal with the main methodological problems with the Crains’ analysis. I want to focus just on the Crains’ re-use of the same indefensible research concerning the cost of OSHA regulation, which we first exposed in 2011. The Crains claim that OSHA regulations cost businesses $71 billion a year, even though the cost for new regulations since 2001 is only $733 million. How is it that the previous years’ regulation cost nearly 100 times as much? The Crains don’t have an explanation—they simply rely on someone else’s discredited work.
Joseph M. Johnson published “A Review and Synthesis of the Cost of Workplace Regulations” in 2005. Johnson’s paper makes many serious mistakes, but the biggest is the application of a cost “multiplier” derived from yet another analyst’s work. Harvey S. James, Jr. estimated that the true cost of OSHA rules is not the cost estimated by the agency at the time of rulemaking (which often turns out, in reality, to be too high), but a cost 5.5 times greater because of “fines for violations and the costs of the many non-major regulations for which no cost estimates exist.” This multiplier is ludicrous on its face, both because OSHA fines have never amounted to very much (even today the maximum fine that can be assessed for a willful or repeat violation is only $70,000, and the amount paid is usually far less than what is initially assessed) and because the costs of non-compliance should not be double-counted as compliance costs.
The Tennessean reported yesterday on the miserable work life of a 17-year old migrant worker named Ivan Alvarez, who lost three fingers when a tobacco farmer’s makeshift shearing machine sliced them off. How did the farmer treat him? He gave him a check for $100 and fired him. No worker’s compensation, no disability insurance, and no compassion.
Young Alvarez was one of six migrant teenagers working at Marty Coley Farms in Macon County, Tennessee. He lived with 13 adult men in a vermin-infested three-bedroom house, and was paid less than minimum wage for six days a week of work. Why did Alvarez and the others put up with such mistreatment? As undocumented immigrants, they were trapped.
A recorded conversation between the farm’s owner and one of the employees after the amputation shows how employers use the threat of deportation to oppress their workers and drive labor standards to the bottom. When the worker said he was leaving to take a better-paying job at another farm, the farmer, Marty Coley (one of the largest tobacco growers in the county), threatened him with deportation.
“I’ll tell you what,” Coley said. “You all go there and I’m going to call immigration and clean the whole damn bunch out.”
It adds insult to injury to learn that, as The Tennessean reported, Marty Coley Farms has received more than half a million dollars in federal tobacco price support subsidies over the past ten years.
One often hears that employers hire undocumented migrants because no American wants to do the kind of work they’re hired to do. Clearly, no American wants to live in overcrowded and disgusting quarters, be paid a subminimum wage, and have his fingers cut off. The answer isn’t to let this kind of exploitation continue—it’s to improve pay and working conditions enough that Americans will do the work, and to give immigrants the right to reject a job that degrades rather than rewards their labor. As long as the undocumented workforce is subjected to the threat of deportation, Marty Coley Farms and other low-road employers will continue to abuse and exploit them, to the detriment of every American.
For 12 months, McClatchy reporters have been carefully digging into a pit of corruption, gathering payroll records in 28 states and interviewing hundreds of workers and business owners about an epidemic of tax cheating, wage theft, and exploitation in the construction industry. The extraordinary report of their investigation was published Thursday, and it’s hair-raising. More than one-third of the employees working on federally-funded projects in Texas and Florida, overseen by public housing authorities and monitored by the U.S. Department of Labor, were improperly classified as independent contractors. The contractors misclassified them in order to escape paying worker’s compensation premiums, unemployment insurance taxes, and FICA taxes, to avoid complying with immigration document requirements, and to avoid liability for labor law violations. In just Florida, Texas, and North Carolina, McClatchy estimates that half a million workers were misclassified, and that the state and federal governments were cheated out of approximately $2 billion in taxes as result.
The stories make the damage this does to the labor market utterly clear. Construction wages were lower in 2012 than they were in 1980, despite rising productivity and huge profits in the industry. Even skilled tradesmen like plumbers and electricians earned 12 to 14 percent less than thirty years ago. Labor law offers no protection to independent contractors, who are not entitled to the minimum wage, overtime pay, or the right to join a union and bargain collectively. Exploited workers—many of them undocumented immigrants who live in fear of deportation—work without adequate safety protections, sometimes receive far less than the pay they were promised, and are deprived of the safety net’s protections if they lose their jobs, are injured or disabled, or reach retirement age. They often live in slum conditions, even while working on luxurious and glitzy new housing.