It didn’t have to be this way. If the suite of UI programs were reinstated and extended through 2021, workers would not lose that valuable safety net and it would spur the creation of 5.1 million more jobs in 2021. As of now, the additional UI benefits will expire on December 26, leaving 12 million workers without a safety net, and over 4 million others will have already exhausted their benefits by this cutoff. Relief and recovery efforts need to also include aid to state and local governments, which unfortunately have seen outright losses in jobs over the last couple of months due to revenue shortfalls and costly forced austerity without federal assistance.

On jobs day, I will pay close attention to employment growth, examining what a continued slowdown will mean for the length of the recovery. I will also be looking across sectors as well as state and local governments to assess meaningful and continued shortfalls. I fear that without additional aid and continued virus transmission, we may be looking at a reversal in the recovery early next year.Read more

Most states provide 26 weeks (six months) of regular benefits, but this crisis has gone on for nearly nine months. That means many workers have exhausted their regular state UI benefits. In the most recent data, continuing claims for regular state UI dropped by 569,000.

For now, after an individual exhausts regular state benefits, they can move onto Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of regular state UI. However, PEUC is set to expire on December 26 (as is PUA—more on these expirations below).

In the latest data available for PEUC (the week ending November 14), PEUC rose by 60,000, offsetting only about 40% of the 148,000 decline in continuing claims for regular state benefits for the same week. Why didn’t PEUC rise more? Many of the roughly 2 million workers who were on UI before the recession began, or who are in states with less than the standard 26 weeks of regular state benefits, are now exhausting PEUC benefits, at the same time others are taking it up. More than 1.5 million workers had exhausted PEUC by the end of October, and that figure will be substantially higher now (see column C43 in form ETA 5159 for PEUC here).

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Key takeaways:

• While the economy remains 10 million jobs below pre-pandemic levels and job growth is slowing significantly as the pandemic surges, the remaining suite of pandemic unemployment insurance (UI) programs are set to expire on December 26, even as one of the most important—the extra $600 per week—has already expired and millions of workers have already exhausted benefits or had them significantly slashed.
• The economic shock from COVID-19 has been ongoing long enough that roughly one-third of unemployed workers have been unemployed for 27 weeks or longer. Unemployment insurance benefits should not just be made much more generous, they should also have their durations extended substantially. Once again, this highlights that UI benefit generosity and duration should never be tied to arbitrary dates but should rather be dictated by economic conditions (preferably tied to employment rates).
• If these programs—including the extra $600—are reinstated and extended through 2021, and if the virus is brought under control so that economic growth for 2021 returns to being simply a function of aggregate demand growth, the economy would be boosted by 3.5% and 5.1 million more jobs would be added in 2021.

By the end of this month, several key pandemic relief programs will expire, ending the valuable lifeline provided to workers and their families experiencing job loss, facing eviction/foreclosure, or needing emergency paid sick days and family and medical leave. While spending is needed across multiple avenues to provide relief and recovery, this post examines the importance of reinstating and extending the suite of pandemic unemployment insurance (UI) programs enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act: Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Pandemic Unemployment Compensation (PUC) payments.

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For last year, 2019, the data show a continuation, with annual wages rising fastest for those in the top 10% while those in the bottom 90% saw below-average wage growth.

This unceasing growth of wage inequality that undercuts wage growth for the bottom 90% reaffirms the need to place generating robust wage growth for the vast majority and rebuilding worker power at the center of economic policymaking.

A similar pattern as in 2019 prevailed over the entire 2007–2019 business cycle as wages were redistributed in two ways, up from the bottom 90% to the top 10% and within the top 10% from the top 1% to those in the remaining 9% of the top 10%. Still, the top 1% has done far better in the 2009–2019 recovery (wages rose 20.4%) than did those in the bottom 90% (wages rose only 8.7%).

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Most states provide 26 weeks of regular benefits, but this crisis has gone on much longer than that. That means many workers are exhausting their regular state UI benefits. In the most recent data, continuing claims for regular state UI dropped by 299,000, from 6.4 million to 6.1 million.

For now, after an individual exhausts regular state benefits, they can move onto Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of regular state UI. However, PEUC is set to expire on December 26 (as is PUA—more on these expirations below).

In the latest data available for PEUC (the week ending November 7), PEUC rose by 132,000, from 4.4 million to 4.5 million, offsetting only about a third of the 414,000 decline in continuing claims for regular state benefits for the same week. Why didn’t PEUC rise more? Many of the roughly 2 million workers who were on UI before the recession began, or who are in states with less than the standard 26 weeks of regular state benefits, are now exhausting PEUC benefits, at the same time others are taking it up. More than 1.5 million workers have exhausted PEUC so far (see column C43 in form ETA 5159 for PEUC here). In some states, if workers exhaust PEUC, they can get on yet another program, Extended Benefits (EB). However, in the latest data, just 601,000 workers were on EB. That’s far less than half of those who have exhausted PEUC. Most are left with nothing.

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From: Robert E. Scott (Economic Policy Institute)

Submitted via email to transition team

For the U.S. economy to “Build Back Better” after the COVID-19 pandemic, the Biden-Harris administration must emphasize job creation in America’s manufacturing and construction sectors. Rebuilding U.S. manufacturing industries, and upgrading domestic infrastructure, can generate millions of high-wage jobs and reduce income inequality while also addressing racial injustice.

There are three key efforts needed to rebuild manufacturing and the U.S. economy:

1. Realign the U.S. dollar and address overseas currency manipulation.
2. Invest in infrastructure and renewable energy.
3. Rebalance U.S. trade.

PRIORITY ONE: Realign the dollar through a competitive currency policy

The single most effective tool for rebalancing trade is the adoption of a competitive dollar policy. The real value of the U.S. dollar—which has gained nearly 21% since mid-2014 alone—needs to fall by 25% to 30% in order to rebalance trade, according recent research.1 Dollar realignment would stimulate rapid export growth, resulting in surging domestic investment and job creation even as it also reduced import growth.

However, there are two reasons the dollar is currently overvalued.

The first is currency manipulation, which is the result of years of foreign central bank purchases of U.S. dollar assets. This has driven up demand for the dollar and helped to keep it overvalued. This currency manipulation can be addressed through government sanctions and intervention.

More recently, however, the extent of currency manipulation has decreased. Instead, during the last five years, excess private demand for U.S. assets from overseas investors has caused the dollar’s value to soar. This second reason, currency misalignment, can be addressed through market interventions.

Implementing a competitive dollar policy will stimulate rapid export growth, resulting in surging domestic investment and job creation, while limiting import growth. Eliminating America’s $864 billion annual goods trade deficit could create between 3.5 million and 6.6 million jobs over the next four years, including at least 1.4 million good manufacturing jobs.

Immediate steps for the new administration

• The next Treasury report on Foreign Exchange Policies of major trading partners (due April 2021) should label all countries meeting the criteria identified by Christopher Collins and Joseph Gagnon of the Peterson Institute for International Economics (PIIE) as currency manipulators. In addition, countries maintaining very large stocks of foreign exchange reserves—which also have a depressive effect on the values of their respective currencies—should also be labeled as currency manipulators (as explained by Dean Baker, senior economist with the Center for Economic and Policy Research). This includes China and Japan.
• In January, the president should immediately announce the suspension of tax waivers on foreign government holdings of U.S. financial assets in the United States, as proposed regarding China by PIIE’s Joseph Gagnon and Gary Hufbauer in 2011. This will also discourage foreign government holdings of U.S. assets and put downward pressure on the dollar. The U.S. should also deliver notice of canceling tax treaties with selected foreign governments. Taxes should then be withheld on income earned on Treasurys and other government assets, at an initial tax rate of roughly 30%. Significantly, other countries that should be subject to this taxation continue to hold huge foreign exchange reserves, most in dollar assets. These countries include China ($3.1 trillion), Japan ($1.4 trillion), Singapore ($500 billion), and South Korea, ($400 billion).
• The president should use his executive authority under the International Emergency Economic Powers Act (IEEPA) to impose a tax on foreign government owned or controlled holdings of U.S. financial assets as soon as possible. Announcing his intent to do so when canceling tax treaties would put currency manipulators on notice that the United States is serious about stopping such practices. The net of these taxes could be widened as needed, since many currency manipulators have stashed large amounts of their reserves in additional Sovereign Wealth Funds, including China ($1.4 trillion), and Singapore ($900 billion).2
• Taxation of foreign government holdings of U.S. assets would discourage currency manipulation. However, government demand for these assets may not be influenced by taxes on the income the assets earned. Therefore, the Commerce Department and the U.S. trade representative should continue to pursue currency countervailing duty (CVD) cases against individual products and countries. Such cases send a “shot across the bow” to currency manipulators in the absence of more comprehensive measures.
• The Biden administration should initiate offsetting purchases of the foreign assets of those countries found to be engaging in currency manipulation, purchases known as countervailing currency intervention (CCI). Overall, such purchases are the most effective tool available to remedy currency manipulation. The use of Exchange Stabilization Fund (ESF) assets by the Treasury and the Federal Reserve to engage in CCI was proposed by Bergsten and Gagnon in 2017. Substantial increases in ESF assets are required to engage in significant CCI intervention, and will require congressional authorization.
• The Biden administration must also address market-driven currency misalignment. It should do so by empowering the Federal Reserve to establish an exchange rate management policy designed to achieve and maintain balanced trade. This can be done by working with Congress to implement the bipartisan legislation proposed by Senators Tammy Baldwin and Josh Hawley in their “Competitive Dollar for Jobs and Prosperity Act” (S. 2357). The measure would impose a “Market Access Charge” on new foreign investor purchases of U.S. assets. It would also authorize a substantial increase in resources for the Treasury Exchange Stabilization Fund, needed to fight government-backed currency manipulation.
• Along these lines, the administration should also impose an initial emergency access charge, exactly as defined in S. 2357, under the IEEPA.

PRIORITY TWO: Rebuild U.S. infrastructure and begin the clean energy transition

The Biden-Harris plan for investments in infrastructure and climate programs, with a full “Buy America” commitment, can supercharge recovery for the U.S. economy. A $2 trillion, four-year plan of investments in these sectors, along the lines of that announced by President-elect Biden in July, would support between 3.4 million and 6.3 million total jobs. Nearly half (45.7%) of the 3.4 million direct and indirect jobs supported would be in good-paying manufacturing and construction sectors.

Immediate steps for the new administration and Congress

• Immediately revive and expand plans for the Moving Forward Act (MFA), an infrastructure bill that was developed by the House Transportation and Infrastructure Committee, and passed by the House on July 1, 2020.
• Develop an expanded plan for renewal of transportation infrastructure legislation, which can attract bipartisan support. To the extent possible, extensions to the MFA should incorporate Biden-plan goals for expanded U.S. auto production, investments in zero-emission public transit, building and housing investments, and research and development.
• Maximize employment and economic impacts as part of the recovery plan by ensuring that the MFA is entirely debt-financed until the economy has fully recovered (with the exception of current revenues in the transportation trust fund).
• Do not raise additional revenues to fund infrastructure investments until and unless we meet two criteria: estimates of total nonfarm employment exceed 152.5 million (the level reached in February 2020) and interest rates on short-term treasury securities exceed 3.5% on a sustained basis. Where possible, user fees should be relied on to fund public investments in infrastructure, as growing reliance on efficient and clean transportation sources will erode transport fuel tax receipts over time.
• To the extent possible, use the infrastructure bill to fund climate-friendly public investment (e.g., electrical grid upgrades, battery development/capacity, R&D for smart grids, etc.).
• Develop separate legislation to support popular incentives:, such as incentives for hybrid cars, e-cars, wind turbines, and solar power to help utilities meet state renewable guidelines; residential and commercial incentives for weatherization; incentives for appliance efficiency upgrades; consumer solar; renewable conversions for schools and public buildings; and, investments in innovation, agriculture, and conservation.

PRIORITY 3: Pursue trade and industrial policies that will rebalance U.S. trade

More than three decades of globalization have devastated U.S. manufacturing and the American working class. Trade-related job losses are just the tip of the iceberg. Globalization has also reduced median wages by roughly $2,000 per year for roughly 100 million working-class Americans. Joe Biden recognized these problems when he promised the United Steelworkers in May that he would not consider any new trade agreements “until we’ve made major investments here at home, in our workers and our communities.”

Immediate steps for the next administration and Congress

• Establish a freeze on negotiating new trade agreements until the dollar is realigned and the U.S. goods trade deficit has been erased.
• Ensure that trade policy does not privilege corporate interests over workers. The proliferation of Investor State Dispute Settlement (ISDS) clauses inserted into international trade and investment agreements has created a global system of special courts exempt from any judicial appeal or review. These courts allow multinational companies to sue governments for any potential infringement on future profits, as documented by Todd Tucker in his book Judge Knot. These agreements have cast a pall over the ability of governments to regulate in their own legal and national interest. The U.S. must negotiate the elimination of ISDS clauses from most or all trade deals.
• Promote welfare-enhancing multilateral agreements negotiated by the USTR in areas such as labor rights and environmental standards while also rejoining the Paris Climate Accord.
• Pursue multilateral rules to address major international challenges, such as greenhouse gas (GHG) emissions. The U.S. should pursue binding agreements to reduce GHG emissions, especially with China—the world’s largest and most rapidly growing GHG emitter—earlier than called for in the current Paris Climate Accord.
• Ensure that the USTR works with the Commerce Department to aggressively combat overcapacity in steel, glass, paper, solar panels, and a host of other industries distorted by massive state subsidies and other illegal trade and industrial policies.
• Maintain Section 232 steel and aluminum tariffs until tariffs can be replaced by more comprehensive, global limits on unfair trade in these products. One model is to negotiate global tariff agreements to “wall off” products from countries with excess capacity. At present, overcapacity is widespread in many exporting countries, including Japan, Korea, Brazil, Turkey, and China.
• Eliminate tax evasion, corporate inversions, and tax havens that allow multinational enterprises to avoid corporate taxation. The Tax Cuts and Jobs Act of 2017 (TCJA) established new, lower tax rates for foreign investment by multinational corporations; this encouraged further offshoring. Consider adopting sales factor apportionment (SFA) to fully tax profits on all corporate sales in the United States, regardless of where production takes place or where corporations are domiciled. SFA techniques have been used for many years by states to fairly allocate taxation of corporate profits.
• Don’t tax U.S. consumers to protect the intellectual property rights of U.S. multinationals in China. This simply encourages more offshoring of U.S. jobs and factories. As Dean Baker has explained, stronger patent and copyright protections have transferred roughly $1 trillion annually from workers and consumers to corporations and the richest 10 percent.
• Strengthen “Buy America” requirements for all federal, state, and local purchases, as supported by the Alliance for American Manufacturing’s industrial policy proposals. Buy America requirements can greatly enhance the job creation and domestic output of public investments. Historically, Buy America preferences have been loosely enforced.
• Develop new standards and methods to maximize domestic job creation associated with any recovery act, clean energy, or infrastructure expenditures. One simple step would be to require bidders for large government contracts to submit job impact assessments, and to document these outcomes in post-project assessments.
• Establish a strong, whole-of-government program to reshore critical materials production. This includes bringing back to the United States the production of everything from pharmaceuticals to medical equipment to rare earth metals.
• Expand job training and workforce development programs, and consider adopting “flexicurity”-style programs—modeled after those developed in Denmark and other European countries—to support growth and renewal of America’s aging industrial workforce.
• Revamp America’s unemployment insurance (UI) system. Effective UI systems are industrial policies. Jobs not destroyed are much cheaper to restart than those that have been entirely eliminated through short-sighted labor policies. The COVID-19 crisis has demonstrated that America’s UI system is broken and in desperate need of repair. In contrast, many European governments have paid firms to keep workers on the payroll, so that when employers emerge from a downturn, they would be intact.
• Greatly expand R&D and Cooperative Extension Services. Fund the proposal by Simon Johnson and Jonathan Gruber in their book Jump Starting America to identify metropolitan areas that could be hubs of science and technology. Designate them to receive large-scale science and tech spending using the tripartite federal/state and local/private sector investment model to create dozens of national centers of manufacturing research and excellence. In addition, the Hollings Manufacturing Extension Partnerships, which have been targeted for extinction in the Trump administration, should be substantially expanded.
• Substantially increase domestic content requirements and require jobs impact statements by the US Export-Import Bank in its Buy America policies, which have been watered down beyond all recognition. These standards must be tightened and reformed.
• Reevaluate the costs and benefits of foreign direct investment in the United States. So-called “insourcing” (foreign investment in the United States) is dominated by foreign acquisition of U.S. companies, such as Lenovo’s purchase of IBM’s PC division in 2005. Such purchases have eliminated millions of U.S. jobs over the past three decades through layoffs, plant closures, and sell-offs. Furthermore, foreign multinational companies (MNCs) often buy domestic firms simply to distribute their own exported products. As a result, foreign MNCs are responsible for a large and growing share of U.S. trade deficits. Adding insult to injury, state and local governments are often involved in a race to the bottom for such investments, competing to offer tax abatements and infrastructure subsidies to attract foreign investors. The United States should consider banning tax abatements and infrastructure and other subsidies to foreign investors unless entities seeking subsidies can prove that they are effectively creating jobs.

Endnotes

1. Fred Bergsten, “Time for a Plaza-II?” in International Monetary Cooperation: Lessons from the Plaza Accord after Thirty Years, eds. (Washington, D.C.: Peterson Institute for International Economics, 2016), Table 14-5. Bergsten estimated that in order to rebalance U.S. trade, the real value of the U.S. dollar must fall by 26.5% on a trade-weighted basis against the currencies of major surplus countries, including the Euro Area countries, China, and Japan. In their 2020 working paper for the Coalition for a Prosperous America (“Modeling the Effect of the Market Access Charge on Exchange Rates, Interest Rates and the U.S. Economy”), Steven Byers and Jeff Ferry, using a macroeconomic model from the Federal Reserve, estimated that the dollar needs to fall by 27% to rebalance U.S. trade.

2. These funds include China Investment Corporation ($1.046 trillion) and the National Council Social Security Fund ($324 billion), and from Singapore, GIC Private Limited ($453 billion) and Temasek Holdings ($417 billion) according to the Sovereign Wealth Fund Institute (data downloaded from SWFI November 22, 2020).

By “stop the bleeding” we mean using fiscal policy to end the crisis of joblessness and restore the labor market to a reasonable degree of health. Failing to invest enough to sustain a healthy labor market would fatally compromise both the political and the economic ability to structurally reform the economy’s key institutions to create fairer outcomes. We have seen this failure before, with fiscal recovery efforts following the Great Recession of 2008–2009 that were insufficient and too short-lived. As a result of this austerity, it took a full decade for the labor market to return to even its pre–Great Recession health (which was too modest a benchmark to begin).1 It seems clear that a key reason why the Obama administration was unable to get ambitious reform efforts finished after its first year in office was the continued intense labor market distress.

This memo explains why policymakers need to pass roughly $3 trillion in debt-financed fiscal support now, with the first $2 trillion hitting the economy between now and mid-2022. This amount of upfront stimulus, combined with investments that ensure a very slow phaseout of this fiscal support, are needed to ensure a return to a high-pressure, low-unemployment labor market by mid-2022. Specifically, the memo calls on policymakers to take the following actions:

• Finance fiscal support with debt. The point of federal spending now is to boost aggregate demand growth (spending by households, businesses, and governments), so financing this support with taxes would make it less effective.2
• Aim for a high-pressure labor market by picking an ambitious unemployment rate target that constitutes labor market health. Pre-COVID, the unemployment rate hit 3.5% with no evidence that it was too low and likely to lead to a surge of inflation. We suggest targeting an overall unemployment rate of 3%.3 Running the economy at this low level of unemployment for a sustained period creates a high-pressure labor market, one with enough competition for workers to drive faster and more equal wage growth and reduce race-based disparities in wages and unemployment.
• Refuse to accept the self-defeating notion that the COVID-19 shock will leave (or has already left) permanent and unfixable economic scars. Policymakers should run the economy hot and see how much we can heal the damage that the COVID-19 shock inflicted on measures like potential output.4
• Avoid the premature and precipitous withdrawal of fiscal support by ramping up public investments in public goods that are appropriate to debt-finance even during times of full economic health. For the sake of future crises, we should also start building automatic triggers in things like unemployment insurance and aid to state and local governments. But, for the coming years, discretionary fiscal support should be continued. Specifically, to avoid tumbling down a fiscal cliff into an economic contraction in 2023, policymakers should ramp up public investments in such public goods as clean energy, energy efficiency, and early child care and education, and sustain these investments—and their debt-financing—at least through 2024.
• Finally, note that this $3 trillion in needed fiscal support is for hitting economic targets. Money is still clearly needed for virus containment and will be needed for rapid vaccine deployment in coming months. Public health measures are the most important part of the response to the pandemic, so whatever money can usefully help on this front should be added on top of this economic package of relief and recovery.

Below we elaborate on this proposal for $2 trillion in debt-financed fiscal support between now and the middle of 2022, followed by support on the order of $400 billion annually until the end of 2024.

Do not fear debt: Relief and recovery measures should be unambiguously debt-financed

The point of fiscal support is to increase spending by households, businesses, and governments to spur employers to hire. Tax increases put a drag on this spending. While the U.S. needs major progressive reform to taxes, as policymakers plan how to stop the economic bleeding caused by COVID-19, they should be thinking of how to maximize the plan’s stimulative effects, and this means financing with debt. Progressive tax reform, when it occurs, should target economic “bads” like emissions of greenhouse gases and the staggering number of socially unproductive financial transactions that funnel money to Wall Street. This reform should also aim to put a brake on rising inequality and reduce incentives for CEOs and other high earners to rig the rules of the economic game to transfer more money their way.5

But there is no need to think about revenue as policymakers plan on how to stop the economic bleeding caused by COVID-19. All relief measures should be debt-financed. Even the “back-end” relief measures that help to avoid a sharp fiscal cliff as the front-end stimulus winds down should be debt-financed. Because any such back-end measures could in theory come on line with the labor market largely healed, optimally they should be measures that make sense to finance with debt even during times of full employment. Two such measures that meet this requirement are investments to mitigate the emission of greenhouse gases and investments to shore up our woefully underfunded early child care and education system (Gould and Blair 2020).

The logic of using debt even in normal times to finance these investments is clear: The vast majority of their benefits will accrue to future generations. But for the effects of climate change or present-day malinvestment in education, these future generations will almost surely be richer than present generations. Given this, borrowing from future generations to finance these types of investments makes perfect sense. Some hold the misconception that debt incurred always constitutes a burden on future generations. It does not. The heirs of a society and economy also receive any assets financed by debt, which in this case would be a cleaner, more energy-efficient economy and a better-educated workforce.

Go big and stay big: Do not repeat mistakes of past crises

Recovery from the Great Recession of 2008–2009 was agonizingly slow, largely because the admirable initial round of fiscal recovery efforts was too small and ended too quickly. Policymakers did not acknowledge what has become increasingly clear: Long-run trends (such as rising inequality) are making it harder and harder for the U.S. economy to generate sufficient spending by households, businesses, and governments (aggregate demand) to absorb the economy’s resources (including potential workers).6 This “secular stagnation” means that fiscal support cannot be a one-shot “jump start” that can be pulled back quickly as private-sector demand generation roars to life. Instead, fiscal support must be large enough and last long enough that the boost provided ebbs only after the Federal Reserve begins raising interest rates. In short, there must be an attempt to overshoot the target to ensure that private-sector demand generation really is running fast enough when the last bit of fiscal support fades out.7

When setting the target we should avoid fulfilling the bleakest prognosis by setting it too low. Economists and policymakers often express concern that severe recessions can permanently “scar” the economy’s underlying productive capacity (sometimes called potential output), leading to slower growth for a long time—even after the short-run demand shortfall is rectified.8 We should not assume this, and in particular we should not assume it when addressing a shock that is still less than year old. Given the very promising signs of a vaccine on the horizon, there is every reason to think that economic normalization will be possible in 2021, as long as recovery is not held back by a shortfall of demand. This means that policymakers’ goal today absolutely should be to return economic growth to the trajectory it was on before the shock. This goal will inform the assessment of how much fiscal support is needed.

For insight on the level of fiscal support needed when the economy is depressed and interest rates are stuck at near-zero like today, policymakers often look to measures of the “output gap”—the difference between what GDP is projected to be in coming months and years under current conditions (actual GDP) and projections of what it would be were the economy running at maximum sustainable output (potential GDP).

Figure A shows forecasts made by the Congressional Budget Office (CBO) for actual gross domestic product (GDP), a forecast for potential GDP made in January 2020 (pre-COVID-19) and a forecast for potential GDP made in July 2020.

Figure A

CBO has projected a large decline in potential output growth for coming years, as shown by the distance between the top and middle lines in the figure. To the degree that this is driven by estimates of the effect of the COVID-19 economic shock, this degradation of the economy’s potential should not be taken as a given.9 Specifically, focus on the difference between the forecast of actual GDP by the middle of 2022 and the two forecasts of potential GDP. If one believed the July 2020 forecast of potential GDP (with the effect of COVID-19 baked in), then one would think the “output gap”—the difference between potential GDP and actual GDP averaged across every quarter between now (November) and the middle of 2022 (July)—is 4.1%. If one instead compares the forecast of actual GDP with the January 2020 forecast of potential GDP, the gap averaged across quarters in the same period is 7.7%.

For our goal of estimating the size of the stimulus needed to close the real output gap, we land between the two CBO estimates. Specifically, we estimate an output gap based on comparing the forecast of actual GDP with a forecast of potential GDP that is derived from projected unemployment rates. For these unemployment projections, we adjust CBO forecasts based on two factors: Unemployment has already fallen in the second half of 2020 more rapidly than CBO projected, yet reductions in labor force participation and the misclassification of unemployed workers as employed during the pandemic has led to official estimates of unemployment understating the true degree of labor market slack. Based on this adjusted unemployment projection, and applying historical relationships between unemployment and output gaps, we find that between now and the middle of 2022, there is an average output gap of 5.0%.

‘Going big’ means aiming for 3% unemployment

Additionally, CBO estimates of output gaps are based on assumptions that the unemployment rate should be roughly 4.5%. This actually represents some real progress. Before the Great Recession hit, CBO estimated this “natural rate of unemployment” to be 5.0%. But the unemployment rate reached 3.5% right before the COVID-19 shock, and yet there was no sign of economic “overheating”: Both interest rates and inflation were far below historical averages, and inflation continued to register below the Federal Reserve’s 2% target. Given the lack of recent overheating, and given especially that there are real benefits to running the economy “hot” after periods of steep recessions, policymakers should not aim to merely close the output gap, they should aim for a very low unemployment rate in the ensuing recovery. Specifically, it seems like 3.0% unemployment is a reasonable target.10 It is possible that 3.0% is too ambitious, and that economic overheating will set in before we hit that rate, and the Federal Reserve governors might feel compelled to raise interest rates. But it is far more likely that the economy can sit at 3.0% unemployment—or even below—for quite some time before inflation rises fast enough and for long enough to compel the Fed to step in.

Most crucially, however, a scenario involving fiscal support that is strong enough to prompt a monetary policy offset is a sign of success, not failure. The entire point of fiscal support is to push the economy to a point where private-sector sources of demand growth are strong enough to keep the economy pinned at a healthily low unemployment rate even as extraordinary fiscal support is withdrawn. Providing enough fiscal support to overshoot the goal of closing CBO’s estimated output gap and instead hitting an unemployment rate of 3.0% would require an extra 1% of GDP in fiscal support. Applied to our adjusted output gap of 5% identified above, this means fiscal support in the next couple of years should be closer to 6% of GDP, or even a bit above given that social distancing measures might reduce the multiplier effects of stimulus in the very near-term.

Don’t withdraw too quickly: Ending fiscal support should be done very gradually

In the era of chronic demand shortfalls, fiscal policy measures to fight recessions should not be seen as jump-starting a car—providing a one-time burst that can be immediately removed. Private sources of demand generation in recent decades have been quite weak. This means that if large fiscal support is removed quickly, the fiscal contraction can overwhelm private sources of growth and tip the economy back into recession.

Figure B compares CBO’s forecast of actual GDP with two possible scenarios of fiscal support. Under the “short-lived stimulus” scenario, ambitious support is provided between now and the middle of 2022 but is removed quickly thereafter. Under the “long-lived stimulus” scenario, the same level of ambitious initial support is provided, but it is supplemented by a more gradual drawdown between mid-2022 and the end of 2024. Under the short-lived fiscal support scenario, the economy enters a period of substantial contraction in early 2023 as the rapid fiscal contraction overwhelms trend sources of private demand growth. Under the long-lived fiscal support scenario, the back-end support allows the economy to return to trend growth without ever entering an outright contraction.

Figure B

Putting it all together: How much and what should be in relief and recovery measures?

Closing an output gap of roughly 5% (a more realistic estimate than CBO’s for the reasons outlined above) and then overshooting to push the unemployment rate to 3% requires fiscal support equivalent to roughly 6%–7% of GDP. Given the unique nature of the COVID-19 economic shock, the most pressing part of this aid should be to provide relief to those made jobless by the pandemic. A clear model is the enhanced unemployment insurance (UI) provisions that were part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in the spring. These provisions significantly increased the generosity of UI payments and also expanded the universe of people eligible to receive UI. These are incredibly well-targeted measures, and would also serve to provide a powerful economic stimulus when we are able to relax virus-induced social distancing measures (Bivens 2020c). For the purposes of this memo, we assume that UI benefits are increased by $600 per week between now and the middle of 2022, eligibility expansions are maintained over this period, and available weeks of benefits are extended. Given the projected path of unemployment, these extended benefits will cost on average $250 billion at an annualized rate between now and the middle 2021.

Another obvious pressing need for relief and recovery measures is federal aid to state and local governments. State and local governments have revenue sources that have been damaged enormously by the COVID-19 shock. They also provide the front-line public response in many areas related to health and education—and both health and education services have been put under enormous strain by the virus and the need to respond safely. For this memo, we assume that $500 billion at an annualized rate is provided to state and local governments between now and the middle of 2022.

Besides enhanced UI benefits, a range of other targeted safety net measures would provide crucial relief to families and a needed spur to recovery once social distancing measures relax. We assume $100 billion at an annualized rate is provided in enhancements to the Supplemental Nutrition Assistance Program (food stamps), low-income rental assistance programs, and other targeted safety net measures in coming years.

Finally, we provide for public investments in early child care and education and in mitigating greenhouse gas emissions that ramp up immediately and reach peak levels of $400 billion annually by the fourth quarter of 2021. Crucially, these investments do not begin ramping down in 2022. Instead, they remain—and remain debt-financed—at least through the end of 2024. While these public investments will take time to ramp up to full potential, a key virtue is that they provide a very gradual ramping down of fiscal support over time, hence avoiding any sharp contraction. These investments are what kept the “long-lived-stimulus” line in Figure B from ever becoming outright negative.

Relief and recovery measures are just stage one of what is needed from here

A very substantial near-term, debt-financed package of relief and recovery is needed just to allow U.S. families to survive the coming years and to push the labor market back to genuine health by mid-2022, while avoiding a fiscal cliff that would cause contraction soon thereafter. It is important to note that these estimates only include what it would take for a return to health of the economy. Obviously the most important issue in the coming months will concern virus containment and the rapid deployment of vaccines. These public health measures will likely be expensive to do well, and this money should absolutely be spent (and debt-financed). Any cost for these public health measures should go on top of what is estimated for economic relief and recovery in this report.

Labor market normalization should not constitute the limits of economic policymakers’ ambition. The COVID-19 shock did not just cause enormous economic harm, it also exposed huge weaknesses in the economy’s ability to guarantee economic security—both now and when faced with future shocks. These weaknesses were bred by decades of intentional underinvestment and this underinvestment will need addressing in myriad transformative ways.11

But unless we address the immediate crisis of the labor market, both the political and economic support for these longer-run measures to rectify past underinvestment will be crushed. Failure to engineer a rapid recovery from the Great Recession was politically poisonous to the prospects of progressive policy change more generally, as voters lost any confidence in the federal government’s capacity to effectively tackle big issues. On the economic side, there are numerous reasons why long-run investments to change the structure of the U.S. economy will have their greatest effects when the labor market is closer to healthy. Reforming social insurance systems, for example, is likely best done when the existing systems are not inundated by desperate claimants. Building up a stable, professionalized workforce for care work will become easier when the labor market is not so damaged that millions of potential workers will take nearly any job available. Granting workers greatly enhanced rights to join a union will likely lead to much better outcomes if it is not done in a context in which a large pool of unemployed workers gives employers a huge power advantage when bargaining. In short, stopping the economic bleeding first and fully is not a substitute or a distraction from the longer-run effort to create a fairer U.S. economy generally. It is instead a crucial first step.

As here and in earlier reports, the cautionary tale for future efforts is the failure to generate sufficient fiscal support for recovery from the Great Recession. Too many people blame the slow recovery from the Great Recession on largely irrelevant things like its association with a financial crisis. This is excuse-making that lets policymakers off the hook. The fact is that the too-slow recovery was driven by a fiscal policy response that was too weak. We should not make the same mistake following the COVID-19 recession.

Appendix A: Methods

This appendix explains how the effects of fiscal stimulus in Figure B were constructed. For the spend-out of unemployment insurance, we took the effect of enhanced UI benefits from May through July of 2020 on personal income, as measured by the Bureau of Economic Analysis (BEA) and divided by a measure of the unemployment rate in those months that accounted for misclassification within the Current Population Survey (CPS) and the falloff in labor force participation between January and those months. This gives a measure of additional UI payments per percentage point of unemployment. We then took a modified measure of CBO’s forecast for unemployment (CBO 2020b) and applied this measure to that forecast to obtain the extra UI spending that would result.12

For the measure of federal aid to state and local governments, we first use estimates of the likely state and local budget shortfalls caused by the COVID-19 shock between now and the middle of 2022.

For the measure of safety net programs, we use the roughly $100 billion included for these programs in the HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act) passed by the House of Representatives in June.

The modified CBO unemployment forecast accounts for the fact that CBO’s last projection was made in July 2020, and unemployment as reported by the Bureau of Labor Statistics (BLS) has recovered more rapidly than CBO forecast it would. Concretely, CBO forecasts unemployment averaging 13.3% in the third quarter of 2020, but it instead averaged 8.8%. However, accounting for the pandemic-induced rise in labor force nonparticipation and the rising misclassification in surveys would boost this 8.8% unemployment rate to roughly 12.2%.13 From there, we allowed the unemployment rate to decline in percent terms at the same pace forecast currently by CBO.

We use this path of estimated unemployment rates that take account of pandemic-induced nonparticipation to back out an implicit output gap. Historically, each percentage point of unemployment over the CBO nonaccelerating inflation rate of unemployment (NAIRU) is associated with an increase in the output gap of 1.4 percentage points. This derived output gap is the one we identify in the paper as averaging over 5% between now (i.e., the third quarter of 2020—the latest date for which we have decent data) and the middle of 2022.

We assume that the full effect of UI benefits, aid to state and local governments, other safety net spending, and public investments hit the economy over six quarters. Although this is slightly more spread out over time than some other estimates of fiscal stimulus, a slower phase-in seems particularly appropriate in the current moment, as social distancing measures are almost sure to reduce any economic effect of relief and recovery spending for a couple of quarters at least (though these efforts will still be improving human welfare, if not GDP in full measure).

For multipliers we assume 1.5 for each provision. This is a small underestimate relative to some past research, but, again, these effects might be attenuated in the short run due to social distancing measures, so this seems like a safe estimate.

For our public investment measures, we assume they take a year of phasing in to reach the full $400 billion annualized spending. The difference between the “short-lived stimulus” and “long-lived stimulus” is simply that this fiscal support stays on line through the end of 2024.

Appendix B: Can automatic stabilizers substitute for the gradual phaseout of stimulus?

Some might wonder if putting triggers on key policies like UI and federal aid to state and local governments might substitute for passing fiscal support today that has a longer phaseout (as called for in this memo). It would absolutely be a good thing if new and improved “automatic stabilizers” that wind down only as key benchmarks of labor market health are reached were passed into law (see for example, Gould 2020). But even on top of much better triggers for making some of these policies automatic in the future, we also need to ensure long-lasting discretionary fiscal support in the coming years.

Automatic stabilizers, by definition, begin providing less fiscal support as the economy improves. In this way, unless the triggers for winding down are extremely powerful and long-lasting, automatic stabilizers are unlikely to provide enough fiscal support on their own to overshoot current estimates of the natural rate of unemployment and help push the economy all the way to 3% unemployment. Given the unique nature of the COVID-19 shock, a uniquely large and long-lasting fiscal support is needed to ensure that a fully healthy labor market is quickly regained.

If we pass powerful and well-calibrated triggers for programs like UI and for federal aid to state and local governments in coming years (and, again, we certainly should do that), the discretionary fiscal stimulus that will be needed in coming recessions will be far smaller. Most of the work in combatting the earliest phases of future recessions will be done by automatic programs.

Endnotes

1. Seen Bivens 2016 for documentation of the historically austere fiscal policy support given to recovery from the Great Recession.

2. See Bivens 2020a on the relationship between aggregate demand and debt-financed stimulus.

3. See Bivens 2020b on the lack of inflationary pressures stemming from a sub-4% unemployment rate in the pre-COVID-19 economy.

4. See Bivens 2019 and Girardi, Meloni, and Stirati 2018 on the potential long-run macroeconomic benefits of rapid and sustained aggregate demand growth.

5. See Piketty, Saez, and Stantcheva 2014 for evidence of the correlation between low top marginal tax rates and aggressive bargaining by high earners to increase their compensation.

6. See Summers 2014 for the first elucidation of this “secular stagnation” thesis. See Bivens 2017 for how it is likely driven in large part by rising inequality.

7. This logic is slightly different from, but largely related to, the arguments laid out in Krugman 2015.

8. See Ball 2014 for the logic and evidence that prolonged periods of demand shortfalls cause reductions in estimated potential output, as well as for some evidence that this “hysteresis” can be potentially reversed with a period of rapid demand growth.

9. Following the Great Recession, CBO began systematically downgrading its estimates of potential GDP growth as well. Even though this downgrading took place over a much longer time frame than the January-to-July period in which the latest potential output revisions took place, it likely was still quite misleading. Much of the decline in in potential output was likely driven by an aggregate demand shortage, and could have been substantially healed with a period of rapid aggregate demand growth (again, see Bivens 2019 and Girardi, Meloni, and Stirati 2018).

10. It is worth noting that an overall unemployment rate of 3% implies a Black unemployment rate of roughly 5%. While this would be a historically low Black unemployment rate, there likely would still remain a gap between white and Black unemployment. Macroeconomic policy alone is unlikely to completely erase the Black/white unemployment ratio, but macroeconomic policy can certainly make the gap much less pronounced.

11. For the overarching policy agenda indicating what is necessary to provide for a more efficient and far fairer U.S. economy, see EPI’s policy agenda, https://www.epi.org/policy/.

12. These unemployment adjustments follow the methodology used by Shierholz (2020).

13. For more on misclassification and other issues with the unemployment rate, see Shierholz 2020.

References

Ball, Lawrence. 2014. “Long-Term Damage from the Great Recession in OECD Countries.” National Bureau of Economic Research (NBER) Working Paper, May 2014.

Bivens, Josh. 2016. Why Is Recovery Taking So Long—and Who’s to Blame? Economic Policy Institute, August 2016.

Bivens, Josh. 2017. Inequality Is Slowing U.S. Economic Growth: Faster Wage Growth for Low- and Middle-Wage Workers is the Solution. Economic Policy Institute, December 2017.

Bivens, Josh. 2019. “Looking for Evidence of Wage-Led Productivity Growth” EPI Macroeconomics Newsletter, December 10, 2019.

Bivens, Josh. 2020a. “Debt and Deficits in the Coronavirus Recovery: Answers to Frequently Asked Questions” (fact sheet). Economic Policy Institute, July 2020.

Bivens, Josh. 2020b. “The Signal the Unemployment Rate Provides Can Change a Lot over Time.” EPI Macroeconomics Newsletter, January 31, 2020.

Bivens, Josh. 2020c. “Cutting Off the $600 Boost to Unemployment Benefits Would Be Both Cruel and Bad Economics.” Working Economics Blog (Economic Policy Institute), June 26, 2020.

Bureau of Economic Analysis. 2020. “Effects of Selected Federal Pandemic Response Programs on Personal Income” [online data table]. Published October 30, 2020.

Bureau of Labor Statistics (BLS). 2020a. “Table A-1. Employment Status of the Civilian Noninstitutional Population.” Employment Situation data tables. Accessed November 2020.

Congressional Budget Office. 2020a. Budget and Economic Outlook, 2020 to 2030. January 2020.

Congressional Budget Office. 2020b. Budget and Economic Outlook, 2020 to 2030. September 2020.

Girardi, Daniele, Walter Paternesi Meloni, and Antonella Stirati. 2018. “Persistent Effects of Autonomous Demand Shocks.” Institute for New Economic Thinking (INET) Working Paper, February 2018.

Gould, Elise. 2020. “The Unemployment Rate Is Not the Right Measure to Make Economic Policy Decisions Around the Coronavirus-Driven Recession.” Working Economics Blog, Economic Policy Institute, March 20, 2020.

Gould, Elise, and Hunter Blair. 2020. Who’s Paying Now? The Explicit and Implicit Costs of the Current Early Care and Education System. Economic Policy Institute, January 2020.

Krugman, Paul. 2015. “Rethinking Japan.” New York Times, October 20, 2015.

Piketty, Thomas, Emmanuel Saez, and Stephanie Stantcheva. 2014. “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities.” American Economic Journal: Economic Policy 6, no. 1, 230–271.

Shierholz, Heidi. 2020. “Nearly 11% of the Workforce Is Out of Work with No Reasonable Chance of Getting Called Back to a Prior Job.” Working Economics Blog, Economic Policy Institute, June 29, 2020.

Summers, Lawrence. 2014. “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound.” Presentation to the National Association of Business Economists (NABE).

According to the Center for Assessment and Policy Development, racial equity is the condition that would be achieved if one’s racial identity no longer predicted, in a statistical sense, how one fares.

In reality, statistical analysis often reveals that racial identity is a measurable, significant, and persistent predictor of labor market outcomes. Let’s pause and think about that for a moment. Why should racial identity—something as arbitrary and superficial as physical appearance (skin color)—be statistically correlated with one’s likelihood of being employed or how much they are paid for their labor?

Read more

Most states provide 26 weeks of regular benefits, but this crisis has gone on much longer than that. That means many workers are exhausting their regular state UI benefits. In the most recent data, continuing claims for regular state UI dropped by 429,000, from 6.8 million to 6.4 million.

For now, after an individual exhausts regular state benefits, they can move on to Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of regular state UI. However, PEUC is set to expire on December 26 (as is PUA).

In the latest data available for PEUC (the week ending October 31), PEUC rose by 233,000, from 4.1 million to 4.4 million, offsetting only about 60% of the 383,000 decline in continuing claims for regular state benefits for the same week. This is likely due in large part to the fact that many of the roughly 2 million workers who were on UI before the recession began, or who are in states with less than the standard 26 weeks of regular state benefits, are exhausting PEUC benefits at the same time others are taking it up. More than 1.5 million workers have exhausted PEUC so far (see column C43 in form ETA 5159 for PEUC here). Last week, 634,000 workers were on Extended Benefits (EB), which is a program that eligible unemployed workers in some states can get on if they’ve exhausted PEUC.

Read more

Lavado, Joaquín Salvador, Quino. 2007. Toda Mafalda. Buenos Aires, Ediciones de la Flor.

As many parents and teachers have seen, these are the likely realities for students in 2020. Because learning time in school matters, and students’ learning and development tend to vary greatly even when schools operate in normal circumstances, challenges to learning were magnified when schools closed—due to prolonged cuts to learning time in school, the access to some “substitute” educational opportunities during the pandemic, and the many factors that influence out-of-school learning.

In this blog post, we review the consequences of reduced learning time in school settings during the pandemic, and what the evidence tells us to do about it when we begin to control the spread of the virus. (For a detailed review of the challenges COVID-19 brought to education and our policy recommendations, see “COVID-19 and student performance, equity, and U.S. education policy: Lessons from pre-pandemic research to inform relief, recovery, and rebuilding.”)

Read more

Policy memo

While the new economic crisis has made the path ahead less certain, persistent high unemployment will hold down wage growth in the immediate future. The next administration should use its procurement authority to issue an executive order ensuring that many of this country’s lowest-paid workers receive a decent wage, and a down payment on a long-overdue path to a $15 minimum wage.

Summary

The federal government must continue to be an important driver of job quality in the U.S., both in terms of direct federal jobs themselves and jobs created by federal contractors. The Obama administration took a number of actions to improve the quality of federal contracting jobs, including by issuing an executive order in 2014 raising the minimum wage for workers on federal contracts to $10.10 per hour with annual increases for inflation (it will be $10.95 on January 1, 2021). It closed some key loopholes in coverage but left others. The Trump administration has not repealed this order, and the Wage and Hour Division has issued annual increases on schedule. But President Trump did issue Executive Order 13658 in May 2018, carving out certain seasonal recreational workers from the minimum wage protection.

The political and economic landscape has changed significantly since the 2014 executive order. Dozens of jurisdictions (states, cities, and counties)  around the country have raised their minimum wages so that they will reach $15/hour in coming years. Meanwhile, though tens of millions of workers lost their jobs in recent months, it is unclear what COVID-19’s long-term impact on the economy looks like, especially due to the murkiness of the public health situation. And while some will be pushing to shrink federal budgets—and contracting—in coming years, others have noted that we will have needs for contracting tracing, testing, and other public health jobs that may not have been previously anticipated.

The next administration should build upon the Obama administration’s action and raise the minimum wage for all federal contract workers—like nursing assistants, concession workers, and people serving food to our troops, many of whom are women, people of color, or immigrants. Specifically, the next president should take the following concrete actions:

1. Issue an executive order that increases the minimum wage for federal contractors to $15 per hour immediately, with annual updates to keep up with the overall growth in wages. The executive order should close loopholes to ensure that no workers are left behind, and should further establish that the minimum wage for federal contractors shall always be at least 10% above the federal minimum wage.
2. Direct the Department of Labor and the Federal Acquisition Regulatory Council to adopt new regulations that mirror the executive order’s expanded scope, including by applying this requirement to option contracts renewed by the federal government and to concession contracts.
3. Direct the Department of Labor’s Wage and Hour Division (WHD) to vigorously enforce these new wages standards on contracts covered by the executive order.

Together, this effort would both boost wages and help build momentum to the push for HR 582, the Raise the Wage Act.

The specifics

1. Issue an executive order raising wages broadly

The president has the legal authority to issue executive orders to promote the economy and efficiency in federal contracting under the Federal Property and Administrative Services Act (FPASA).1 That law directly provides that “[t]he President may prescribe policies and directives that the President considers necessary to carry out this subtitle,” which policies are in turn “consistent with” this law.2 For decades, presidents of both parties have relied upon this authority to issue executive orders that impact federal contracts and in turn the employment practices of federal contractors, including President Obama’s 2014 minimum wage executive order.3

In order to invoke this authority, the president must assert that the action in question promotes economy and efficiency in federal procurement. As a practical matter, at least in the Obama administration, the Council of Economic Advisers conducted an assessment of economy and efficiency to accompany each proposed executive order, and the Office of Legal Counsel at the Department of Justice had to sign off on that assessment before the action was approved.

Pursuant to this authority and process, to boost wages for workers in low-wage industries around the country, the next administration should issue an executive order to increase the minimum wage for federal contractors to $15 immediately, without any phase-in period. Unlike current legislative proposals to raise the federal minimum wage for all employees, the economics of raising the minimum wage for workers on federal contracts does not require a phase-in.

The executive order should provide for each of the following additional enhancements:

• Interaction with federal minimum wage: Congress should be passing a federal minimum wage increase applicable to all workers across the economy. In response, the minimum wage rate established by the executive order should automatically increase such that it is always at least 10% above the federal minimum wage.

• Automatic annual adjustments: The 2014 minimum wage executive order provided automatic annual adjustments to reflect the cost of living, and the Department has dutifully published annual increases without major controversy. The next administration should also include annual adjustments to keep up with growth in wages, which is also in keeping with the latest federal legislative proposal.

• Tipped workers: The 2014 executive order raised the minimum wage for covered tipped workers in increments to 70% of the regular minimum wage. The next administration should track the more recent House-passed minimum wage proposal and end the subminimum wage for tipped workers.

• Workers with disabilities: The 2014 executive order provided no exemption for workers with disabilities, who were required to be paid at least $10.10 per hour to start. The next administration should track this executive order and end subminimum wages for workers with disabilities.4

• Youth workers: The next administration should also end the use of any subminimum wages for youth workers.

• Workers providing recreational services on federal lands: President Trump signed an executive order in May 2018 exempting certain outfitters and guides operating on federal lands from the 2014 minimum wage executive order.5 Though there was substantial (internal and external) lobbying in the Obama administration for these exemptions as well, any new executive order should eliminate them.

In addition, the next administration should consider providing the following enhancements:

• Covering new contracts: The 2014 executive order applied only to new contracts, but the next administration should broaden its coverage to apply to existing contracts, for example, by requiring contracting agencies to execute riders on existing contracts that incorporate the new requirements (with additional funds if needed). At a minimum, the next administration should decide to specify that any option contract that could be renewed by the federal government is a new contract that is indeed covered by this executive order. (The Labor Department’s implementing rules from the Obama administration elected not to apply these requirements to any option contract that was simply renewed by the federal government, even though updated Service Contract Act and Davis Bacon Act prevailing wage schedules did apply to those options. A new administration should not do the same.)

• Enforcement: The 2014 executive order gives only the Labor Department the authority to “investigate potential violations of and obtain compliance with” this order, and incorporating remedies and enforcement processes from the Fair Labor Standards Act, Service Contract Act, and Davis-Bacon Act, respectively.6 The next administration should consider expanding this section in the next executive order, given the Labor Department’s limited resources, such that any agency with contracting authority could take action against a contractor (or potential contractor) based on their failure to comply with the executive order.7

• Dissuading outsourcing: In addition, the administration should explore a justification for raising wages even higher—to a level that dissuades outsourcing, for example, to the lowest pay of federal workers plus 20% to account for benefits.

2. Adopt new implementing regulations

After the executive order is issued, two agencies must issue rules implementing them. The Office of Federal Procurement Policy (OFPP) at the Office of Management and Budget must update the Federal Acquisition Regulations to ensure that new contracts issued mirror the executive order’s requirements. OFPP’s rulemaking process requires relatively straightforward documentation, but involves consultation with the Federal Acquisition Regulatory Council, which is a particularly involved and bureaucratic multiagency process requiring the concurrence of councils for defense acquisition and civilian acquisition, respectively.8

The executive order should also empower the Secretary of Labor (through the Wage and Hour Division) to implement and enforce the higher minimum wage requirements, which will require an additional agency-specific rulemaking. Likewise, the 2014 minimum wage executive order directed the Secretary of Labor to issue regulations to enforce the order, and provided a short, six-month time frame to final regulations.9 Either way, the Wage and Hour Division rule would be issued prior to the FAR rule, so that the latter can properly incorporate the former.

The executive order should therefore task OFPP and the DOL, respectively, to update their regulations to reflect the expanded coverage and additional requirements outlined above. In addition, these regulations should provide the following key regulatory changes:

• Concession contracts: The 2014 executive order specifically includes concession contracts (which are excluded from the Service Contract Act [SCA] by regulations), but the Labor Department’s implementing regulations exclude other contracts that are too small for coverage under the SCA or Davis-Bacon Act.10 The next administration should include as many contracts as possible.

• Dual jobs and covered contracts: The 2014 final rule excludes workers from coverage if they work on a covered contract for less than 20% of the time, with the remainder on noncovered contracts.11 The next administration should explore a lower threshold.

3. Direct vigorous enforcement

The Obama administration’s executive order also empowered the Secretary of Labor (through the Wage and Hour Division) to enforce the higher minimum wage requirements once they are attached through federal contracts, and the new executive order should do the same.

Why this is critical

Due to factors like occupational segregation, discrimination, and other labor market disparities rooted in structural racism and sexism, women and Black and Latinx workers are much more likely to be in very-low-wage jobs that will be affected by this EO, and will be more likely to get a raise. A $15 minimum wage for federal contract workers will reduce gender and racial wage gaps. (An analysis of a proposal to raise the federal minimum wage to $15 shows that a higher share of women than men would get a raise, and a disproportionate share of Black and Latinx workers would get a raise, when minimum wages are increased.)

This effort would also improve the number of good jobs created through government spending. Raising the minimum wage for federal contractors strengthens the bargaining position of unionized federal contractors because it means they start negotiations from a higher floor. It also protects federal contractors who pursue high-road business models from an undue disadvantage.

Finally, this effort would both boost wages and help build momentum to the push for HR 582, the Raise the Wage Act, which was passed on July 18, 2019, by a bipartisan vote of 231–199. That bill would raise the minimum wage for all private-sector workers to $15 an hour by 2025, phase out the subminimum wage for tipped workers, and sunset certificates that allow workers with disabilities to be paid a subminimum wage. (See fact sheet.)

Overall impact

President Obama’s 2014 executive order affected more than 180,000 workers, providing them with an additional $500 million annually after it fully applied to multiyear contracts over five years. Raising the minimum wage and closing loopholes can have a particularly significant effect on enhancing equity in earnings between Black and white Americans.12

The precise impact of raising the minimum wage for workers on federal contracts to $15 would depend on the implementation of federal and state minimum wages more recently established, and some of the other policy considerations listed above.

This policy memo was produced by the Economic Policy Institute and the National Employment Law Project. Contact Heidi Shierholz at hshierholz@epi.org or Judy Conti at jconti@nelp.org.

Acknowledgments

We would like to thank Rachael Klarman at Governing for Impact for valuable contributions to this document. We also wish to thank Tanya Goldman, Indi Dutta-Gupta, and Reed Shaw for their feedback and assistance with this project.

Notes

1. P.L. 81-152, 63 Stat. 377 (June 30, 1949) (codified in Title 40 (government-wide) and Title 41 (civilian agencies) of the US Code). For more helpful background, see Vanessa K. Burrows and Kate M. Manuel, Presidential Authority to Impose Requirements on Federal Contractors (2011), available at https://fas.org/sgp/crs/misc/R41866.pdf.

2. 40 USC § 121.

3. The Obama administration relied upon this authority to issue a number of other executive orders related to federal contract workers, for example, requiring federal contractors to provide paid sick days to workers on federal contracts; forbidding them from discriminating on the basis of sexual orientation or from retaliating against employees who inquire about, discuss, or disclose their pay or compensation.

4. Raise the Wage Act, HR 582, 116th Cong. (2019-20), https://www.congress.gov/bill/116th-congress/house-bill/582/text. See also Alexa Beeson, “Raise the Wage Act 2019: Majority Looking to Lift Millions Out of Poverty,” National Consumers League, July 2019, https://www.nclnet.org/raise_wage_act.

5. Exemption from Executive Order 13658 for Recreational Services on Federal Lands, Executive Order 13838, 83 Fed. Reg. 25341 (June 1, 2018), https://www.federalregister.gov/documents/2018/06/01/2018-11936/exemption-from-executive-order-13658-for-recreational-services-on-federal-lands.

6. Establishing a Minimum Wage for Federal Contractors, supra note 5, at p. 9852.

7. For example, the 2014 executive order provides that it does not create any rights or remedies under the Contract Disputes Act, 41 USC § 7101 et seq, which provides a process by which orders of contracting officers may be resolved in the US Court of Federal Claims. See id. at 9852. It further provides that any disputes about payment of wages “shall be disposed of only as provided by the Secretary in regulations issued pursuant to this order,” i.e., by the Department of Labor. 79 Fed. Reg. 9852. If the next administration seeks to allow agencies to take action under this section, this limitation involving the Contract Disputes Act should be considered. See also U.S. Department of Justice, Civil Resource Manual, 70. The Contract Disputes Act, https://www.justice.gov/jm/civil-resource-manual-70-contract-disputes-act (last visited May 20, 2020).

8. See generally Office of the Secretary of Defense, Defense Acquisition System Rulemaking Process, https://www.acq.osd.mil/dpap/ops/docs/Defense_Acquisition_Regulations_System_Rulemaking_Process_Fact_Sheet.pdf (last accessed May 11, 2020).

9. Establishing a Minimum Wage for Contractors, Executive Order 13658, 79 Fed. Reg. 9851, 9852 (Feb. 20, 2014), https://www.govinfo.gov/content/pkg/FR-2014-02-20/pdf/2014-03805.pdf.

10. See Wage and Hour Division, supra note 6, at p. 60650 (discussing this decision in preamble text).

11. Id. at p. 60660.

12. See Ellora Derenoncourt and Claire Montialoux, “Minimum Wages and Racial Inequality,” August 2020, http://www.clairemontialoux.com/files/DM2020.pdf. See also Derenoncourt and Montialoux, “To Reduce Inequality, Raise the Minimum Wage,” New York Times, Oct. 25, 2020, https://www.nytimes.com/2020/10/25/opinion/minimum-wage-race-protests.html.

Policy memo

The Trump administration’s actions in effect rolled back the Obama administration’s rulemaking expanding overtime coverage in favor of a weaker rule that left more than 8 million workers behind. The next administration should launch a new rulemaking effort to expand overtime protections by significantly raising the salary threshold under which workers must be paid overtime.

Summary

President Trump has claimed that he built the greatest economy the world has ever seen. But by key measures of job quality, including pay, Trump’s economy was not delivering for middle-class families even before the federal government’s botched response to the COVID-19 pandemic sank our country into a deep recession. Underneath low topline unemployment figures and booming markets, working families had barely recovered from their pre–Great Recession peaks, and income and wealth gaps continued to grow.

According to a recent analysis by the Economic Policy Institute and Capital and Main, 48 states saw slower household income growth under President Trump than under President Obama, even while the richest of the rich have benefited handsomely. And rampant inequality has broader effects, too, in that it “obstructs, subverts, and distorts” economic growth. Contributing to these dynamics is the fact that actions by the Trump administration have left overtime standards very weak, meaning that millions of workers who would be eligible for overtime protections if overtime standards were stronger may have to work long hours with no additional pay.

The Obama administration’s 2016 rule restoring overtime coverage for working families was a tangible step to lift wages for middle-class families, raising the monetary threshold below which an employee must be paid overtime. But after the 2016 rule was enjoined by a court just after the 2016 election, the Trump administration failed to vigorously defend it, and instead replaced it with a weaker rule, leaving behind more than 8 million workers who would have benefited from the Obama administration rule, costing them $1.4 billion in lost wages annually.

It’s unclear what the economy will look like after COVID-19, but it is clear that elevated unemployment will depress worker bargaining power and wages for a very long time, compounding the preexisting challenges. The next administration should therefore revisit the Trump administration’s overtime regulations to raise wages for more middle-class families across the nation once again.

In particular, the Department of Labor’s Wage and Hour Division should launch a new rulemaking to update the overtime rule again. The Department could take the following concrete steps to do so:

1. Issue a presidential memorandum directing the Department to pursue a new rulemaking;
2. Launch a series of informal stakeholder engagement sessions to inform development of the rule;
3. Proceed expeditiously with notice-and-comment rulemaking to update the rule to restore the Obama-era rule and indeed go beyond; and
4. Use the bully pulpit to call for companion legislative reforms that close loopholes excluding too many Black and brown workers and women from overtime protections.

The specifics

1. Issue a presidential memorandum on overtime rulemaking

In March 2014, President Obama issued a memorandum recognizing that the overtime rules were outdated, and directed Secretary of Labor Tom Perez to propose revisions to “modernize and streamline” the existing overtime regulations to ensure that everyone who should be protected was protected. The next president could issue a similar memorandum—perhaps coupled with a public event—to direct the Department of Labor to pursue this sort of rulemaking.

2. Launch a series of informal stakeholder engagement sessions to inform development of the rule

It is vital for the Department of Labor to move quickly to issue a rule. The administration needs time to defend the rule in response to any litigation and to ensure that the rule is implemented successfully within four years.

Given that, the Department should not waste time collecting duplicative information involving aspects of the rulemaking that have already been well studied. The record made through the Trump-era RFIs (requests for information) and NPRMs (notices of proposed rulemaking) already contains ample evidence of the need for a more rigorous salary threshold than the one presently in effect.

If the Department feels that stakeholder engagement is important to start the process, it could build a record as to why the 2019 rule is inadequate through a series of more informal listening sessions. These could be pursued through an inclusive but expedited process.

3. Proceed expeditiously with notice-and-comment rulemaking to update the rule to restore the Obama-era rule and indeed go beyond

The law that establishes the federal minimum wage, the Fair Labor Standards Act (FLSA), also requires that employees be paid overtime (one-and-one-half times their regular hourly rate) when they work more than 40 hours in a week unless they fall into certain exemptions—including one for administrative, executive, or professional employees, as those terms are defined by the Secretary of Labor.1 For decades, the Department of Labor’s Wage and Hour Division has issued regulations that require workers to meet three criteria for being exempt administrative or executive employees: (1) they must be paid on a salary basis (rather than, e.g., hourly); (2) they must perform the duties of an exempt administrative or executive employee (managing, hiring, firing, etc., for an executive); and (3) they must be paid at least a minimum salary threshold.2 That salary threshold was stuck at $23,660/year since 2004—a level that was set too low from the beginning due to a flawed methodology,3 which allowed employers to treat too many workers making low wages as overtime-exempt and force them to work more than 40 hours per week for no additional pay.4

After conducting dozens of stakeholder meetings and collecting hundreds of thousands of comments on a proposed rule, the Department of Labor (DOL) issued a final rule in May 2016 raising the required overtime threshold to $47,476 per year and providing for automatic increases every three years thereafter.5 That rule would have extended new overtime protections to 4.2 million workers and enhanced protections against misclassification to 8.9 million workers, boosting wages by nearly $12 billion over the next 10 years.6 Importantly, the rule corrected the methodological flaw in the 2004 rule, which made it easy to misclassify workers by paying them above the salary threshold and assigning them scant administrative, professional, or executive duties in order to classify them as exempt under the weakened duties test implemented in 2004.

But in November 2016, a single federal judge in the Eastern District of Texas issued a nationwide preliminary injunction barring DOL from enforcing the final rule just days before its effective date.7 Based on flawed logic and a rejection of the entire regulatory and congressional history of the overtime exemption, the judge concluded that the plaintiffs were likely to prevail on claims that any salary test and automatic updating mechanism in the final rule both exceeded the Department’s statutory authority.8

While the Department immediately appealed that decision, and the Trump administration filed a reply brief supporting the arguments made by the Obama DOL in its opening brief, the Trump DOL failed to aggressively argue it, asking the Fifth Circuit merely to affirm that the Department had authority to use some salary threshold.9 The same judge ultimately issued a permanent injunction the following year,10 after which the Department again appealed, asking for a stay on the final decision until a new rule could be issued.11

Subsequently, in September 2019, the Trump administration adopted a new overtime rule that lowered the 2016 rule’s salary threshold that white-collar employees must earn to be exempt from overtime pay from $47,476 per year to $35,568 per year.12 According to the Economic Policy Institute, the Trump rule leaves behind more than 8 million workers who would have benefited from the 2016 rule, costing them $1.4 billion dollars in wages each year.13

Advocates have made forceful arguments explaining why the case overturning the Obama overtime rule was wrongly decided.14 The district court’s reasoning invalidated every salary test dating back to the passage of the FLSA; in fact, the judge articulated no principled legal or economic reason why the 2004 rule—let alone the 2019 final rule—could survive the same analysis. Had the Department aggressively pursued its appeal of the 2016 rule from this single federal district court decision, there is reason to believe that the rule would have been overturned by the Fifth Circuit. Nor has the ruling deterred a number of states from pursuing substantially similar rulemaking efforts despite the court’s decision, predicated on the similar—or even identical—legal authority.15

Given that, the next administration should pursue a new rulemaking to raise the overtime threshold to a level higher than that proposed by the Obama administration. In designing any new overtime rule, the next administration should consider a number of design issues:

• Duties test: Both the Obama and Trump administrations retained the 2004 “standard” duties test that matched the (pre-2004) short test,16 in part because of opposition from employers to changing the duties test and a focus from workers’ advocates on updating the salary threshold.17 The next administration should likewise reconsider the duties test, especially if it decides to go with a salary level comparable to an updated version of what the Obama administration proposed. In promulgating a new duties test, DOL could adopt the approach of states like California and require that at least 51% of a person’s duties be those of an exempt employee in order to claim the exemption.18

• Setting the salary threshold: The next administration will also have to decide how to set the salary threshold. The Department should set any new salary threshold to above the level that the 2016 final rule would have been after its regular adjustments.
  • Methodology: Following the same methodology that the Obama Labor Department used—setting the threshold at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, currently the South—could be pursued, if paired with a strengthened duties test. In recent years, however, states have been pushing forward with bolder overtime restorations. Leading them is Washington State, where Governor Jay Inslee’s labor agency finalized a rule that will phase its overtime threshold up to $83,356 by 2028.In light of this growing movement, there is a need for a bolder federal overtime proposal that, like the $15 minimum wage, can set the benchmark for where our nation needs to go on overtime pay. And, at the 40th percentile of the earnings of full-time salaried workers in the lowest-wage Census region, the Obama salary threshold was in fact at the low end of the historical range of salary threshold. As the Obama U.S. Department of Labor’s 2015 overtime rule notice of proposed rulemaking (NPRM) recounted, historically the Fair Labor Standards Act’s overtime salary threshold ranged from the 35th to 55th percentile of weekly earnings of full-time salaried workers nationwide. In other words, there is historical precedent in the U.S. for raising the overtime threshold to the 55th percentile of full-time salaried workers nationwide (not just in the lowest-wage region). This level is projected to be $82,732 by 2026. There is thus plenty of room to set the threshold at a substantially higher level than the level that the Obama methodology would yield, and still be well within historical norms. A much higher benchmark would restore the salary threshold closer to its past highwater mark, when the majority of salaried workers enjoyed overtime pay protections—and the benefits of a 40-hour workweek, and higher paychecks that come with it.
  • Regional variation: With good cause, both the Obama and Trump administrations considered and rejected setting different thresholds in different regions, which could lead to higher thresholds in some areas and lower thresholds in others. Indeed, the Chamber of Commerce and most other employer groups opposed regional variation as well. The Department should maintain this approach.

• Highly compensated employees: The 2004 overtime rule introduced the concept of “highly compensated” employees who are subject to an even more streamlined duties test as long as they earn at least $100,000 per year (including commissions and nondiscretionary bonuses) and a set weekly salary of at least $455 per week (exclusive of such bonuses and commissions).19 The 2016 rule would have raised that level to $134,004 with the same salary threshold as the overall rule ($913 per week),20 but the 2019 rule instead raised it to $107,432 and at least $684 per week.21 The next administration should use the same approach that was used in the 2016 rule.

• Automatic adjustments: Any new rule should be indexed to reflect growth in the earnings of salaried, full-time workers. The 2016 overtime rule for the first time provided for automatic increases to both the salary threshold and the highly-compensated-employees threshold every three years, based on the same methodology underlying the initial establishment of the threshold.22 The every-three-year updating scheme in the 2016 rule was a concession to opponents’ concerns about implementation. Given continuing advances in technology that make it easier to update overtime thresholds regularly, we recommend instead updating it every year.23

4. Call for companion legislation expanding overtime to farmworkers and domestic workers

Beyond this regulatory action, the president should use the bully pulpit to call for ending the long-time, racist exclusions of farmworkers and many domestic workers from overtime protections. This must be done by legislation and the president should work with Congress to end these exclusions.

Why this is critical

While there is an enormous amount of uncertainty in economic forecasts since the outbreak of COVID-19, it is clear that the weak job market will result in reduced bargaining power for workers and wages that continue to be flat (if not worse) in the coming period. Meanwhile, employers may seek to take advantage of the ambiguity caused by the Trump administration’s still-too-low overtime threshold to require workers to work overtime without additional compensation even if they do not perform the duties of an exempt worker, in violation of the law. Black and brown workers and women of all races are disproportionately impacted by these forces.

Impact

The ultimate impact of any new overtime rule will depend entirely on the decisions the next administration makes with respect to the salary level and the duties test. But according to the Economic Policy Institute’s (pre-COVID-19) calculations, even simply restoring the 2016 Obama rule in 2020 would have benefited 8 million more workers—including more than 1 million Black workers and 1.2 million Hispanic workers—by giving them some combination of $1.2 billion over the next 10 years and greater protections from being misclassified as overtime-exempt.24

Because Black and brown workers and women of all races who are in salaried jobs are disproportionately concentrated at the low end of the salary scale, they will disproportionately benefit from the expansion of overtime protections. For example, 26% of all salaried women would have gotten new or strengthened protections under the 2016 rule, compared with 20% of salaried men. Further, 31% and 33% of Black and Latinx salaried workers would have gotten new or strengthened protections, respectively, compared with 20% of white salaried workers. For some affected workers, overtime protections will mean hundreds of dollars in additional pay each week; for others, it will mean more time outside of work to spend with their families—and as some employers shift schedules to minimize overtime costs, employees who had been involuntarily working part time may gain the additional hours they want and need.

This policy memo was produced by the Economic Policy Institute and the National Employment Law Project. Contact Heidi Shierholz at hshierholz@epi.org or Judy Conti at jconti@nelp.org.

Acknowledgments

We would like to thank Rachael Klarman at Governing for Impact for valuable contributions to this document.

Notes

1. 29 U.S.C. § 213(a)(1).

2. 29 CFR § 541.100 (executive), § 541.200 (administrative). The Department’s 2016 overtime final rule sets out an exhaustive history of the salary levels. See Wage and Hour Division, Defining and Delimiting Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 81 Fed. Reg. 32,391, 32,400 (May 23, 2016), https://www.federalregister.gov/documents/2016/05/23/2016-11754/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and.

3. Prior to 2004, the white-collar regulations created two separate overtime tests: (1) a “short” (less stringent) duties test, which required workers to be paid a higher (more rigorous) salary threshold; and (2) a “long” (more stringent) duties test, which required workers to be paid a lower (less rigorous) salary threshold. The Department in 2004 streamlined down to one “standard” duties test, but in effect paired the “short” (less rigorous) duties test together with the lower (less rigorous) threshold. The 2016 overtime final rule aimed to correct this “mismatch.” See Wage and Hour Division, supra note 2, at 32,400.

4. See Ross Eisenbrey, Longer Hours, Less Pay – Labor Department’s New Rules Could Strip Overtime Protection from Millions of Workers (July 14, 2004), https://www.epi.org/publication/briefingpapers_bp152/.

5. See Wage and Hour Division, supra note 2.

6. See id.; White House, Fact Sheet: Growing Middle Class Paychecks and Helping Working Families Get Ahead by Expanding Overtime Pay (May 17, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/05/17/fact-sheet-growing-middle-class-paychecks-and-helping-working-families-0.

7. Nevada v. U.S. Dep’t of Labor, 218 F. Supp. 3d 520 (E.D. Tex. 2016), available at http://www.txed.uscourts.gov/sites/default/files/notable/Memorandum%20Opinion%20and%20Order%20.pdf. See also Noam Scheiber, “Judge Suspends Rule Expanding Overtime for Millions of Workers,” New York Times, Nov. 22, 2016, https://www.nytimes.com/2016/11/22/business/obama-rule-to-expand-overtime-eligibility-is-suspended-by-judge.html.

8. Id. at 534.

9. See Dale Hudson, Department of Labor Appeals Overtime Rule (Nov. 6, 2017), https://www.nixonpeabody.com/en/ideas/articles/2017/11/07/department-of-labor-appeals-overtime-rule.

10. Nevada v. U.S. Dep’t of Labor, 275 F. Supp. 3d 795 (E.D. Tex. 2017).

11. Id.

12. See Wage and Hour Division, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 84 Fed. Reg. 51,230 (Sep. 27, 2019), https://www.federalregister.gov/documents/2019/09/27/2019-20353/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and.

13. Heidi Shierholz, The Trump Administration’s Overtime Rule Leaves Millions of Workers Behind (Sep. 24, 2019), https://www.epi.org/press/the-trump-administrations-overtime-rule-leaves-millions-of-workers-behind/.

14. See, e.g., Letter from National Employment Law Project to Wage and Hour Division, Comments on Regulatory Information Number (RIN) 1235-AA20: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, May 21, 2019, https://s27147.pcdn.co/wp-content/uploads/NELP-Comments-Proposed-Exemptions-Overtime-Coverage-Fair-Labor-Standards-Act-May-2019.pdf (explaining in detail why the judge’s decision was incorrect on the merits).

15. Several states have already taken action to raise their thresholds to nearly the 2016 rule’s level or beyond, including California, Colorado, New York, Pennsylvania, and Washington. See National Employment Law Project and Economic Policy Institute, Federal Overtime Thresholds and State Responses (Feb. 5, 2020), https://s27147.pcdn.co/wp-content/uploads/Federal-State-Overtime-Proposals-Feb-2020.pdf. Some have relied upon nearly identical legal theories. See, e.g., Pennsylvania Minimum Wage Law of 1968 at Sec. 5(a)(5), https://www.legis.state.pa.us/cfdocs/legis/LI/uconsCheck.cfm?txtType=HTM&yr=1968&sessInd=0&smthLwInd=0&act=5&chpt=0&sctn=5&subsctn=0; Rev. Code of Washington § 49.46.010(3)(c), https://app.leg.wa.gov/RCW/default.aspx?cite=49.46.010.

16. See supra note 3.

17. See, e.g., 81 Fed. Reg. at 32529 (“Commenters representing employers overwhelmingly opposed DOL making changes to the duties test and stated that changes to the duties test are more burdensome for businesses.”); NELP, supra note 17, at p. 12 (presenting a change to the duties test as an alternative should the Department not sufficiently increase the salary threshold).

18. Note, we do not recommend DOL return to the previous “long” test that was in effect before the 2004 revisions, which required that at least 80% of a person’s duties be those of an exempt employee, because that duties test should be paired with a lower salary threshold.

19. See Wage and Hour Division, Fact Sheet #17H: Highly Compensated Employees and the Part 541 Exemptions Under the Fair Labor Standards Act, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fs17h_highly_comp.pdf.

20. 81 Fed. Reg. 32550.

21. 84 Fed. Reg. at 51231.

22. 81 Fed. Reg. 32551.

23. While the Bush administration’s 2004 overtime rule cast doubt on the Department’s legal authority to implement automatic increases, that argument was framed more around using inflation as the metric. See Wage and Hour Division, Defining and Delimiting the Exemptions for Executive, Administrative, Outside Sales and Computer Employees, 69 Fed. Reg. 22122, 22171 (Apr. 23, 2004) (“Further, the Department finds nothing in the legislative or regulatory history that would support indexing or automatic increases.”) The use of wage growth is more consistent with how the overtime threshold has been set over time.

24. See Shierholz, supra note 13.

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