In 1975, six in ten full-time American workers qualified for overtime pay. Over the ensuing decades, inflation pushed more and more workers above the overtime threshold, while a Labor Department cowed by the conservative revolution passed regulations limiting eligibility even further. Today, only 7 percent of the full-time workforce receives time-and-a-half pay when they log extra hours — but before Barack Obama leaves the Oval Office, that figure will be closer to 35 percent.
On Wednesday, the Labor Department finalized a new rule doubling the threshold for overtime to $47,476. That means the roughly 4.2 million workers with salaries below the new threshold — but above the old one of $23,660 — will become eligible for overtime pay.
“The angst that people feel across this country is so frequently the product of the fact that they’re working hard and falling further behind,” Labor Secretary Tom Perez told NPR. “They feel like they lost leverage. And the reason they feel that is because in the case of the Fair Labor Standards Act, they indeed lost a lot of leverage.”
There are three ways that employers could try to work around the new regulation, two of which would potentially benefit laborers. First, employers will likely give raises to many workers earning just below the threshold, so they don’t have to worry about that overtime nonsense. Second, they could force newly eligible workers to stick to a 40-hour week — so no raise, but workers get more time with friends or family or World of Warcraft. Meanwhile, the employers would likely fill those lost hours by hiring more low-wage, hourly workers. Goldman Sachs economists estimate the rule will create 120,000 new jobs in the 12 months after it goes into effect.
Finally, employers could, theoretically, lower workers’ base hourly pay to compensate for the cost of overtime. In that scenario, workers would still put in long hours but receive no pay gain — and they could actually end up earning less money, as employers strategically limit their opportunities for overtime. Oh, and employers could also compensate for the overtime costs by slashing benefits.
Business owners are eager to emphasize this last possibility. After the administration announced its overtime proposal last June — initially putting the eligibility ceiling at $50,400 — the National Retail Foundation commissioned a study on its effects. Unsurprisingly, the results were not encouraging: The study found that 32 percent of affected workers would be converted from salaried positions to hourly ones, while 21 percent of newly eligible workers would see their base wages reduced and net no new income.
The Labor Department and the National Employment Law Project are both skeptical of that research.
“It’s very hard for employers to lower someone’s pay when they’re not being demoted,” Judy Conti, federal advocacy coordinator of the National Employment Law Project, told CNN Money. “They’ll start seeing a lot of turnover.”
The Labor Department estimates that the new rule will boost wages for workers by $12 billion over the next decade. The Republican Congress is certain to contest the changes, and Obama is certain to veto their challenge.
The overtime rule caps an excellent two months for big-government tyranny.
In April, the Treasury Department passed new regulations handicapping corporations’ ability to evade taxes by relocating overseas. Then the Labor Department passed a rule forcing brokers who handle retirement accounts to put their clients’ financial well-being ahead of their own. Which is to say, Wall Street traders can no longer finance their cocaine habits by gambling with Grandma’s rent money. As if that wasn’t enough of an assault against our dear job creators, the National Credit Union Administration then passed a rule prohibiting top Wall Street executives from collecting their bonus pay until four years after it’s earned — and if it becomes clear that an executive’s risky decision-making hurt his or her firm, they can lose their bonus altogether.
This cornucopia of pro-worker/anti-corruption regulations is a powerful illustration of the November election’s stakes. Left-wing critics of the Democratic Party have plenty of valid grievances — if you don’t think some powerful industries have a nefarious influence on Team Blue, read the fine print of the Trans-Pacific Partnership. Or look at the DNC chair’s brave defense of payday lenders.
But a party where labor unions and select corporations share power will still produce better policy than a party dominated by reactionary oligarchs. When the second Bush administration updated the overtime rules in 2004, nearly 6 million workers lost eligibility. Before Obama checks out of the White House, 4 million will get it back. It’s not enough, but it’s a lot better than nothing.