It’s All About the Paychecks

The Pitch: Economic Update for April 28th, 2022

(The Pitch is a weekly economics newsletter written by Zach Silk. Follow here on Medium or sign up for free on Substack to receive a new issue in your inbox every Thursday.)

Friends,

In TIME Magazine, Civic Ventures founder and venture capitalist Nick Hanauer explains the numbers behind the federal overtime threshold — what workers stand to gain from a restored threshold, and how much employers have taken from workers by allowing the threshold to atrophy. Let’s first look at how much American households would be making right now if the overtime threshold had remained as strong as it was until the 1970s:

According to Gallup, full-time workers report working an average of 47 hours a week. If they got paid an additional time-and-a-half for all seven of those extra hours — instead of the current norm of zero dollars — that would amount to an average 26.25 percent increase in weekly pay. At the current median weekly full-time wage of $1,010, that would come to an additional $13,787 a year (or $27,573 for a two-worker household). And that may even be an underestimate. According to a 2021 survey by the payroll services giant ADP, North American workers now put in an average of nine hours of unpaid overtime every week — the equivalent of $17,726 a year in stolen income ($35,451 for a two-worker household) at the full-time median wage.

And here, Nick explains why large employers don’t want the Biden Administration to restore the threshold:

If, as your employer, I can convert 2,000 40-hour-per-week jobs into 1,600 50-hour-per week jobs, then I get to pocket the wages of 400 workers. At the median annual wage that comes to over $20 million, more than enough to buy myself a brand new private jet — every single year. And while I’m jetting around to exotic locations, you’re struggling to arrange childcare to cover all those extra hours you have to put in at work.

I urge you to read and share the piece, in which Nick directly makes the case to the Biden Administration to restore the threshold to where it was when the American middle class was at its strongest.

Like so many of Nick’s sharpest pieces, this one is important because it draws a direct line from the paychecks of working Americans to the bank accounts of the wealthiest Americans in the corner office. It’s no coincidence that you’re earning less than you should at the same time that the wealthiest .01 percent of all Americans are making money hand over fist. That’s your money. And the Department of Labor could ensure that working Americans enjoy bigger paychecks and saner workweeks by simply restoring the threshold to historic levels. If we want to save the economy, we’ve got to direct that flow of wealth back into the pockets of ordinary Americans again.

The Latest Economic News and Updates

The GDP shrinks, and nobody knows what it means

This morning, the Bureau of Economic Analysis reported that the GDP shrank by 1.4 percent in the first quarter of 2022, in a reversal of the huge GDP gains we saw in 2021. Abha Bhattarai reports for the Washington Post that a number of pandemic-related issues are likely to have caused the slowdown: “Among the factors dragging down the economy at the beginning of 2022 were a reduction in retailers’ inventory purchases and a growing gap between U.S. exports and imports.” The retailers, she explains, “bought less inventory than they normally would in early 2022 because they had leftover merchandise from late last year, when they stocked up on extra goods to guard against supply chain shortages and delays.”

Does this mean that a recession is on the way? Not necessarily. We’ve seen multiple single-quarter GDP reductions since 2011 that were quickly reversed. And it’s important to remember that GDP isn’t the only (or even the best) way to measure an economy — the ups and downs of quarterly GDP reports don’t often relate to the lived experience of everyday Americans. I’m going to continue to keep an eye on employment and wages, which I believe are the most important metric for the economy’s health at the moment.

The state of the American paycheck

The past week has seen a proliferation of excellent pieces about wages in America. Rick Wartzman at Capital & Main notes that the lowest fifth of American workers have in fact seen their wages rise by a considerable amount over the past year. “During the entire 1979–2019 period, the 20th-percentile worker’s wage rose by just 14.6% in real terms. In that light, the 8.1% increase over the course of 2020 and 2021 was absolutely blistering,” Wartzman writes.

But those low-wage workers would have to continue to keep up those “blistering” eight percent gains for over a decade straight in order to earn a living wage of $20 per hour. Without policy solutions from our leaders, that’s not going to happen. Recent skyrocketing wage gains would not have happened without the pandemic accidentally creating a tight labor market in traditionally low-wage sectors like hospitality and grocery stores. It’s going to take economic leadership to raise wages enough that anyone who works a full-time job can afford to participate in the economy.

For the New Republic, Timothy Noah makes the case that the gains low-wage workers made during the pandemic are already ending. He writes that “wage growth slowed to 1 percent in the last quarter of 2021, and though it picked up a bit in the first quarter of 2022, it may already be cooling,” and what Noah refers to as “crap jobs” are proliferating, with exploitative employers already taking advantage of slowing wage growth.

New data from the Economic Policy Institute shows that paychecks rose most dramatically for low-wage workers throughout the pandemic, but it also shows that even with those gains, low-wage workers are nowhere near equity with workers on the higher end of the wage scale. And EPI has also demonstrated that women suffered more job losses than men during the pandemic, workers of color lost more jobs than white workers, and young workers were much more likely to lose their jobs than older workers.

And if you’re unclear on who those low-wage workers are, you should consult EPI’s excellent company wage tracker, which looks at 66 of the country’s largest employers and reports exactly how many of their workforce earns less than $15 per hour. For the Gap and Chick-fil-A, it’s almost three-quarters of the company’s workforce, while nine out of ten McDonald’s employees earn less than $15 per hour. These aren’t low-profile, niche employers — the biggest and most profitable brands in the world are exploiting workers and starving the economy of consumer demand.

Corporate profits are detached from costs, wages, and taxes

Meanwhile, those new, and still modest, wages have less market power as corporations continue to raise prices to pad their profits. Tom Perkins notes for the Guardian that corporate profits are soaring, and they’re still raising prices on American consumers.

“The analysis of Securities and Exchange Commission filings for 100 US corporations found net profits up by a median of 49%, and in one case by as much as 111,000%. Those increases came as companies saddled customers with higher prices and all but ten executed massive stock buyback programs or bumped dividends to enrich investors,” Perkins writes. Worse still, none of those outsized profits are going to workers:

And the Center for American Progress highlights 19 companies on the Fortune 100 that paid nothing or next to nothing in taxes for 2021. AT&T, Dow Inc, and AIG are among the profitable corporations that paid zero in taxes. The list of companies that paid less than 10 percent in corporate taxes includes some of the biggest brands in the world: Amazon, Microsoft, ExxonMobil, Ford, UPS, Nike, and Coca-Cola. That’s money that used to go toward infrastructure, the social safety net, and the paychecks of government workers which now mostly gets funneled into stock buybacks that enrich the shareholder class.

Meanwhile, Talmon Joseph Smith at the New York Times looks at the historical data and uncovers the fact that when unemployment is high, the stock market vastly overperforms. When unemployment is over 9 percent, for instance, the S&P on average returns over 17 percent.

So Wall Street is actively rooting for the job market to slow down and unemployment to climb: “In the coming months, many financial analysts say they’ll pay less attention to data on job creation and focus instead on growth in average hourly earnings — cheering for them to flatten or at least moderate, so that labor costs can ebb.”

Wall Street has become increasingly detached from the real world, with corporate profits unaffected by prices and costs and actively hurt by wage growth and a healthy workforce. This isn’t a problem that’s going to go away on its own — it’s only by restoring sensible protections that our leaders can rein in the shareholder primacy that’s causing Wall Street to actively root against the American economy. Policies like the outlawing of stock buybacks and insider trading, which were illegal until the 1980s, would go a long way toward reuniting the fortunes of American workers and Wall Street.

An important tool for measuring income inequality in America may be broken

The Economic Policy Institute sounded an alarm this week about flaws in our data around income inequality. It gets a little wonky, but basically because our models haven’t kept up with rising income inequality, we might be under-reporting how much wealth the highest earners are bringing home. Basically, the “topcode,” or highest wages reported by the Current Population Survey, has fallen behind the realities of our increasingly unequal society, so we may be undercounting wage growth at the top of the income scale.

EPI notes that “If wage-growth for workers who make more than the topcode has been systematically faster than for workers beneath the topcode, we will miss out on just how much wage inequality has risen,” which “creates a real problem for assessing overall trends in inequality, because so much income (including wage income) has been concentrated at the very top of distributions.”

Economics Is a Field with No History

Winning is always more fun than losing, but you can learn a lot by closely (and humbly) examining your failures. That’s why I was especially interested to read this Discourse piece by Patrick Horan and M. Scott King examining why so many predictions about inflation were wrong. In a field like economics, which has for decades been in thrall to wrong-headed trickle-down orthodoxy, it’s especially important to examine why experts have been blind-sided again and again by disasters like market collapses, recessions, and spikes in inflation.

Horan and King say that the big problem is that economics doesn’t interest itself in history and instead focuses on “last war bias,” which means experts focus like a laser on the last problem they faced rather than anticipating what the next problem might be. The authors argue that economists need to take more of an interest in history, and they continue:

Knowing history does not just mean economic history, as in the study of historical economic developments using contemporary economic theory and statistical or econometric techniques. Although that is crucial, another key element is the history of intellectual debates in economics, that is, the history of economic thought. Most economists recognize the importance of economic theory (such as the workhorse model of supply and demand), but unfortunately, they do not care very much about the history of thought.

It’s a cogent critique of a field that gets away with more sloppy and inaccurate thinking than most of the major disciplines you can study at a major university.

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.

• On Civic Action Live this week, we’ll be discussing the state of the American paycheck: why recent wage gains haven’t been enough to make up for years of stagnant wages, where all that money that used to go to paychecks has been going all this time, and why corporate profits have become divorced from the income of ordinary American workers. We’ll also discuss some recent focus groups showing that economic populism beats identity politics fear-mongering every time, as well as a great new report showing that shareholder wealth is hurting worker pay.
• On the Pitchfork Economics podcast this week, Goldy and Nick talk with Katie Bach about a groundbreaking new report she co-authored. Just before the pandemic, American corporations announced they were going to focus less on shareholder value and more on stakeholder growth, meaning they were going to include workers, customers, and communities in how they measured economic growth. Bach and her peers looked at the numbers and discovered that during the pandemic, corporations increasingly prioritized shareholders over stakeholders by every metric imaginable.
• And in his Business Insider column, Paul discussed the new wage tracker showing how 66 of the world’s biggest, most iconic corporations exploit their workforces by paying less than $15 per hour. What does all this have to do with the federal minimum wage, and the growing march toward unionization at retail, warehouse, and food service outlets around the country? Read the column to find out.

Closing Thoughts

Mike Lux at American Family Voices shares the results of a focus-group study showing that American voters are increasingly frustrated at partisanship, but they “really do dislike greedy corporations, corporate CEOs, and the top 1%,” who they blame for “job and pension loss, rising prices, the general economic decline of their communities, and the struggles they are having in their own lives.”

Issues like taxing the wealthy, fighting for good-paying stable jobs, and curbing price-gouging are hugely popular, even as distrust of all forms of power — both corporate and government power — continues to grow. Americans are increasingly cynical about authority, even as they continue to trust their neighbors in overwhelming numbers.

So what’s the solution? Lux writes:

We tested a strong dose of culture war argument with these factory town voters. Parts of the statement certainly had appeal to some of these voters, but the impression I came away with is that Republicans are overplaying their hand. A lot of the voters in these groups rated the statement very poorly, and said it was just political manipulation…In general, the voters we heard from were more focused on economics, and more positive about our economic populist messages, than they were worried about the culture war boogeymen that the Republicans are throwing out to them. We can win a populist economics vs culture war fight, and we can win a fight where we engage with the right on these issues.

This feels right to me — while Republicans get great feedback on social media when they promote policies like the Don’t Say Gay bill or attacks on trans children, those policies don’t seem to reflect the reality of the American experience for most of us. People believe the best of their neighbors, they see and understand the economic scams that are happening all around them every day, and they want people who will fight for them in office. It’s all about paychecks.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.

Zach