Does high CEO pay matter to shareholders?
Last month, we did an analysis that examined the impact of a provision of the Affordable Care Act limiting the amount of CEO pay that could be deducted from profits to $500,000.
In the years after it took effect, this provision raised the cost of CEO pay to employers (i.e., shareholders) by more than 50 percent. Prior to 2013, shareholders of health insurance companies effectively paid just 65 cents on every dollar of CEO compensation, since their taxes would fall by 35 cents for every dollar they paid out. After 2013, they would be paying 100 cents of every dollar.
If CEO pay bears a close relationship to their value to the company, this change in the tax code should have led to some reduction in their pay. Using a wide variety of specifications, controlling for growth in profits, revenue, stock price, and other relevant factors, we found no evidence that the pay of health insurance CEOs fell at all in response to the limit on deductibility.
While this finding does support the view that CEO pay is not closely related to their value to shareholders, it is worth asking how much this provision mattered to insurers’ bottom line. In other words, how much more did they effectively end up paying to their CEOs, measured as a share of profits, as a result of the change in the tax code?
Evidence shows collective bargaining—especially with the ability to strike—raises teacher pay
Some recent media reports on a new academic study by political scientist Agustina S. Paglayan give the impression that the paper’s findings reflect badly on teachers unions. This is a misreading, however, of the study and of its implications. A key issue lost in the press accounts is that the study is, first and foremost, an historical analysis, examining the effects of the expansion of state collective bargaining rights for teachers between 1959 and 1990. Given the historical focus, the study excludes the experience of the last three decades, where the evidence clearly suggests that collective bargaining raises teachers pay.
But, even with respect to just the historical period studied, the paper’s conclusions are much more nuanced than the press reports suggest. A central conclusion, which has been overlooked in media accounts, is the author’s view that the reason that teachers unions might not have been effective in raising expenditures on education (including teachers’ pay) in the early days of expanding collective bargaining rights is because the laws that allowed collective bargaining often simultaneously restricted the ability of public-sector unions to strike. What the law gave with one hand, it often took back with the other. To illustrate the point, the paper shows that in states where public-sector workers had both the right to collective bargaining and the right to strike, collective bargaining did appear to increase expenditures on education.
More recent evidence on the effect of unions on teacher pay
Any analysis of unionized public-sector teachers’ pay needs to separate out two points of comparison: one is a comparison of teachers’ pay with what similar workers earn in the private sector; the other is a comparison between what unionized and non-unionized teachers earn in the public sector.
A perfect pairing: New tip provisions and a strong minimum wage
Last December, the U.S. Department of Labor (DOL) issued a proposal to allow employers to collect their workers’ tips, ostensibly to distribute them more evenly through tip pools. However, the rule was written in such a way that it would have made it legal for employers to simply pocket tips. This would have been a major windfall to restaurant owners and other employers of tipped workers, out of the pockets of people who work for tips. We estimated that if that rule were finalized, workers would lose $5.8 billion a year in tips, with $4.6 billion of that coming from the pockets of women working in tipped jobs.
Because of the overwhelming outcry from workers and allies in response to the proposal, along with excellent investigative journalism that uncovered the administration’s cover-up of its analysis showing the rule would be terrible for workers, DOL came to the table to hammer out a compromise. As a result, last week’s spending bill included a provision that makes it clear that employers may not keep any tips received by their employees, and ramps up the punishment for violations. Those things are huge wins for workers.
The clear next steps for protecting workers in tipped occupations are eliminating the tip credit for minimum wage employers, enforcing one minimum wage for all workers regardless of whether they receive tips, and substantially increasing the federal minimum wage. The rest of this post explains why these next steps are so crucial.
It is not uncommon for servers in restaurants to voluntarily share a portion of their tips with kitchen staff. A provision in the spending bill passed last week allows employers to operate tip pools between tipped workers and “back-of-the-house” or other non-tipped workers. Under the new rules, employers can operate these pools if they pay their tipped workers a base wage of at least the federal minimum wage, which is currently $7.25—i.e. employers cannot operate a tip pool between tipped and non-tipped workers if they use a tip credit to cover any wages up to $7.25 an hour. Non-tipped workers in tip pools must still be paid a base wage of the full minimum wage in their city or state. And, as always, the total pay of tipped workers (base wage plus tips) must be at least the full minimum wage in their city or state.
The Federal Reserve Bank of New York’s search for a new president was a flawed process that should go back to the drawing board
It is now widely recognized that the president of the Federal Reserve Bank of New York is a uniquely powerful economic policymaking position. More crucially, it’s likely the most important such position that is not chosen by President Trump. Given the poor choices Trump has already made in choosing the leadership of the Fed, it is more important than ever to make a great choice for the NY Fed presidency.
The process so far has not been encouraging. Several on a list of highly qualified and diverse candidates were not contacted by the NY Fed. Worse, the leading candidate in today’s news reports wasn’t even being mentioned a week ago. This is not how a transparent and publicly accountable process should work, and it’s why the Fed needs fundamental reform.
This leading candidate is John Williams, the current president of the San Francisco Fed. Hiring the current leader of another regional Fed bank hardly constitutes out-of-the-box thinking for the NY Fed. Further, while Williams has done valuable economic research, his tenure as a policymaker at the Fed is frankly disappointing. He has consistently underestimated how much lower the unemployment rate could sustainably go. In 2012, he even thought that 6.5 percent might be the lower limit on the unemployment rate. Since then, he has modified his estimates, but he has seemingly not been chastened about making firm before-the-fact predictions about how low unemployment could go before sparking accelerating inflation.
The Federal Open Market Committee (FOMC) has lost some of its leading proponents for testing the lower limits of unemployment, and has gained some members who have been deeply wrong in arguing that unemployment should not be allowed to fall as far and fast as it has in recent years. Shifting John Williams from the San Francisco Fed to the NY Fed does nothing to push back on this drift of the FOMC away from valuing genuine full employment.Read more
Congress is trying to use appropriations expand the H-2B temporary worker program—where migrants are exploitable and have few rights—by 73 percent
The GOP-led Congress is aiming to pass an omnibus appropriations bill to fund the federal government before the current temporary spending bill expires on March 23, 2018. Part of the negotiations include a major effort by legislators in both parties—who are being bombarded by corporate lobbyists in the hospitality, seafood, landscaping, and construction industries—to expand the H-2B temporary migrant worker program. We estimate the proposal would increase the number of H-2B workers that employers can hire in lesser-skilled occupations by at least 73 percent, from 66,000 per year to 114,000.
The H-2B program—like other temporary migrant worker programs—is not a work program that brings immigrants to the United States with equal rights and the option to stay permanently. Instead, it is used by employers carve out a lawless zone in the labor market where migrant workers have few workplace rights in practice, because they arrive indebted to labor recruiters and indentured to U.S. employers.
Nevertheless, rather than focusing on the most urgent immigration issues at hand, including a path to citizenship for immigrants who are in danger of becoming undocumented, like DACA recipients, and those who have Temporary Protected Status, Congress is instead focusing on making changes to temporary worker programs via the appropriations process. Congress has done this a number of times in recent years, something that Republican Senate Judiciary Chairman Sen. Chuck Grassley and Democratic Ranking Member Sen. Diane Feinstein came together last year to criticize for usurping the committee’s jurisdiction over immigration legislation. Other Senators have done the same, including Dick Durbin and Bernie Sanders. The New York Times editorial page and migrant worker advocates alike have also criticized this end-around the normal legislative process.
Using the H-2A guestworker program for year-round agricultural jobs would lower wages for farmworkers
The H-2A guestworker program provides an unlimited number of temporary work visas to agricultural employers to hire farmworkers from abroad to fill temporary or seasonal jobs lasting for less than one year. Last year, over 200,000 H-2A jobs were certified by the U.S. Department of Labor (DOL)—the most ever—despite the many abuses and exploitation that continues to occur at the hands of employers and labor recruiters. Members of Congress are currently negotiating and debating the fiscal 2018 omnibus appropriations bill to fund the federal government, and hope to pass it before the current temporary spending bill expires on March 23, 2018. On the table is a proposal to allow employers to use the H-2A program to fill year-round, permanent jobs in agriculture with H-2A workers who have few rights and no path to permanence and citizenship. It was first proposed in July 2017 by Rep. Dan Newhouse (R-WA) but never became law.
We have already explained why making H-2A year-round via appropriations is a bad idea, but one other major consequence that Congress should consider is that it will result in allowing agricultural employers to pay much lower wages to H-2A workers in year-round jobs than they pay to the Americans and immigrants who are currently employed in those jobs.
Making H-2A year-round would expand the scope of H-2A by allowing employers offering year-round employment on dairy, livestock, and poultry and egg farms, as well as in nurseries and greenhouses and other non-seasonal agricultural occupations, to hire H-2A workers—bringing H-2A workers into sectors that offer approximately 260,000 year-round full-time equivalent (FTE) jobs. Table 1 lists some of the main year-round agricultural industries in major agricultural states, accounting for 123,000 of the 260,000 full-time equivalent jobs, and shows how much farmworkers earned annually, on average in 2016 in those occupations (according to the Quarterly Census on Employment and Wages, from DOL).
Preemption laws prevent cities from acting on everything from labor and employment to gun safety
On Valentine’s Day, a 19 year-old with a legally purchased AR-15 assault rifle stormed into Marjory Stoneman Douglas High School in Parkland, Florida and murdered 14 students, and 3 educators. In Florida, an AR-15 military-style assault rifle is easier to buy than a handgun. Understandably, many of the students who survived the mass shooting and the families of the 17 victims have called for a change in the law, arguing that it shouldn’t be so easy to legally purchase weapons that powerful. I write here not to weigh in on the merits of any given gun law, but to comment on the process of advocating for legislative change, and the challenges at the local level with the preemption laws on the books.
In terms of advocating for a change in federal law, Congress’s ban on AR-15s and other semiautomatic assault weapons expired in 2004, and federal lawmakers have not been able to pass a similar ban since.
In terms of advocating for change in state law, dozens of Florida high school students recently loaded onto buses and drove to the Florida state capital to lobby for a bill banning assault rifles, which was voted down by the state’s House of Representatives.
In terms of advocating for a change in gun laws at the city and county level, the students, families of the victims, or anyone else won’t even have a chance because of Florida’s preemption law. “Preemption” in this context refers to a situation in which a state law is enacted to block a local ordinance from taking effect—or dismantle an existing ordinance.
What to Watch on Jobs Day: Putting wage growth in perspective
While payroll employment growth has continued to be more than fast enough to absorb working age population growth as well as workers idled by slack demand in previous years and the unemployment rate is holding at 4.1 percent, other economic indicators such as the labor force participation rate, the prime-age employment-to-population ratio, and wage growth resemble an economy with a fair amount of remaining slack. My attention this jobs day and in the discussion below is wage growth.
Last week, I released a paper on the State of American Wages in 2017, with comparisons to earlier periods as well as analysis by gender, race, and educational attainment. Key findings include a pickup in wages for the lowest wage workers over the last couple of years due in part to more workers finally feeling the effects of the growing economy in their wages plus state-level minimum wage increases occurring in states where about half of all workers reside. On the downsides, much of the 2000s and 2010s have been characterized by growing wage inequality and slow or stagnant wages for many. Black-white wage gaps have worsened over the 17-year period and the bottom 50 percent of college degreed workers have lower wages today than in 2000.
Tomorrow, the latest wage growth numbers from the Current Employment Statistics (CES) will come out. The paper I just referenced primarily examined the wage data found in the Current Population Survey Outgoing Rotation Group (CPS-ORG), which allows wage comparisons across the wage distribution and by demographic characteristics. For a read on the labor market and an assessment about whether wage growth reflects an economy at full employment, it’s important to look at nominal wage growth. What’s clear from both surveys, using different metrics (median versus average and total private versus production/non-supervisory) is that nominal wage growth is still below levels consistent with the Federal Reserve’s inflation target and with estimates of potential productivity growth—a sign that the economy still has considerable slack.
Congress should set the standard in being a good employer
The past year has provided countless examples of the ways in which our nation’s labor and employment laws fail workers. From the #MeToo social media campaign that helped expose that for many women sexual harassment is a daily fact of life in the workplace to a recent report revealing that the vast majority (74 percent) of Uber and Lyft drivers earn less than the minimum wage in their state, it is clear that American workers need policymakers to act to reform the current system of worker protections. That is why stories like the one in Vox today that some congressional lawmakers require unpaid interns to sign broad nondisclosure agreements that may discourage them from speaking out if they experience harassment or encounter other workplace issues are so troubling. How can we expect our elected representatives to legislate effective worker protection measures when they themselves adopt exploitative employment practices?
Congress has a long history of exempting itself from workplace protection measures. When the Fair Labor Standards Act was passed, Congress exempted itself from coverage. When the Civil Rights Act, including Title VII which protected workers from employment discrimination on the basis of race, color, religion, sex, or national origin, was signed into law, Congress again exempted itself from these protections. It was not until 1995 that Congress passed the Congressional Accountability Act, finally extending workplace protections to congressional staff. However, recent reports of congressional settlements surrounding harassment claims have shown that Congress is not holding itself accountable for workplace protections.
Many of the policy recommendations from the Kerner Commission remain relevant 50 years later
In 1967, young black men rioted in over 150 cities, often spurred by overly aggressive policing, not unlike the provocations of recent disturbances. The worst in 1967 were in Newark, after police beat a taxi driver for having a revoked permit, and Detroit, after 82 party-goers were arrested at a peaceful celebration for returning Vietnam War veterans, held at an unlicensed social club.
President Lyndon Johnson appointed a commission to investigate. Chaired by Illinois Governor Otto Kerner (New York City’s mayor John Lindsay was vice-chair), it issued its report 50 years ago today. Publicly available, it was a best-seller, indicting racial discrimination in housing, employment, health care, policing, education, and social services, and attributing the riots to pent-up frustration in low-income black neighborhoods. Residents’ lack of Fambition or effort did not cause these conditions: rather, “[w]hite institutions created [the ghetto], white institutions maintain it, and white society condones it… [and is] essentially responsible for the explosive mixture which has been accumulating in our cities since the end of World War II.”
The report warned that continued racial segregation and discrimination would engender “two societies, one black, one white—separate and unequal.” So little has changed since 1968 that the report remains worth reading as a near-contemporary description of racial inequality.
Of course, not everything about race relations is unchanged. Perhaps most dramatic has been growth of the black middle class, integrated into mainstream corporate leadership, politics, universities, and professions. We’re still far from equality—affirmative action remains a necessity—but such progress was unimaginable in 1968. Today, 23 percent of young adult African Americans have bachelor’s degrees, still considerably below whites’ 42 percent but more than double the black rate 50 years ago.
In the mid-1960s, I assisted in a study of Chicago’s power elite. We identified some 4,000 policymaking positions in the non-financial corporate sector. Not one was held by an African American. The only black executives were at banks and insurance companies serving black neighborhoods. Today, any large corporation would face condemnation, perhaps litigation, if no African American had achieved executive responsibility.
