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Twenty-Three Years and Still Waiting for Change — Why It’s Time to Give Tipped Workers the Regular Minimum Wage

July 15, 2014 Comments off

Twenty-Three Years and Still Waiting for Change — Why It’s Time to Give Tipped Workers the Regular Minimum Wage
Source: Economic Policy Institute

Last year marked the 75th anniversary of the Fair Labor Standards Act (FLSA), the legislation that established many of the basic labor protections workers enjoy today, such as a 40-hour workweek, overtime protection, and a national minimum wage. There have been periodic amendments to the FLSA over the years, but the 1966 amendments were especially significant. They extended protections to hotel, restaurant, and other service workers who had previously been excluded from the FLSA, but also introduced a new “subminimum wage” for workers who customarily and regularly receive tips. Unlike temporary subminimum wages (such as those for students, youths, and workers in training), the “tip credit” provision afforded to employers uniquely established a permanent sub-wage for tipped workers, under the assumption that these workers’ tips, when added to the sub-wage, would ensure that these workers’ hourly earnings were at least equal to the regular minimum wage. The creation of the tip credit—the difference, paid for by customers’ tips, between the regular minimum wage and the sub-wage for tipped workers—fundamentally changed the practice of tipping. Whereas tips had once been simply a token of gratitude from the served to the server, they became, at least in part, a subsidy from consumers to the employers of tipped workers. In other words, part of the employer wage bill is now paid by customers via their tips.

Today, this two-tiered wage system continues to exist, yet the subsidy to employers provided by customers in restaurants, salons, casinos, and other businesses that employ tipped workers is larger than it has ever been. At the federal level, it currently stands at $5.12 per hour, as employers are required to pay their tipped staff a “tipped minimum wage” of only $2.13 per hour, and the federal regular minimum wage is currently $7.252 Remarkably, the federal tipped minimum wage has been stuck at $2.13 since 1991—a 23-year stretch, over which time inflation has lowered the purchasing power of the federal tipped minimum wage to its lowest point ever.

Proposed federal minimum-wage legislation, the Fair Minimum Wage Act of 2014—also known as the Harkin–Miller bill—would not only increase the federal regular minimum wage to $10.10, but for the first time in decades would also reconnect the subminimum wage for tipped workers back to the regular minimum wage by requiring the former be equal to 70 percent of the latter. This would be a strong step in the right direction; however, we present evidence that tipped workers would be better off still if we simply eliminated the tipped minimum wage, and paid these workers the full regular minimum wage.

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Raising America’s Pay: Why It’s Our Central Economic Policy Challenge

June 24, 2014 Comments off

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge
Source: Economic Policy Institute

Our country has suffered from rising income inequality and chronically slow growth in the living standards of low- and moderate-income Americans. This disappointing living-standards growth—which was in fact caused by rising income inequality—even preceded the Great Recession. Fortunately, income inequality and middle-class living standards are now squarely on the political agenda. But despite their increasing salience, these issues are too often discussed in abstract terms. This paper—and the Raising America’s Pay project that it launches—exposes the easy-to-understand root of rising income inequality, slow living-standards growth, and a host of other key economic challenges: the near stagnation of hourly wage growth for the vast majority of American workers over the past generation.

It should not be surprising that trends in hourly wage growth have profound consequences for American living standards. After all, the vast majority of Americans rely on their paychecks to make ends meet. For these families, wages and employer-provided benefits comprise the bulk of income, followed by other income sources linked to labor market performance, such as wage-based tax credits, pensions, and social insurance. Even for the bottom fifth of households, wage-related income accounts for the majority of total income. Indeed, wage-related income has been a growing share of total bottom-fifth income over time, as the safety net shifts toward wage-related income supports (such as the earned income tax credit) while non-wage-related supports (such as Temporary Assistance for Needy Families) decline.

Understanding Cuts to Public Pensions

June 12, 2014 Comments off

Understanding Cuts to Public Pensions
Source: Economic Policy Institute

In the past several years, fears that underfunded public pensions are a growing burden on taxpayers have led to calls to cut employer-provided pension benefits through increased employee contributions, increased retirement ages, reduced cost-of-living adjustments (COLAs), or other changes. But too often news reports on proposed or enacted pension cuts either overplay the rationale behind them, or minimize the impacts on affected workers. The latter is especially true with changes that do not decrease take-home pay but reduce future retirement benefits and thus may be harder to quantify.

This primer is intended to help organizations understand both the rationales behind and the details of proposed cuts to public pensions. It provides tools for assessing and understanding the true underlying health of public pension plans, the history behind any actuarial shortfalls, and the impacts on workers and taxpayers of proposed or enacted legislation that reduces pension benefits. The primer is organized as a series of 10 steps, although all may not be relevant in every situation. While it ends with a specific example of the percentage change in lifetime benefits, measured in real terms, received by a prototypical worker under four different pension plan changes, it provides guidance on using alternative measures as well.

The Class of 2014 — The Weak Economy Is Idling Too Many Young Graduates

May 29, 2014 Comments off

The Class of 2014 — The Weak Economy Is Idling Too Many Young Graduates
Source: Economic Policy Institute

The Great Recession officially ended in June 2009, nearly five years ago. However, the labor market has made agonizingly slow progress toward a full recovery, and the slack that remains continues to be devastating for workers of all ages. The U.S. labor market still has a deficit of more than 7 million jobs, and the unemployment rate has been at 6.6 percent or higher for five-and-a-half years. (In comparison, the highest unemployment rate in the early 2000s downturn was 6.3 percent, for one month in 2003.) The weak labor market has been, and continues to be, very tough on young workers: At 14.5 percent, the March 2014 unemployment rate of workers under age 25 was slightly over twice as high as the overall unemployment rate, 6.7 percent. Though the labor market is headed in the right direction, it is improving very slowly, and the job prospects for young high school and college graduates remain dim

A key finding of this paper is that there is little evidence that young adults have been able to “shelter in school” from the labor market effects of the Great Recession. Increases in college and university enrollment rates between 2007 and 2012 were no greater than before the recession began—and since 2012, college enrollment rates have dropped substantially. This means there has been a large increase in the share of young high school and college graduates who are idled—neither employed nor enrolled in school—by the weak economy. This represents an enormous loss of opportunities for this cohort that will have lasting consequences.

The Legislative Attack on American Wages and Labor Standards, 2011–2012

November 1, 2013 Comments off

The Legislative Attack on American Wages and Labor Standards, 2011–2012
Source: Economic Policy Institute

Over the past two years, state legislators across the country have launched an unprecedented series of initiatives aimed at lowering labor standards, weakening unions, and eroding workplace protections for both union and non-union workers. This policy agenda undercuts the ability of low- and middle-wage workers, both union and non-union, to earn a decent wage.

This report provides a broad overview of the attack on wages, labor standards, and workplace protections as it has been advanced in state legislatures across the country. Specifically, the report seeks to illuminate the agenda to undermine wages and labor standards being advanced for non-union Americans in order to understand how this fits with the far better-publicized assaults on the rights of unionized employees. By documenting the similarities in how analogous bills have been advanced in multiple states, the report establishes the extent to which legislation emanates not from state officials responding to local economic conditions, but from an economic and policy agenda fueled by national corporate lobbies that aim to lower wages and labor standards across the country.

U.S. Retirement System Fails Most Americans

September 13, 2013 Comments off

U.S. Retirement System Fails Most Americans
Source: Economic Policy Institute

A new paper, from EPI economist Monique Morrissey and research assistant Natalie Sabadish, demonstrates that the current retirement system has left the vast majority of Americans unprepared for retirement. Retirement Inequality Chartbook: How the 401(k) revolution created a few big winners and many losers uses 46 charts to demonstrate the impact of the shift from pensions to individual savings accounts. The chartbook examines disparities in retirement preparedness and outcomes by income, race and ethnicity, education, gender, and marital status.

While high-income Americans have benefitted enormously from the rise of 401(k)s, most Americans are being left behind. These findings underscore the importance of preserving and strengthening Social Security, defending defined-benefit pensions for workers who have them, and seeking solutions for those who do not.

Mismatches in Race to the Top Limit Educational Improvement

September 12, 2013 Comments off

Mismatches in Race to the Top Limit Educational Improvement
Source: Economic Policy Institute
From press release:

Race to the Top has done little to help most states close achievement gaps, and may have exacerbated them, according to a new report by Elaine Weiss, National Coordinator of the Broader, Bolder Approach to Education. In Mismatches in Race to the Top Limit Educational Improvement: Lack of Time, Resources, and Tools to Address Opportunity Gaps Puts Lofty State Goals Out of Reach, Weiss takes a comprehensive look at the Obama administration’s signature education initiative, and finds a few notable successes but many more shortcomings.

Race to the Top offered federal funding to states that committed to meeting a series of goals—including developing new teacher evaluation systems that rely substantially on student achievement, identifying alternative teacher certification systems, turning around low-performing schools, and substantially boosting student achievement and closing achievement gaps. In her report, Weiss examines how much progress states have made over the first three years of the grant period. With a year to go before funding is scheduled to end, states are largely behind schedule in meeting goals for improving instruction and educational outcomes.

What Families Need to Get By: The 2013 Update of EPI’s Family Budget Calculator

July 12, 2013 Comments off

What Families Need to Get By: The 2013 Update of EPI’s Family Budget Calculator
Source: Economic Policy Institute

The income level necessary for families to secure an adequate but modest living standard is an important economic yardstick. While poverty thresholds, generally set at the national level, help to evaluate what it takes for families to live free of serious economic deprivation, the Economic Policy Institute’s (EPI) Family Budget Calculator—recently updated for 2013—offers a broader measure of economic welfare and provides an additional metric for academics and policy experts looking for comprehensive measures of economic security. The basic family budgets presented in this report, as well as those presented via the Family Budget Calculator itself, measure the income families need in order to attain a secure yet modest living standard where they live by estimating community-specific costs of housing, food, child care, transportation, health care, other necessities, and taxes.

EPI’s Family Budget Calculator is particularly useful given the inadequacies of both the federal poverty line and the new Supplemental Poverty Measure (SPM) when it comes to measuring families’ fundamental needs (CCED 2013). EPI’s basic family budgets overcome many of these shortcomings by providing a wealth of geographic and family-type detail; they are calculated for over 600 U.S. communities and six family types (either one or two parents with one, two, or three children). The rich detail afforded by these geographic and family-type customizations, the relative accessibility of these numbers, and the rigor and transparency with which they are developed make the family budgets presented in this report and via the Family Budget Calculator uniquely valuable to non-experts and academics alike.

This issue brief begins by explaining in greater detail the advantages of EPI’s basic family budgets as compared with the federal poverty line and the Supplemental Poverty Measure. It then illustrates the budgets’ most important feature—their high degree of customizability by family type and community—by demonstrating how family budgets vary significantly depending on family size and geographical area.

Financial Security of Elderly Americans at Risk

June 7, 2013 Comments off

Financial Security of Elderly Americans at Risk
Source: Economic Policy Institute

Policymakers considering changes to social insurance programs such as Social Security and Medicare must consider the economic realities confronting elderly Americans. Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship. Most seniors live on modest retirement incomes, which often are barely adequate—and sometimes inadequate—to cover the costs of basic necessities and support a simple, yet dignified, quality of life. For these seniors, and even for those with greater means, Social Security and Medicare are the bedrock of their financial security. Any proposed changes to these programs must be evaluated not just for their impact on future budget deficits, but for their impact on living standards of the elderly.

In this study, we use the Supplemental Poverty Measure (SPM) from the U.S. Census Bureau to assess the economic health of the elderly population in the United States, overall and by age, gender, and race and ethnicity. Using evidence on elderly economic insecurity from Wider Opportunities for Women (WOW), we identify the share of the elderly population that is particularly vulnerable to changes in social programs. Our analysis enables us to estimate how proposed increased cost-sharing by Medicare beneficiaries or reduced Social Security benefits would impact the well-being of a significant portion of the elderly population.

Guestworkers in the high-skill U.S. labor market: An analysis of supply, employment, and wage trends

May 15, 2013 Comments off

Guestworkers in the high-skill U.S. labor market: An analysis of supply, employment, and wage trends

Source: Economic Policy Institute

This paper reviews and analyzes the science, technology, engineering, and mathematics (STEM) labor market and workforce and the supply of high-skill temporary foreign workers, who serve as “guestworkers.” It addresses three central issues in the ongoing discussion about the need for high-skill guestworkers in the United States:

  • Is there a problem producing enough STEM-educated students at sufficient performance levels to supply the labor market?
  • How large is the flow of guestworkers into the STEM workforce and into the information technology (IT) workforce in particular? And what are the characteristics of these workers?
  • What are the dynamics of the STEM labor market, and what are the employment and wage trends in the IT labor market?

Analysis of these issues provides the basis for assessing the extent of demand for STEM workers and the impact of guestworker flows on the STEM and IT workforces.

Market-oriented education reforms’ rhetoric trumps reality

April 30, 2013 Comments off

Market-oriented education reforms’ rhetoric trumps reality (PDF)

Source: Economic Policy Institute

Top-down pressure from federal education policies such as Race to the Top and No Child Left Behind, bolstered by organized advocacy efforts, is making a popular set of market-oriented education “reforms” look more like the new status quo than real reform. Reformers assert that test-based teacher evaluation, increased access to charter schools, and the closure of “failing” and under-enrolled schools will boost at-risk students’ achievement and narrow longstanding race- and income-based achievement gaps. This new report from the Broader, Bolder Approach to Education examines these assertions by comparing the impacts of these reforms in three large urban school districts – Washington, D.C., New York City, and Chicago – with student and school outcomes over the same period in other large, high-poverty urban districts. The report finds that the reforms deliver few benefits, often harm the students they purport to help, and divert attention from a set of other, less visible policies with more promise to weaken the link between poverty and low educational attainment.

Guestworkers in the high-skill U.S. labor market

April 26, 2013 Comments off

Guestworkers in the high-skill U.S. labor market
Source: Economic Policy Institute

Our examination of the IT labor market, guestworker flows, and the STEM education pipeline finds consistent and clear trends suggesting that the United States has more than a sufficient supply of workers available to work in STEM occupations:

  • The flow of U.S. students (citizens and permanent residents) into STEM fields has been strong over the past decade, and the number of U.S. graduates with STEM majors appears to be responsive to changes in employment levels and wages.
  • For every two students that U.S. colleges graduate with STEM degrees, only one is hired into a STEM job.
  • In computer and information science and in engineering, U.S. colleges graduate 50 percent more students than are hired into those fields each year; of the computer science graduates not entering the IT workforce, 32 percent say it is because IT jobs are unavailable, and 53 percent say they found better job opportunities outside of IT occupations. These responses suggest that the supply of graduates is substantially larger than the demand for them in industry.

Executive compensation tax deductions cost Treasury $30.4 billion over 2007-10

August 21, 2012 Comments off

Executive compensation tax deductions cost Treasury $30.4 billion over 2007-10
Source: Economic Policy Institute

A new EPI report, Taxes and executive compensation, by Temple University accounting professor Steven Balsam, provides estimates of the tax deductions and lost tax revenue associated with the executive compensation of publicly-held companies. The graph shows that tax-deductible executive compensation cost the federal treasury $30.4 billion over the years 2007–2010; $16.6 billion from performance-based compensation and $13.8 billion from other forms of compensation such as bonuses and salary.

Section 162(m) of the Internal Revenue Code, adopted in 1993 to discourage excessive executive pay, limits the deduction for executive compensation at publicly-traded corporations to $1 million in compensation per covered executive. An exception to the provision, however, allows corporations to deduct qualified performance-based compensation. This exception has a major weakness: While it requires that shareholders approve the performance-based compensation to preserve deductibility, corporations are only required to provide shareholders with general information. Thus, shareholders are asked to, and usually do, approve compensation plans without knowing the potential payouts from the plans or whether the performance conditions are challenging.

A young person’s guide to Social Security

August 1, 2012 Comments off

A young person’s guide to Social Security
Source: Economic Policy Institute

Many young people don’t think Social Security will be there for them when they retire. Coupled with the doubt about Social Security’s longevity is a general apathy toward learning its basic functions and how it operates. Young people are uninformed and therefore misinformed. They do not understand how Social Security works, who it affects, and how it fits into their future plans.

Yet, Social Security is the nation’s most successful anti-poverty program and it remains a fundamental pillar of the American economy—one that is critical to the long-term economic security of today’s young people. The new edition of A Young Person’s Guide to Social Security, released by the Economic Policy Institute and the National Academy of Social Insurance, gives young adults the information they need to participate in debates about Social Security’s future. The 60-page guide is written by young authors for students and young workers and explains why Social Security is not in grave danger as oft-reported.

The new edition coincides with the seminar for Washington interns, “Demystifying Social Security,” sponsored by NASI, and reflects the latest official estimates for Social Security in the 2012 Social Security Trustees’ report.

Roughly two-thirds of labor force participation rate’s drop due to cyclical changes, new EPI paper finds

May 31, 2012 Comments off

Roughly two-thirds of labor force participation rate’s drop due to cyclical changes, new EPI paper finds
Source: Economic Policy Institute

The labor force participation rate – the share of working-age people who either have a job or are jobless but actively seeking work – has dropped more than two percentage points since 2007. Roughly two-thirds of this drop is due to the weak job opportunities in the Great Recession and its aftermath, a new Economic Policy Institute paper finds. The remainder is the result of long-run demographic trends. In other words, two-thirds of the labor force participation rate’s recent decline is cyclical, and one-third of it is structural.

In Labor force participation: Cyclical versus structural changes since the start of the Great Recession, EPI economist Heidi Shierholz explains that the cyclical decline in the labor force participation rate means that there are nearly four million workers “missing” from the labor force. These missing workers would be in the labor market if job prospects were strong.

Women and African Americans hit hardest by job losses in state and local governments

May 5, 2012 Comments off

Women and African Americans hit hardest by job losses in state and local governments
Source: Economic Policy Institute

While the private sector has experienced some job growth since the Great Recession officially ended in 2009, the public sector has continued to shed jobs. In fact, in 2011, state and local governments experienced the worst job decline on record. That decline is the topic of a new report, The public-sector jobs crisis, released today by the Economic Policy Institute, which finds that public-sector job losses have been particularly damaging for women and African Americans.

The public-sector jobs crisis: Women and African Americans hit hardest by job losses in state and local governments, by EPI experts David Cooper, Mary Gable, and Algernon Austin, explains the particular importance of public-sector jobs for women and African Americans, the progress that state and local governments have made in reducing wage and employment disparities, and how cuts to state and local budgets have disproportionately hurt these groups.

Key findings of the report include:

  • Historically, the state and local public sectors have provided more equitable opportunities for women and people of color. As a result, women and African Americans constitute a disproportionately large share of the state and local public-sector workforce.
  • Overall, the wage gap across genders is similar in the state and local public sectors and in the private sector. However, it is smaller for highly educated women employed in state and local government.
  • State and local public-sector workers of color face smaller wage disparities across racial lines, and at some levels of education actually enjoy a wage premium over similarly educated white workers.
  • The disproportionate share of women and African Americans working in state and local government has translated into higher rates of job loss for both groups in these sectors. Between 2007 (before the recession) and 2011, state and local governments shed about 765,000 jobs. Women and African Americans comprised about 70 percent and 20 percent, respectively, of those losses. Conversely, Hispanic employment in state and local public-sector jobs increased during this period (although most of that increase likely occurred in the lowest-paid jobs).
  • Job losses in the state and local public sectors stand in contrast to the jobs recovery in the private sector. From February 2010 (the month the labor market “bottomed out”) to January 2012, the United States experienced a net increase in total nonfarm employment of more than 3.2 million jobs, while state and local government employment fell by 438,000. Over this period, every major sector of the economy experienced net growth in jobs except the public sector.

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CEOs made 231 times more than workers did in 2011

May 4, 2012 Comments off

CEOs made 231 times more than workers did in 2011
Source: Economic Policy Institute

CEOs were paid, on average, 231 times more than workers in 2011, a new EPI analysis shows. This CEO-to-worker compensation ratio includes the value of stock options exercised by executives. An alternative measure of CEO compensation that includes the value of stock options granted in a given year yields a CEO-to-worker compensation ratio of 209.4-to-1. By comparison, the CEO-to-worker compensation ratio was roughly 20-to-1 in 1965.

In CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality, EPI President Lawrence Mishel and research assistant Natalie Sabadish find that CEO compensation has grown exponentially in recent decades, while worker compensation has been relatively stagnant: from 1978 to 2011, CEO compensation increased more than 725 percent, compared to an increase in compensation for workers of only 5.7 percent.

CEOs’ growing compensation, along with compensation for highly-paid workers in the financial sector, has been the primary driver of the more than doubling of the income share of the top 1 percent over the past three decades. Executives and workers in finance accounted for 58 percent of the expansion of income for the top 1 percent from 1979 to 2005. They accounted for 67 percent of the increase in income for the top 0.1 percent over the same time period.

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Ryan plan to slash Medicaid would cost the economy about 862,000 jobs

April 15, 2012 Comments off
Source:  Economic Policy Institute

The budget proposed by Wisconsin Rep. Paul Ryan for fiscal year 2013 would cut Medicaid by $544 billion over the next five years. In a new report, EPI policy analyst Ethan Pollack documents how these cuts would weaken the economy and cost jobs. Using standard macroeconomic estimates that are consistent with private- and public-sector forecasts, Pollack finds that Ryan’s proposal would cost 862,000 jobs in 2014 and would continue to drag on job-growth in later years. These jobs losses would be mostly in the private sector and would impact every state.

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A jobs-centered approach to African American community development​: The crisis of African American unemployment requires federal intervention

December 26, 2011 Comments off

A jobs-centered approach to African American community development​: The crisis of African American unemployment requires federal intervention
Source: Economic Policy Institute

Millions of African Americans live in communities that lack access to good jobs and good schools and suffer from high crime rates. African American adults are about twice as likely to be unemployed as whites, black students lag their white peers in educational attainment and achievement, and African American communities tend to have higher than average crime rates. These issues have been persistent problems.

Jobs are essential to improving African American communities. Increased employment would help people in these communities lift themselves out of poverty. In addition, because poor economic conditions are an important causal factor behind poor educational outcomes and high crime rates are correlated with high unemployment rates, creating job opportunities would help improve educational outcomes and reduce crime.

This paper outlines a plan for significantly increasing the number of jobs available to African Americans. The plan, which targets communities with persistently high unemployment, includes three main components: creation of public sector jobs, job training with job-placement programs, and wage subsidies for employers. Although the plan is constructed with African Americans in mind, it would also provide benefits to Latino, American Indian, and white communities in which unemployment has remained high.

News from EPI: Poorly-researched estimate of OSHA regulations leads to vastly overstated costs

October 27, 2011 Comments off

News from EPI: Poorly-researched estimate of OSHA regulations leads to vastly overstated costs
Source: Economic Policy Institute

The estimate by Nicole V. Crain and W. Mark Crain that Occupational Safety and Health Act (OSHA) regulations cost businesses $65 billion a year is vastly overstated, a new Economic Policy Institute (EPI) Issue Brief finds. Crain and Crain conducted a study of the cost of government regulations for the Small Business Administration’s Office of Advocacy in 2010 that included this estimate.

Crain and Crain attribute more than 99 percent of the $65-billion estimate to regulations adopted in the 1970s, 1980s and 1990s. Deconstructing Crain and Crain: Estimated cost of OSHA regulations is way off base, by EPI Vice President Ross Eisenbrey and Director of Regulatory Policy Research Isaac Shapiro, explains that the Crains’ estimate is problematic for three reasons. First, pre-issuance cost estimates of regulations more than 10 years old are unreliable because different methodologies have been used in different time periods. Moreover, businesses have adjusted to changes they were required to make due to new regulations, and the cost estimates do not account for these changes.

Second, Crain and Crain base their estimate on a series of studies that trace back to a 1974 National Association of Manufacturers (NAM) survey. Not only is NAM traditionally opposed to regulations, their archives center is unable to find the 1974 survey, so researchers are unable to evaluate whether it was accurate. The Crains arbitrarily inflate the cost of OSHA regulations to match the costs supposedly found in the never-published 1974 survey of NAM members.

Finally, the Crain and Crain estimate counts fines as a regulatory cost. Because estimates of compliance costs assume all firms comply completely with new rules, Crain and Crain are effectively double-counting. Fines actually paid by employers are, in any event, a negligible cost.

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