A lot has changed since 1975. The Soviet Union collapsed, we fought (and are fighting still) several wars in the Middle East, same-sex marriage is now legal across the United States, we have our first African-American President, we have the internet. But what has changed only minimally is the salary level for determining which “salaried’ workers are entitled to overtime. Seriously. While the Bush Administration made a minuscule adjustment in 2004, essentially a political smokescreen to avoid a real increase, that number is finally going to increase in a meaningful way – the Economic Policy Institute deserves a lot of credit for pushing for this long-overdue update. The Department of Labor is announcing a significant increase in the threshold – from $23,660 to approximately double that amount. What that means is that workers earning up to the new level, even if they are not called “hourly,” will get overtime pay for their hours worked over 40 in a work week. In 1975, the salary basis test captured 60 percent of salaried workers; in 2015, only 8 percent of salaried workers fall below this level and earn overtime. While writing my book, Under The Bus: How Working Women Are Being Run Over, I discovered (with help from EPI’s economists) just how much this change will help workers, particularly women of color.

The Fair Labor Standards Act (FLSA) established the requirement of minimum wage and overtime, but in a provision known as the “salary test,” the law provides that employers need not pay either the minimum wage or overtime to workers they designate as “bona fide executive, administrative, professional and outside sales employees,” so long as their daily tasks meet the DOL definition and they make more than $455 per week – which is how $23,660 breaks down as a weekly wage. Clearly, outdated level has given unscrupulous employers a way to avoid paying low-paid staff overtime by calling them “salaried.” Workers have had to challenge their denial of overtime when their employers tried to get out of the requirement by adding “manager” or “leader” to their title when their actual work consisted of serving fast food, shelving merchandise, or ringing up customers’ purchases.

Contrary to the statute’s original purpose, many workers put in the “salaried” category do little if any supervisory work. While in theory, “their duties must include managing a part of the enterprise and supervising other employees or exercising independent judgment on significant matters or require advanced knowledge,” the reality is quite different. This loophole has allowed employers to tell women that as a receptionist or typist they are administrative or professional, while in fact they have little or no supervisory responsibilities. But what they do get, in addition to a nicer title, is the right to work overtime without overtime pay. The Bush administration used regulatory black magic to push more workers into this category in 2004. That DOL rule cost an additional 8 million employees their overtime pay. Even without chicanery, the rules have become so lax that many employees are called “salaried” who should be earning overtime under the FLSA’s original purpose. According to EPI’s Ross Eisenbrey, “under current rules, it literally means that you can spend 95 percent of the time sweeping floors and stocking shelves, and if you’re responsible for supervising people 5 percent of the time, you can then be considered executive and be exempt.”

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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.

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.

(This is the first of six blog posts on disability insurance.)

The Social Security Disability Insurance (SSDI) program is set to be the next big battle in Republicans’ long campaign to dismantle Social Security. Congressional Republicans are trying to block a routine reallocation of funds to the SSDI Trust Fund, insisting that they will only allow reallocation if “reforms” to SSDI are implemented. The intellectual underpinning for their demands is that there is an unfolding fiscal crisis caused by workers who are able to earn a living but are instead choosing to claim disability benefits. A chief proponent of this view, Stanford economist Mark Duggan, testified before the Senate Budget Committee earlier this year, claiming that disability benefits are increasingly attractive to lower-wage workers, who respond by leaving the labor force. According to Duggan, a key piece of evidence supporting this claim is an increase in the share of beneficiaries suffering from musculoskeletal disorders and other “subjective” health conditions who have a “substantial” employment potential.

Claims like these have become a mainstay of attacks on the disability program. However, a closer look at the evidence shows that SSDI benefits have become, if anything, less generous. Moreover, even research cited by critics shows SSDI receipt has a negligible impact on work effort because few applicants, including marginal applicants who were denied benefits, are able to earn a living afterward. Meanwhile, there are good explanations for the increase in the share of beneficiaries suffering from musculoskeletal disorders, including an aging population, rising obesity rates, and fewer workers able to retire early when their health deteriorates.

These topics will be discussed in later blog posts. This post will focus on whether disability incidence has increased in the first place. The evidence shows that while “raw” or unadjusted incidence–the number of new awards per thousand insured persons–increased as the large baby boomer cohort aged into the peak disability years before retirement, age-adjusted incidence hasn’t trended upward over the past 20 years, though it increased during periods of high unemployment. However, incidence has fallen in the wake of the Great Recession and as older baby boomers become eligible for Social Security retirement benefits, including disabled boomers who automatically transition to retirement benefits as they reach the normal retirement age.

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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[1]–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).

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On World Refugee Day, The Hill published a Contributors piece by the libertarian Cato Institute’s immigration policy analyst, Alex Nowrasteh, headlined, “The US should be a home for refugees.” In it, he offers a brief history of refugee policy and flows into the United States over the past century and suggests that the United States “should … allow more to settle here.” That’s a noble sentiment, but the headline is misleading because it leaves out the substance of what Nowrasteh proposes in order to help make this happen. In short, Nowrasteh wants to welcome more refugees to the United States but proposes abandoning them and letting them fend for themselves once they get here…

Continue reading the rest of this op-ed at the Hill.

A new EPI study of the academic preparation of kindergartners by social class and race ended up being less about absolute preparation of children at the beginning of school and more about how prepared they are relative to one another. In short, children do not start school as equals. According to Inequalities at the Starting Gate: Cognitive and Noncognitive Skills Gaps between 2010–2011 Kindergarten Classmates, children’s school preparation is highly unequal, and what determines being better or worse off is a student’s social class.

While inequalities in the cognitive abilities of our young people have been documented by previous research (see EPI’s Inequality at the Starting Gate study from 2002 and Robert Putnam’s new book, Our Kids: The American Dream in Crisis), our study uses a dataset that allowed for examining how prepared children are in both cognitive (reading and math) and noncognitive domains (social skills, persistence, and creativity, among others). The data set (the National Center for Education’s Early Childhood Longitudinal Study of the Kindergarten Class of 2010-2011) also offers information on individual and family demographic characteristics and various enrichment activities that parents undertake with their children, enabling assessment of the importance of these variables for children’s preparation. All in all, the data allowed us to understand the broad school readiness of a recent generation of students. These students were born after—and thus presumably benefited from—the spread of prekindergarten education and other advances in school preparedness research and policymaking. But these children were also raised in a context of economic stagnation.

Consistently, results showed that having less money puts children at a relative disadvantage, in terms of the cognitive and noncognitive skills developed by the age of 5, while having more money benefits them, as skill levels increase along with social class. Most gaps are striking in size and appear for all the examined cognitive, noncognitive, and executive function skills. For example, children in the highest socioeconomic group have reading and math scores that are a full standard deviation larger than the scores of their peers in the lowest socioeconomic group. To give a sense of how large this gap is, it would take up to four independent, “substantively important,” education interventions to close the gap, according to a “classification of effects” from the U.S. Department of Education’s What Works Clearinghouse. The social-class-based gaps in other skills such as working memory, persistence in completing tasks, and self-control are 0.7, 0.4, and 0.5 standard deviations, respectively.

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Fast-track trade legislation is the first step in the process of greasing the skids for the proposed Trans-Pacific Partnership (TPP), and any other trade deal proposed by this president or any other for the next six years. Last month, the 13 democrats listed in the table below voted to end debate on fast track (Trade Promotion Authority, or TPA), allowing a final vote to take place. There are strong arguments against the TPP, which will increase inequality and hurt the middle class.

Table 1

Trade and jobs gained and lost in selected states

				Net U.S. jobs displaced due to goods trade with China, 2001–2013			Net U.S. jobs created by eliminating currency manipulation
							Low-impact scenario*		High-impact scenario*
Senator	State	State employment (in 2011)		Jobs lost	Jobs lost as a share of employment		Jobs gained	Jobs gained as a share of employment	Jobs gained	Jobs gained as a share of employment
Feinstein, Dianne	California	16,426,700		564,200	3.4%		258,400	1.6%	687,100	4.2%
Bennet, Michael	Colorado	2,492,400		59,400	2.4%		38,300	1.5%	95,700	3.8%
Carper, Tom	Delaware	420,400		5,500	1.3%		6,700	1.6%	16,200	3.9%
Coons, Chris
Nelson, Bill	Florida	8,101,900		115,700	1.4%		110,200	1.4%	274,000	3.4%
McCaskill, Claire	Missouri	2,742,100		44,200	1.6%		47,200	1.7%	116,800	4.3%
Shaheen, Jeanne	New Hampshire	684,800		22,700	3.3%		12,700	1.9%	31,300	4.6%
Heitkamp, Heidi	North Dakota	370,800		2,400	0.6%		7,400	2.0%	17,000	4.6%
Wyden, Ron	Oregon	1,710,300		62,700	3.7%		31,300	1.8%	78,600	4.6%
Kaine, Tim	Virginia	3,860,100		63,500	1.6%		52,500	1.4%	131,300	3.4%
Warner, Mark
Cantwell, Maria	Washington	3,118,000		55,900	1.8%		61,300	2.0%	140,300	4.5%
Murray, Pat
Total jobs at risk in these states**		39,927,500		996,200	2.5%		626,000	1.6%	1,588,300	4.0%

* The low-impact scenario assumes ending currency manipulation would reduce the trade deficit by $200 billion; the high-impact scenario assumes a $500 billion reduction in the trade deficit. The table shows the hypothetical change in 2015 three years after implementation.

** Employment and job numbers represent aggregates. Percentages represent weighted averages. States that appear twice (Delaware, Virginia, and Washington) are only counted once.

Source: Author's analysis of Scott 2014a and Scott 2014b

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These 13 democrats come from 10 states that lost 996,200 jobs due to growing trade deficits with China between 2001 and 2013, nearly one-third of the 3.2 million jobs eliminated by China trade in the United States in that period. States like Oregon, California, and Colorado were among the hardest hit states in the country. But they are also home or host to Nike (Oregon), Lockheed-Martin (Colorado), and Apple, Google, Intel and other Goliaths of Silicon Valley (California). New Hampshire serve as a bedroom community for many electronics industry workers in nearby Massachusetts, and has lost hundreds of thousands of jobs in recent decades in textiles, shoemaking and small machine making.Read more

Our new study shows the average compensation of CEOs in the largest firms was $16.3 million in 2014, up 3.9 percent since 2013 and 54.3 percent since the recovery began in 2009. More impressively, from 1978 to 2014, inflation-adjusted CEO compensation increased 997 percent, a rise almost double stock market growth and substantially greater than the painfully slow 10.9 percent growth in a typical worker’s annual compensation over the same period. Consequently, the CEO-to-worker compensation ratio was 303-to-1 in 2014, lower than the 376-to-1 ratio in 2000 but far higher than the 20-to-1 in 1965 and any time in the 1960s, 1970s, 1980s, or 1990s, as the Figure shows.

Figure C

CEO-to-worker compensation ratio, 1965–2014

Year	CEO-to-worker compensation ratio
1965/01/01	20.0
1966/01/01	21.2
1967/01/01	22.4
1968/01/01	23.7
1969/01/01	23.4
1970/01/01	23.2
1971/01/01	22.9
1972/01/01	22.6
1973/01/01	22.3
1974/01/01	23.7
1975/01/01	25.1
1976/01/01	26.6
1977/01/01	28.2
1978/01/01	29.9
1979/01/01	31.8
1980/01/01	33.8
1981/01/01	35.9
1982/01/01	38.2
1983/01/01	40.6
1984/01/01	43.2
1985/01/01	45.9
1986/01/01	48.9
1987/01/01	51.9
1988/01/01	55.2
1989/01/01	58.7
1990/01/01	71.2
1991/01/01	86.2
1992/01/01	104.4
1993/01/01	111.8
1994/01/01	87.3
1995/01/01	122.6
1996/01/01	153.8
1997/01/01	233.0
1998/01/01	321.8
1999/01/01	286.7
2000/01/01	376.1
2001/01/01	214.2
2002/01/01	188.5
2003/01/01	227.5
2004/01/01	256.6
2005/01/01	308.0
2006/01/01	341.4
2007/01/01	345.3
2008/01/01	239.3
2009/01/01	195.8
2010/01/01	229.7
2011/01/01	235.5
2012/01/01	285.3
2013/01/01	303.1
2014/01/01	303.4

 

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The data underlying the figure.

Note: CEO annual compensation is computed using the "options realized" compensation series, which includes salary, bonus, restricted stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales.

Source: Authors' analysis of data from Compustat's ExecuComp database, Current Employment Statistics program, and the Bureau of Economic Analysis NIPA tables

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Our measure of CEO pay covers chief executives of the top 350 U.S. firms and includes the value of stock options exercised in a given year plus salary, bonuses, restricted stock grants, and long-term incentive payouts. (Full methodological details here)

Our analysis, which shows that CEO pay grew far faster than pay of the top 0.1 percent of wage earners (those earning more than 99.9 percent of wage earners), indicates that CEO compensation growth does not simply reflect the increased value of highly paid professionals in a competitive race for skills (the so-called “market for talent”). CEO compensation in 2013 (the latest year for data on top wage earners) was 5.84 times greater than wages of the top 0.1 percent of wage earners, a ratio 2.66 points higher than the 3.18 ratio that prevailed over the 1947–1979 period. The compensation gains of top CEOs were therefore equivalent to the wages of 2.66 very-high-wage earners.

Don’t worry about all this, says American Enterprise Institute scholar Mark Perry, because our sample, and those used by the Associated Press and the Wall Street Journal, is misleading. Looking at the compensation of CEOs in the largest firms, according to Perry, is not “very representative of the average U.S. company or the average U.S. CEO,” because “the samples of 300–350 firms for CEO pay represent only one of about every 21,500 private firms in the U.S., or about 1/200 of 1 percent of the total number of U.S. firms.” Perry notes, “According to both the BLS and the Census Bureau, there are more than 7 million private firms in the U.S.”

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In a jointly authored statement, former EPI board members and U.S. Labor Secretaries F. Ray Marshall and Robert Reich called on Congress to reject Trade Promotion Authority and the Trans-Pacific Partnership because that deal will “harm America’s working people.”  Despite this statement, the House today approved a truncated version of Fast Track (TPA) that excludes funding for Trade Adjustment Assistance for displaced workers.  But passing TPA without TAA is a risky gamble because many Democrats have demanded that the two move simultaneously.

In their letter to Congress, Marshall and Reich conclude that “Trade can work for working Americans, but only when Americans can effectively know about what is in a trade deal, and only when a trade deal is effectively designed to create more good jobs in America. This Fast Track mechanism toward the Trans Pacific Partnership is a bad deal for America.”