Audiences often ask me what it is we should be doing policy-wise to offset wage stagnation, inequality, working poverty. There’s no silver bullet, of course, but one under-appreciated part of the solution, particularly for those in low-paid jobs, is improving, expanding, and enforcing labor standards.
By labor standards, I mean things like minimum wages, overtime pay, safety at work, misclassifying regular workers as independent contractors, and the prosecution of “wage theft” (when employers don’t pay workers), as generally laid out in the Fair Labor Standards Act (FLSA).
This editorial in the today’s NYT about expanding FLSA, particularly minimum wage and overtime rules, to home health aides reminded of the importance of the issue. You may have thought they were covered already, but in fact, there’s been a “companionship” exemption in place for years. The Department of Labor enforces these rules, and here’s how they explained the proposed change:
Although the regulations governing exemptions have been substantially unchanged since they were promulgated in 1975, the in-home care industry has undergone a dramatic transformation. There has been a growing demand for long-term in-home care, and as a result the in-home care services industry has grown substantially. However, the earnings of in-home care employees remain among the lowest in the service industry, impeding efforts to improve both jobs and care. Moreover, the workers that are employed by in-home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption (i.e., neighbors performing elder sitting), but instead are professional caregivers entitled to FLSA protections.
This change is important because health support occupations in general and home health aides in particular are among the top few occupations expected to add the most jobs in coming years. Here’s an area where we can count on creating a lot of jobs, and jobs for people who don’t need advanced degrees (although as I’ve constantly stressed, a home health aide with at least a few years of training beyond high school is much better situated than one without any higher ed).
But won’t the new rule contribute to spiraling health costs? Actually, even a casual look at the sector should convince you that labor market fundamentals are not exactly in play here. It’s one of the most strongly demand occupations in the economy, and while the supply of workers for these jobs has grown as well, it has not grown enough to generate these results:
• The median hourly wage for home care workers in 2010 was $9.40. Adjusted for inflation, home care workers earn less today than they did a decade ago.
• Approximately 50 percent of home care workers rely on some form of public assistance to supplement their low wages.
• In the private pay market, agencies charge consumers approximately twice the hourly rate paid to caregivers.
• Artificially low wages resulting in part from the companionship exemption are underwriting the 30 to 40 percent profit margins of the for-profit franchises delivering personal care services.
Given those last two bullets, and assuming a competitive market (there actually exists a robust market of third party home health aide providers), I suspect the cost of the new rules will be offset by lower profit margins. In economese, enforcing labor standards in this sector will redistribute the “rents” now being claimed by the agencies to a group of workers with uniquely low bargaining power. And in a growing occupation sector fueled by ongoing demographic trends, that’s a good thing.