The overtime threshold used to be the minimum wage for the middle class—but where did it go? Labor experts Sharon Block and Chris Lu join Nick and Jasmin to explain why the overtime threshold, which used to cover 65 percent of workers, today covers only 7 percent. That’s craziness! And surprise, surprise—employers love to claim that forcing you to work for free is in your own best interest. But are they telling the truth?
Sharon Block is the Executive Director of the Labor and Worklife Program at Harvard Law School. For twenty years, she held key labor policy positions across the legislative and executive branches of the federal government, including head of the policy office at the Department of Labor.
You already know that income inequality is causing many of America’s worst problems. And you probably can identify many of the tools that the trickle-down crowd uses to take money away from ordinary Americans like you and hand it over to the top one percent: wage suppression, loosened regulations and corporate tax laws—that kind of thing.
But there’s no question that stock buybacks represent the most prolific theft from American workers. I’ve written on this subject before, but here’s a brief refresher: Corporations use profits to buy back their own stocks in large amounts, thereby enriching the shareholder class. Those profits—we’re talking trillions of dollars since buybacks were legalized in the Reagan administration—used to go to workers in the form of larger paychecks, but now they benefit the wealthiest Americans.
Most politicians—at least, the ones who aren’t hopeless corporate toadies—recognize that stock buybacks are a huge problem. But they tend to disagree on solutions. Some say buybacks should be eliminated entirely. Others say they should only be allowed under certain cautiously defined circumstances.
New Jersey Senator (and 2020 presidential candidate) Cory Booker has more than a theory of what to do about stock buybacks: he wrote a bill to address their malicious impact on America’s economy. Booker recorded an interview on Nick Hanauer’s Pitchfork Economics podcast to explain what his Worker Dividend Act would do to restore the paychecks of American workers.
“ The economy of my dad’s generation built out the largest expansion of the middle class on the planet Earth,” Booker explained.
But in the years since, he says, the economy has suffered a “massive warping…that has resulted in the largest stratification of income we have ever seen historically in this country.” This income inequality has created a culture of what Booker terms “a pernicious short-termism as opposed to a long-term view of creating real growth and opportunity.”
“Stock buybacks were illegal—it was considered market manipulation before 1982,” Booker explained. But when they were legalized, the floodgates opened and incentives for corporations drastically changed. CEO pay, he says, “is often pegged towards stock price. That’s created a very dramatic shift in the American economy.”
“ Between 2003 and 2012,” Booker continued, “companies on the S&P 500 dedicated 91 percent of their total earnings to stock buybacks and corporate dividends, which left 9 percent for investing in things like—hey—raises for their workers.” Before buybacks were legalized, he notes, the profit split between shareholder dividends and worker pay was closer to 50/50.
This is a big problem, Booker says, “ because 84 percent of all stocks are owned by the top 10 percent of households. The top 1 percent of households own about roughly 40 percent of stocks.” So the wealthiest Americans feast on profits while workers have been scrounging for table scraps.
Wall Street punishes good corporate behavior
Booker has a perfect real-world example of Wall Street’s greed. “Last year, American Airlines had a great quarter,” Booker says. “They pulled in about $234 million in earnings. Bravo for American Airlines for doing that. They announced, to do the right thing, that they were going to give long-overdue pay raises to their pilots and their flight attendants.”
That raise put American Airlines’ pay rates “slightly above the industry standard,” which is where an up-and-coming corporation should want to be if they intend to hire the best workers. Booker notes that the raises were immediately derided by Wall Street and by financial analysts. “One analyst for CitiGroup literally complained— and I’m going to quote the analyst—he said, ‘Labor is being paid first again. Shareholders get leftovers.’”
And Booker is clear that the CitiGroup quote wasn’t from some rogue analyst. The most powerful forces on Wall Street agree that worker raises are a bad thing. Booker says that “Morgan Stanley literally downgraded American Airlines’ shares,” arguing that increasing worker pay “establishes a worrying precedent, in our view, both for American and the industry.”
Buyback culture, Booker argues, has “perverted the system,” to the point that “we’ve seen 60 years of stagnant wages while corporate profits now have been driven up to an over 80-year high.”
This wholesale extraction of wealth isn’t good for anyone in the long run—not workers, not CEOs, not shareholders. “If you invest in folks, if you pay them fair wages,” Booker argues, “not only does your corporation do better, but the society in which that corporation operates thrives.”
But as we’ve seen time and time again in American history, you can’t just expect corporations to do the right thing—standards must be upheld through legislation.
That’s where Booker’s Worker Dividend Act comes in. Booker explains that the law says if a corporation does a buyback, “then your workers have to see a benefit from it. It has to benefit the whole community and constellation of interests that are part of the corporation,” not just shareholders.
How the Worker Dividend Act would work
“The best thing I can do, again, is give you a real-life example,” Booker explains. Walmart has over one and a half million employees, and the company’s starting wage “is just $11 an hour, which is $19,448 a year for a full-time worker.”
“Now Walmart saw, in 2017, $9.8 billion in profits,” Booker says. “Walmart’s board decided that they were going to use—out of that $9.8 billion in profits—they were going to use $8.2 billion of it in stock buybacks.” None of that money showed up in the paycheck of Walmart’s workers.
In fact, to add “insult to injury,” Booker notes, “one-third of all of our corporate stock is owned by foreign investors.” This means that rather than paying workers more in America, a culture of buybacks is “significantly benefiting people outside of our country, making them more wealthy as well.”
If Booker’s Worker Dividend Act was law in 2017, Walmart’s workers would have gotten a healthy cut of those buyback profits. He says, “every worker would have seen a dividend of $3,266 added to their annual pay. They, too, would have the benefit from the use of that money for a stock buyback.”
Booker’s gotten some pushback for the act, but that’s to be expected. Some people—particularly business interests—argue that paying workers more would reduce corporate investment in the economy, thereby hurting everyone.
“I remember that same argument was [used] against raising the minimum wage” to $15 in Seattle, Booker laughs.
But much like raising the minimum wage, Booker says, fixing stock buybacks “will create a multiplier effect that ultimately helps businesses as a whole.” Rather than those billions of dollars being airlifted out of local economies, the workers would spend their buyback money in the communities where they live, further enriching their neighbors.
Putting the middle back on top
“I just want my party to be the party that starts standing up for and calling out these new practices in our economy and offering up substantive solutions to bring dignity back to work,” Booker says. He believes that rebuilding the middle class is the key to fixing what’s ailing America.
And Democrats, Booker says, “need to be the party of reimagining this nation to create great pathways of prosperity.” Bills like the Worker Dividend Act are how he believes we can get back on the right path.
You can listen to the Pitchfork Economics interview with Cory Booker below, or download the episode wherever you get your podcasts: