Recent battles over raising the minimum wage have attracted a lot of attention. But on May 18, President Obama’s administration took another significant step designed to give many American workers a long-overdue raise.
The U.S. Labor Department increased the threshold at which salaried workers can be denied compensation for working more than 40 hours a week, from $23,660 a year to $47,476.
Beginning Dec. 1, anyone paid less than $47,476 annually must get time-and-a-half pay for hours worked beyond 40 hours a week. For the past decade, workers paid as little as $23,660, which is below the poverty line for a family of four, could be exempt from any overtime compensation if they were classified as managers, administrators or professionals.
Like the federal minimum wage of $7.25, the salary threshold has not kept pace with inflation for decades, causing millions of workers’ paychecks to steadily lose value.
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The result has been that many workers — especially in low-wage service industries such as fast food — are dubiously classified as “managers” or “professionals” to keep them from receiving any compensation for work beyond 40 hours a week.
The U.S. Labor Department estimates 4.2 million workers, including 55,000 in Kentucky, will be affected by the rule change. The Economic Policy Institute, a liberal-leaning think tank, puts the number much higher: 12.5 million nationally and 149,000 in Kentucky. According to the EPI’s analysis, more than half of the affected workers are women, and many are young, less-educated, black or Latino.
But Ron Crouch, a leading expert on Kentucky demographic trends, said some of the biggest beneficiaries of the rule change in this state will be white and well-educated.
“We’ve got a lot of well-educated people who are not doing well economically,” Crouch said, adding that this is especially true among young people in low-salary staff jobs.
(A side note: Gov. Matt Bevin’s administration recently fired Crouch as director of research and statistics for the Kentucky Education and Workforce Development Cabinet. He is now an independent consultant.)
Obama’s action was predictably greeted by complaints from business groups. They have never liked the 1938 Fair Labor Standards Act, which Congress passed during the Great Depression to keep employers from exploiting workers.
Business owners always argue that they can’t afford to pay workers more, and for some small businesses this is true.
But as middle-class workers have seen little or no real income growth for more than three decades, executive compensation has soared, corporate profits have hit record levels and the gap between rich and poor has grown wider than at any time since the 1920s.
Employers will have three official options for complying with the new rule: They can raise workers’ salaries above the threshold; they can limit their work to 40 hours a week; or they can pay them time-and-a-half for overtime.
Whatever they do, workers benefit. They either get a salary increase, overtime pay or more free time. And if they stop working overtime, employers may have to hire more people to get the work done, creating new jobs.
Of course, employers could respond by cutting salaried employees’ base pay, which would be a good signal to the workers to look for a better employer.
Crouch said employers also could do what many companies already are: hire more independent contractors and freelancers, who aren’t covered by the Fair Labor Standards Act, to do work once performed by employees.
Business executives often complain about government regulation, claiming it distorts the “free” market. Trouble is, the free market really isn’t free. The balance of power has always been heavily tilted in favor of capital over labor.
The higher salary threshold isn’t just good news for salaried workers, or people who will be hired to perform the free overtime work they used to do. It will be good for the entire economy.
Recovery from the Great Recession has been slow and uneven in large part because wages for many middle-class Americans haven’t grown enough to fuel consumer spending, which makes up a large slice of the economy. Workers also have another role in the economy: customers.