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The Middle Class is Overdue for Overtime Pay Raise

December 19, 2014

Working Americans have a problem. And that means President Obama and his Democratic Party have a problem, too.
Despite the robust economic recovery, the steep decline in unemployment, a surging stock market, rising investment and plummeting gas prices, wages have hardly budged. After briefly dipping during the great recession which began in late 2007, income inequality has reached levels not seen since the 1920's, while the gap between middle and upper income families is, according to the Pew Research Center, now "the widest on record." Meanwhile, new measures designed to aid and expand the middle class--including major infrastructure investment, action of college tuition, federal assistance to help state and local governments rehire teachers, firefighters and police--remain blocked by Republicans in Congress. It's no wonder, as the New York Times reported, Democrats are divided "over how -- even whether -- to take any" credit for the improving economy they helped rescue.
All of which is why President Obama should act-right now--to raise the overtime pay threshold. With the stroke of his pen, Obama can deliver a decades-overdue raise to as many as 10 million middle class Americans.

Nick Hanaeur, the Seattle-based venture capitalist who has been warning his fellow one-percenters that "the pitchforks are coming for us," is the latest progressive voice to advocate for bringing overtime pay in the 21st century. As he explained Thursday in The Hill:

Overtime pay is to the middle class what the minimum wage is to low-wage workers. In 1975, more than 65 percent of salaried American workers earned time-and-a-half pay for every hour worked over 40 hours a week, but by 2013, that number had dropped to less than 11 percent. That's because the income threshold at which employers are required to pay overtime has been allowed to erode to only $23,660 a year, less than the poverty line for a family of four. The 89 percent of salaried workers who now earn over that threshold can be forced to work unlimited overtime hours for no additional pay at all.
And according to a recent Gallup poll, that's exactly what's happening. Salaried Americans now report working an average of 47 hours a week--18 percent report working more than 60 hours per week. If it feels like you're working more hours for less money than your parents did a generation ago, it's probably because you are.
But it doesn't have to be this way: President Obama could raise the overtime threshold to $69,000--enough to cover the same 65 percent of salaried workers that it covered 40 years ago--and with no prior congressional approval. Because unlike the minimum wage, the overtime threshold is set through the Department of Labor's existing regulatory authority.

That's right. The Fair Labor Standards Act (FLSA) of 1938 established the rules governing overtime pay over 75 years ago. Employees covered by the FLSA overtime provisions must be paid 150 percent of their wage ("time-and-a-half") for each hour above the 40 hour work week. While some 75 million hourly workers are covered, millions of salaried Americans are not. And many of them are left out not just because of FLSA "tests" classifying their jobs as "supervisory", "management" or "executive" positions. As Ross Eisenbrey and Jared Bernstein wrote in March for the Economic Policy Institute:

A simple way to address these problems is to raise the salary threshold under which all salaried workers, regardless of their work duties, are covered by the OT provisions. This key FLSA parameter has rarely been updated, nor is it indexed to inflation: The salary threshold has been changed only eight times in 75 years and only once since 1975. Simply adjusting the threshold for inflation since 1975--one of our key recommendations--would raise it to $970 per week, equivalent to an annual salary of about $50,440 today.

The need for updating overtime is made clearer by looking at the profound changes in the American economy--and the American workforce since the last increase almost 40 years ago. In the face of globalization and automation, America's manufacturing, unionized workforce has given way to the service economy with millions of salaried retail, education, financial, health and computer "professionals" exempt from FLSA's overtime protections. As Bernstein and Eisenbrey noted:

Preserving this right is just as important today as it was 75 years ago, and, when it comes to child-rearing, might be even more important. Between 1968 and 2008, the share of children living in households in which all parents work full time doubled from 24.6 percent to 48.3 percent.

To be sure, having the overtime threshold at least keep up with inflation is family friendly. Bumping that cap from the current $455 to $984 a week wouldn't just cover 6.1 million more workers at the lower end of the salaried scale. "The increase," Heidi Shierholz concluded, "would disproportionately help women, blacks, Hispanics, workers under age 35, and workers with lower levels of education because these workers are more likely than other subgroups to have lower salaries that put them below the proposed new threshold." Under Hanauer's more aggressive proposal to triple the annual salary threshold from $23,000 to $69,000, roughly 10.4 million workers would gain overtime pay coverage.
As the Center for American Progress warned, inaction is not an option for the American middle class:

Americans could once boost their paychecks by boosting their hours at work because federal overtime rules guaranteed them time-and-a-half pay for hours worked beyond 40 hours per week. But only 8 percent of full-time salaried workers have guaranteed overtime rights today. If current trends continue, no salaried workers will qualify for guaranteed overtime by 2026. For many Americans, it is simply no longer the case that if one works harder and longer, he or she will be rewarded.

But if millions of new workers would be rewarded by executive action on overtime rules, employers would not necessarily be punished with the burden of higher labor costs. As Bernstein and Eisenbrey explain, business owners will respond to higher overtime pay by lowering their baseline wage or hiring new workers to avoid the higher overtime hours and costs. In the former case, the risks fall on workers if they end working more overtime hours than originally forecast. But for venture capitalist Nick Hanaeur, the profit-making calculus is very simple. "Honestly, I'm beginning to run out of customers."

The twisted irony is, when you work more hours for less pay, you hurt not only yourself, you hurt the real economy by depressing wages, increasing unemployment and reducing demand and innovation. Ironically, when you earn less, and unemployment is high, it even hurts capitalists like me.

And when the middle class is suffering, it hurts the Democratic Party, too. Which is why President Obama should do the one thing he can do to help right now. Boost overtime pay and give millions of middle class workers a raise.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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