Today’s New Overtime Rule Is a Big Win for the American Middle Class

Courtesy EPI

Courtesy the  Economic Policy Institute

This morning at an event in Columbus, Vice President Joe Biden, Labor Secretary Tom Perez, and Ohio Senator Sherrod Brown will announce that the Labor Department is increasing the overtime salary threshold to $47,476 per year. The new threshold, which is scheduled to go into effect on December 1st of this year, doubles the current standard of $23,660. So what does this mean for you? If you’re in the middle class, it means you could be getting a raise. Or it might mean you’ll get back more hours of your life that you have until now devoted to unpaid labor. Or it could mean that for every hour that you put into your job over a standard 40-hour workweek, you’ll be earn time-and-a-half for your work. No matter what this means for you personally, it’s a huge win for the middle class, and will likely be seen as one of the Obama Administration’s crowning achievements.

As Nick Hanauer wrote for Politico, “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.” Because the number has been kept artificially low since the 1980s, the amount of salaried American workers eligible for overtime is now down to about 11 percent. This has been disastrous for the middle class, driving salaries down from the 1970s (when adjusted for inflation) while increasing the number of hours worked. In other words, for the last forty years Americans have been working harder and longer for less money. This reasonable new overtime threshold* is a solid step toward correcting this imbalance.

So say your salary is lower than$47,476 per year. And say this threshold is enacted despite the inevitable conservative pushback, as is likely. What does work in America look like after this? As stated, if you work more than 40 hours a week, you’ll be paid at time-and-a-half for your extra work. If your boss doesn’t want to pay you overtime, they’ll have to either hire more workers to pick up the extra work or pay you more than $47,476 a year to put you above the new threshold. And if your boss goes the latter route, you’ll have more free time to devote to…well, whatever the hell you want: family, hobbies, a second job, a small business. This means you’ll enjoy the security that most American workers enjoyed in the middle of the 20th century, back when inequality was at its lowest and our economy was at its strongest.

Graphic courtesy of the Economic Policy Institute.

Graphic courtesy of the Economic Policy Institute.

So who’ll reap the rewards of the new threshold? The Economic Policy Institute just published a report breaking down the 12.5 million working Americans who will benefit directly from overtime. And the demographics of those who’ll directly benefit are the Americans most in need of a raise: 6.4 million women, 7.3 million children under the age of 18, 4.5 million millennials, 1.5 million black Americans, 2 million Latino/a Americans, and 3.2 million workers who have a high school diploma and no college education. And according to EPI, the industries with the greatest share of workers who will directly benefit from overtime looks a lot like a cross-section of America: “agriculture, forestry, fishing, and hunting (39.7 percent); leisure and hospitality (37.3 percent); other services (33.2 percent); construction (32.6 percent); and public administration (32.5 percent).” (The charts at the end of this post go into much greater detail about the demographics of overtime.)

But all the EPI’s research only covers those who directly benefit from overtime. You should expect to enjoy a lot of indirect benefits from the raising of the threshold, too. As a 2014 Gallup poll found, almost 1 in 5 Americans work more than 60 hours a week, with the average American working 47 hours per week. Without any kind of a penalty for exceeding the standard 40-hour workweek, employers have grown to expect Americans to do more work for less money. As Hanauer and former Secretary of Labor Robert Reich wrote in the New York Times back in April, “over the last 30 years, corporate profits have doubled from about 6 percent of gross domestic product to about 12 percent, while wages have fallen by almost exactly the same amount.” By restoring normalcy to the American work contract, the overtime rule will help remind employers that a 40-hour workweek is the standard, and that forcing employees to work more without additional compensation is not okay.

Over the next few days, you’ll hear a lot of conservative politicians and employers complain about this rule. They’ll unveil the standard trickle-down threat that they roll out every time a minimum-wage increase is considered: if employers have to pay more, they’ll warn, there’ll be fewer jobs to go around. This argument is silly and wrong. When employees have more money to spend at local businesses, employers have more money and hire more employees to keep up with increased demand. And if employees have more time in which they can spend the money they earn, business will benefit, too.

Yes, maybe a few predatory employers who rely on bad employment practices will have difficulty adapting to the new overtime rules. Some might even go out of business. But as Reich and Hanauer note in their editorial, “the great thing about capitalism is that where one entrepreneur fails, another quickly figures out how to fill his niche. Adapting to new challenges is what successful businesspeople do.” And under the new overtime threshold, more workers will be able to share in that success. This is a win for the American middle class, which means it’s a win for America.

* Many would argue that the new overtime threshold could be a lot higher. As Hanauer noted back in 2014, “To get the country back to the same equitable standards we had in 1975, the Department of Labor would simply have to raise the overtime threshold to $69,000.” The Department of Labor opted to double the threshold, but when you hear critics complaining about the new number, you should remind them that it could—and arguably should—be even higher.

Paul Constant

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