This week we saw a teachable moment presented by President Obama to Bernie Sanders and the senator’s loyal band of followers.
While Sanders rails against corporate America and implies that income equality can be achieved through the U.S. tax code, Obama went straight to the heart of the matter and greatly increased pay for low-income workers who spend more than 40 hours per week on the job.
The overtime eligibility rule announced by the president will bring the old regulation up to par so that, factoring in the rate of inflation, it will nearly catch up to the level of decades ago. Now, those salaried workers earning up to $47,476 – double the current rate — must be paid time-and-a-half beyond 40 hours of work.
The last time the threshold was raised in 2004 President George W. Bush set the salary amount at $23,660. In 2016, that means only 8 percent of the labor force – at a poverty-level income for a family of four – qualify for mandatory overtime pay. Prior to that, the last time the salary threshold was adjusted upward was in 1975 by President Ford when 60 percent of salaried workers qualified.
Yet, the business community is in an uproar over Obama’s actions. After fighting the planned rule for the past year now there’s talk of lawsuits. Though these executives have profited from the increasingly outdated OT rule for years, they insist that updating the threshold will hurt their companies and force them to cut back on workers.
CEO-worker pay gap growing
At the same time, the “bottom up” approach toward inequality is losing ground as the pay gap between CEOs and average workers continues to grow, according the AFL-CIO’s Executive Pay Watch project. The Sanders supporters should know that the newest figures show that in 2015, CEOs of S&P 500 companies received, on average, $12.4 million in total compensation compared to $36,875 average pay for production and nonsupervisory workers. That’s a CEO-to-worker pay ratio of 335 to 1.
In Michigan, it’s not much better, with CEOs getting paid 318 times the average worker.
For the CEO who is a $10 million man, the question he should be facing from one of Sanders’ “Bernie Bros” fanatical followers is: How do you explain why you can’t afford to pay overtime to a single mom making $25,000 and working 50 hours a week?
Rather than threatening to impose huge taxes on CEOs, to little effect, Sanders should consider that basic changes like the one imposed by Obama can mean $10,000 more income for a worker making $25,000 or $35,000 who works considerable overtime hours.
Free college tuition for all sounds great, but this simple rule change will benefit 4.2 million low-income workers, and perhaps as many as 270,000 in Michigan.
To be clear, the federal OT rule still contains a number of employer-friendly exemptions, allowing companies to avoid overtime pay for all executives, administrators, managers, supervisors and some white-collar professional categories. For the rest, the rule carries on the American tradition dating back to the 1930s of a 40-hour work week and time-and-a-half for anything beyond that.
Businesses want to run out the clock
It should be noted that, in the 1980s and ‘90s, when the OT requirement was much more significant, the economy did just fine. Each year, inflation made the frozen threshold a little less significant. In 2004, Bush’s decision to sign a minor update to OT eligibility certainly did not raise a clamor.
And the timing of Obama’s decision to update overtime is clearly pertinent. Since the recession hit in 2008, millions of workers have been working harder as mandatory overtime became more common.
At the same time, employers have enjoyed huge gains in worker productivity since President Ford raised OT eligibility 40 years ago. More recently, many corporations have enjoyed near-record profits.
But on Capitol Hill, those with a libertarian mentality agree with their corporate allies that the new rule will backfire and cost jobs. This is the same argument directed against minimum wage hikes. Yet, the many minimum wage increases across the country over the past several years at the state and local level, according to most research, have not hurt employment.
The outdated federal minimum wage requirement represents another area where declining value over many years, due to the long-term impact of inflation, has incrementally boosted the bottom line for companies on an annual basis. The business community wants to run out the clock for as long as possible.
If expanding OT eligibility hurts job growth, shouldn’t the flip-side indicate that for all those years when the threshold kept sinking it must have helped create more jobs?
I wonder how many companies benefiting from the weakened overtime rules of the recent past used that advantage – that yearly bonus – to hire more people. After the mass layoffs we have witnessed over the past decade, I doubt many have. Instead, the corporate strategy has been to cut their workforce and require the remaining employees to work more hours for the same pay – or less.
That’s the way it works in the real world for really average workers. Under the new OT rules, it’s a shame all those folks can’t retroactively make up for their losses by putting in for back pay. They deserve it.