A Super Tuesday for American Workers

The Pitch: Economic Update for April 25, 2024

Friends,

On Tuesday, the Biden Administration published one of its most important middle-out economic policies to date. Paul Blest at More Perfect Union explains, “The Department of Labor’s new rule expands the threshold for mandatory overtime to all salaried workers making up to $58,656 per year who work more than 40 hours a week.”

Basically, if you’re a full-time worker who earns less than $58,656 per year and you work more than 40 hours in a week, your employer must pay you time-and-a-half for every hour you work above the allotted 40 hours, regardless of your job title, and regardless of whether you’re hourly or salaried. This restores overtime protections for more than four million workers. “Under the previous rule,” Blest writes, “employers were only required to pay overtime to certain workers making up to $35,568 — well below the median U.S. salary.”

On its own, raising the salary threshold by more than $20,000 per year is a very big deal. Civic Ventures founder Nick Hanauer and former Labor Secretary Robert Reich put it best in the New York Times way back in 2016 when they said the overtime threshold is the minimum wage for the American middle class.

That’s because expanding overtime protections performs two important functions: First, it requires employers to value the time of their employees by making them pay workers more if they want to violate the 40-hour workweek that helped build the modern American middle class. Employers who don’t want to pay the time-and-a-half overtime pay premium can simply hire more workers to perform the duties at the regular rate of pay. And second, it grows the paychecks of workers who do occasionally have to put in extra hours to meet occasional or seasonal demands.

Under the restored overtime threshold, more than four million workers will either get more of their personal time back or bigger paychecks — or, most likely, some combination of the two.

This rule also updates every three years, meaning the overtime threshold will continue to rise and workers won’t be left clinging to an atrophying labor standard, the way that they were for the last three decades. In a brilliant middle-out policy detail, the Economic Policy Institute reports that the threshold is tied to “the 35th percentile of weekly wages for full-time, salaried workers in the lowest-wage Census region, currently the South.” This means that as worker wages rise, so will the threshold — and when Congress finally raises the federal minimum wage, all workers will benefit from an increase in the overtime threshold.

This is great news for American workers. When this policy is fully enacted next summer, EPI reports that worker paychecks will grow by $1.5 billion every year. Millions more workers will get their personal time back — that’s time they can spend with their families, furthering their education or developing a small business, or even just pursuing a hobby that they previously didn’t have time to develop. So not only will workers have more money to spend in their local communities, thereby creating jobs, they’ll also have more time to spend in their communities.

We at Civic Ventures have always been passionate supporters of restoring the overtime threshold because we recognize that overtime was a standard that helped to create the great American middle class — which then, in turn, powered the most broadly prosperous decades that America (and the world) had ever experienced. That’s no coincidence: it’s simply how the economy works. When more workers are allowed to fully participate in the economy — with both bigger paychecks and more free time — everyone benefits. This is a huge step forward for American workers.

(And as we’ll see in a moment, it’s not even the only hugely pro-worker rule passed by the Biden Administration that was released this Tuesday. Read on.)

The Latest Economic News and Updates

A Ban on Noncompetes Puts Competition Back in the Labor Market

Minutes after President Biden’s Labor Department announced its new overtime threshold, his Federal Trade Commission made a stunning announcement of its own: A new rule banning worker noncompete agreements, and retroactively rendering most existing noncompete agreements null and void. And the FTC pulled off a bit of a surprise with its announcement: while many insiders suspected that they would ban noncompete agreements that affect workers in the food service and home cleaning industries, this ban is almost entirely total — meaning that even high-level executives won’t be forced to sign noncompetes.

Let’s take a little step back and talk about why this is so important. “Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business,” the FTC explains. “Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.”

While they were long used to lock down workers who were privy to high-level proprietary information and strategic decisions, the use of noncompetes became widespread over the last couple of decades, used by extractive employers like Jimmy John’s, Baskin-Robbins, Burger King, and some hair salons to prevent low-wage workers from getting better jobs in the same area or industry. Now, nearly one in every five American workers are constrained by a noncompete agreement.

The problem with noncompetes, of course, is right there in the name. They’re designed to eliminate competition for employers, keeping wages unnaturally low by freezing workers in place and threatening their livelihoods if they try to go to a better-paying job. That’s great for bad-faith employers, but it’s terrible for the health of the labor market in general, and for the wallets of American workers in particular.

As we saw during the Great Resignation a few years ago, a competitive labor market is a healthy, high-wage labor market. And because it grows the paychecks of workers, a competitive labor market is ultimately a great thing for workers, consumers, and employers.

I especially enjoyed that the FTC directly referred to this reality of the labor market in their announcement of the ban: “The Commission also finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions.”

That’s why the FTC estimates that eliminating noncompetes “will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year,” as well as growing worker paychecks by $300 billion a year and “lower[ing] health care costs by up to $194 billion over the next decade.” That increased competition is great for innovation, too, with “an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years.”

A growing body of research proves that banning noncompetes is great for worker wages. One study found that a broad noncompete ban in Oregon “raised wages by an average of 2 to 3 percent. It also increased job mobility for workers, allowing them to switch to other work, without reducing working hours,” and a ban on noncompetes for tech workers in Hawaii saw starting wages rise “4 percent and job mobility increased by 11 percent as compared to wages in comparable states,” reports Bryce Covert at the Nation.

When taken together, the noncompete ban and the restored overtime threshold represent an incredible win for American workers. Both rules will put money in the pockets of American workers, and give them more freedom to pursue the work — and the life — that they want. You don’t get many weeks like these in American politics, so it’s important to savor them when they come.

Sounding the Alarm on Trumpflation

Last week, we addressed the common (and fallacious) voter perception that Republican presidents are better at handling the economy. For Vox, Eric Levitz attacks an even more puzzling voter perception: The belief that Donald Trump, in a hypothetical second term, would somehow bring inflation in line. Levitz makes a compelling case that in fact, Donald Trump’s proposed economic policies would make inflation much worse.

Levitz details four stated policies that signal Trumpflation would raise prices for American consumers. First and foremost, he cites reports that Trump’s policy team are “actively debating ways to devalue the U.S. dollar if he’s elected to a second term,” in an effort to make exports more affordable for other nations.” Levitz explains the lunacy of this idea in a single sentence: “A plan to devalue the dollar is — quite literally — a plan to make products more expensive for American consumers.” And second, Levitz explains that another of Trump’s policies around foreign trade — a proposed 10 percent tariff on all foreign imports — would directly make products more expensive, raising the price tag of food and consumer goods.

Third, Trump’s tax cuts on the wealthiest individuals and corporations would create a massive spending deficit that, unless accompanied by huge spending cuts that would be felt by virtually every American, would force the government to “deficit-finance the bulk of Trump’s tax cuts. This would likely lead to faster price growth and more interest rate hikes from the Federal Reserve,” Levitz writes. Borrowing money to make up for unnecessary cuts in revenue is a dumb financial move that slows economies down and starves communities of important investments that benefit local economies.

And lastly, Trump’s anti-immigrant policies would starve the labor market at a time when employers are still desperate to fill empty positions. “As scholars at the Brookings Institution noted last fall, the upsurge in immigration since the pandemic is one major reason why the US managed to bring inflation down without suffering a recession: Foreign-born workers increased the economy’s productive capacity, helping supply to catch up with rising consumer demand,” Levitz explains. The resulting loss of workers in fields like construction, agriculture, and the care economy would drive prices up across the economy.

Too much presidential politics reporting these days is about polling and other meaningless horse-race trivia. Levitz’s piece is a substantial look at the results of one candidate’s stated policy positions. I urge you to read and share the whole piece so that political assignment editors can see that there is a huge audience for substantial, policy-focused articles.

Thanks to the Fed, Housing Costs Aren’t Coming Down

As Axios reports, the Federal Reserve’s push to raise interest rates to historic highs and keep them high indefinitely is causing huge problems for both Wall Street and working Americans. It’s still very expensive to borrow money, and that creates an uncertainty for the stock market, even as it prices mortgages higher than most households are willing to pay.

This week, interest on 30-year fixed mortgages hit their highest point of the year. People who had locked in their mortgages before the Fed started raising rates are now not willing to sell their homes, for fear that they’ll be stuck with a rate that’s at least twice as high as their current mortgage, and prospective first-time home buyers are staying out of the market entirely. Axios’s Brianna Crane reports that “Mortgage applications have fallen since last week, and home sales have remained relatively stagnant.”

In large part as a result of those high rates, “Existing home sales in March…fell 4.3% from February in what was the largest percentage decline on a monthly basis since November 2022,” reports the Wall Street Journal.

(And for the sake of our new subscribers, I’m obliged here to again point out that the Fed is keeping rates high to combat stubborn inflation levels that refuse to drop — but those inflation rates are high in part because the price of housing is so high thanks to the Fed’s high interest rates. If you’d like to read more about this bizarre situation, look no further than the opening of last week’s Pitch.)

So with all of this in mind, what are we to make of this new Center for American Progress report that says the wealth of young Americans has reached a historic high? “Recent Federal Reserve data show that the average wealth of households under 40 was $259,000 in the fourth quarter (Q4) of 2023, marking a 49 percent increase since the fourth quarter of 2019, even after adjusting for inflation,” CAP writes.

This would be a stark reversal for Americans under 40, who have until 2020 consistently fallen behind the wealth accrual of earlier generations. However, I’m cautious to applaud these numbers until we see some more reports. The fact is that, for reasons we’ll get into in the conclusion of this newsletter, you need multiple data points to correctly measure wealth, and our current state of income inequality is such that using the mean might indicate that a small portion of under-40s are making a ridiculous amount of money, while many others are left behind.

Or this could be the result of President Biden’s student loan debt forgiveness and, as CAP argues, the historic increase in wages we’ve seen over the last three years.

Or another scenario is that, like everything else in the modern economy as it recovers from Covid lockdowns and global turmoil, things are complicated. Prices can be high at grocery stores and workers can be getting the biggest raises in recent memory. Millennial workers can be making great progress toward accruing wealth and they can also be suffering from a historic wealth deficit when compared to Boomers and X’ers before them.

For another case of the economy’s current complicated status, look no further than today’s GDP report, which came in at 1.6%, down from last quarter’s 3.4 percent. But the picture is way more complex than those two numbers would make it seem. For the New York Times, Ben Casselman handled the nuance very well: “Taken on its own, the downshift in growth is not necessarily worrisome, particularly given that the Federal Reserve has been trying to cool off the economy,” Casselman writes. “And the weaker first quarter numbers were driven in part by big shifts in business inventories and international trade, which often swing wildly from one quarter to the next.”

“Measures of underlying growth were stronger,” Casselman points out — including robust consumer spending, which helped make up for the slowdowns of large businesses. Once again, working Americans are powering the economy from the middle out.

In the South, a Big Win for United Auto Workers

I don’t have too much to add to Neal E. Boudette’s story for the Washington Post, reporting that “workers at a Volkswagen plant in Tennessee have voted overwhelmingly to join the United Automobile Workers union, becoming the first nonunion auto plant in a Southern state to do so.” But I didn’t want to let the story go unnoticed here because it marks a huge, unprecedented victory that the UAW can add to last year’s unprecedented labor victories, and also because it’s a giant refutation of the six southern trickle-down governors who tried to convince the Tennessee workers that they should refuse the union. Congratulations to the Volkswagen workers and the UAW for not falling for the governors’ trickle-down threats.

And confidential to the Republican Party, which has decided to double-down on its anti-worker stance: The sooner you realize that middle-out policies like raising wages are intensely popular and great for the economy, the better off you’ll be. The same goes for raising taxes on wealthy people, which a new swing-state voter poll proves is roundly popular with all voters.

This Week in Middle-Out

In addition to restoring overtime protections and banning noncompetes, the Biden Administration passed a couple of other important regulations this week:

• First, they increased the number of hours of daily direct care that nursing homes must provide to patients, which means that nursing homes will have to hire more workers to ensure adequate staffing levels. In a speech, Vice President Harris said that Medicaid “pays $125 billion annually to home health care companies, which were not required to report on how they were spending the money. A second rule being finalized Monday will require that 80% of that money be used to pay workers, instead of administrative or overhead costs,” she announced.
• And second, the Biden Administration published a rule on Thursday that requires investment professionals “to act as fiduciaries — that is, they can’t place their interests ahead of the investor — when customers pay them for advice on individual retirement accounts, 401(k)s and similar buckets of tax-advantaged dollars.” (I wrote an item about this last month.)
• If you’ve witnessed anti-competitive behavior in the healthcare field — say price-fixing, forcing workers to sign noncompetes, or other behavior that eliminates choices for patients and/or workers — ”the Federal Trade Commission (FTC), the Department of Justice (DOJ) and the Department of Health and Human Services (HHS) [this week] unveiled HealthyCompetition.gov, an online portal where anyone can submit a healthcare competition complaint for potential investigation.”
• The FTC is working to stop a merger between two fashion-industry giants that would roll luxury brands like Jimmy Choo, Kate Spade, Coach, and Versace up into one mega-corporation.
• President Biden announced he was investigating a wide array of options to stop cheap Chinese exports from undercutting American-made products. “I’m not looking for a fight with China,” Biden said in his speech. “I’m looking for competition — and fair competition.”
• Yesterday, “The Department of Transportation (DOT) finalized rules that will soon require airlines to quickly refund passengers if they cancel or delay flights or make significant changes,” reports The Verge.
• And the American Prospect looks at the state of California’s attempt to update the concept of public banking for the 21st century. “CalAccount is a publicly sponsored, privately managed retail banking option that would allow Californians to manage their money without worrying about overdraft fees, monthly service fees, or minimum balance requirements.”

This Week on the Pitchfork Economics Podcast

Nick and Goldy welcome ethics professor Ingrid Robeyns to the Pitchfork Economics podcast for a fascinating conversation. Robeyns has written a provocative new book titled Limitarianism: The Case Against Extreme Wealth, which argues that governments must establish a hard cap on wealth accumulation to prevent runaway inequality. Obviously, Nick disagrees with Robeyns’s proposal of a $10 million wealth cap, but their conversation is generous, smart, and friendly — a great example of how to debate the pros and cons of policy proposals without sinking into vitriol.

Closing Thoughts

Once you understand that most of our government and educational institutions have been co-opted by trickle-down economics over the last 40 years, you start to see the many ways that mainstream economic thinking has been twisted to reflect the fallacious idea that wealth trickles down from the wealthy few to everyone else. One of the most pernicious ways that trickle-down thinking has stuck around in mainstream media is the prioritization of trickle-down measurements over everything else.

For instance, the media loves to use Wall Street as a barometer for America’s economic health, reporting on dips and surges in the Dow as though they benefit all Americans, rather than a tiny handful of the wealthiest people. And our GDP measurements prioritize corporate health over the economic health and security of working Americans, which should really be the end point of every economic measurement. If the economy isn’t broadly improving the lives of Americans, why do we even do any of this?

So it’s an important project for all of us to reprioritize our measurements to emphasize how the economy really grows — from the middle out and the bottom up, through the consumer demand created by the paychecks of working Americans. That’s why wage growth and employment numbers are an essential monthly metric, and why consumer demand matters so much when gauging the health of the economy.

Our friends at the Washington Center for Equitable Growth have spotlighted a report which “is packed with recommendations for building an integrated system of national statistics that can provide accurate and timely measurement of the distribution of income, consumption, and wealth in the United States.”

In other words, it’s a proposal for a new, more granular system of measuring American economic inequality, in order to provide a clearer picture of the true economic health of the American people. The Center explains that “these three metrics are related to one another by the so-called budget identity of ‘income = consumption + change in wealth.’ That is, the amount households consume, plus the amount they save (which is their change in wealth) must add up to their incomes each year.”

For example, they write, if experts are using only consumption data to measure household wealth, “a household that spends $60,000 in a year might seem to be doing well. But if that consumption was financed by only $40,000 in income, then it dramatically changes our view of that household’s well-being.” So when you put those three data-points — wealth, consumption, and income — together and dive deeply into the results, you can draw a much clearer picture of the economic lives of Americans.

For instance, those three criteria show that the adult children of wealthy families are much more likely to become wealthier than their parents than the adult children of poor families. This is the kind of systemic economic hardship that trickle-down measurements are unlikely to capture:

Put another way, the old trickle-down measurements are the equivalent of a drug store blood pressure test, tracking the broadest and most easily captured data about the economy’s health and leaving too many other important metrics unmeasured. But using these three measurements in tandem to track the economic livelihoods, prospects, and trends of working American households is more like an MRI — a deep, 3-D graphic that shows the real impacts of growing income inequality on the vast majority of the population.

This is exciting stuff, and it’s a promising development for the continued growth of middle-out economics. Without accurate measurements that demonstrate how the economy really behaves, we can’t begin to fix the economy so that it truly works for everyone.

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

Zach