It feels like you are working longer hours for less money because you probably are. Average hourly wages have fallen since the early 1970s, while hours worked have risen. American workers are not being paid enough.
What went wrong? OT pay in part.
If you are under the age of 45, you may not know that overtime pay is a thing. Middle-class workers used to get a lot of it, while you probably don't. Modern employers have come to expect and exploit a giant pool of free labor when you work over 40 hours a week. Income inequality is at its highest level since the Gilded Age, as profits are up, wages are down, and real wages are down.
Think about it. If I can convert 2,000 40-hour-per-week jobs into 1,600 50-hour-per week jobs, I can pocket the wages of 400 workers. Every single year, I would have to spend over $20 million to buy myself a brand new private jet. You have to put in extra hours at work, and you're not sure how to pay for babysitters.
It wasn't always this way. The prohibition of child labor and the establishment of a federal minimum wage were two of the main provisions of the Fair Labor Standards Act. The weekend and the eight-hour day were created because of the FLSA, which established a salary threshold below which workers were guaranteed time-and-a-half pay for every hour worked over 40 hours a week.
He wasn't exaggerating. The federal overtime standard was a kind of minimum wage for the middle class, providing both a valuable source of extra income and a shield against exploitative working hours. The FLSA set the minimum wage at half the median wage and the overtime threshold at three times the median wage, a level high enough to cover about two-thirds of salaried workers. Thanks to strong labor standards, real wages at all income levels grew in lockstep with worker productivity over the next few decades. The minimum wage and overtime threshold were adjusted upward every year as the median wage grew. Most American workers were expected to be paid 150 percent of their regular wage for every hour worked over 40 hours a week, and most employers paid it. Employers were strongly incentivized to hire more workers in order to avoid the added cost since time-and-a-half gets expensive fast.
The prosperity of working Americans was cut off around 1975 in the economy as a whole. The minimum wage and overtime threshold were quietly abandoned by Congress and federal regulators in the wake of an emerging free market consensus. Since 2009, the minimum wage has not been adjusted and stands at little more than a quarter of the median wage. The overtime threshold was not changed for 29 years. Wages stagnated without the strong labor standards provided by the FLSA. Today's median wage is just 54 percent of what it would have been if growth in worker productivity had continued. Over the past 45 years, nearly all of the benefits of economic growth have accrued to the top one percent.
Today's overtime threshold is only 67 percent of the already diminished median wage and only 15 percent of workers are covered by it. If you earn more than $35,568 a year, you may be misclassified as an exempt position that doesn't receive overtime pay at all. Employers are taking full advantage of the memory of overtime pay. Half of full-time workers work more than 40 hours a week, 39 percent work at least 50 hours a week, and 18 percent work 60 hours or more a week. Most of these workers don't get paid overtime for the extra hours they put in. Overtime pay is no longer the norm. Americans are working longer hours at lower wages while their employers and shareholders make record profits.
It doesn't have to be this way.
The U.S. Department of Labor has the authority to raise the overtime threshold without congressional approval. There are no contentious reconciliation bills to negotiate, no filibusters to fear, and no cynical obstruction from pro-business lawmakers. To survive legal challenges there are strict rule-making procedures that must be followed. If his administration acts bold and decisive, tens of millions of voters will go to the polls in this November's mid-term elections, knowing that a Democratic president just delivered them a well-earned raise. The larger the number of Americans who would benefit, the higher the threshold Biden raises.
America's 1% has taken $50 trillion from the bottom.
We are not talking a one-off tax cut or relief check. This isn't a handout, it's a permanent increase in weekly middle-class pay. According to Gallup, full-time workers work an average of 47 hours a week. If they got paid an additional time-and-a-half for all seven of those extra hours, that would amount to an average 26.25 percent increase in weekly pay. An additional $13,787 a year would be added to a two-worker household if the current median weekly full-time wage is maintained. That may be an underestimate. According to a survey by the payroll services giant ADP, North American workers now put in an average of nine hours of overtime every week, the equivalent of $17,726 a year in stolen income. It is a lot of money. Imagine how much better a middle-class family would be if they had a few tens of thousands of dollars a year of additional income or a few hundreds of hours of free time.
Fifty years ago, free time was something your parents looked forward to. Free time is something you are expected to give up to your boss. The work-from- home revolution isn't going to make things any better. Those who work from home put in more overtime than their counterparts at the workplace.
Unpaid overtime has become so normalized that we even impose it on ourselves.
American workers are tired of being sick and tired and are quitting their jobs in record numbers in order to get better working conditions and more free time. Some have dubbed it The Great Resignation, but in at least one sense, it's not. Americans have grown resigned to being locked into an abusive relationship with their employers over the last five decades. Life is too precious, fragile, and short to waste it working long hours at low pay for companies that don't care about the lives of employees.
The polling data shows that workers are quitting their jobs because they know they deserve better. A third of workers who switched jobs during the Pandemic said they took a pay cut in exchange for a better work-life balance, according to a survey. When presented with the policy as a viable option, overtime pay draws strong support across party lines. According to a January 2021, poll of likely voters across over 65 swing congressional districts, an overwhelming 77 percent of respondents supported raising the overtime threshold to $83,000 a year. A February 2021 poll of likely voters in four key states found similar high levels of support. There is no good reason for the Biden administration to not aim higher. When the FLSA's labor standards were strong, the median wage would have been around $100,000 a year today. Adhering to the old 1.5 times median ratio would be morally, economically, politically and legally defensible.
Opponents will argue that raising the overtime threshold would be a job killer because they have always argued that every policy intended to benefit working people is a job killer. This job-killer logic is wrong in overtime. Over the past 50 years, the erosion of the overtime threshold has allowed corporations to convert three 40-hour-a-week jobs into two 60-hour-a-week jobs, and to pocket 40 hours in lost wages. I built a lot of personal wealth while I was a venture capitalist. If you do it at a single tech startup, you end up with a bunch of burned-out twenty-somethings working crazy hours in exchange for decent pay and a chance at striking it rich off stock options. You kill 20 million middle-class jobs if you do that 60 million times. The jobs lost to a steadily eroding overtime threshold has been the most underappreciated driver of stagnant wages and rising inequality over the past 50 years.
Young people are quitting their jobs and not going back.
According to a study by the RAND Corporation, rising inequality since 1975 is responsible for a $50 trillion upward redistribution of wealth and income from the bottom 90 percent households to the top 1 percent. If every working American in the bottom nine were paid the same amount of money as the median wage earner, they would have an extra $13,728 a year to spend.
Many workers have been pressed to put in more overtime in the midst of a labor shortage. Employers can either pay time-and-a-half for every hour of overtime, or they can slash it, if the threshold is raised to a level high enough to once again cover the vast majority of workers. Either way, American workers get more time and money. Businesses win because what is good for the American middle class is good for the American economy. During the three decades in which the overtime standard was most robust, the U.S. economy was never stronger or more prosperous. The first rule of a mature market economy is that when workers have more money, businesses will hire more workers. It is a positive feedback loop in which we all prosper.
There is no political downside to going big on overtime because of the economics and popular support. Raising the overtime threshold is the most important win that President Biden could have made without pushing a bill through Congress. It would raise wages for tens of millions of Americans. In the long run, it would create millions of new middle-class jobs while restoring a modicum of balance to our busy lives. If opponents file lawsuits to block it, the politics are even better, for it gives Biden the chance to be seen by voters fighting and winning on behalf of the American middle class.
Free labor is bad for working families and the economy as a whole. If Democrats know what's good for them, they'll raise the overtime threshold to at least $85,000 a year and then run on it, leaving Republicans to explain to mid-term voters why the American middle-class should be expected to work overtime for free.
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