How to combat the wage stagnation that has afflicted the vast majority of American workers has emerged as a key economic issue addressed in speeches and policy deliberations by politicians and candidates in both parties. This is a very positive development–as we at EPI have been saying for quite a while, wage stagnation ranks beside addressing global climate change as the key economic challenge of our time.

A New York Times editorial points out, however, that Glenn Hubbard, a leading conservative economist and key adviser to GOP candidate Jeb Bush, does not seem to believe there is a wage stagnation problem. As an earlier New York Times article pointed out: “Mr. Hubbard argued that ‘compensation didn’t stagnate,’ citing large increases that employers have paid out in health and pension benefits.”

Hubbard is definitely mistaken, as the New York Times indicates and as I demonstrate below by examining actual wage and benefit trends. Shifting the discussion from wages to compensation (wages and benefits) does not alter any of the salient facts about stagnant pay in recent years, especially for the typical worker or for low-wage workers, and not even for the ‘average’ worker (including high wage as well as low and middle-wage workers). In fact, there has been an even greater growth of inequality in total compensation than there has been in wages alone.

The intuition behind Hubbard’s claim is that the costs of benefits provided by employers–especially those for health care insurance–have risen rapidly, suggesting that compensation has risen far more quickly than wages. What this ignores, of course, is that many workers in the bottom half receive very few health or pension benefits and employers provide fewer and fewer workers with health insurance and pension benefits each year. Hubbard’s intuition also ignores that employers have actually cut back on some benefits, particularly pensions, with a concomitant decline in the quality of those benefits (such as by providing defined contribution rather than defined benefit plans).

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This post originally ran in the Wall Street Journal’s Think Tank blog.

The overtime rules the Obama administration announced Tuesday target genuine problems that middle-wage households face. They also do not require approval from Congress.

American workers’ hourly wage growth has nearly stagnated in recent decades. While this broad-based stagnation affects essentially thebottom 70% of the U.S. workforce, policy proposals to boost wage growth too often begin and end with increasing legislated minimum wages. Such minimum-wage increases, while important policies, generally will not filter up to most middle-class households.

One specific change that could help these middle-class households was proposed Tuesday: raising the salary threshold that determines eligibility for overtime pay.

This wonky-sounding change could have large ramifications: potentially giving 15 million workers rights to higher pay.

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Summer is typically the time of year when we see the highest rates of employment for teens — young people between the ages of 16 and 19.  This group includes new high school graduates along with others in search of an opportunity to earn a few extra dollars while out of school for the summer.  Based on this month’s jobs report, the 2015 summer job market for teens is off to a better start than last year.  According to seasonally unadjusted teen employment-to-population (EPOP) ratios, 32.1 percent of all teens found employment in June 2015, compared to 30.9 percent in June 2014 (Figure A).  However, this may actually be an understatement of the June 2015 increase.  The White House suggests that an earlier-than-normal reference week for this year’s survey is capturing a smaller share of the usual June gains.  June teen employment rates were essentially flat between June 2012 and June 2014.

Figure A

Unadjusted Employment-Population Ratio, 16-19 years old, (June only) 2000-2015

Year	All	White	Black	Hispanic
2000	51.4	56.3	31.6	40.7
2001	48.1	52.9	30.0	40.1
2002	44.6	48.7	28.5	36.7
2003	40.9	45.5	21.7	31.6
2004	40.2	44.5	22.5	31.4
2005	41.0	45.5	24.1	33.0
2006	42.1	46.3	27.0	33.5
2007	39.6	43.9	23.4	30.9
2008	37.1	41.4	21.4	32.0
2009	32.9	36.9	18.0	27.4
2010	28.6	32.1	15.2	21.0
2011	29.2	32.5	16.9	19.3
2012	30.5	34.0	19.2	25.4
2013	30.6	34.3	17.8	24.9
2014	30.9	34.0	18.4	24.6
2015	32.1	35.5	20.8	26.7

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The data underlying the figure.

Source: EPI analysis of Bureau of Labor Statistics Current Population Survey public data series

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Racial differences in teen employment rates mirror those of adults – 35.5 percent of white teens were employed in June, compared to 26.7 percent of Hispanic teens and 20.8 percent of black teens.

The relatively improved June 2015 numbers reflect the fact that this summer teens are entering a stronger job market than the last several years.  The average rate of job growth during the 12 months preceding June 2015 (July 2014-June 2015) was 245,000 jobs/month compared to 221,000 jobs/month during the 12 months preceding June 2014 and 175,000 jobs/month during the 12 months leading up to June 2012 (Table 1).  Also, the adult unemployment rate (age 20 and older) is lower heading into the summer of 2015 than in previous years – 5.0 percent in May.

Table 1

Average annual monthly job growth during 12 months preceding June, and adult (age 20 or older) unemployment rate in May, 2010-2015

	Average monthly job growth during 12 months preceding June	Adult (age 20 or older) unemployment rate in May
2010	-42,000	9.0%
2011	114,000	8.5%
2012	175,000	7.6%
2013	196,000	6.9%
2014	221,000	5.8%
2015	245,000	5.0%

Source: EPI analysis of Bureau of Labor Statistics Current Population Survey and Consumer Employment Statistics public data series

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Despite the uptick in teen employment this June, employment rates for teens and prime age adults (age 25 to 54) remain well below pre-Great Recession levels.  The longer-term pattern in June teen employment rates is consistent with the sharp decline in average annual teen employment rates since 2000.  This partly reflects an ongoing increase in college enrollment (except for a post-2012 decline), but is also the result of relatively weaker labor markets that have persisted since 2000.  Based on a recent EPI report, the share of young high school graduates, age 17 to 20, who are not working and not enrolled in school is also well above the 2000 rate.

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

In my previous blog post, I questioned Stanford economist Mark Duggan’s Senate testimony that workers’ financial incentives are driving a growth in Social Security Disability Insurance (SSDI) rolls. I showed that there had been no upward trend in age-adjusted disability incidence over the past 20 years, though there had been a modest increase for women offset by a modest decline for men.

Though age-adjusted incidence isn’t rising, it’s possible that financial incentives have prevented it from falling. This blog post will focus on Duggan and Massachusetts Institute of Technology economist David Autor’s claim that disability benefits are replacing a rising share of low-wage workers’ earnings. Though this is a plausible and widely accepted hypothesis, there is surprisingly little evidence to back it up. In any case, this assumes workers are weighing the costs and benefits of working versus applying for disability benefits–a lengthy and difficult process that results in nearly two out of three applicants being denied–even though it’s doubtful that many applicants could instead choose to work.

Are disability benefits becoming more generous? The average benefit awarded is roughly a third of the average wage, a ratio that has remained essentially unchanged since 1985. And as Harvard economist Jeffrey Liebman points out, rising inequality and other factors have reduced the value of disability benefits relative to productivity per worker. As a result, program costs increased only modestly over the three decades preceding the Great Recession as a share of GDP (from 0.55 to 0.68 percent) despite a much faster growth in enrollment.

Though benefits have just kept pace with wage growth and lagged productivity growth, Duggan and Autor (2006) hypothesize that benefits have risen relative to lower-wage workers’ earnings due to rising inequality and a progressive benefit formula. Lower-wage workers are more likely to apply for disability benefits because they tend to be in worse health, are more likely to be in physically demanding or dangerous occupations, and qualify for fewer jobs that accommodate disabilities.

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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.