THE SNAPSHOT VIEW of the US economy is, mostly, a comforting one: Unemployment has steadily fallen, inflation is almost nonexistent, consumer spending in April rose at the fastest rate since 2009, and the housing market remains solid. But the picture is missing something essential: higher wages. For many workers, a pay raise is a fading memory. Household incomes have largely been stagnant for years, exacerbating an already yawning gap between the nation’s economic elite and most everyone else.
President Obama has repeatedly railed against the injustice of income inequality, but he stands no chance of coaxing Congress into doing anything meaningful about it. Recognizing that political reality, Obama wisely exerted his executive powers last month, unveiling a change in federal rules that govern who qualifies for overtime pay. The regulations, which are scheduled to take effect Dec. 1, mark a desperately needed win for lower-level employees who are paid by salary and don’t receive a dime extra when they log more than 40 hours in a week. Under the new regulations, salaried employees earning less than $47,476 annually, or $913 weekly, will have to be paid time-and-a-half after 40 hours. That’s a significant increase from the current threshold of $23,660, which has been updated just once since the 1970s — a number so pitifully low that it doesn’t meet federal poverty guidelines for a family of four, never mind qualify as managerial-level pay.
In his weekly radio address on May 21, Obama noted that four decades ago, more than 60 percent of American workers qualified for overtime based on their salary level, compared with a mere 7 percent now. The rule change will increase that to 35 percent, according to the Department of Labor, adding 4.2 million people to the ranks of overtime-eligible — including 83,500 in Massachusetts. Obama called it “the single biggest step I can take through executive action to raise wages for the American people.”
Predictably, it didn’t take long for business groups, both locally and nationally, to start complaining that the revision creates an economic hardship for them. Some said the requirement will force them to cut employees’ base pay as a way to avoid added payroll costs. That’s nonsense — the Labor Department estimates workers collectively will earn $12 billion more over the next decade because of the revision, a big-sounding number that actually is a tiny fraction of the country’s overall wages.
The National Retail Federation had the audacity to claim that the change will limit employees’ opportunities for career advancement “by taking away their ability to use their own discretion in deciding whether to put in the extra hours sometimes needed to do their jobs.” Translation: Companies that are wrongly profiting from free labor won’t be able to do so any longer.
It may well turn out that certain salaried employees covered by the overtime expansion don’t end up taking home heftier paychecks on a regular basis — employers might sometimes decide to limit their hours instead of paying overtime. Others may opt to give workers pay raises to push them above the $47,476 overtime threshold. The new requirements might even lead to the creation of more jobs. A Goldman Sachs analysis of what happened in 2004 — the last time the overtime threshold was raised — concluded that the adjustment coming in December might compel businesses to hire about 100,000 additional workers next year instead of increasing their overtime budgets. All of this would further boost consumer spending — which accounts for a whopping 70 percent of the US economy — benefiting the very corporations that now warn Obama’s action on overtime will have dire consequences.
After years of a middle class in retreat, the president’s order is a move in the other direction that does away with an outmoded model of compensation, and acknowledges an undeniable fact — when people work, they should be paid for it.