Republicans in the Senate allowed the across-the-board $600 increase in weekly UI benefits to expire. Last week was the third week of unemployment in this pandemic for which recipients did not get the extra $600. That means people on UI are now are forced to get by on the meager benefits which are in place without the extra payment, which are typically around 40% of their pre-virus earnings. It goes without saying that most folks can’t exist on 40% of prior earnings without experiencing a sharp drop in living standards and enormous pain.

Earlier this month, President Trump issued a sham of an executive memorandum. It was purported to give recipients an additional $300 in benefits. But in reality, even this drastically reduced benefit is only available to recipients in a handful of small states, and only for a few weeks. The executive memorandum is a false promise that actually does more harm than good because it diverts attention from the desperate need for the real relief that can only come through legislation.

This is cruel, and terrible economics. The extra $600 was supporting a huge amount of spending by people who now have to make drastic cuts. The spending made possible by the $600 was supporting 5.1 million jobs. Cutting that $600 means cutting those jobs—it means the workers who were providing the goods and services that UI recipients were spending that $600 on lose their jobs. The map in Figure B of this blog post shows many jobs will be lost by state now that the $600 unemployment benefit has been allowed to expire. We remain 12.9 million jobs below where we were before the virus hit, and the unemployment rate is higher than it ever was during the Great Recession. Now isn’t the time to cut benefits that support jobs.Read more

To the contrary, data show that Black and Latinx communities have collectively faced some of the most damaging economic and health effects of the coronavirus. In our previous report, Black Workers Face Two of the Most Lethal Preexisting Conditions for Coronavirus: Racism and Economic Inequality (Gould and Wilson 2020), we look at the disproportionate harms faced by Black workers; in this report, we examine the ways Latinx workers are suffering disproportionately.

The specific channels through which the virus has affected these communities varies. For example, Black workers have faced greater health insecurity due to higher prevalence of preexisting health conditions and overrepresentation in front-line occupations, while Latinx workers’ overrepresentation in jobs within some of the hardest-hit industries resulted in greater job loss at the start of the economic crisis, particularly among Latinas. Further, recent outbreaks have been concentrated in the Sun Belt states—particularly Arizona, California, Texas, and Florida—where a larger share of the U.S. Latinx population lives.

On average, Latinx workers have suffered greater economic distress than their white counterparts since COVID-19 began spreading. These outcomes have been driven by the fact that Latinx workers already had lower pre-pandemic wages, income, and wealth, as well as less access to health care and other important job-related benefits. This lower pre-pandemic level of economic security was in turn driven by a host of factors—including a bigoted immigration regime that has aimed to keep Latinx immigrant workers disempowered in the workplace.1 As the pandemic has spread, another symptom of this labor market disempowerment—inadequate workplace safety—has loomed particularly large.

This report centers the economic, health, and social conditions faced by Latinx workers during the pandemic and raises considerations for rebuilding a more just and equitable economy.

Effects of the pandemic on Latinx workers

Economic effects

Latinx workers across the economy have suffered enormous job losses since February 2020. As a group, they are the least likely to be able to work from home and the most likely to have lost their job during the COVID-19 recession. This economic devastation is widespread, with the largest losses among Latina workers, that is, Latinx women workers.2

Spiking unemployment rates for Latinx workers—and particularly Latina workers

Since February 2020, the labor market has deteriorated, as evidenced by massive numbers of unemployment insurance claims and huge net job losses. Even after job gains in May and June, job losses since February total 14.7 million and payroll employment is currently 10% below its February level as of the end of June (Gould and Shierholz 2020).

While the labor market saw continuing fluctuations in July as more workers filed for unemployment insurance and some states began re-shuttering in response to rising COVID-19 cases (Gould 2020c), we focus here on trends between February and June, since the latest national data available (as of this writing) to assess the impact of job losses for Latinx and white workers separately is from the Current Population Survey for June 2020.3 These data suggest disproportionate job losses for Latinx men and women as compared with white men and women, respectively.

Figure A shows the unemployment rates for Latinx (Hispanic)4 workers and white workers in February through June of this year. Even in the tightest of labor markets, the Latinx unemployment rate is persistently higher than the white unemployment rate. Both began rising in March and then skyrocketed in April. As of April, the Latinx unemployment rate was 18.9%, compared with a white unemployment rate of 14.2%.

It is important to note that in these published Bureau of Labor Statistics tables, used in part for their seasonal adjustment, “white” is defined as “white, any ethnicity.” Therefore, it includes some Latinx workers. If the data were mutually exclusive, that is, if the white unemployment rates were reported for white non-Latinx workers only, then the white unemployment rates would be even lower, and the unemployment rate gaps between white and Latinx workers (shown in Figure A) would be even larger.

The return of jobs in May and June benefited both white and Latinx workers, though it notably excluded Black men (EPI 2020b). But even with the recovery between April and June, the white unemployment rate—at 10.1%—is still just above the highest point the overall unemployment rate reached in the depths of the Great Recession (10.0%, in October 2009; see EPI 2020a).

The difference between the increase in the Latinx unemployment rate and the increase in the white unemployment rate over the past few months—and the current gap between those rates—is stark enough. But these overall differences mask even greater disparities by ethnicity that are apparent when we look at unemployment rates for men and women separately. White men experienced a large rise in unemployment in April relative to their own historical experience, but the unemployment rise for white men was considerably smaller than for other groups over this time.

Latina workers experienced the largest increase in unemployment between February and April, an increase of 15.3 percentage points. One in five (20.2%) Latina workers were unemployed in April. By June, the Latina unemployment rate had significantly recovered, but still remained 10.4 percentage points over its February level.

A precipitous drop in the share of the Latinx population who have jobs

The unemployment rate is a commonly used measure of labor market slack. One limitation, however, is that it relies on would-be workers to either be on temporary layoff or have looked for work in the last four weeks to be counted as unemployed. In this economy, with the health requirements to stay home and with sectors being completely decimated, it is likely that many would-be workers are not actively looking for work and therefore would not be counted in the official unemployment rate. In fact, we have estimated that the unemployment rate would be much higher, 15.0% rather than 11.1% (Gould and Shierholz 2020), if it included all those who should be reasonably counted as out of work involuntarily as a result of the virus.

Because the official unemployment rate may understate the extent of economic pain, policymakers should look to other measures to determine when to turn on and off policy triggers to support workers and the economy (Gould 2020b). One such measure is the employment-to-population ratio (EPOP), or the share of the population with a job. Figure B displays the EPOP for the same groups shown in Figure A.

One fact that sticks out in this chart is that, unlike Black workers (Gould and Wilson 2020), Latinx workers had higher EPOPs in February than white workers did. This is largely because the Latinx population in the United States is younger on average than the white population; when we examine the population of workers ages 16 and older, there are many more retired white workers—who are no longer in the labor force—than there are retired Latinx workers. (The younger age distribution of the Latinx population will be discussed in further detail in the next section, in relation to COVID-19 death rates.)

As shown in Figure B, employment losses were stark across the board between February and April, but the losses were notably larger for Latinx workers than for white workers (13.8 vs. 9.5 percentage points). Again, here white workers are of any ethnicity; the data for white non-Latinx workers would show even smaller losses in employment than are reported here. Even with the higher base EPOP for Latinx workers, Latinx workers have larger percentage losses than white workers; these numbers translate into a larger employment loss for Latinx workers (21%) than for white workers (15%). In other words, more than one in five Latinx workers lost their jobs between February and April. The beginnings of a recovery in May and June translated into significant job gains for Latinx and white workers alike, but Latinx workers still face a far larger job deficit from February to June than white workers, 9.1 percentage points versus 5.9 percentage points.

When we analyze the data by gender as well as ethnicity, we see that the larger employment losses for Latinx workers compared with white workers is driven by losses for Latinx men, whose employment was down 10.3 percentage points between February and June, compared with 8.8 percentage points for Latinx women. However, between February and April, the losses for Latinx women were similar to Latinx men’s losses in percentage-point terms (14.1 and 14.2 percentage points, respectively) but represented a larger percentage loss: Nearly one in four (23.9%) Latinx women in the workforce lost their jobs, compared with 18.1% of Latinx men, over those two months. By June, Latinx men were farthest from regaining their losses since February.

Health effects: Latinx Americans face higher COVID-19 death rates

At first glance, it appears that the Latinx population’s death rate from COVID-19 is relatively proportionate to their share of the overall population. However, given that the Latinx population in the United States is significantly younger than the white non-Latinx population, average death rates are deceiving in this case. When we analyze the data by age, we find that the Latinx population has far higher death rates from COVID-19 than the white non-Latinx population.

As shown in Figure C, the death rates from COVID-19 for the Latinx and the white non-Latinx populations are similar, at 39 and 35 deaths per 100,000, respectively. But this average misses the huge variations across age groups. Older Americans are far more likely to be at risk for serious illness, hospitalization, or death from COVID-19 infection (CDC 2020d). Those most at risk are 75 and older, followed by those ages 65–75 and those ages 55–64.

Those in the youngest age groups (34 years old and younger) face very low risk of death from the coronavirus. However, it is important to note that the numbers in Figure C are rounded, masking the fact that Latinx children ages 0–14 are 3.3 times as likely to die from coronavirus as white children ages 0–14. Among those ages 15–24, those in the Latinx population are 6.1 times as likely to die from coronavirus as those in the white population. Among young adults ages 25–34, the ratio is 6.7 to 1.

The death rates at each age group are significantly higher for the Latinx population than for the white population. In fact, among those ages 35–44, Latinx Americans are nearly nine (8.6) times as likely to die from COVID-19 as white Americans. These findings are troubling, but they are consistent with other analysis of the Centers for Disease Control and Prevention (CDC) data (Ford, Reber, and Reeves 2020).

Figure D shows the shares of both the Latinx and white populations by age group. What is abundantly clear is that the Latinx population is much younger than the white population. The average Latinx person in the U.S. is 31.5 years old versus 42.2 years old for the average white person. And Latinx Americans are far more likely to be less than 25 years old, while white Americans are far more likely to be 55 years old or older. Since there are fewer Latinx Americans in the older age cohorts, which have the highest mortality rates, this age difference on its own could explain how their overall rates could average out to the same level. But, in fact, Latinx Americans face far higher death rates within age groups than white Americans.

Furthermore, in the latter part of June and early July, in the wake of reopening measures, there were considerable spikes in COVID-19 cases in states where Latinx workers and their families disproportionately live. In particular, Arizona, California, Florida, and Texas have seen cases rise (Hawkins et al. 2020; Berger 2020). In response, these states began to re-shutter, but much damage had already been done. Because Latinx families are more likely to live in those states (Noe-Bustamante and Flores 2019), the COVID-19 spread in those states could lead to a disproportionate increase in COVID-19 rates among Latinx workers and their families overall. An increase in infections will likely continue to exacerbate the Latinx death rates from COVID-19.

Underlying factors

The devastating effects of COVID-19 on the economic and physical well-being of Latinx Americans were entirely predictable given persistent economic and health disparities. In this section, we describe some of the underlying economic and health factors behind the unequal outcomes observed thus far.

Underlying economic factors exacerbate the effects of the COVID-19 economy for Latinx workers and their families

Latinx workers and their families were economically insecure and suffered inequitable access to health care even before the pandemic tore through the United States. The pandemic and related job losses have been especially devastating for Latinx households given the fact that they are more likely to experience higher poverty, lower incomes, and lower wages than their white non-Latinx counterparts. Furthermore, Latinx workers, particularly Latinx women, are also more likely to work in jobs that have been particularly susceptible to job loss in the COVID-19 recession. Economic insecurity, coupled with disproportionate job losses, magnified the current economic damage to Latinx workers and their families.

The next 11 figures provide evidence on the occupational segregation of Latinx workers into more vulnerable jobs, as well as on underlying economic factors that disproportionately make Latinx workers more vulnerable than others in today’s labor market.

Occupational segregation into jobs that are vulnerable to job loss

We saw in Figure A that the unemployment rate spiked higher and faster for Latinx workers than for white workers, rising 14.5 percentage points versus 11.1 percentage points between February and April. In June, unemployment remained significantly higher for Latinx workers than for white workers, 14.5% versus 10.1%. And, remember, these gaps would have been larger if the BLS tables with these data excluded Latinx workers from their numbers of white unemployed workers. While the higher unemployment rate can partially be explained by historically higher unemployment rates of Latinx workers, one of the main reasons for these differences in spiking unemployment lies in where people work (Mora and Dávila 2018).

Workers are not randomly distributed across the economy. Because of historical segregation of Latinx workers in particular types of jobs, job losses do not affect workers of different races and ethnicities and genders in a similar way (Alonso-Villar, del Río, and Gradin 2012). Figure E shows the industries where Latinx and white workers were employed in the pre-pandemic economy, by gender. The sectors are listed in order of the extent of job losses between February and May of this year.

Leisure and hospitality experienced the largest job losses, with 41.8% of those jobs shutting down in that short period. Latinx workers are heavily represented in that industry, and particularly Latinx women—14.6% of Latina workers were found in that sector in the pre-pandemic economy, higher than any other group. Latina workers were also disproportionately found in “other services” and retail trade, the next two sectors ranked by the extent of job losses. Therefore, Latina workers’ higher job losses can be directly attributed to the fact that they were more likely to have been working in sectors more vulnerable to job losses when the states shuttered many nonessential businesses.

Moving down the chart, we see that the two industries in which women (both white and Latinx) are most heavily represented—education services and health care and social assistance—were also among those hardest hit. Industries with greater shares of men—including transportation and utilities, manufacturing, and construction—also experienced job losses, but on average, these sectors shed jobs at a lower rate than the sectors dominated by women.

Workers are not only sorted into industrial sectors by gender and ethnicity; they are also sorted into certain occupations by gender and ethnicity. Figure F shows how this plays out for Latinx and white workers in the current crisis. As in Figure E, occupations in Figure F are listed in order by extent of job losses.

Figure F demonstrates that service occupations—the group of occupations most likely to be impacted by COVID-19 shutdowns, with jobs falling by 27.2% between February and May—are also the occupations in which Latina workers are most heavily represented. Nearly one-third (30.4%) of Latina workers are in service occupations.

Further, nearly half (48.1%) of Latina workers are in the three occupations with the largest job losses between February and May. This is significantly higher than the concentration of Latinx men working in those occupations (35.9%) and far less than white non-Latinx workers’ concentration in these occupations (29.5% for white men and 29.1% for white women).

White men and white women workers are most likely to be found in professional and related occupations, but these occupations experienced a far smaller drop in employment (6.5%).

Historically higher unemployment rates and significant wage gaps

Historically, Latinx workers have faced higher unemployment rates and lower wages than their white non-Latinx counterparts. In 2019, the unemployment rate for Latinx workers was 4.3%, compared with 3.0% for white non-Latinx workers (EPI 2020a). In each education category, high school through advanced degree, Latinx workers have higher levels of unemployment than similarly educated white workers (Gould 2020b).

Figure G illustrates the wage gaps Latinx workers experience in the U.S. labor market. No matter how you cut the data, gaps persist. Research has shown that these pay gaps have remained significant for decades (Mora and Dávila 2018). On average, Latinx workers are paid 72 cents on the white dollar. We know from a host of economic research that a person’s wages are not a simple function of individual ability. Instead, workers’ ability to claim higher wages rests on a host of social, political, and institutional factors outside their control (Manning 2003; Card, Devicienti, and Maida 2011). Because of historic and current privilege in the labor market, white men enjoy exceptionally high wages. Therefore, the wage gap between white and Latinx men is particularly stark. Latinx men are paid only 75 cents for every dollar paid to a white man. Latina workers, who face both gender and ethnic discrimination, are paid even less—64 cents on the white male dollar.

Latinx–white wage gaps persist across the wage distribution as well as at different levels of education in the pre-pandemic economy. The Latinx–white wage gap is smallest at the bottom of the wage distribution, where a wage floor—otherwise known as the minimum wage—keeps the lowest-wage Latinx workers from being paid even lower wages. The largest Latinx–white wage gaps are found at the top of the wage distribution and are explained in part by occupational segregation—the underrepresentation of Latinx workers in the highest-wage professions and overrepresentation in lower-wage professions—and the pulling away of the top more generally (Gould 2020b).

Similarly, across various levels of education, significant Latinx–white wage gaps remain. Even Latinx workers with a college or advanced degree experience significant wage gaps relative to their white counterparts.

Benefits gaps

The lack of certain workplace benefits makes it even harder for Latinx workers to weather the COVID-19 recession. Not only are they paid less than their white counterparts, but they are also less likely to get paid sick days or have the ability to work from home. These two workplace benefits help shield workers from economic losses by allowing them to take paid time off to care for themselves or family members and allowing them to stay out of harm’s way and still earn a paycheck by working from home. Health insurance, another workplace benefit that employers can provide, is discussed later in the context of the increased individual and public health risks of uninsured workers.

Latinx workers are less likely to have paid sick days

Figure H illustrates that Latinx workers are less likely than white workers to be able to take paid sick days. A full two-thirds of white workers have the ability to earn paid sick days to take care of themselves or family members when they are sick. Less than half, only 45.9%, of Latinx workers have that same benefit. When workers without paid sick days are faced with illness, they also face a difficult choice between losing pay and going to work sick.

The Families First Coronavirus Response Act was an important first step in providing vital paid sick days to such workers, but somewhere between 6.8 million and 19.6 million private-sector workers were still left without paid sick days as a result of the firm-size exemptions in the law (Gould and Shierholz 2020). Obviously, those loopholes need to be closed, and workers—regardless of race or ethnicity—also need a permanent fix to this basic labor standard. The lack of paid sick days for millions of workers, and disproportionately for Latinx workers, is particularly damaging in these times.

Latinx workers are less likely to have the option of working from home

The ability to telework has been essential for many workers to keep their jobs and maintain their wage incomes. Unfortunately, Latinx workers were less likely than white workers to be able to work from home before COVID-19. Therefore, in the COVID-19 recession, they were more likely to be vulnerable to job loss.

As Figure I illustrates, only 16.2% of Latinx workers had the option to work at home pre-pandemic, compared with 29.9% of white workers. Even smaller numbers of workers were actually working from home in February before the economy began to close down in March.

Recent research from the Federal Reserve Bank of Dallas found that 39.4% of white workers were working from home in May, compared with only 23.4% of Latinx workers (Bick, Blandin, and Mertens 2020). Looking at the data from another angle, Bick, Blandin, and Mertens found that among commuters—those who typically commuted to work daily before the pandemic—much higher shares of Latinx workers were no longer employed and much smaller shares of Latinx workers were able to work from home daily than white non-Latinx workers. The fact that fewer Latinx workers had the option to transition to working from home made them far more susceptible to job loss and made it even harder for them to maintain economic and health security during this difficult time.

Lower household incomes and higher poverty rates

Latinx workers are more likely to have lost their jobs during the pandemic than white workers, as discussed above. These job losses are even more devastating for Latinx workers because of their lower incomes and higher poverty rates in the pre-pandemic economy, as shown in Figure J.

In 2018, median household income for white non-Latinx households was 37% higher than for Latinx households ($70,642 vs. $51,450). Lower incomes are one of the reasons that Latinx families haven’t been able to build up savings to weather storms such as the one our country finds itself in today. (See “Less cash reserves,” below.)

At the bottom of the income distribution, the Latinx poverty rate is 2.2 times the white poverty rate. More than one in six Latinx people in this country live below the poverty line—that’s below about $26,000 annual income for a family of four. Job loss for those living at such low incomes is absolutely shattering.

Higher shares of households headed by single parents

Job losses are even more difficult for Latinx women to weather because Latinas, in particular, are more likely to be in single householder families (with or without kids) than white women. In fact, Latinas are more than three times as likely to be a single head of household as their white non-Latinx counterparts (19.1% vs. 8.6%).

For those single heads of household who are raising children, the challenges multiply: Single working parents face the added burden of needing to balance the competing demands of work, assisting children with online distance learning, and child care responsibilities. Latinas, as shown in Figure K, find themselves at the nexus of these overlapping responsibilities since they are nearly three times as likely as white women to be single heads of households with children under age 18 (11.4% of Latinx households compared with 4.0% of white households).

Less cash reserves

On top of lower wages and incomes and higher poverty rates, Latinx families have significantly less access to liquid assets than white families. To weather a financial loss, families often must dip into their liquid assets to pay for their living expenses. If a family member loses a job or experiences a serious health shock, often a family’s only hope of making ends meet and continuing to pay their rent or mortgage and put food on the table is to rely on their savings.

Figure L displays the total value of all transaction accounts for Latinx and white non-Latinx families. Transaction accounts include checking or savings accounts, cash, prepaid cards, and directly held stocks, bonds, and mutual funds. These are assets that can be quickly accessed to purchase goods and services, unlike less liquid sources of wealth like homeownership or retirement accounts.

Overall, white families hold, on average, more than three times the liquid assets Latinx families do, $49,529 versus $15,377. This makes white families far more capable of weathering the storm of COVID-19, whether they have experienced job loss or another financial hit.

The attainment of higher education does not bridge this divide. This gap remains large when we compare white and Latinx families whose heads of household have the same level of education. Though they are far less likely to be homeowners (as shown in the next section), the gap in access to cash reserves persists whether a Latinx family owns a home or not. The gaps in liquid assets differ by what sector the family head works in, but no matter how the data are cut, white families have far more access to liquid wealth.

More likely to be rent-burdened

The lack of access to liquid savings in the face of job loss is particularly troubling given that Latinx households were already more likely than white households to be overburdened by housing costs.

Latinx families are less likely to own a home

Latinx households’ economic precarity in terms of housing begins with the fact that they are far less likely to own their home than white households. As shown in Figure M, nearly three-quarters (72.1%) of white households own their home compared with less than half (47.4%) of Latinx households. On the flip side, more than half of Latinx households live in renter-occupied housing.

Latinx households are more likely to be rent-burdened

Not only are Latinx households more likely to rent their homes, but they are also more likely to be rent-burdened—that is, to spend a larger share of their income on rent than the conventionally accepted affordability threshold of 30%—as illustrated by Figure N.

According to survey data from 2018, 54.9% of Latinx households pay 30% or more of their household income on rent, as compared with 45.7% of white households (U.S. Census Bureau 2018). These data, of course, represent their circumstances before the coronavirus recession hit. Now, with disproportionate job losses, Latinx households’ ability to pay rent has been further diminished.

Latinx households are more likely to have missed rent payments during the pandemic

Given that they were already rent-burdened before the pandemic, and given their disproportionate job losses, it’s not surprising then that Latinx households have been less able to make their rent payments during the COVID-19 recession than white non-Latinx households, as seen in Figure O.

Figure O shows the shares of Latinx and white non-Latinx households that did not pay rent in July, and the shares who had little or no confidence in their ability to pay next month’s (August’s) rent. Latinx renters were far more likely to not have paid their July rent than white renters. And they were far less confident in their ability to pay their next month’s (August’s) rent than white renters.

Health disparities set up higher rates of COVID-19 illness and deaths

Latinx workers also face greater underlying pre-pandemic health insecurities that make them more susceptible to the coronavirus. Below we explore some of the factors contributing to the greater risk of adverse health outcomes related to COVID-19, including preexisting health conditions, lack of health insurance, housing conditions, and population density.

Preexisting health conditions compound the risks faced by Latinx workers

Preexisting health conditions—such as diabetes, hypertension, asthma, and obesity—are associated with greater risk of death from the coronavirus, and additional risk factors are being added as new information becomes available (CDC 2020e). As shown in Figure P, Latinx adults experience two of these four illnesses at higher rates than whites: Latinx adults are 80% more likely to have diabetes and 6% more likely to be obese.

In addition, Latinx communities experience greater exposure to air pollution, which has long been known to increase risk of heart and respiratory disease, heart attacks, asthma attacks, bronchitis, and lung cancer (Sass 2013). These illnesses also put people at greater risk of complications from COVID-19. According to a 2018 report by a group of scientists at the EPA National Center for Environmental Assessment, published in the American Journal of Public Health, Latinx communities are disproportionately affected by air pollution because of their proximity to particulate-matter-emitting facilities (Mikati et al. 2018). The Latinx population has about 1.2 times the exposure to particulate matter as does the non-Latinx white population, making them more vulnerable to respiratory illnesses in general and to COVID-19 in particular.

Lack of health insurance negatively affects Latinx health outcomes and is counterproductive in limiting the spread of COVID-19

Early diagnosis and treatment are essential to minimizing the severity of chronic illnesses, and regular health care is important for promoting better overall health. This is especially critical as we seek to slow the spread of a highly contagious respiratory virus like COVID-19. Those who lack health insurance are often without a regular source of care (Gould 2020a) and are more likely to delay—or completely forgo—receiving health care. Therefore, uninsured workers are more likely to have undiagnosed or untreated preexisting health conditions than insured workers—increasing their risk of complications or death from COVID-19. They might also wait longer to seek care for suspected coronavirus symptoms, increasing the risk of community spread.

Figure Q shows that Latinx workers are over three times as likely to be uninsured as white workers. Undocumented workers are much more likely to be uninsured. According to the Kaiser Family Foundation (Artiga and Diaz 2019), at least 45% of undocumented immigrants overall are uninsured. Among Latinx workers in the U.S., roughly 13.8% (8.1 million) are undocumented.

Latinx workers and their families face greater risk of exposure to the coronavirus because they are more likely to live in densely populated housing

The health and economic risks associated with COVID-19 are not limited to individual workers, but also affect their families and communities. The high rate of contagion associated with the coronavirus has made social distancing critical to slowing the spread of infection. However, in smaller or more densely populated home environments, it can be more difficult to effectively isolate vulnerable family members from those who have been infected or who face greater risk of exposure to the virus because of their work conditions. For example, those who live in multi-unit dwellings, such as apartment or condo buildings, tend to reside in more densely populated areas—where more people share highly trafficked common spaces—than those who live in single-unit detached dwellings. As shown in Figure R, 57.4% of Latinx households live in single-unit structures, compared with 74.2% of white households. And 24.6% of Latinx households live in structures that include five or more units—1.7 times the rate of white households.

Latinx workers are more likely to live in multigenerational households with older family members who are at high risk of contracting the virus

Latinx workers are also more likely to live in multigenerational households where there may be older family members who are considered high risk. As shown in Figure S, Latinx workers are more than twice (2.6 times) as likely as white workers to live in households with three or more generations, such as a grandparent living with children and grandchildren. While older people have been encouraged to isolate themselves as a preventative measure, this presents a challenge in homes where other members of the household must work outside of the home.

The fallacy of neutral policy

The once-in-a-generation challenges presented by the coronavirus have required leaders in government and private industry to respond quickly in order to minimize the threat to public health as well as the economic harm. Consistent with the scale of the crisis, many of the actions taken have been widespread in terms of the number of people helped, and the magnitude of the interventions has been unprecedented.

Still, even such a broad-reaching response can yield uneven results because of differential access to the resources needed to equitably implement the response. In addition, some policies that appear to be neutral have disproportionately harmed certain populations.

This section is by no means an exhaustive list of coronavirus policies and their implications for Latinx communities, but it provides clear examples of how some of these policies have actually played out across the country. For instance, mandating measures to require meatpacking industries to reopen has disproportionately harmed Latinx workers, and language barriers—often compounded by a lack of Spanish-language materials and communications—have kept many Latinx families from accessing health and safety measures.

Small business relief took too long to reach Latinx businesses

Providing support to small businesses has been a top priority of legislation designed to lessen the harmful economic effects of the pandemic. In this section, we look at the likely effects of the pandemic on Latinx small businesses and examine whether the policies designed to help small businesses are actually reaching Latinx-owned businesses.

A profile of Latinx small businesses

While just 12% of all U.S. business owners are Latinx, Latinx-owned businesses are more likely to be in vulnerable industries and are therefore more likely to need economic supports in the current crisis.

To quantify this likelihood, we use the April 2020 decline in payroll employment by industry as a measure of which businesses have been most affected by reduced demand and are therefore more vulnerable to business failure due to the pandemic. According to the Bureau of Labor Statistics, the industries with the largest total job losses in April were in accommodation and food services, retail, and health care and social assistance. The large number of job losses in these industries is due in part to the fact that they employ many more people than other industries. As shown in Figure T, 21.2% of Latinx-owned businesses are in those three sectors, compared with 19.7% of white-owned businesses.

Another way of measuring the impact of losses is to consider April 2020 job losses as a share of March (the previous month’s) payroll employment. Based on this measure, the largest percentage losses in payroll employment were in arts, entertainment, and recreation; accommodation and food services; and other services. These three industries account for 22.8% of Latinx-owned businesses compared with 18.8% of white-owned businesses.

The Paycheck Protection Program

The CARES Act established the Paycheck Protection Program (PPP), which offered loans to small businesses to use for payroll costs, mortgage interest, rent, and utilities—loans that are forgivable on the condition that the businesses retain or rehire employees at their pre-pandemic levels of pay (SBA 2020). At least 60% of the forgiven amount must have been used for payroll costs. While a very small share of Latinx-owned businesses are employers—only 8.7% have employees, compared with 19.6% of all businesses and 20.6% of white-owned businesses (U.S. Census Bureau 2016)—sole proprietorships, independent contractors, and self-employed individuals are also eligible to apply (SBA.com 2020). Loans for this group of businesses can also be forgiven if 60% of the loan is used to replace 1099-MISC income or net self-employment income.

Despite such broad eligibility criteria for the PPP, a survey of Black- or Latinx-owned small businesses showed that few who applied received loans from the first round of PPP funding, even as large publicly traded companies, including popular restaurant chains, were among the first to get loans—quickly depleting the $350 billion that was originally allocated (Flitter 2020). One of the main barriers cited by these businesses is a lack of preexisting banking relationships with lenders that are more experienced at serving Small Business Administration loans or that have the ability to ramp up that capacity quickly. The biggest shortcoming of the PPP is that its total funding level was capped, which made it a zero-sum dash to be the first to apply, and made the lack of a preexisting relationship with a lender who would prioritize one’s claim an absolutely devastating hindrance in trying to claim benefits.

Although a second round of $310 billion in funding was approved in late April 2020 to cover unmet demand, if the program had initially been uncapped and everyone who qualified had been guaranteed to get the loans, there may have been less harm in terms of businesses having to wait longer to get an application processed. The defining feature of parallel plans in the United Kingdom and Denmark is that they are open-ended and hence not zero-sum among businesses (White 2020; Thompson 2020).

Meatpacking industry mandates harm Latinx workers

Some of the largest COVID-19 outbreaks have been traced back to nursing homes, prisons, and food-processing and meatpacking plants (Chadde 2020; NYT 2020). By mid-April, it was reported that 44% of South Dakota’s COVID-19 cases could be traced back to a single Smithfield Foods pork processing plant (Dickerson and Jordan 2020). After a spate of closures among these facilities, the Trump administration issued an executive order, invoking the Defense Production Act, with the intent to hasten the reopening and production speeds of affected meatpacking plants (Lucas 2020; White House 2020).

For meatpacking workers, a lack of protective equipment and testing, increased production speeds, and crowded working conditions have had devastating consequences (Hussein 2020; UFCW 2020). While businesses and regulators mull over providing legal liability immunity to the industry for workers who fall ill, as of August 14, more than 52,000 COVID-19 cases and 237 deaths have been directly linked to meatpacking facilities, farms, and food-processing plants across the nation (Douglas 2020; Fang 2020).

Latinx workers are disproportionately affected by these issues. As shown in Figure U, while Latinx workers make up 16.8% of the overall U.S. workforce, they represent 34.9% of all workers in the animal slaughtering and processing industry and 44.4% of front-line meatpacking workers.

Language barriers hinder access to public safety net and health and safety measures

Access to timely, accurate public health information is crucial to navigating a public health crisis of this scale. However, information is only as useful as it is accessible. It is well documented that language barriers drove disparities in mortality during the 1918 influenza pandemic (Grantz et al. 2016). As shown in Figure V, 71.6% of Latinx respondents reported that they speak a language other than English at home, while 29.0% of Latinx respondents reported speaking English less than “very well.”

Language barriers can make it difficult for Spanish speakers to acquire information, navigate insurance bureaucracy, and even communicate with care providers (Smith and Leis 2016). When a COVID-19 outbreak happened at the infamous South Dakota Smithfield plant, it was reported that workers were given informational packets only in English (Siemaszko 2020). Moreover, due to language barriers, epidemiologists from the CDC reported difficulty gathering information about worker conditions that might have helped to slow the spread of COVID-19 at the plant. At best, language barriers are burdensome, but at worst, they can be fatal and exacerbate disparities in health outcomes.

Undocumented immigrants have been left out

Because of their legal status, millions of undocumented Latinos have been left to weather the storm alone. As shown in Figure W, there are an estimated 8.1 million undocumented Latinx workers in the United States. These workers are ineligible to receive the expanded unemployment insurance benefits or the one-time stimulus payments disbursed under the CARES Act; they are also ineligible for other existing safety net programs. At the same time, undocumented Latinx workers make up a considerable portion of the essential workforce—especially in the food-processing and agriculture industries, which have been deemed essential by the Trump administration (Bottemiller Evich and Crampton 2020).

Combined, these circumstances mean that undocumented Latinx workers have few options but to risk their health or face financial ruin. The tragic consequences are exemplified by the numerous COVID-19 outbreaks and deaths in meatpacking facilities described above.

Again, the economic and health crisis is not limited to individual undocumented workers; their families and communities are also affected. We already saw that Latinx workers are more likely to live in multigenerational households (Figure S), and an estimate by the Pew Research Center estimates that nearly 7.6% of all K–12 students in the U.S. live with an undocumented parent (Passel and Cohn 2016). This suggests that not only are millions of undocumented workers supporting critical sectors of the economy while trying to navigate this crisis without a lifeline, but large numbers of family members are also struggling alongside them.

Acknowledgments

We are especially grateful for Felipe Juan’s feedback, research assistance, and data visualization expertise. Felipe Juan is a PhD candidate in economics at Howard University and was an intern at the Economic Policy Institute in Summer 2020.

Endnotes

1. See, for example, Costa 2020a, 2020b.

2. In most cases, we use the gender-neutral “Latinx” throughout; however, when focusing on women, we use “Latinx women” and “Latinas” interchangeably.

3. Current Population Survey monthly data are published by the U.S. Census Bureau and the Bureau of Labor Statistics. For more information, see U.S. Census Bureau 2019a.

4. Government data sources use “Hispanic” to describe members of this ethnic group.

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Office of Exemption Determinations
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Ave., N.W.
Suite 400
Washington, D.C. 20210

Re: Application No. D-12011
Improving Investment Advice for Workers & Retirees

To whom it may concern:

The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions.

EPI and other organizations representing workers, consumers, investors, and retirees submitted a joint letter opposing the Department of Labor’s proposed new retirement advice rulemaking package. EPI is submitting a separate letter to elaborate on some of the points made in the joint letter.

In the joint letter, EPI and the other co-signers objected to the department’s final rule reinstating the 1975 regulatory definition of fiduciary investment advice and the department’s proposed exemption allowing investment advice fiduciaries to earn conflicted compensation when providing advice regarding retirement account investments.

With respect to reinstating the old definition of fiduciary advice, the joint letter points out that the five-part test excludes most of the conflicted “advice” retirement savers receive, since only advice provided on a regular basis, not offered under the guise of investor education, and intended to serve as a primary basis for the retirement saver’s investment decision is considered fiduciary advice. This narrow definition allows financial professionals to disguise sales pitches tainted by conflicts of interest as disinterested advice, notably when encouraging 401(k) account holders to roll over their balances into higher-cost investments, including opaque and illiquid investments not regulated by the Securities and Exchange Commission (SEC).

Opening the door wider to conflicts of interest, the department is also proposing a new exemption to the prohibited transaction provisions under the Employee Retirement Income Security Act of 1974 (ERISA), allowing fiduciaries who provide advice on retirement investments to receive compensation that creates a conflict of interest. The proposed prohibited transaction exemption, which only requires that an effort be made to mitigate the conflict, is modeled on the SEC’s vague Regulation Best Interest (“Reg. BI”). It broadens ERISA’s exemption from fiduciary status to include professionals providing “advice” on annuities and other investment products not considered securities and therefore not subject to SEC rules.

As EPI and others noted when the SEC proposed Reg. BI, nothing in that regulation requires financial professionals to act in investors’ best interest. Rather, the “best interest” standard appears indistinguishable from the Financial Industry Regulatory Authority’s (FINRA’s) “suitability” standard, which only prohibits financial professionals from steering investors to egregiously unsuitable products, such as recommending highly risky investments to risk-averse clients. It does not prevent broker-dealers and others from promoting higher-cost but “suitable” investments when similar or better lower-cost investments are available.

The department claims that reinstating the old fiduciary definition and proposing a new prohibited transaction exemption is intended to improve investment advice and options for workers and retirees. This is not supported by the evidence. As we discuss at greater length in our comment on the SEC’s proposed Reg. BI, the industry lobby—despite the considerable resources at its disposal—has failed to show that conflicted “advice” is, on net, valuable to investors. However, the SEC and DOL appear to accept this at face value.

Prohibiting conflicted transactions does not entail a societal cost, even if there are costs to some professionals and firms, if these transactions involve rent-seeking as opposed to wealth-generating behavior. From our letter to the SEC:

Conflicts of interest between buyers and sellers are commonplace. Many salesmen, including brokers and car dealers, are paid on commission. However, it has long been recognized that markets for professional advice are different from markets for automobiles because information asymmetries are inherent in these transactions.

For this reason, markets for professional advice are highly regulated and often impose an affirmative duty on professionals to act in their clients’ interest, while specifically prohibiting transactions that involve conflicts of interest. For example, doctors operating under a duty of care to patients cannot be compensated by pharmaceutical companies for prescribing specific medications. These regulations are imperfect, however. In most states, doctors may be wined and dined by pharmaceutical companies and offered other inducements, as long as these are not contingent on prescribing medications.

It is currently legal for some financial professionals, notably broker-dealers, to present themselves as disinterested advisers while recommending products or services that are clearly worse for investors but more lucrative for sellers than available alternatives. When broker-dealers present themselves as “advisers” in order to sell investment products and services for which they receive commissions, it is as if pharmaceutical representatives were not just influencing doctors and patients through gifts and advertisements, but selling drugs directly to patients while presenting themselves as healthcare professionals…

[In] combatting the DOL’s fiduciary rule, industry focused on evidence that the rule would limit the range of products and services offered to retirement savers, including incidental “advice” offered to clients by broker-dealers.1 The short-lived DOL rule did affect the mix of products and services marketed to investors, accelerating a flight from high-fee products and broker-dealer services in favor of lower-cost products and unbiased advice from fiduciary advisers and “robo-advisers” among others.2

It is not clear whether the rule resulted in fewer choices for investors, rather than different choices. In any case, the SEC appears to have accepted the industry argument that more choice is inherently better, ignoring evidence that choice overload can hinder decision making. This is especially true in retirement savings decisions and other contexts in which decision-making is difficult due to complexity and asymmetric information.3

Admittedly, the government is not generally in the business of limiting consumer choice for its own sake, even if this might make many consumers better off.4 However, if limiting conflicted investment advice indirectly results in better but possibly fewer investment options, this is a desired outcome, not a valid argument against such limits. Simply put, we should not mourn the loss of products and services that are only competitive if recommended by conflicted advisers…

A regulation that corrects a market failure—in this case, an information asymmetry between financial professionals and unsophisticated investors—is, by design, costly to businesses that thrive on taking advantage of the market failure. The cost to these businesses is not, however, a societal cost, except to the extent that compliance is costly for all businesses and these costs are passed on to consumers. Only in this case must the costs to businesses be weighed against the benefits to consumers. Otherwise, one firm’s loss is another’s gain, and society clearly benefits from correcting the market failure…

[Much] of the “advice” provided by broker-dealers not only lacks value, but is actually harmful, steering savers to higher-cost products and costly services that will reduce their future standard of living compared to how they would fare in the absence of this “advice.” This may be true whether or not, in the absence of conflicted “advice,” investors would have availed themselves of more paid or free advice from more impartial sources…

[It] is unlikely that broker-dealer commissions actually pay for useful advice. Most of the advice retirement savers and other small investors benefit from is generic, and the marginal cost of disseminating it is negligible. The fact that generic advice resembles a public good suggests that it should be—and is—provided by government agencies and nonprofit organizations. However, since appraising and absorbing such information can be difficult and time consuming, bad information from conflicted advisers can be worse than superfluous, it can be harmful to small investors, making them less likely to avail themselves of useful advice.

To the extent that small investors could actually use one-on-one advice, it is often to counter misinformation from conflicted advisers. Beyond that, financial technology is making it easier to provide low-cost investment advice tailored to individuals’ risk preferences. Meanwhile, advice from unbiased sources is available free or at low cost from library books, newspapers, and online—including from the SEC itself. This is all that many investors need, given the ready availability of low-cost, broadly-diversified, mutual funds.

Some investors, of course, do benefit from advice tailored to their specific needs. But there is no reason to believe that this advice will be more affordable if paid for indirectly through broker-dealer commissions. Hiring a fiduciary adviser may cost more up front than paying broker-dealer commissions, but the advice received is of better quality. In reality, the value of broker-dealer “advice” is likely to be negative…

[The] relevant question is not whether consumers lose access to certain products and services currently being offered. After all, if the goal is to restrict “advice” steering savers to poor investments, any effective regulation will reduce conflicted “advice” and make overpriced or lower-quality products less competitive. Rather, the question is whether consumers gain or lose from changes in products and services resulting from regulation, including newly available products and services and impartial advice that was previously buried under misinformation.

It is undoubtedly true that with effective regulation consumers will be offered less bad advice and fewer unnecessarily expensive products and services, and that companies and individuals engaged in such practices will be negatively affected, though other financial actors stand to gain. This is the purpose of the regulation, after all.

Does anyone truly believe that conflicted advisers help resolve information problems, rather than contributing to them? We are inclined to agree with authors Helaine Olen and Harold Pollack that everything most people need to know about personal finance can fit on an index card—unless, that is, they have been misled by conflicted advisers.5 One of the authors’ nine index card tips was to seek financial advice only from professionals held to a fiduciary standard.

The financial industry lobby failed to credibly demonstrate that there was a societal cost to the DOL rule, as opposed to a cost to some financial professionals and firms. Government regulators should not be in the business of protecting industry profits if these come at the expense of consumers. Industry groups failed to even clear a lower bar—demonstrating that a significant number of consumers would be hurt, even if most benefited.

Critics of regulation often say government should not be in the business of picking winners and losers. However, the same may be said of a failure to act if the playing field is not level. The government is, in effect, enabling bad actors at the expense of those who provide unbiased advice and sell products that are in clients’ true best interest…

The industry never bothered to explain why affordable “advice” can only be provided by conflicted professionals acting in the guise of disinterested experts to clients often unaware that they are paying for this supposed service…

Effective regulation—in whatever form it takes—should reduce the biased “advice” received by consumers and make the market for investment products and services more competitive. This in turn should crowd out higher-cost and lower-quality products and services, while expanding opportunities for businesses offering better options. Whether or not consumers are left with fewer choices, they will benefit from better ones.

Our full letter to the SEC is available here: https://www.epi.org/publication/epi-comments-regarding-regulation-best-interest/

In short, the old definition of fiduciary advice that the department is attempting to restore is so narrow as to allow virtually all the abuses that the department’s fiduciary rule, which this administration has abandoned, was intended to address. The SEC’s Reg. BI is equally toothless and should not serve as a model for the department.

Respectfully,

Monique Morrissey
Economist, EPI

Heidi Shierholz
Senior Economist and Director of Policy, EPI

Notes

1. See, for example, U.S. Chamber of Commerce, “Fiduciary Rule: Initial Impact Analysis,” September 7, 2017.

2. Brian Menickela, “The DOL Rule – It Was The Best Of Times, It Was The Worst Of Times,” Forbes, August 21, 2017.

3. Sheena Sethi-Iyengar, Gur Huberman, and Wei Jiang, “How Much Choice is Too Much? Contributions to 401(k) Retirement Plans,” in Olivia S. Mitchell and Stephen P. Utkus (Eds.) Pension Design and Structure; New Lessons from Behavioral Finance, Oxford University Press, 2015; Shlomo Benartzi and Richard H. Thaler, “Heuristics and Biases in Retirement Savings Behavior,” Journal of Economic Perspectives, Volume 21, Number 3, Summer 2007, Pages 81–104; Shlomo Benartzi and Richard H. Thaler, “Naive Diversification Strategies in Defined Contribution Saving Plans,” American Economic Review, Vol. 91, No. 1, March 2001, pp. 79-98.

4. Barry Schwarz, The Paradox of Choice; Why More is Less, New York: HarperCollins, 2004.

5. Helaine Olen and Harold Pollack, The Index Card: Why Personal Finance Doesn’t Have To Be Complicated, New York: Penguin Random House, 2017.

What this report finds: Corporate boards running America’s largest public firms are giving top executives outsize compensation packages that have grown much faster than the stock market and the pay of typical workers, college graduates, and even the top 0.1%. In 2019, a CEO at one of the top 350 firms in the U.S. was paid $21.3 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in rather than when granted). This 14% increase from 2018 occurred because of rapid growth in vested stock awards and exercised stock options tied to stock market growth. Using a different “granted” measure of CEO pay, average top CEO compensation was $14.5 million in 2019. In 2019, the ratio of CEO-to-typical-worker compensation was 320-to-1 under the realized measure of CEO pay; that is up from 293-to-1 in 2018 and a big increase from 21-to-1 in 1965 and 61-to-1 in 1989. CEOs are even making a lot more—about six times as much—as other very high earners (wage earners in the top 0.1%). From 1978 to 2019, CEO pay based on realized compensation grew by 1,167%, far outstripping S&P stock market growth (741%) and top 0.1% earnings growth (which was 337% between 1978 and 2018, the latest data year available). In contrast, compensation of the typical worker grew by just 13.7% from 1978 to 2019.

Why it matters: Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay—and because so much of their pay (about three-fourths) is stock-related, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more).

How we can solve the problem: We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

Introduction and key findings

Chief executive officers (CEOs) of the largest firms in the U.S. earn far more today than they did in the mid-1990s and many times what they earned in the 1960s or late 1970s. They also earn far more than the typical worker, and their pay—which relies heavily on stock-related compensation— has grown much more rapidly than typical worker pay. Importantly, rising CEO pay does not reflect rising value of skills, but rather CEOs’ use of their power to set their own pay. And this growing earning power at the top has been driving the growth of inequality in our country.

About the CEO pay series and this report

This report is part of an ongoing series of annual reports monitoring trends in CEO compensation. In this report, we examine current trends to determine how CEOs of the top 350 largest U.S. firms (by sales) are faring compared with typical workers through 2019. We also compare top CEO pay with earnings of workers in the top 0.1% (through 2018), and look at the relationship between CEO pay and the stock market.

For most of our analyses, we use two measures of CEO compensation, one based on compensation as “realized” and the other based on compensation as “granted.” Both measures include the same measures of salary, bonuses, and long-term incentive payouts. The difference is how each measure treats stock awards and stock options, major components of CEO compensation that change value from when they are first provided, or granted, to when they are realized. The realized measure of compensation includes the value of stock options as realized (i.e., exercised), capturing the change from when the options were granted to when the CEO invokes the options, usually after the stock price has risen and the options values have increased. The realized compensation measure also values stock awards at their value when vested (usually three years after being granted), capturing any change in the stock price as well as additional stock awards provided as part of a performance award. The granted measure of compensation values stock options and restricted stock awards by their “fair value” when granted.

We have changed our definition of CEO compensation in the realized measure from that employed in earlier reports. Previous reports used the value of stock awards as granted in both the realized and granted compensation measures, so that the measures differed in only their treatment of stock options. As noted in our previous report (Mishel and Wolfe 2019) the increased importance of stock awards in executive pay and the increased divergence between the value of stock awards when granted (measured as “fair value” when granted) versus when vested means that excluding the realized gains from stock awards increasingly understates total CEO compensation. We therefore have incorporated a realized measure of stock awards along with the realized measure of stock options in our realized compensation metric. This first metric can be compared with the second metric, compensation granted, whose measurement is the same as in prior reports.

CEO compensation growth in 2019 and recent years

Both measures of CEO compensation grew strongly in 2019. Realized CEO compensation grew to $21.3 million in 2019, which was $2.6 million or 14.0% higher than in 2018. The growth in realized CEO compensation was driven by a 19.5% growth in vested stock awards and a 17.5% growth in exercised stock options. Granted CEO compensation grew $1.1 million or by 8.6% to $14.5 million in 2019.

Long-term trends

Realized CEO compensation grew 105.1% from 2009 to 2019, the period capturing the recovery from the Great Recession; in that period granted CEO compensation grew 35.7%. In contrast, typical workers in these large firms saw their average annual compensation grow by just 7.6% over the last 10 years. (Typical workers in these firms are production and nonsupervisory workers in the industries that the top 350 firms operate in. Their compensation measure includes wages and benefits.)

CEO compensation attained its peak in 2000, at the height of the late 1990s tech stock bubble, at $21.9 million (in 2019 dollars) based on either measure. That same year the CEO-to-typical-worker compensation ratio was 366-to-1 (realized) or 386-to-1 (granted).1 CEO compensation fell in the early 2000s after the stock market bubble burst, but mostly recovered by 2007, at least for the realized compensation measure (the measure using compensation granted remained substantially below the 2000 level). Realized CEO compensation fell again during the financial crash of 2008–2009 and rose strongly after 2009 and with the strong growth in 2019 regained and exceeded its 2007 pre-financial crisis level but in 2019 still remained below the 2000 peak level. CEO compensation continues to be dramatically higher than it was in the decades before the turn of the millennium. Realized CEO compensation was 1,167% higher in 2019 than in 1978 and granted CEO compensation was 1,033% higher. Correspondingly, the CEO-to-average-worker pay ratio, using the realized compensation measure, was 320-to-1 in 2019, far higher than the ratios in earlier years: 118-to-1 in 1995, 61-to-1 in 1989, 31-to-1 in 1978, and 21-to-1 in 1965.

The relationship between CEO pay and the stock market

CEO pay has become closely associated with the growth of the stock market. The generally tight link between stock prices and CEO compensation indicates that CEO pay is not being established by a “market for talent,” as pay surged with the overall rise in profits and stocks, and not with the better performance of a CEO’s particular firm relative to the performance of that firm’s competitors.

The relationship between CEO pay and the pay of other top earners; the rise of inequality

Amid a healthy recovery on Wall Street following the Great Recession, CEOs enjoyed outsized gains in compensation even relative to other very-high-wage earners (those in the top 0.1%); CEOs of large firms earned 6.0 times as much as the average top 0.1% earner in 2018, up from 4.4 times as much in 2007 and 3.3 times as much in 1979. This is yet another indicator that CEO pay is more likely based on CEOs’ power to set their own pay, not on a market for talent.

To be clear, these other very-high-wage earners aren’t suffering: Their earnings grew 337% between 1978 and 2018. CEO pay growth has had spillover effects, pulling up the pay of other executives and managers, who constitute more than 40% of all top 1.0% and 0.1% earners.2 Consequently, the growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1% and top 0.1% of U.S. households from 1979 to 2007 (Bakija, Cole, and Heim 2012; Bivens and Mishel 2013). Income growth has remained unbalanced. As profits and stock market prices have reached record highs, the wages of most workers have grown very modestly, including in the recovery from the Great Recession (Bivens et al. 2014; Gould 2020b).

Key findings

The measures analyzed in the report and associated key findings include the following:

• CEO compensation in 2019 (realized compensation measure). Using the realized compensation measure, the average compensation of CEOs of the 350 largest U.S. firms was $21.3 million in 2019. Compensation grew 14.0% in 2019 following a 1.5% loss in 2018. Top CEO compensation doubled over the recovery from 2009 to 2019, growing 105.1%.
• CEO compensation in 2019 (granted compensation measure). Using the granted compensation measure, the average compensation of CEOs of the 350 largest U.S. firms was $14.5 million in 2019, up 8.6% from $13.3 million in 2018 and up 35.7% since the recovery from the Great Recession began in 2009.
• Growth of CEO compensation (1978–2019). Using the realized compensation measure, compensation of the top CEOs increased 1,167% from 1978 to 2019 (adjusting for inflation). Top CEO compensation growth was roughly 50% greater than stock market growth during this period and far eclipsed the painfully slow 13.7% growth in a typical worker’s annual compensation. CEO granted compensation rose 1,033% from 1978 to 2019.
• Changes in the CEO-to-worker compensation ratio (1965–2019). Using the realized compensation measure, the CEO-to-worker compensation ratio was 21-to-1 in 1965. It peaked at 366-to-1 in 2000. In 2019 the ratio was 320-to-1, up from 293-to-1 in 2018. Most important, the ratio was far higher than at any point in the 1960s, 1970s, 1980s, or 1990s. Using the CEO granted compensation measure, the CEO-to-worker compensation ratio rose to 223-to-1 in 2019 (up from 212-to-1 in 2018), significantly lower than its peak of 386-to-1 in 2000 but still many times higher than the 45-to-1 ratio of 1989 or the 15-to-1 ratio of 1965.
• Changes in the composition of CEO compensation. The composition of CEO compensation is shifting away from the use of stock options and toward the use of stock awards. Vested stock awards and exercised stock options totaled 16.7 million in 2019 and accounted for 78.6% of average realized CEO compensation.
• Changes in the CEO-to-top-0.1% compensation ratio. Over the last three decades, compensation grew far faster for CEOs than it did for other very highly paid workers (the top 0.1%, or those earning more than 99.9% of wage earners). CEO compensation in 2018 (the latest year for which data on top wage earners are available) was 6.04 times as high as wages of the top 0.1% of wage earners, a ratio 2.86 points greater than the 3.18-to-1 average CEO-to-top-0.1% ratio over the 1947–1979 period.
• Implications of the growth of CEO-to-top-0.1% compensation ratio. The fact that CEO compensation has grown far faster than the pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect a competitive race for skills (the “market for talent”) that also increased the value of highly paid professionals: Rather, the growing pay differential between CEOs and top 0.1% earners suggests the growth of substantial economic rents (income not related to a corresponding growth of productivity) in CEO compensation. CEO compensation appears to reflect not greater productivity of executives but the power of CEOs to extract concessions. Consequently, if CEOs earned less or were taxed more, there would be no adverse impact on the economy’s output or on employment.
• Growth of top 0.1% compensation (1978–2018). Even though CEO compensation grew much faster than the earnings of the top 0.1% of wage earners, that doesn’t mean the top 0.1% did not fare well. Quite the contrary. The inflation-adjusted annual earnings of the top 0.1% grew 337% from 1978 to 2018. CEO compensation, however, grew three times as fast!
• CEO pay growth compared with growth in the college wage premium. Over the last three decades, CEO compensation increased more relative to the pay of other very-high-wage earners than did the wages of college graduates relative to the wages of high school graduates. This finding indicates that the escalation of CEO pay does not simply reflect a more general rise in the returns to education.

Analysis

This section provides detailed analysis of our findings. We examine several decades of available data to identify recent and historical trends in CEO compensation.

Trends in CEO compensation growth

Table 1 presents recent trends in CEO compensation and for the key underlying components over the 2016–2019 period. It shows the average compensation of CEOs at the 350 largest publicly owned U.S. firms (i.e., firms that sell stock on the open market) by revenue.3 To analyze current trends, we use two measures of compensation, one based on compensation “granted” and the other based on compensation as “realized.” Both measures include the same measures of salary, bonuses, and long-term incentive payouts (columns 3, 4 and 5). The difference is how each measure treats stock awards and stock options, major components of CEO compensation that change value from when they are first provided, or granted, to when they are exercised or realized. The first measure, realized compensation (column 1), includes the value of stock options as realized (buying stocks at a previously set price and reselling them at the current market price) shown in column 8. The realized compensation measure also values stock awards at their value when vested (usually three years after being granted), capturing any change in the stock price as well as additional stock awards provided as part of a performance award (column 6). The second measure, compensation granted, values stock options and restricted stock awards by their “fair value” when granted (columns 9 and 7).4 (For details on the construction of these measures and benchmarking to other studies, see Sabadish and Mishel 2013.)

We have changed our definition of CEO compensation in the realized measure from that employed in earlier reports. Previous reports used the value of stock awards as granted in both our measures, so that the measures only differed in their treatment of stock options. As noted in our previous report (Mishel and Wolfe 2019) the increased importance of stock awards in executive pay and the increased divergence between the value of stock awards when granted versus when vested means that excluding the realized gains from stock awards increasingly understates total CEO compensation. We therefore have incorporated a realized measure of stock awards along with the realized measure of stock options in our realized compensation metric. This first metric can be compared with the second metric, compensation granted, whose measurement is the same as in prior reports. More explanation of this measurement change and the impact on measured trends is provided in the Appendix, “Revising the stock awards component of our CEO compensation measure.”

Note that Table 1 provides a projection for data for 2019. The data now available for 2019 are limited to the executive compensation disclosed by firms filing proxy statements through June of 2019. To provide data for CEO compensation in 2019 that are consistent with the historical data, we construct our estimates by looking at the growth of compensation from 2018 to 2019 using the first-half-year samples of data available each year and then applying that growth rate to the compensation for 2018 based on the full-year sample. This method corrects for the fact that full-year samples show higher average CEO compensation than samples for the first half of a year. It allows us to avoid artificially lowering the estimated change in CEO compensation in 2019 relative to last year and earlier years.5

Both measures of CEO compensation grew strongly in 2019. CEO realized compensation grew to $21,283,000 in 2019, $2,621,000 or 14.0% higher than in 2018. The compensation granted measure grew $1,148,000, or by 8.6%, to $14,487,000 in 2019.

This growth in CEO compensation in 2019 was entirely driven by stock-related components: salary, bonuses, and nonequity incentives remained stable throughout the 2016–2019 period while stock options and stock awards grew.6 Stock options granted (column 9) did not grow much (up only $8,000) in 2019 though realized stock options (column 8) increased by roughly a million dollars ($977,000). The bigger growth was in stock awards, $1,179,000 for stock awards granted (column 7) and a larger 19.5% boost of $1,659,000 for vested stock awards (column 6).

The stock-related components of CEO compensation constitute a large and increasing share of total compensation: realized stock awards and stock options (column 10) were 73.1% of total compensation in 2016 and 78.6% in 2019. Vested stock awards (the realized metric, column 6) alone were nearly half (47.7%) of all CEO compensation in 2019.

There is a simple logic behind companies’ decisions to shift from stock options to stock awards, as Clifford (2017) explains. With stock options, CEOs can only make gains: They realize a gain if the stock price rises beyond the price of the initial options granted and they lose nothing if the stock price falls. The fact that they have nothing to lose—but potentially a lot to gain—might lead options-holding CEOs to take excessive risks to bump up the stock price. Stock awards, on the other hand, promote better alignment of a CEO’s goals with shareholders’ goals. A stock award has the value when given, or vested, and can increase or decrease in value as the firm’s stock price changes. If stock awards have a lengthy vesting period, say three to five years, then the CEO has an interest in lifting the firm’s stock price over that period while being mindful to avoid any implosion in the stock price—to maintain the value of what they have.

The growth of these stock-related components from 2016 to 2019, up 34.5%, or $4,286,000, was the sole reason that CEO realized compensation grew $4,277,000, or 25.2%. The smaller growth of CEO granted compensation (up $1,765,000) in the same period, 2016–2019, reflects the smaller growth of stock awards granted ($1,861,000) and the failure of stock options granted to grow. This pattern, as explored further below, mirrors the strong growth of the stock market between 2016 and 2019, up 30.6% in the S&P 500.

Table 2 presents the longer-term trends in CEO compensation for selected years from 1965 to 2019 using the same two measures used in Table 1.7

For comparison, Table 2 also presents the average annual compensation (wages and benefits of a full-time, full-year worker) of private-sector production/nonsupervisory workers (a group covering more than 80% of payroll employment, see Gould 2020a), allowing us to compare CEO compensation with that of a typical worker. From 1995 onward, the table also identifies the average annual compensation of production/nonsupervisory workers in each of the industries of the firms included in the sample. We take this compensation as a proxy for the pay of typical workers in these particular firms and use it to calculate the CEO-to-worker compensation ratio for each firm.

Finally, the table shows changes in the stock market, as measured by the Dow Jones Industrial Average and S&P 500 Index. Figure A uses data from all years since 1965 to show what happened to average annual CEO compensation and the S&P 500 Index over the last five and a half decades. It uses the realized CEO compensation measure.

Although the stock market fell by roughly half between 1965 and 1978, realized CEO compensation increased by 78.9%. Typical worker pay saw relatively strong growth over that period (relative to subsequent periods, not relative to CEO pay or the pay of other earners at the top of the wage distribution). Annual worker compensation grew by 19.9% from 1965 to 1978, only about a fourth as fast as CEO compensation growth.

Realized CEO compensation grew strongly throughout the 1980s but exploded in the 1990s. It peaked at the end of the stock market bubble, in 2000, at about $21.9 million, a 261% increase over just five years earlier in 1995 and a 1,204% increase over 1978. This latter increase exceeded even the growth of the booming stock market (513% for the S&P 500 and 439% for the Dow) between 1978 and 2000. In stark contrast to both the stock market and CEO compensation, private-sector worker compensation increased just 0.6% over the same period.

When the stock market bubble burst in the early 2000s there was a substantial paring back of CEO compensation. By 2007, however, when the stock market had mostly recovered, realized CEO compensation reached $19.4 million, just $2.5 million below its 2000 level. However, granted CEO compensation remained down, at $14.4 million in 2007, a substantial $7.6 million fall from the 2000 level.

The stock market decline during the 2008 financial crisis also sent CEO compensation tumbling, as it had in the early 2000s. After 2009, realized CEO compensation resumed an upward trajectory, as shown in Figure A. It stalled from 2014 to 2018. The strong growth in CEO compensation in 2019 raised it to $1.9 million above where is was in 2007, before the 2008 financial crisis. Although Figure A does not track the trajectory of the change in granted CEO compensation, we know from the data behind Tables 1 and 2 that it also shot up until 2013 and then leveled out over the 2013–2017 period before a $1.2 and 1.1 million growth, respectively, in 2018 and 2019, leaving granted CEO compensation in 2019 slightly ($134,000) above the pre-2008-financial crisis level.

For the period from 1978 to 2019, realized CEO compensation increased 1,166.8%—roughly 50% as fast as stock market growth (depending on the market index used) and substantially faster than the painfully slow 13.7% growth in the typical worker’s compensation over the same period. CEO granted compensation grew 1,032.7% over this period. Realized CEO compensation in 2019 remained below its stock market bubble 2000 peak, but was only off the peak by $627,000, or 2.9%.

Figure A shows how realized CEO compensation historically fluctuates in tandem with the stock market, as measured by the S&P 500 Index, confirming that CEOs tend to cash in their options when stock prices are high and accumulate unexercised options when stock prices are low. The growth of stock prices also increases the value of stock awards between when they are granted and when they vest, usually three years later. The financial crisis of 2008 and the accompanying stock market tumble knocked CEO compensation down 46.6% from 2007 to 2009. By 2014 the stock market had recouped more than all of the ground lost in the downturn. Not surprisingly, CEO compensation also made a strong recovery. The close connection between stock market growth and CEO compensation loosened a bit over the 2014–2017 period as realized CEO compensation did not follow the sharp upward trajectory of the stock market in those years. However, as shown in Figure A and Table 2, the growth of both realized and granted CEO compensation from 2017 to 2019 closely mirrors the growth of the stock market.

The normally tight relationship between overall stock prices and CEO compensation, as shown in Figure A, casts doubt on the theory that CEOs are enjoying high and rising pay because their individual productivity is increasing (e.g., because they head larger firms, have adopted new technology, or for other reasons). CEO compensation often grows strongly when the overall stock market rises and individual firms’ stock values rise along with it. This is a marketwide phenomenon, not one of improved performance of individual firms: Most CEO pay packages allow pay to rise whenever the firm’s stock value rises; that is, they permit CEOs to cash out stock options regardless of whether the rise in the firm’s stock value was exceptional relative to comparable firms in the same industry. Similarly, vested stock awards will increase in value when the firm’s stock price rises and simply corresponds to a marketwide escalation of stock prices.

Trends in the CEO-to-worker compensation ratio

Table 2 also presents historical and current trends in the ratio of CEO-to-worker compensation, using both measures of CEO compensation. This ratio, which illustrates the increased divergence between CEO and worker pay over time, is computed in two steps. The first step is to construct, for each of the 350 largest U.S. firms, the ratio of the CEO’s compensation to the annual average compensation of production and nonsupervisory workers in the key industry of the firm (data on the pay of workers at individual firms are not available).8 The second step is to average that ratio across all 350 firms. Note however that trends before 1995 are based on the changes in average top-company CEO and economywide private-sector production/nonsupervisory worker compensation.

The last two columns in Table 2 show the resulting ratio for both measures of CEO pay. We adjust the ratio for 2019 to reflect the percentage-point growth between the ratios in the first-half-year samples in 2018 and 2019 and add that growth to the ratio estimated for the full-year sample in 2018 to derive the 2019 ratio consistent with the historical data (this corresponds to how we project CEO compensation for 2019 based on first half data in 2018 and 2019). The trends are depicted in Figure B.

The Securities and Exchange Commission (SEC) now requires publicly owned firms to provide a metric for the ratio of CEO compensation to that of the median worker in a firm, as mandated by the Dodd-Frank financial reform bill of 2010 (SEC 2015). Those ratios differ from those in this report in several ways. First, because of limitations in data availability, the measure of worker compensation in our ratios reflects workers in a firm’s key industry, not workers actually working for the firm. The ratios reported to the SEC will reflect compensation of workers in the specific firm. Second, our measure reflects an exclusively domestic workforce; it excludes the compensation of workers in other countries who work for the firm. The ratios reported to the SEC may include workers in other countries. Third, our metric is based on hourly compensation annualized to reflect a full-time, full-year worker (i.e., multiplying the hourly compensation rate by 2,080). In contrast, the measures firms provide to the SEC can be and are sometimes based on the actual annual (not annualized) wages of part-year (seasonal) or part-time workers. As a result, comparisons across firms may reflect not only hourly pay differences but also differences in annual or weekly hours worked. Fourth, our metric includes both wages and benefits, whereas the SEC metric solely focuses on wages. Finally, we use consistent data and methodology to construct our ratios; our ratios are thus comparable across firms and from year to year. The SEC allows firms flexibility in how they construct the CEO-to-median worker pay comparison; this means there is not comparability across firms—and ratios may not even be comparable from year to year for any given firm, if the firm changes the metrics it uses.

There is certainly value in the new metrics being provided to the SEC, but the measures we rely on allow us to make appropriate comparisons between firms and across time. The text box provides more information on the ratios firms are providing to the SEC.

As Figure B shows, using the realized measure of CEO compensation, CEOs of major U.S. companies earned 21 times as much as the typical worker in 1965. This ratio grew to 31-to-1 in 1978 and 61-to-1 by 1989. It surged in the 1990s, hitting 366-to-1 in 2000, at the end of the 1990s recovery and at the height of the stock market bubble.9 The fall in the stock market after 2000 reduced CEO stock-related pay such as realized stock options and caused CEO compensation to tumble in 2002 before beginning to rise again in 2003. Realized CEO compensation recovered to a level of 331 times worker pay by 2007, still below its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, as discussed above, and the CEO-to-worker compensation ratio fell in tandem. By 2014 the stock market had recouped all of the value it had lost following the financial crisis, and the CEO-to-worker compensation ratio in 2014 had recovered to 327-to-1. Because CEO compensation was relatively stable between 2014 and 2016 while worker compensation experienced moderate growth, the CEO-to-worker pay ratio fell. Over the 2016–2019 period CEO pay resumed its upward trajectory and the 14% surge in realized CEO compensation in 2019 brought the ratio to 320-to-1, not far from its 2007 level. Though the realized CEO-to-worker compensation ratio remains below the value achieved in 2000, at the peak of a stock market bubble, it is far higher than it was in the 1960s, 1970s, 1980s, and most of the 1990s.

The pattern using the granted measure of CEO compensation is similar. The CEO-to-worker pay ratio peaked in 2000, at 386-to-1, even higher than the ratio with the realized compensation measure. The fall from 2000 to 2007 was steeper than for the other measure, hitting 242-to-1 in 2007. The stock market decline during the financial crisis drove the ratio down to 178-to-1 in 2009. It recovered to 217-to-1 by 2014 and, after dipping a bit over the next three years, ended back up at 212-to-1 in 2018 before rising to 223-to-1 with the strong 8.6% growth of CEO granted compensation in 2019. This level is far lower than its peak in 2000 but still far greater than the 1989 ratio of 45-to-1 or the 1965 ratio of 15-to-1.

The exponential growth in the CEO-to-worker compensation ratio reflects the strikingly different trajectories of the pay of CEOs and that of the typical worker. On the one hand, there has been very little growth in the compensation of a typical worker since the late 1970s, growing just 15.1% over the 40 years from 1979 to 2019, despite a corresponding growth of economywide productivity of 70% (Bivens and Mishel 2015, updated at EPI 2019). The 1,167% growth in realized CEO compensation from 1978 (there are no data for 1979) to 2019 far exceeded the growth in productivity, profits, or stock market values in that period.

Dramatically high CEO pay does not simply reflect the market for skills

This section reviews competing explanations for the extraordinary rise in CEO compensation over the past several decades. CEO compensation has grown a great deal since 1965, but so has the pay of other high-wage earners. To some analysts, this suggests that the dramatic rise in CEO compensation has been driven largely by the demand for the skills of CEOs and other highly paid professionals. In this interpretation, CEO compensation is being set by the market for “skills” or “talent,” not by managerial power or rent-seeking behavior.10 This explanation lies in contrast to that offered by Bebchuk and Fried (2004) or Clifford (2017), who claim that the long-term increase in CEO pay is a result of managerial power.

The “market for talent” argument is based on the premise that “it is other professionals, too,” not just CEOs, who are seeing a generous rise in pay. One prominent example of this argument comes from Kaplan (2012a, 2012b). In the prestigious 2012 Martin Feldstein Lecture at the National Bureau of Economic Research, he claims:

Over the last 20 years, then, public company CEO pay relative to the top 0.1% has remained relatively constant or declined. These patterns are consistent with a competitive market for talent. They are less consistent with managerial power. Other top income groups, not subject to managerial power forces, have seen similar growth in pay. (Kaplan 2012a, 4)

In a follow-up paper for the Cato Institute, published as a National Bureau of Economic Research working paper, Kaplan expands this point:

The point of these comparisons is to confirm that while public company CEOs earn a great deal, they are not unique. Other groups with similar backgrounds—private company executives, corporate lawyers, hedge fund investors, private equity investors and others—have seen significant pay increases where there is a competitive market for talent and managerial power problems are absent. Again, if one uses evidence of higher CEO pay as evidence of managerial power or capture, one must also explain why these professional groups have had a similar or even higher growth in pay. It seems more likely that a meaningful portion of the increase in CEO pay has been driven by market forces as well. (Kaplan 2012b, 21)

However, the argument that CEO compensation is being set by the market for “skills” does not square with the available data corresponding to what Kaplan employed. Bivens and Mishel (2013) address the larger issue of the role of CEO compensation in generating income gains at the very top and conclude that substantial rents are embedded in executive pay. According to Bivens and Mishel, CEO pay gains are not the result of a competitive market for talent but rather reflect the power of CEOs to extract concessions.

Here we draw on and update the Bivens and Mishel (2013) analysis to show that the evidence does not support Kaplan’s claim that “professional groups have had a similar or even higher growth in pay” than CEOs (Kaplan 2012b). CEO compensation grew far faster than compensation of very highly paid workers over the last few decades, which suggests that the market for skills was not responsible for the rapid growth of CEO compensation. To reach this finding, we use Kaplan’s series on CEO compensation and compare it with the wages of top wage earners (reflecting W-2 annual earnings, which includes the value of exercised stock options and vested stock awards), rather than the household income of the top 0.1% as Kaplan did.11 The wage benchmark seems the most appropriate one because it avoids issues of changing household demographics (e.g., increases in the number of two-earner households over time) and limits the income to labor income (i.e., it excludes capital income, which is included in household income measures). We update Kaplan’s series (Kaplan 2012b) beyond 2010 using the growth of our measure of realized CEO compensation.

The data presented in Table 3 show the result of our analysis: It shows that, contrary to Kaplan’s findings, the compensation of CEOs has far outpaced that of the top 0.1% of earners. Specifically, it shows the ratio of the average compensation of CEOs of large firms (the series developed by Kaplan, incorporating stock options realized) to the average annual earnings of the top 0.1% of wage earners (based on a series developed by Kopczuk, Saez, and Song 2010 and updated by Mishel and Kassa 2019). The comparison is presented as a simple ratio and logged (to convert to a “premium,” defined as the relative pay differential between two groups). Both the simple ratios and the log ratios understate the relative pay of CEOs, because CEO pay is a nontrivial share of the denominator, a bias that has probably grown over time as CEO relative pay has grown. If we were able to remove top CEOs’ pay from the top 0.1% category, it would reduce the average for the broader group.12

The very highest earners—those in the top 0.1% of all earners—saw their compensation grow fantastically though far less than the compensation of the CEOs of large firms (note that the gains from exercised stock options are taxed as W-2 wage income and so are reflected in measures of wages in the data we analyze).

CEO realized compensation was 6.04 times the pay of the top 0.1% of wage earners in 2018, a bit below the 6.10 ratio in 2017 and substantially higher than the 4.36 ratio in 2007. CEO compensation grew far faster than that of the top 0.1% of earners over the recovery from 2009 to 2018, as the ratio spiked from 4.61 to 6.04. CEO compensation relative to the wages of the top 0.1% of wage earners in 2018 far exceeded the ratio of 2.63 in 1989, a rise (3.41) equal to the pay of more than three very-high-wage earners.13 The log ratio of CEO relative pay grew 83 log points from 1989 to 2018 with respect to wage earners in the top 0.1%.

Is this increase large? As noted earlier, Kaplan (2012a, 4) concludes  in his prestigious Martin Feldstein Lecture that CEO relative pay “has remained relatively constant or declined.” In another paper, Kaplan (2012b, 21), claimed that high earning professional groups such as “private company executives, corporate lawyers, hedge fund investors, private equity investors, and others” had a  “similar or even higher growth in pay” as CEOs. Kaplan’s historical comparisons are inaccurate, however. Figure C compares the ratios of CEO compensation to top 0.1% earnings back to 1947. In 2018 this ratio was 6.04, 2.86 points higher than the historical average of 3.18 in the 1947–1979 period (a relative gain in wages earned by the equivalent of 2.9 very-high-wage earners).

That CEO compensation grew much faster than the earnings of the top 0.1% of wage earners is not because the top 0.1% did not fare well. The inflation-adjusted annual earnings of the top 0.1% grew 337% from 1978 to 2018 (Mishel and Kassa 2019). CEO compensation, however, grew more than three times faster than that, up 1,167%!

If CEO pay growing far faster than that of other high earners is evidence of the presence of rents, as Kaplan suggests, one would conclude that today’s top executives are collecting substantial rents, meaning that if they were paid less there would be no loss of productivity or output in the economy. The large discrepancy between the pay of CEOs and other very-high-wage earners also casts doubt on the claim that CEOs are being paid these extraordinary amounts because of their special skills and the market for those skills. It is unlikely that the skills of CEOs of very large firms are so outsized and disconnected from the skills of other high earners that they propel CEOs past most of their cohort in the top one-tenth of 1%. For everyone else, the distribution of skills, as reflected in the overall wage distribution, tends to be much more continuous so this discontinuity is evidence that factors beyond skills drive the compensation levels of CEOs.

For comparison purposes, Table 3 also shows the changes in the gross (not regression-adjusted) college-to-high-school wage premium. This premium is simply how much higher are the hourly wages of workers with a (four-year) college degree (but not an advanced degree) relative to hourly wages of workers with just a high school diploma. This premium is useful because some commentators, such as Mankiw (2013), assert that the wage and income growth of the top 1% reflects the general rise in the return to skills, as reflected in higher college wage premiums. (The comparisons end in 2018 because 2019 data for top 0.1% wages are not yet available).

Since 1979, and particularly since 1989, the increase in the logged CEO pay premium relative to other high-wage earners far exceeded the rise in the college-to-high-school wage premium, which is widely and appropriately considered to have had substantial growth: The logged college wage premium grew from 0.46 in 1989 to 0.59 in 2018, a far smaller rise than the logged ratio of CEO-to-top-0.1% earnings, a rise from 0.97 to 1.80. Mankiw’s claim that top 1% pay or top executive pay simply corresponds to the rise in the college-to-high-school wage premium is unfounded (Mishel 2013a, 2013b). Moreover, the data we present here would show even faster growth of CEO relative pay if Kaplan’s historical CEO compensation series (which we use as the basis for the ratios in Table 3) had been built using the Frydman and Saks (2010) series for the 1980–1994 period rather than the Hall and Liebman (1997) data.14

Conclusion and the connection to overall inequality

Some observers argue that exorbitant CEO compensation is merely a symbolic issue, with no consequences for the vast majority of workers. However, the escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, generating widespread inequality.

In their study of tax returns from 1979 to 2005, Bakija, Cole, and Heim (2010) establish that the increases in income among the top 1% and top 0.1% of households were disproportionately driven by households headed by someone who was either a nonfinancial-sector “executive” (including managers and supervisors, hereafter referred to as “nonfinance executives”) or a financial-sector worker (executive or otherwise). Forty-four percent of the growth of the top 0.1%’s income share and 36% of the top 1%’s income share accrued to households headed by nonfinance executives; another 23% for each group accrued to households headed by financial-sector workers (some portion of which were executives).

Together, finance workers (including some share who are executives) and nonfinance executives accounted for 58% of the expansion of income for the top 1% of households and 67% of the income growth of the top 0.1%. Relative to others in the top 1%, households headed by nonfinance executives had roughly average income growth; those headed by someone in the financial sector had above-average income growth; and the remaining households (nonexecutive, nonfinance) had slower-than-average income growth. These shares may actually understate the role of nonfinance executives and the financial sector, because they do not account for increased spousal income from these sources in those cases where the head of household is not an executive or in finance.15

High CEO pay reflects economic rents—concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position. Alluding to the fictional town in the radio program “A Prairie Home Companion,” Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. But, in fact, CEO compensation could be reduced across the board and the economy would not suffer any loss of output.

Another implication of rising pay for CEOs and other executives is that it reflects income that otherwise would have accrued to others: What these executives earned was not available for broader-based wage growth for other workers. (Bivens and Mishel 2013 explore this issue in depth.) It is useful, in this context, to note that wage growth for the bottom 90% would have been nearly twice as fast over the 1979–2018 period had wage inequality not grown.16 Most of the rise of inequality took the form of redistributing wages from the bottom 90% (whose share of wages fell from 69.8% to 61.0%) to the top 1.0% (whose wage share nearly doubled, rising from 7.3% to 13.3%, with most of the increase among the top 0.1% whose share of all wages grew from 1.6% to 5.1%) (Mishel and Kassa 2019).

Although the analyses in this report predate the economic shock of the coronavirus pandemic, there is a renewed focus on CEO pay because so many American workers are out of work or have seen their hours or wages cut. As our analyses show, CEOs who volunteer to take salary cuts aren’t giving up a lot given how much of their pay comes from stock awards and options. Moreover, the inflation-adjusted growth of the stock market, as reflected in the S&P 500, was about 8% higher in mid-2020 (last half of June and first half of July) than it was in 2019, indicating that CEO compensation in 2020 will very likely grow over its 2019 levels.

Several policy options could reverse the trend of excessive executive pay and broaden wage growth. Some involve taxes. Implementing higher marginal income tax rates at the very top would limit rent-seeking behavior and reduce the incentives for executives to push for such high pay.17 Another option is to set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation. Clifford (2017) recommends setting a cap on compensation and taxing companies on any amount over the cap, similar to the way baseball team payrolls are taxed when salaries exceed a cap. Other policies that could potentially limit executive pay growth are changes in corporate governance, such as greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation. Baker, Bivens, and Schieder (2019) review policies to restrain CEO compensation and explain how tax policy and corporate governance reform can work in tandem: “Tax policy that penalizes corporations for excess CEO-to-worker pay ratios can boost incentives for shareholders to restrain excess pay,” but, “to boost the power of shareholders [to restrain pay], fundamental changes to corporate governance have to be made. One key example of such a fundamental change would be to provide worker representation on corporate boards.”

The CEOs examined in this report head large firms. These large firms, almost by definition, enjoy a degree of market power that has grown in recent decades. It seems that CEOs and other executives may have been prime beneficiaries of these firms’ greater market power. This suggests using the tools of anti-trust enforcement and regulation to restrain these firms’ market power. This not only promotes economic efficiency and competition, but might help restrain executive pay as well.

About the authors

Lawrence Mishel is a distinguished fellow and former president of the Economic Policy Institute. He is the co-author of all 12 editions of The State of Working America. His articles have appeared in a variety of academic and nonacademic journals. His areas of research include labor economics, wage and income distribution, industrial relations, productivity growth, and the economics of education. He holds a Ph.D. in economics from the University of Wisconsin at Madison.

Jori Kandra is a research assistant at the Economic Policy Institute.

Acknowledgments

The authors thank the Stephen Silberstein Foundation for its generous support of this research. Steven Balsam, an accounting professor at Temple University and author of Equity Compensation: Motivations and Implications (2013), has provided useful advice on data construction and interpretation over the years. Steven Clifford, author of The CEO Pay Machine: How It Trashes America and How to Stop It (2017), has also provided technical advice. Clifford served as CEO for King Broadcasting Company from 1987 to 1992 and National Mobile Television from 1992 to 2000 and has been a director of thirteen public and private companies.

Appendix: Revising the stock awards component of our CEO compensation measure

In this report we have revised our realized measure of CEO compensation to reflect the growth of the value of stock awards from the time they are granted to when they are vested—growth capturing both rising stock prices and the awarding of more stock based on meeting performance targets. With this change, our realized metric includes the realized value of stock awards as well as of stock options, as recommended in Hopkins and Lazonick (2016). Our other metric of CEO compensation—granted CEO compensation—captures the “fair value” of both stock options and stock awards.

The need for this change in measurement was described in last year’s report on CEO compensation (Mishel and Wolfe 2019),

Analyses of the underlying components of CEO compensation over the 2016–2018 period… showed a strong growth in stock awards, which are simply stocks granted to employees. Stock awards can increase or decrease in value depending on the trend in the firm’s stock price. Stock awards, which are included in both definitions of CEO compensation, rose to $7.5 million in 2018, a substantial amount of income alone. The composition of CEO compensation has been shifting toward stock awards and away from stock options since the end of the last cycle in 2006–2007. These two stock-related items—stock options and stock awards—together still make up the bulk of CEO compensation, at 74% and 68%, respectively, of options-exercised and options-granted CEO compensation measures in 2018….

As the share of CEO compensation represented by stock options declines, and the share represented by stock awards grows, CEO compensation levels and growth will possibly be increasingly understated in our measures as well as in other measures, including those used by companies to construct the CEO-to-worker ratios reported to the SEC. The reason is this: The exact compensation earned through stock options is measurable—the exercised-options measure of compensation captures any rise in the stock price from the time the options are granted. But for stock awards, the value is determined at the time stocks are granted; any future gains in the value of the stock that accrue to the CEO are not captured by data disclosed by the firms. Nor are they captured in the SEC measure. Because stock awards have become more important, and stock options less important, there is increased likelihood that measures of CEO compensation will not fully capture CEOs’ gains going forward. This increased understatement of CEO compensation in turn tamps down measures of CEO compensation growth.

The measure of stock awards used in both of our CEO compensation metrics was the fair value of stock awards: the number of shares granted times the stock price at the grant date. Now, in our realized CEO compensation measure, we are using a realized value measure of stock awards which reflects the value of stock awards when vested. This will capture both the rise and fall of the value of the stock awards between grant and vesting and any increase in the stock awards due to performance equity programs that award more shares for exceeding performance targets (Francis 2019, Hodak 2019). Hodak (2019) reports that executives are likely to receive at least half their awards after three years based on performance programs rather than time since award. So, using a fair market value measure of stock awards at the time awards were granted understates the compensation actually received by executives—and this understatement is increasingly acute in recent years as stock awards have become a greater share of compensation, necessitating a change in how we measure CEO compensation.

Appendix Figure A shows the trend in the fair market value of stock awards when granted and the vested value of stock awards that is now incorporated into our realized pay CEO compensation metric, both set in 2019 dollars. This allows us to assess how the change in the stock award measure affects CEO compensation trends since 2006, which is the first year for which the vested value of stock awards is available. We use data through 2018, which is the latest year for which we have a full year of data. Whereas the vested value of stock awards was $632,000 less than that of the fair value of stock awards in 2006 ($3,761,000 versus $4,393,000) the vested value measure grew faster so that by 2018 it was $1,214,000, or 16.7%, more than the fair market value of stock awards ($8,490,000 versus $7,276,000). This shows both the sizable growth of the value of stock awards and the even faster growth in the value of stock awards when the rising value of individual shares is combined with an increase in the number of shares awarded from performance programs and thus counted in the vested measure.

Appendix Figure B shows how the use of the vested value rather than the fair value of stock awards affects the overall trend of CEO compensation. Figure B displays our new realized metric of CEO compensation, capturing both realized stock options and vested stock awards, and the prior measure of realized CEO pay used in earlier reports, which captures realized stock options but measures stock awards as granted not as vested.18 Again, we show the trends between 2006 and 2018 in $2019.

Changing measures of stock awards means a lower value of CEO compensation in 2006 by $632,000 million from $19,560,000 to $18,929,000. By 2018, however, the revised CEO compensation measure is $18,663,000, $1,214,000, or 7.0%, greater than the unrevised measure, $17,448,000. Revising the measurement of CEO compensation to include the realized value of stock awards increases the level of CEO compensation in the latest full year, 2018, and also shows greater growth since 2006.

The change in measurement of CEO compensation in this report creates a discontinuity between 2005 and 2006, the year that the data for both the fair value and vested value of stock awards are first available. Before 2006 the value of stock awards was a “restricted stock grant” measure capturing the “value of restricted stock awarded during fiscal year, determined at grant date as share price times the number of shares granted” (Hopkins and Lazonick 2016). The pre-2006 measure is similar conceptually to the fair market value but not exactly the same. In 2006, two stock award measures were tracked: the “fair value” and the “vested value.” Restricted stock grants were valued at $2,988,000 ($2019) in 2005. The fair market value of stock awards in 2006 was $4,393,000. It is not possible to know how much of the jump between 2005 and 2006 is due to a change in definition rather than part of the trend toward increased use of stock awards. This discontinuity, and associated possible measurement error, does not matter a great deal for our analysis since our focus is on longer-term trends, analyzing CEO compensation trends since 2007, the year before the financial crisis that sparked the Great Recession, or since 2009, the beginning of the recovery from the Great Recession. We also make comparisons of CEO pay in recent years to CEO pay in 2000 and 1978. Since stock awards were far less popular in the earlier years—in 2000 and certainly in 1978—our judgment is that the discontinuity over 2005–2006 is not a major concern, especially since the discontinuity already necessarily was embedded in our prior metric (as the data switched from restricted grants to fair market value of stock awards).

Appendix Table 1 provides an assessment of how the growth of CEO compensation over key periods is affected by our change of metrics.

Compared with the old measure, the revised measure shows a smaller decline of CEO compensation from 2007 to 2018, 3.9% versus 14.2%, and a much larger growth of CEO compensation over the 2009–2018 recovery period (79.9% versus 54.2%). Because the revised measure is greater in 2018 than our prior metric, the growth measured over the longer term will be greater: specifically, the growth between r 1978 or 2000 and now is greater (less of a fall since 2000, which was the stock bubble–related peak of CEO compensation, and much more since 1978) because of the change in measurement.

Endnotes

1. It may seem counterintuitive that the granted and realized CEO-to-worker pay ratios for 2000 are different from each other when the average CEO compensation is the same. As we describe later in this report, we do not create the ratio from the averages; rather we construct a ratio for each firm and then average the ratios across firms.

2. There were 38,824 executives in publicly held firms and 9,692 people in the top 0.1% of wage earners in 2007, according to the Capital IQ database (tabulations provided by Temple University professor Steve Balsam).

3. Each year’s sample includes the largest 350 firms for which ExecuComp provides data.

4. We use Compustat estimates of the fair value of options and stock awards as granted. These estimates are determined using the Black Scholes model. See Sabadish and Mishel 2013 for more information about our data sources and methodology.

5. Most Fortune 500 companies release annual financial data in early spring; the data are included in samples limited to the first half of the year. However, the data we present for previous years include all of the data that were released during each calendar year. This creates a bias in comparing data for the first half of the year relative to the full year’s data in the prior or earlier years: Compensation levels for the full year’s data are higher than compensation in the data limited to the first half. A comparison of data available in June thus shows a smaller increase when compared with the previous year’s full data than a comparison with the data that were available at the same time a year earlier. We analyze the impact of this bias and find that the vast majority of top firms remain unchanged between the samples for the first half and the full year. However, there is churn among the smaller firms in the sample. Among firms with lower net annual sales, average CEO compensation tends to be higher in the full-year sample. Additionally, in recent years firms reporting later in the year have tended to be firms with lower worker compensation levels and therefore higher CEO-to-worker compensation ratios.

6. In order to calculate the projected full-year 2019 value of the vested stock awards we assume that the vested stock awards as a share of CEO realized compensation for first-half-year 2019 remains consistent for the full-year 2019. We then multiply the share of vested stock awards by the projected full-year 2019 CEO realized compensation. We use the projected full-year 2019 value to calculate the growth rate of the vested stock awards from 2018 to 2019. A similar process is used to calculate the projected full-year 2019 value of exercised stock options.

7. We chose which years to present in the table in part based on data availability. Where possible, we chose cyclical peaks (years of low unemployment).

8. There are a limited number of firms, which existed only for certain years between 1992 and 1996, for which a North American Industry Classification System (NAICS) value is unassigned. This makes it impossible to identify the pay of the workers in the firm’s key industry. These firms are therefore not included in the calculation of the CEO-to-worker compensation ratio.

9. As noted earlier, it may seem counterintuitive that the two ratios for 2000 are different from each other when the average CEO compensation is the same. It is important to understand that (as we describe later in this report) we do not create the ratio from the averages; rather we construct a ratio for each firm and then average the ratios across firms.

10. The managerial power view asserts that CEOs have excessive, noncompetitive influence over the compensation packages they receive. Rent-seeking behavior is the practice of manipulating systems to obtain more than one’s fair share of wealth—that is, finding ways to increase one’s own gains without actually increasing the productive value one contributes to an organization or to the economy.

11. We thank Steve Kaplan for sharing his CEO compensation series with us (Kaplan 2012b). The series on the income of the top 0.1% of households that Kaplan used is no longer available. Moreover, as we discuss, the appropriate comparison is to other earners, not to households, which could have multiple earners and shifts in the number of earners over time.

12. Temple University professor Steve Balsam provided tabulations from the Capital IQ database of annual wages of executives exceeding the wage thresholds (provided to him) that place them in the top 0.1% of wage earners. There were 38,824 executives in publicly held firms and 9,692 executives in the top 0.1% of wage earners in 2007. The 9,692 executives in publicly held firms who were in the top 0.1% of wage earners had average annual earnings of $4.4 million. Using Mishel et al.’s (2012) estimates of top 0.1% wages, we find that executive wages make up 13.3% of total top 0.1% wages. One can gauge the bias of including executive wages in the denominator by noting that the ratio of executive wages to all top 0.1% wages in 2007 was 2.14 but the ratio of executive wages to nonexecutive wages was 2.32. We do not have data that would permit an assessment of the bias in 1979 or 1989. We also lack information on the number and wages of executives in privately held firms; to the extent that their CEO compensation exceeds that of publicly traded firms, their inclusion would indicate an even larger bias. The Internal Revenue Service Statistics of Income (SOI) Bulletin reports that there were nearly 15,000 corporate tax returns in 2007 of firms with assets exceeding $250 million, indicating that there are many more executives of large firms than just those in publicly held firms (IRS 2019).

13. A one-point rise in the ratio is the equivalent of the average CEO earning an additional amount equal to that of the average earnings of someone in the top 0.1%.

14. Kaplan (2012b, 14) notes that the Frydman and Saks series grew 289% whereas the Hall and Liebman series grew 209%. He also notes that the Frydman and Saks series grows faster than the series reported by Murphy (2012).

15. The tax data analyzed categorizes a household’s income according to the occupation and industry of the head of household. It is possible that a “secondary earner,” or spouse, has income as an executive or in finance. If the household is in the top 1.0% or top 0.1%, but the head of household is not an executive or in finance, then the spouse’s contribution to income growth will not be identified as being connected to executive pay or finance sector pay. The discussion in this paragraph draws on Bivens and Mishel 2013.

16. This follows from the fact that over 1979–2017 annual earnings rose by 22.2% for the bottom 90%, while the average growth across all earners was 40.1% (Mishel and Wolfe 2018). That means that the bottom 90% would have seen their earnings grow 17.9 percentage points more over the 1979–2017 period if they had enjoyed average growth (i.e., no increase in equality, 40.1 less 22.2).

17. Exercised stock options are considered W-2 wages so taxed as “income.” Stock awards are also taxed as income when vested.

18. We also remove a small amount of restricted grant awards ($494,000 in $2019) for 2006 that was included in our measure.

References

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Figure A shows the share of workers in each state who either made it through at least the first round of state UI processing (these are known as “continued” claims) or filed initial UI claims in the following weeks. The map includes separate totals for regular UI and Pandemic Unemployment Assistance (PUA), the new program for workers who aren’t eligible for regular UI, such as gig workers.

The map also includes an estimated “grand total,” which includes other programs such as Pandemic Emergency Unemployment Compensation (PEUC), Extended Benefits (EB), and Short-Time Compensation (STC). The vast majority of states are reporting that more than one in 10 workers are claiming UI. Ten states and the District of Columbia report that more than one in five of their pre-pandemic labor force is now claiming UI under any of these programs. The components of this total are listed in Table 1.1

Three states had more than 1 million workers either receiving regular UI benefits or waiting for their claim to be approved: California (3.2 million), New York (1.5 million), and Texas (1.3 million). Five additional states had more than half a million workers receiving or awaiting benefits.

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Astonishingly high numbers of workers continue to claim UI, and we are still 12.9 million jobs short of February employment levels. And yet, Senate Republicans allowed the across-the-board $600 increase in weekly UI benefits—the most effective economic policy crisis response so far—to expire.

In an unserious move of political theater, the Trump administration has proposed starting up an entirely new system of restoring wages to laid-off workers through executive order (EO). But even in their EO wishlist, the Trump administration would slash the federal contribution to enhanced unemployment benefits in half, to $300. This inaction and ongoing uncertainty is causing significant economic pain for workers who have lost their job during the pandemic and their families. It also causes an administrative hassle for state agencies that have already struggled immensely to process the huge number of claims early in the pandemic and implement the new UI protections in the CARES Act. Since the states with the least stable UI systems also have the highest populations of Black and Latinx people, existing inequalities will likely deepen even further by both the cutoff of supplementary benefits and the increased chaos introduced by having presidential EOs pretend to stand in for the legislative action that is needed.

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While this large pay gap has always been unjust and offensive to the millions of working Black women in this country, it is especially so under the current health and economic crisis. The infographics below take a closer look at average hourly earnings of Black women and non-Hispanic white men employed in major occupations at the center of national efforts to address the public health and economic effects of COVID-19. These occupations include frontline workers in health care and essential businesses like grocery and drug stores, those who have borne the brunt of job losses in the restaurant industry, and the teachers and child care workers who are critical as the economy struggles to reopen and essential to fully reopening the economy when it is safe to do so.Read more

• Postal workers are twice as likely to be military veterans as non-postal workers, because veterans benefit from preferential hiring in federal jobs and many have skills sought by the Postal Service. One in five postal workers is Black, nearly double Black workers’ share of the non-postal workforce.
• Postmaster Louis DeJoy’s recent service cuts, such as eliminating overtime and late trips, leaving mail to be delivered the next day, could harm the integrity of the November elections, which will rely heavily on mail voting.
• Rival private services like FedEx and UPS will likely gain customers from these cuts, which affect service. The beneficiaries of DeJoy’s actions will likely include low-wage “worksharing” companies that do work outsourced by the Postal Service, such as presorting and transporting bulk mail closer to its destination.
• Whereas federal law requires federal contractors in the construction and related industries to pay workers the prevailing wage—usually the area’s union wage—nothing prevents the Postal Service from contracting with companies whose only competitive advantage is paying low wages—often as a result of union busting.
• Since the Postal Service is required to rebate the full cost savings from outsourcing to the companies doing the work, “worksharing” doesn’t even benefit the Postal Service—but workers definitely lose out.

On June 15, Trump appointed Louis DeJoy, a North Carolina businessman and Republican fundraiser, as the new Postmaster General. DeJoy has wasted no time in ordering major changes to how the United States Postal Service operates. Many have noted that the service cuts he has implemented, such as eliminating overtime and late trips, leaving mail to be delivered the next day, could harm the integrity of the November elections, which will rely heavily on mail voting, due to the pandemic. The slowdown also seems aimed at pleasing President Trump, who makes no secret of his dislike of the Postal Service, which he believes is undercharging Amazon for deliveries. Trump has also lashed out at the Washington Post, owned by Amazon CEO Jeff Bezos, for its news coverage of his administration.

DeJoy, of course, denies that he’s deliberately sabotaging the Postal Service at the behest of the president, claiming service cuts are necessary to keep the Postal Service afloat. Though social distancing measures have boosted online orders during the pandemic, the crisis has reduced the volume of paper mail, which still accounts for about two-thirds of Postal Service revenues. Since the Postal Service is self-funded and has high fixed costs associated with daily delivery and maintaining post offices, it’s an obvious candidate for the same pandemic relief offered to airlines and other businesses affected by the suspension of much economic activity. But the president and Republican-controlled Senate have resisted helping the Postal Service, not just refusing to agree to relief funds included in a House-passed bill, but even holding hostage a loan to the Postal Service in the CARES Act that was signed into law by the president.Read more

President Trump’s erratic, ego-driven, and inconsistent trade policies have not achieved any measurable progress, despite the newly combative rhetoric. On top of that, COVID-19—and the administration’s mismanagement of the crisis—has wiped out much of the last decade’s job gains in U.S. manufacturing.

Unless steps are taken now—to reform our trade policy, to curb dollar overvaluation, to eliminate tax incentives for offshoring, and to rebuild the domestic economy—there won’t be a comeback.

As this policy report makes clear:

• Offshoring and the loss of manufacturing plants have continued under Trump, notwithstanding U.S. Trade Representative Robert Lighthizer’s claim that the administration’s trade policy is helping U.S. workers (Lighthizer 2020a).
• The strong and rising U.S. dollar is a major cause of the continuing growth of U.S. trade deficits.
• While manufacturing employment rose steadily between 2010 and 2019, the COVID-19 shutdown has wiped out more than half of the jobs gained in the past decade.
• The U.S. economy is in the midst of a historic collapse due to the uncontrolled coronavirus pandemic and recession.
• Restructuring and rebuilding the economy will require a coordinated and comprehensive strategic policy response that includes rebalancing of U.S. trade, as well as massive public investments in infrastructure, clean energy, training, R&D, and other industrial policies. These investments can create millions of skilled, high-wage jobs for non-college-educated workers in the U.S., who have been hard hit by the coronavirus downturn—especially Black, Latinx, and women workers—who have been left behind as manufacturing employment shrinks.
• Under current government procurement policies and trade rules, much of the public spending for infrastructure and clean energy systems would leak away to foreign providers, in the form of increased imports. Thus, new public investments should all include strong “Buy America” clauses.
• Joe Biden has recently proposed major investments in infrastructure, climate, and rebuilding manufacturing. These proposals could make a substantial contribution to meeting U.S. investment needs and generating a strong, sustainable, broadly shared recovery.

The Trump administration has not succeeded in reshoring manufacturing

In recent congressional testimony, U.S. Trade Representative Robert Lighthizer praised several companies that have scrapped offshoring efforts or have announced plans to move production to the United States, and he has further claimed that the “era of reflexive offshoring is over” (Lighthizer 2020b, 2020c). He also praised both the U.S.-Mexico-Canada Trade Agreement (USMCA)—which took effect July 1—and the current “Phase One” China trade deal. These are supposed to be signature accomplishments for the administration, contributing to a purported “blue-collar boom.”

It is important to note that the Trump administration has a habit of issuing press releases citing plans for major foreign investments in the U.S. that never materialize. In July 2017 Foxconn announced—to great fanfare from the White House–plans to invest $10 billion and bring “thousands of new American jobs” to Wisconsin and elsewhere in the United States (White House 2017). News reports indicate that Foxconn’s buildings in Wisconsin were still empty as of April 2020 (Dzieza and Patel 2020).1

But offshoring has in fact continued throughout this time, as reflected in changes in the total number of U.S. manufacturing plants, shown in Figure A. Overall, the U.S. has suffered a net loss of more than 91,000 manufacturing plants and nearly 5 million manufacturing jobs since 1997. Nearly 1,800 factories have disappeared during the Trump administration between 2016 and 2018 (BLS 2020; U.S. Census Bureau 2020a, 2020b). The U.S. has experienced a net loss of manufacturing plants (establishments) in every year between 1998 and 2018 (the most recent year for which data are available).

Employment per plant has ebbed and flowed, increasing during recoveries and dropping much more sharply in downturns, as shown in Figure A. Massive job losses in just six years—during the 2001 recession and the China import surge of 2002–2004, and during the Great Recession of 2008–2009—account for more than all of the net loss of nearly 5 million manufacturing jobs in this period.

The loss of these jobs was particularly costly for women, Black, and Latinx workers, who were left behind as employment collapsed and many of the remaining manufacturing plants shifted to rural locations in right-to-work states in the West and South (Madland, Walter, and Eisenbrey 2012).

Here’s what the data actually show about the purported “blue-collar boom” under the Trump administration: The U.S. gained roughly 500,000 U.S. manufacturing jobs from 2016 to 2019. But these gains are exactly on par with gains across the entire economic recovery period from 2010 to 2019, during which 166,000 manufacturing jobs were gained each year, on average. The 2016–2019 gains did not represent an improvement over prior years in that decade, and even the decade’s overall gains had managed to restore only a fraction of the jobs lost in the prior decade.

And recent years’ manufacturing gains were abruptly wiped out by the COVID-19 crisis—with a staggering 740,000 manufacturing jobs lost this year, as shown in Figure B (BLS 2020). If President Trump wants to take credit for the job growth at the tail end of a decade of recovery from the Great Recession, then he must also own this collapse, thanks to his administration’s mismanagement of the pandemic—including a refusal to organize an effective national response (Scott 2020b). And while the June 2020 data show an upswing in manufacturing jobs, more recent jobs data indicate that the nascent and partial recovery in manufacturing is at risk due to recurrence of COVID-19 in states that have reopened, including many in the South and Western United States (Hannon and Kiernan 2020; WSJ Pro 2020; Bartash 2020).

Contrary to popular myth, growing trade deficits, and not automation, are responsible for the vast bulk of manufacturing job and plant losses in the past two decades (Guilford 2018). Growing trade deficits with China between 2001 and 2018 (2.8 million manufacturing jobs lost) and the U.S. trade deficit with the Trans-Pacific Partnership countries in 2015 alone (1.1 million manufacturing jobs lost) account for more than three-fourths of the U.S. manufacturing jobs lost in the past 20 years (Scott and Mokhiber 2020; Scott and Glass 2016). This is confirmed by Susan Houseman’s extensive review of the research literature, “which finds that trade significantly contributed to the collapse of manufacturing employment in the 2000s, but finds little evidence of a causal link to automation” (Houseman 2018).

The rising dollar is responsible for growing trade deficits

U.S. manufacturing was struggling long before COVID-19. Starting in 2014, the U.S. dollar has appreciated in fits and starts, climbing nearly 23%, as shown in Figure C (Fed 2020b). More than half of that rise has come since the Trump tariffs were first imposed in March 2018. This stronger dollar keeps making U.S. exports more expensive and imports cheaper. Equally problematic, the 2017 Trump tax cuts on corporate profits incentivized offshoring for certain types of production while also raising after-tax profits. This has attracted more foreign capital to U.S. stock markets, spurring the dollar even higher. The dollar has also been driven higher during the coronavirus recession by “safe haven” effects, with foreign capital surging into the U.S.—as it does during most global downturns.

Unfortunately, the Trump administration has simply ignored the linkage between these policies and a rising U.S. trade deficit, despite the fact that as a candidate, Donald Trump promised to declare China a “currency manipulator” on “day one” of his administration (Talley 2016). While the Treasury did, finally, name China a currency manipulator last year, it was too little, too late (Scott 2019). China’s currency, the yuan (or RMB), has continued to fall relative to the U.S. dollar since March 2018, despite the inclusion of a “currency clause” in the Phase One U.S.–China trade deal (Fed 2020a). Notably, the agreement was neither a binding constraint on Chinese monetary policy nor a real commitment to action on the part of the U.S. Treasury.

Overvaluation of the dollar is one of the most important structural causes of growing U.S. trade deficits. In order to help rebalance U.S. trade flows, the dollar needs to fall 25–30% overall on a real trade-weighted basis, and more against the currencies of surplus countries and areas such as China, the European Union, Japan, and Korea (Scott 2019). The strength of the dollar was sustained by massive currency manipulation between 2000 and 2014 (Bergsten and Gagnon 2017), but since then large private capital inflows to U.S. financial markets have continued the trend.

There are several tools that can be used to address dollar overvaluation.2 Perhaps the most effective proposal to reduce and manage excessive private capital flows on a sustained basis is a bipartisan bill, the “Competitive Dollar for Jobs and Prosperity Act,” introduced last year by Senators Baldwin (D-Wis.) and Hawley (R-Mo.) (S.2357).3 Their legislation would impose a small tax, or “market access charge” (MAC), on all foreign capital inflows (Hansen 2017). Their proposal would direct the U.S. Federal Reserve Board of Governors to set this tax at a level needed to rebalance trade and capital flows, giving the Fed both a new mandate—to achieve balanced trade—and a new tool to achieve that goal. Millions of good, high-wage manufacturing jobs can be created by rebalancing trade flows, something that would contribute to recovery from the COVID-19 recession.

If Trump’s trade policy really encouraged reshoring, America’s trade balance would have improved in the past three years. But the U.S. trade deficit in manufactured goods rose significantly between 2016 and 2019, as shown in Figure D. In fact, the real U.S. trade deficit has increased in every year since 2016, reducing GDP growth by roughly one-quarter of one percent annually over the past three years (USITC 2020; BEA 2020).

Furthermore, the strong dollar has also decimated farmers, and it is a much more significant driver of the decline in farm incomes than Trump’s China trade war. There is a single world price for commodity products like wheat and soybeans, as Dean Baker has noted (Baker 2018, 2019). If the dollar rises relative to those of our competitors, then the dollar price of U.S. farm products must fall. Thus, there is a strong, negative correlation between soybean prices, for example, and exchange rates, as shown in Figure E.

When the real (price-adjusted) dollar declines, as it did between 2002 and 2012, soybean prices increase. Grain and soybean prices started falling as soon as the dollar began to rise in 2014. Movements in the dollar alone explain nearly 80% of the change in soybean prices, with the rest having to do with changes in weather conditions, incomes, farm decisions (e.g., crop allocations), and other factors.

We need to realign the dollar to rebalance trade. Manufacturing and the farm sector will both benefit directly from dollar realignment. President Trump has utterly failed to address this core issue, despite his baseless and self-serving promises to address currency manipulation and rebuild manufacturing by getting “tough on trade.”

Trump’s trade deals have not helped U.S. workers

The USMCA—which was touted as a replacement for NAFTA—is unlikely to resolve longstanding U.S.–Mexico trade issues. America’s trade deficit with Mexico increased by more than 29% in 2019 alone (U.S. Census Bureau 2020c). And when it comes to important sectors like autos and auto parts, General Motors has been closing assembly plants in Ohio, Michigan, and Maryland while increasing its reliance on imports from Mexico (AP 2019; Samilton 2019; Mirabella 2019). In fact, GM has been ceding market share to foreign producers for decades, and has grown increasingly reliant on imports from Mexico and other countries. Meanwhile, market share has been captured by foreign producers. Recently, BMW, Mercedes/Infiniti, and Kia opened plants in Mexico—a missed opportunity to reshore production to the United States (Szczesny 2019; Mexico Now 2018a, 2018b). And the supplier networks for these plants will be built in Mexico, not the U.S.—further eroding America’s auto industry.

Offshoring to Mexico is also taking place in aerospace and other sectors, with aerospace exports from Mexico increasing 10% in 2019 (Krause 2020). While the USMCA significantly improves domestic labor protections in Mexico compared with the earlier version of NAFTA, its overall provisions are inadequate to stem these offshoring trends.

The Phase One China trade deal is a bust, too. China promised to increase purchases of U.S. goods and services by $200 billion over 2017 imports. But Beijing is unlikely to meet these targets (Craymer and DeBarros 2020). And the deal doesn’t even address China’s egregious, systematic labor rights violations.

Beijing has also strategically adjusted to the Trump tariffs. China is simply exporting more goods elsewhere, and the U.S. trade deficit with China’s trading partners rose rapidly in 2019. In fact, China’s overall trade surplus with the world climbed significantly in 2019 (Setser 2020a). China also reduced the value of its currency by 10.0% against the U.S. dollar since March 2018, helping to offset the tariffs (Fed 2020a).

The tariffs remain a “signature” element of the Trump trade agenda. And they’ve helped sectors like steel and aluminum (Scott 2018a, 2018b). But the president misses a key point: If you increase tariffs without taking steps to prevent the dollar’s appreciation, the overall benefits can be simply neutralized.

Trump’s tax policies have encouraged outsourcing

America’s trade problems have been exacerbated by mistakes and/or malfeasance in Trump’s tax policymaking. U.S. multinational corporations continually engage in massive, international tax avoidance—with some paying no U.S. income tax at all. The 2017 tax cut exacerbated this problem by creating a new, lower corporate tax rate for “global intangibles income.”4 The pharmaceuticals industry has since reaped major rewards and has moved plants to countries with the lowest possible corporate tax rate (Setser 2020b). As a result, the U.S. now has a massive trade deficit in pharmaceuticals, which exceeds the trade surplus in aerospace products, the strongest U.S. export industry. Leading suppliers of pharmaceutical imports—many produced by U.S. firms, such as Pfizer, which had no taxable U.S. income over the entire decade from 2007 to 2016 (Rice, Kitson, and Clemente 2017)—include Ireland, Germany, Switzerland, India, and China.

The U.S. trade deficit is likely to shrink during COVID-19 simply because of the decline in consumer income and spending. But unless steps are taken to address dollar overvaluation and the tax incentives that encourage offshoring, these deficits will simply reemerge when recovery occurs (Scott 2020a).

Manufacturing job loss was a key issue for voters in the 2016 election

Voters from manufacturing states have been hardest hit by growing trade deficits and failed trade and investment deals. In 2016, Donald Trump ran on a nationalist campaign platform, based in part on a critique of globalization that cited EPI research (Trump 2016). Hillary Clinton and Bernie Sanders have also cited EPI research on, for example, jobs lost due to growing trade deficits with China (Clinton 2007; Sanders 2020). Globalization is clearly an issue of bipartisan concern.

In 2016, voters from the top 25 manufacturing states, ranked by share of total employment in manufacturing, gave nearly 80% of their electoral votes to Donald Trump, as shown in Figure F, the manufacturing electoral heat map. Hillary Clinton prevailed in the bottom 25 manufacturing states, by a margin of 61% to 39%, but it was not enough to offset Trump’s advantage in the manufacturing states. However, Trump’s policies have failed to stop offshoring or the erosion of the U.S. manufacturing base.

The restoration of manufacturing in the United States will be essential to the COVID-19 economic recovery. It is time to consider a progressive alternative for rebuilding manufacturing. The components of such a plan are described in the following section.

The COVID-19 recovery will require major investments in infrastructure and clean energy

The coronavirus crisis has devastated the U.S. and global economies. Black, Latinx, and women workers have been hardest hit, and without special efforts made for low-income communities, they will be the last to recover (Gould 2020b). With the economy in freefall, the U.S. needs to engage in massive and widespread relief.

America also needs a plan for economic reconstruction in the wake of the COVID-19 pandemic, one that is specifically designed to address the needs of those hardest hit in the economy. Millions of jobs and small businesses have been lost in sectors such as retail trade, travel, tourism, and restaurants, and many will never come back. The economy must be restructured—new and better jobs are needed for displaced workers. Properly done, the required investments can create good jobs with excellent wages and benefits for Black, Latinx, and women workers who have suffered from racism or discrimination and economic inequality (Gould 2020a; Gould and Wilson 2020). Thus, any relief and rebuilding plan must address the following core issues.

The U.S. must continue to provide massive and widespread relief

Relief spending must be continued and expanded. The U.S. has recently encountered a Wile E. Coyote moment—it just ran off the edge of a cliff—with the expiration of an expanded unemployment compensation program that was giving 33 million workers a $600 weekly unemployment insurance boost (Shierholz 2020). The failure to renew this and other relief programs will cause a collapse in consumer spending and business investment, resulting in an economic tsunami that threatens to deepen the coronavirus recession into a depression in the fall, while potentially exacerbating the health crisis by pushing people to go back to work before it’s safe to do so (Bivens 2020b).

We need expanded relief for all workers in the next coronavirus bill, and we also need to add at least $1 trillion in federal aid for state and local governments, support for public health measures (testing, tracing, and isolation, with paid leave), unemployment, and continuing income supports for the tens of millions who are furloughed or unemployed and for businesses that are shuttered (Bivens 2020a). Without aid for state and local governments, in particular, 5.3 million jobs are at risk by the end of 2021, which threatens to further deepen the coronavirus recession (Bivens and Cooper 2020).

The U.S. must rebuild a sustainable, resilient, manufacturing-based economy

Even if the coronavirus pandemic is successfully controlled, we are likely to experience recurrent infections and hot spots (as has already occurred in the South and West) until vaccines and more effective treatments arrive. Meanwhile, massive effort is needed, starting today, to rebuild and restructure the economy in ways that will address the needs of Black, Latinx, and women workers.

Millions of low-wage service jobs are unlikely to return. As we rebuild our economy, these jobs can and should be replaced with higher-wage jobs in manufacturing and construction that provide excellent benefits and afford workers the right to organize and bargain collectively. Planning and organizing these rebuilding efforts—including design, permitting, and purchase of materials and rights-of-way—should begin now, so that funding, projects, and employment can flow in earnest once the pandemic has been brought under control.

There are three essential components of a sustainable U.S. economy

Looking forward, the three pillars of building a sustainable, resilient, manufacturing-based economy are: (1) rebalancing trade flows; (2) rebuilding U.S. infrastructure; and (3) supporting the transition to efficient and clean energy systems.5

In 2017, the American Society of Civil Engineers estimated in its Infrastructure Report Card that the United States needs $4.6 trillion in infrastructure spending over 10 years for sorely needed repairs and modernization (ASCE 2017). This exceeds planned spending by $2 trillion. Similarly, Robert Pollin at the University of Massachusetts-Amherst suggests that the U.S. needs to devote roughly two percent of GDP annually to increased energy efficiency and clean energy conversion, or roughly $400–$500 billion per year (Drollette 2019). Thus, for infrastructure and clean energy transition, the U.S. needs additional investments of $650–$750 billion per year in rebuilding the economy.

The U.S. goods trade deficit exceeded $860 billion in 2019. By rebalancing trade and expanding U.S. public investment as described above, we can increase overall demand for U.S. production by up to $1.5 trillion per year, directly stimulating the manufacturing and construction industries while rebuilding the economy. This could generate massive increases in overall demand for goods and services produced in the United States that would support and create more than 17 million good jobs.6 These steps alone would absorb more than half of the 33 million workers who were drawing unemployment benefits or have applied and are waiting for benefits as of August 1 (Shierholz 2020).

Joe Biden has recently proposed a $2 trillion initiative for clean energy and infrastructure (Glueck and Friedman 2020; Erickson 2020). He has also proposed investing $300 billion in manufacturing R&D and implementing policies designed to maximize the domestic content of infrastructure investments through “Buy America” policies (Goldmacher and Tankersley 2020). These proposals could make a substantial contribution to meeting U.S. investment needs and generating a strong, sustainable, broadly shared recovery.

The U.S. must rebalance trade flows

Realigning the dollar, as described above, could help to eliminate U.S. trade deficits and prevent the reemergence of larger trade gaps in the future. Rebalancing trade can also generate millions of good manufacturing jobs and prevent the offshoring of more manufacturing plants in the future.

We must revise government procurement policies and trade rules to ensure that public infrastructure investments actually benefit U.S. workers and the U.S. economy

Steps must be taken to ensure that public investments maximize domestic bang-for-the-buck—in terms of job creation and GDP support—in the states and cities where they are needed most, providing good jobs for those who have been excluded from the economy of the past. Under current trade rules, much of the public spending for infrastructure and clean energy systems would leak away to foreign providers, in the form of increased imports. Thus, these proposals should all include strong “Buy America” clauses in state and federal procurement policies. Doing so will require modification of or withdrawal from the World Trade Organization government procurement agreement (Miller & Chevalier 2020).

We must also implement supply-side policies to ensure jobs go to those U.S. workers who were left behind by the decline in manufacturing

An array of supply-side policies are also needed to ensure that these investments generate jobs where they are needed most, for women, Black, and Latinx workers here in the United States. These workers have been hurt by the decline of these industries, which generate good jobs with excellent benefits, especially for non-college-educated workers. Supply-side policies include:

• An end to tax policies that encourage firms to offshore production, including all tax preferences for foreign investment and production. The U.S. should consider implementing a system of sales factor apportionment to fairly tax the global profits of all foreign and domestic companies, based on their total sales in the United States, and to further discourage offshoring (Stumo 2016).
• Substantial investments in R&D, training, school-to-work transition, job creation programs, expanded extension,7 and other industrial policies, including expanded financing of small and medium-sized manufacturing firms. The U.S. should also support improvements in labor rights in all 50 states (Madland, Walter, and Eisenbrey 2012) and measures to include workers, banks, and other community stakeholders on corporate boards, to improve their performance in local economies.
• Aggressive but strategic use of anti-dumping and enhanced safeguard measures to prevent surges of primary commodity imports, especially in sectors subject to chronic excess capacity (but with no across-the-board tariffs). The coronavirus has worsened a global metals glut, in part because China, the top producer of aluminum and steel, has kept up production as demand fell (Tita 2020). Aggressive enforcement of trade laws will be needed to limit damage to domestic producers during the coronavirus recession.

Investments should be financed with public debt until the economic crisis has subsided

Last, infrastructure and clean energy transition investments should be financed, at least during the COVID-19 recovery, by increasing public debt—including heavy borrowing until long-term interest rates begin to rise well in excess of a 2% inflation target (Bivens 2019). Then, and only then, can these needed investments be paid for by taxing capital, starting with the wealthy and those who can afford to pay, and with user fees as necessary and appropriate (offset by income transfers to low-income families). It is important to note that rebalancing trade will generate new federal revenues (through increased incomes), along with new revenues from the taxes imposed on foreign capital inflows, as referenced above. These revenues could also be used to pay off public debt.

Conclusion: Progressives must reshape their approach to trade

The coronavirus crisis is causing unprecedented damage to the U.S. economy and to the lives of tens of millions of Americans. This crisis will change the national economy in untold ways. Life in America will never be the same. But “in the midst of every crisis, lies great opportunity.”8 The need to rebuild America has never been greater, and the time to rebuild is now.

For the past three decades, mainstream Democrats have tied their fates to the twin mantras of free trade and globalization, which have cost millions of jobs and many thousands of factories. Bill Clinton campaigned for and signed NAFTA in 1993. He also negotiated and signed the agreement that created the World Trade Organization in 1994. And he negotiated the agreement that resulted in China’s entry into the World Trade Organization in 2001. Barack Obama negotiated and campaigned for the failed Trans-Pacific Partnership agreement. It is time for progressives to own and reject these failed policies, and to build and campaign on a plan to develop a 21st-century New Deal for the domestic economy.

In 2016, Donald Trump campaigned against globalization and these failed trade deals—which have clearly hurt U.S. manufacturing. It worked. He captured nearly 80% of the electoral votes in the top 25 manufacturing states, as shown above. But he has since failed to deliver for working Americans. Now the wheels are coming off. It’s time for a meaningful rewrite of failed U.S. trade and economic policies—all urgently needed to revive the U.S. economy at a critical time.

Acknowledgments

The author thanks Thea Lee for comments, Krista Faries for editorial guidance, and Daniel Perez for research assistance.

Endnotes

1. For more on Foxconn’s history of announced intentions to invest in the U.S., see Frankel 2017.

2. See the “Fair Globalization and Balanced Trade” section of EPI’s Policy Agenda (EPI 2018).

3. Competitive Dollar for Jobs and Prosperity Act, S. 2357, 116th Cong. (2019).

4. Global intangibles income is “income earned by foreign affiliates of U.S. companies from assets such as patents, trademarks and copyrights” (TPC 2020).

5. See the “Climate Change” section of EPI’s Policy Agenda (EPI 2018).

6. Author’s calculations based on model in Scott and Glass 2016.

7. For example, through the U.S. Manufacturing Extension Partnership Program (Shapira 2001; NIST 2020).

8. This quote is frequently attributed to Albert Einstein, but the actual source cannot be verified.

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In this preview post, I’m going to take you on a brief foray into the data that predict a very disappointing economic performance for this week’s jobs report. First, let’s start with the weekly unemployment insurance data. As of mid-July, 34.3 million workers—or about 20% of the pre-pandemic workforce—were either on unemployment benefits or have applied and are waiting to see if they will get benefits. Although the continuation of record high levels of unemployment insurance may include some pent up demand from the difficulty of accessing the system, there has been no measurable improvement in these unemployment insurance numbers in weeks.

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Republicans in the Senate allowed the across-the-board $600 increase in weekly UI benefits to expire. Last week is the first week of unemployment in this pandemic that recipients will not get the extra $600 payment. That means people on UI benefits who lost their job during a global pandemic are now are forced to get by on around 40% of their pre-virus earnings, causing enormous pain.

Republicans in the Senate are proposing to (essentially) replace the $600 with a $200 weekly payment. That $400 cut in benefits is not just cruel, it’s terrible economics. These benefits are supporting a huge amount of spending by people who would otherwise have to cut back dramatically. The spending made possible by the $400 that the Senate wants to cut is supporting 3.4 million jobs. If you cut the $400, you cut those jobs. The map in Figure A shows the number of jobs that will be lost in each state if the extra $600 unemployment benefit is cut to $200.Read more

Last week was the 19th week in a row that unemployment claims have been more than twice the worst week of the Great Recession. If you restrict this comparison just to regular state claims—because we didn’t have PUA in the Great Recession—this is the 19th week in a row that claims are more than 1.25 times the worst week of the Great Recession.

Republicans in the Senate just allowed the across-the-board $600 increase in weekly UI benefits to expire. They are proposing to (essentially) replace it with a $200 weekly payment. That $400 cut in benefits is not just cruel, it’s terrible economics. These benefits are supporting a huge amount of spending by people who would otherwise have to cut back dramatically. The spending made possible by the $400 that the Senate wants to cut is supporting 3.4 million jobs. If you cut the $400, you cut those jobs. This map shows the number of jobs that will be lost in each state if the extra $600 unemployment benefit is cut to $200.Read more

Figure A displays the percent and level change in state and local government employment and private-sector jobs over the course of this recession. In every state and the District of Columbia, with the exception of Tennessee, state and local government employment has fallen since the pandemic took hold. In nine states, more than one in 10 state and local government jobs have been lost since February: Wisconsin (-12.3%), Massachusetts (-11.9%), Connecticut (-11.4%), South Dakota (-11.3%), Hawaii (-10.8%), Minnesota (-10.6%), Illinois (-10.5%), Maine (-10.5%), and Kentucky (-10.2%). Meanwhile, California and Texas have experienced the most public-sector job losses since February: 229,000 (-9.6%) and 112,100 (-6.3%), respectively. Table 1, at the end of this post, displays the state and local employment changes from this map as well as the employment levels in February and June 2020.

These devastating job losses follow a slow and weak recovery for the state and local public sector in the aftermath of the Great Recession. Because of the pursuit of austerity at all levels of government, state and local government employment at the national level only reached its July 2008 level (the prior peak) in November 2019. Just before the pandemic, 21 states and the District of Columbia still had fewer state and local government jobs than in July 2008. Read more

To help agencies with this aspect of their work, the Center for Law and Social Policy (CLASP) and the Harvard Law School Labor and Worklife Program released a toolkit earlier this month, Protecting Workers through Publicity: Promoting Workplace Law Compliance through Strategic Communication. The toolkit shares research showing that media coverage and public disclosure improves policy outcomes, in labor and other contexts. The toolkit can be used by labor enforcement agencies, as well as policymakers who care about worker issues, to help them use media effectively. It will also benefit worker advocates, who can share it with enforcers and policymakers as part of an effort to press for greater use of this underutilized vehicle for driving compliance.Read more

Black workers, who are heavily represented in the overall public sector workforce, are even more heavily represented in the share of state and local government workers who are veterans. While Black workers make up 12% of the private sector and 14% of the public sector workforces, they make up 17% of public sector workers who are also veterans.

The map in Figure A provides a state-by-state overview of the number of veterans serving in state and local governments around the country, both by total numbers and by share of the public sector workforce. Table 1 provides the list of the top 10 states with the highest numbers of veterans employed by state and local governments. Table 2 provides the list of the top 10 states with the highest share of veterans employed by the public sector. California has the largest number of veterans working in the public sector, while Montana has the largest share of veterans working for state and local governments.

Figure A shows the share of workers in each state who either made it through at least the first round of state UI processing (these are known as “continued” claims) or filed initial UI claims in the following weeks. The map includes separate totals for regular UI and Pandemic Unemployment Assistance (PUA), the new program for workers who aren’t eligible for regular UI, such as gig workers.

The map also includes an estimated “grand total,” which includes other programs such as Pandemic Emergency Unemployment Compensation (PEUC) and Short-Time Compensation (STC). The vast majority of states are reporting that more than one in 10 workers are claiming UI. Thirteen states and the District of Columbia report that more than one in five of their pre-pandemic labor force is now claiming UI under any of these programs. The components of this total are listed in Table 1.1

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At the end of June, the CFPB, along with all of the other federal agencies, released its rulemaking agenda on the rulemaking that the agency plans to undertake through April 2021. As we at the Consumer Rights Regulatory Engagement and Advocacy Project (CRREA Project) discuss in Decoding the Unified Agenda, everything is in the Unified Agenda—what an agency is working on, what it plans to do next, and when it anticipates taking that next step. Rules are characterized as significant or nonsignificant, the agency contact for the rule is listed (in the CFPB’s case, this is almost always the attorney designated as the team lead on the rulemaking), and the history of the rulemaking project are all laid out.

Looking at an agency’s Unified Agenda also tells the reader something about the agency’s current priorities and rulemaking philosophy. The CFPB, in addition to its agency rule list, issues a blog post, which updates the Unified Agenda to reflect what the CFPB has done between when it submitted its Unified Agenda entries and when the Unified Agenda was released, and a preamble, which the CFPB is unique among agencies in doing twice a year.Read more

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