A Crisis of Management

The Pitch: Economic Update for January 12, 2023

Friends,

Protections for salaried workers in America have been whittled away so gradually over the last four decades that today’s workers might not even realize what they’ve lost. Even though modern workers have been trained to expect salaried employees to be on call at all times, the vast majority of salaried workers enjoyed robust overtime protections in the 1970s, when the American middle class was at its strongest in terms of economic power. Whenever they worked over 40 hours a week, salaried workers earned time-and-a-half pay for every additional hour they worked. This prevented employers from demanding too much of their workers’ free time, and it grew the paychecks of workers who had to put in extra hours to deal with extra work.

But now, if you’re one of the 85% of American salaried workers earning more than the current $35,568 per year overtime threshold, your employer can demand extra time from you for free. Even worse, employers can easily skirt overtime protections for workers below that annual threshold — just $17 per hour for a full-time employee — by claiming those employees are managers.

A new report from the National Bureau of Economic Research uncovers the ways that employers use fancy managerial titles to avoid paying their employees overtime. “From 2010 to 2018, [NBER] found a 485% increase in job postings for salaried employees in dodgy managerial roles where duties rarely included any actual management,” reports Matthew Boyle.

This results in huge wage losses for those workers. Boyle writes that employers “avoided paying overtime on more than 151 million work hours via this practice, the study found, costing workers an estimated $4 billion in pay.”

What do these titles look like in the real world? “Directors of First Impression, for example, often had duties similar to that of a front desk assistant,” Vice’s Maxwell Strachan explains. “The same pattern held for “Guest Experience Leaders (i.e. hosts and hostesses), Carpet Shampoo Managers (carpet cleaners), Grooming Managers (barbers), and even Coffee Cart managers (coffee attendants).”

“There was even a title listed as Assistant Bingo Manager,” Strachan concludes. One table in the report highlights the absurd rift between these inflated titles and their duties:

The worst offenders of these managerial workarounds to paying overtime reads like a who’s who of extractive, low-wage employers, including Subway, Jimmy John’s, OfficeMax, and Jiffy Lube. These workers are expected to put in much more than 40 hours per week for no extra wages — essentially working for free — as they perform service-worker duties like stocking shelves, ringing up customers, cleaning public areas, and dealing with the public.

We at Civic Ventures have called on President Biden’s Department of Labor to restore the overtime threshold to its historic levels. Polling shows that the American people agree, with 77 percent of likely voters in Congressional swing districts supporting an overtime threshold of $83,000 per year. Doing so would ensure that 63% of salaried American workers have more time to themselves, more money in their pockets, or a little bit of both. Raising the threshold by a substantial margin might not stop employers from inflating job titles to rig the system, but at least they’d be making $83,000 a year for their time, rather than $35,000.

An economy built on low-wage exploitation is an economy that doesn’t work for anyone. We would all be better off if those workers were compensated for their time and had the time to spend with their families and in their communities.

The Latest Economic News and Updates

Inflation continues to head in the right direction

This morning’s Consumer Price Index report brought continued good news on the inflation front. The inflation rate for December was 6.5% over the year previous, a solid decline from November’s 7.1 percent inflation rate and the slowest the rate has climbed since October 2021.

“The takeaway is that inflation is moderating meaningfully,” reports the New York Times. And as of right now, indications are that prices will continue to decline. “A pullback in goods price inflation is expected to help cool overall inflation this year as supply chains heal,” the Times explains. “Climbing rental costs bolstered inflation in December and could continue to push inflation higher for a while, but that is expected to reverse by mid-2023.”

This doesn’t mean that prices will automatically roll back at grocery stores, of course, and Americans will continue to feel the pinch of higher prices for most, if not all, of 2023. But this is heartening news for the future — and a bright sign that the Federal Reserve should pull back on its aggressive series of rate increases. We no longer need to cool the economy to get prices in line — if, in fact, we ever did — and a continued series of interest rate increases would only result in unnecessary layoffs and misery.

Striking nurses fight for a more humane workplace

This week, 7000 nurses went on strike at two hospitals in New York City. What’s noteworthy about this strike is that it isn’t about pay. Before they struck, the nurses rejected an offer that included a 20 percent wage increase. Much like the railroad workers’ strike of last year that centered around paid sick leave, these New York City nurses are calling for improvements to working conditions: Specifically, they’re demanding their employers hire more nurses to help carry the intense day-to-day workload.

The president of the nurses union told the media that “safe staffing is about having enough nurses to deliver safe, quality care to every patient. It is the issue that our employers have ignored, made excuses about, and fought against us on.”

After three years of the pandemic, medical workers are strained past the breaking point. Facing nearly impossible working conditions and combative Covid denialism spreading like wildfire on social media, the number of registered nurses in America dropped by 100,000 between 2020 and 2021, and there aren’t enough new nurses entering the system to pick up that slack.

It’s telling that in this time of strong labor power, many of the most high-profile strikes of our time are interested in reestablishing a more humane workplace. For the last few decades, the relentless pursuit of high profit margins has gradually stripped away all the protections and safeguards that were in place to prevent workers from becoming burnt out. Now that the labor market is strong and virtually all of our systems have been pushed to (and beyond) the breaking point during the pandemic, workers are demanding a workplace environment that takes their well-being into account.

What’s next: A soft landing, or a painful recession?

Now that many inflationary signals are pointing in the right direction, experts are turning their eyes to the year ahead: Will the economy plunge into a recession in 2023, or can we pull a so-called “soft landing” out of the inflation crisis that continues to bring prices down without widespread layoffs?

Robert Kuttner at The American Prospect argues that if the Federal Reserve takes its foot off the brakes and ends its campaign of interest-rate increases, our empowered workforce — with lower-wage workers in particular seeing big pay increases — can guide the economy to safety without the widespread economic misery of a deep recession.

The strength of the job market over the last year, though all that inflationary turbulence, really is something to behold:

Every economic reporter in the nation has written a piece about the possibility of a “soft landing” in the last week or so, but we need to investigate what a soft landing would really entail. A strict economic definition would probably be that the economy slows down but doesn’t shrink — corporate profits lessen, but companies don’t engage in widespread layoffs and economic misery doesn’t visit Wall Street.

Talmon Joseph Smith notes for the New York Times, though, that a soft landing could still mean bad news for workers. American workers kept unemployment low and they also saw a remarkable increase in wages last year, though their paychecks actually lost ground compared to inflation. But this “soft landing” could wind up being more of a recession for the American working class, with workers taking the brunt of economic losses in the form of shrinking paychecks and decreased opportunities in the workplace. And that all comes at a time when savings for ordinary Americans have plunged to new lows:

There’s a lot of risk for workers over the next year. And — shades of the “good news is bad” fever that swept economics last year — that risk could come disguised in the media as good news for the economy at large. So let’s keep our rule of thumb in place as more and more people begin to buzz over a potential soft landing: The economy is strong if more workers are getting bigger paychecks.

If corporate profits and the wealth of the top one percent grows or stays level in 2023 even as wages and employment numbers decline, that’s bad news for the economy in the long-term. Remember — it’s your consumer spending, not the savings accounts of the wealthiest people and corporations, that creates jobs and prosperity in this economy.

How government is rebuilding the economy from the middle out

At the end of this email, I’ll have more to say about the FTC’s recent move to ban employers from tying workers down with onerous noncompete agreements. But that’s only the latest big move from the Biden Administration to invest in workers and keep consumer spending rushing through the economy. Some more recent stories:

• Lydia DiPillis at the New York Times writes that the Biden Administration’s three big spending bills will inspire a wave of hiring later in 2023 and at the beginning of 2024 — which is exactly when experts predict that the slowing economy is likely to stop adding jobs. “It feels like the handoff here could be reasonably graceful,” Moody’s chief economist Mark Zandi told the Times.
• Though student loan forgiveness is currently tied up in courts, the Biden Administration is still making changes to the way student loans are administered. Just this week, the Department of Education issued a proposal that would make it easier for low-income Americans to pay off their loans and wipe out their debts, further reforming the student loan system.
• And the Center for American Progress has put together a list detailing how the Inflation Reduction Act can save money for Americans using tax credits that also combat climate change. Those buying a used clean energy vehicle, for instance, can save up to $4000 on their taxes, while homeowners who install heat pumps can save $2000 a year.

How House Republicans are trying to bring trickle-down back

After a grueling 15-round vote to install Representative Kevin McCarthy as Speaker of the House, the first action House Republicans took as the party in power was to try to claw back billions of dollars that the Biden Administration set aside last year to fully fund the IRS. The $80 billion funding is intended to give the IRS back its power to audit and take legal action against wealthy tax cheats, who have the funds to hire the best tricky accountants and legal counsel that money can buy.

Chuck Marr at the Center on Budget and Policy Priorities explains why this is a terrible idea: “If House Republicans succeed in rolling back this critically needed funding…the IRS would be woefully understaffed, hindering its ability to administer the tax code and collect legally owed taxes — particularly from high-income and high-wealth taxpayers,” he writes.

To be clear, defunding the IRS has been a decades-long project of Congressional Republicans. Marr points out that the IRS today has “2,284 fewer skilled auditors to handle the sophisticated returns of wealthy taxpayers than it did in 1954.” That is the outcome that Republicans wanted — to take the teeth out of the IRS so that corporations and the wealthy could withhold revenue from American taxpayers. As a direct result of this plan, the number of audits on the wealthy and powerful has declined to virtually zero over the past decade.

Because Democrats hold the Senate and Biden holds the veto pen, this Republican anti-IRS legislation is unlikely to go anywhere, and the funding is still in place for now. But it’s telling that this was the very first action of the party after it gained power. This legislation benefits exactly no one except for corporations and the wealthiest Americans — which is exactly what House Republicans want.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• This week’s episode of Pitchfork Economics features a delightful conversation with Roosevelt Institute economist Ira Regmi, who explains the results of a new paper they authored with Nobel-winning economist Joseph Stiglitz. Regmi runs us through the real causes of the inflationary crisis that gripped the world last year, and they engage in a lively discussion with Nick about whether the current wave of higher prices truly meets the exact economic definition of the word “inflation” at all.
• On Civic Action Live this week, we’ll discuss the dirty trick that employers use to avoid paying low-wage workers overtime, why the FTC’s new noncompete rule could mean the return of $300 billion in lost wages annually, and why it’s significant that House Republicans are trying to defund the IRS. Join us at 10:30 am PT tomorrow.

Closing Thoughts

Last week, I wrote briefly about the Federal Trade Commission’s exciting proposal to end the use of noncompete agreements in the workplace. While the public perception of noncompetes is that they stop high-level corporate executives from sharing confidential information with competitors, the truth is that extractive low-wage employers force workers to sign them in order to kill competition in the labor market.

“Today, experts estimate that one out of every five American workers, or about 30 million people, is bound by a noncompete,” FTC Chair Lina Khan wrote in an editorial for the New York Times. “Studies and media reports have found noncompetes routinely invoked against fast-food workers, arborists and manual laborers, to name a few examples.”

As we’ve seen in the last year, when workers know they have the ability to find higher wages elsewhere, that’s great for the economy. The FTC estimates that by removing noncompetes from the workplace, American paychecks will grow by roughly $300 billion dollars annually. And as we all know, when workers have more money in their paychecks, they spend that money — and their increased spending creates jobs in their communities.

If it takes effect, this noncompete ban will contribute to the growing tide of worker power that we’ve seen over the last year or so. The FTC’s proposal is now collecting public comments online. A quick glance at the comments seem to show strong support for a ban of noncompetes, but if you care about this issue you should add a comment of your own; in the history of the United States, no proposed policy has ever been shelved because too many people came out in support of it.

I know the flood of petitions and pledges online can sometimes make filling out a form online feel futile, but public policy comments like this are absolutely one area in which numbers matter. If this matters to you as much as it matters to me, I hope you’ll pass this information on to your social networks and urge them to comment as well.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach