Why We Need the New Overtime Rule, In One Graph

March 13th, 2014 at 4:03 pm

As I explained here yesterday, and Ross Eisenbrey explain in some detail in this longer analysis, the Obama administration is making the right move by proposing to increase the weekly threshold beneath which salaried workers automatically quality for overtime pay.  Ross and I explain the rationale in the links above, but the figure below shows just how low the current threshold is in historical terms, meaning it entitles far too few salaried workers to OT pay when their workweek exceeds 40 hours.

The figure just takes the OT threshold in each year it was raised since 1950 and put it into today’s dollars.  For example, in 1970, the threshold was raised from $150 to $200, and $200 in 2014 dollars amounts to just under $1,100.  Today’s threshold, set in 2004, is $455, which btw is about the poverty rate for a family of four.

If we were to update that threshold to today’s dollars, it would be about $560, or about $29,000 per year.  That means that if we simply updated the current threshold for inflation, we’d still risk misclassifying, for example, an assistant manager at a retail outlet who makes $30,000 a year and has few true managerial or supervisory duties as ineligible for overtime pay.

Prior to the low-ball update in 2004, the average threshold in today’s dollars is $950, just about where Ross and I suggest it be set today (we advocate for the 1975 threshold in today’s dollars; see the second link above).

Just a few hours ago the President announced the official beginning of the process to update the rules and, in particularly, the threshold.  Thus begins the comment period where stakeholders et al can weigh in.  Consider this graph an early, and at least to my eyes, persuasive comment.

 

ot_fig1

Source: EPI.  Each bar represents the FLSA OT threshold in the year listed, but in today’s dollars.

 

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9 comments in reply to "Why We Need the New Overtime Rule, In One Graph"

  1. urban legend says:

    Why did it take until Year Six for this obvious fix to be proposed, much less made? Had nothing to do with maxing contributions in Year Four, right?


    • smith says:

      It probably didn’t have a lot to do with maxing contributions for reelection, except indirectly. By that I mean the Obamaism is merely and extension of Clintonism, a centrist approach that attempts to co-opt the center and temper the left, and provide moderates with a kindler gentler and socially liberal alternative to Republicans. The two Bushes succeeded by portraying themselves as moderates, even as the latter Bush propounded very pro-business policies that exacerbated inequality.

      The original Fair Labor Standards Act was not passed until 1938, nine years into the great Depression, on the heals of the 1937’s huge setback in recovery, six years into the Roosevelt presidency. Two years later, the number of regular weekly hours was further shortened from 44 hours to 40 hours a week. One can only hope focus on exempt status begins a movement for a 35 hour work week. Non-exempt status needs to be expanded to account for the modern economy where manufacturing and manual labor have shrunk. (see also France*) It’s been 64 years at 40 hours, why are we still maintaining the same schedule? Some research shows hunter gatherers maintained a less taxing schedule.

      *Before objections are raised, France suffers from some structural labor restrictions like no at-will employment, but 35 hour work weeks and 5 week vacations are hardly the cause of their woes and high unemployment. Austerity, monopolies, and other restrictions are more at fault.


      • urban legend says:

        Fair Labor Standards Act — OK, point worth considering, but this is a mere rule change already within the executive authority, not a controversial and comprehensive piece of legislation.

        France’s unemployment “woes” — I believe France has significantly different retirement rules and practices, and that its employment rate in the 25-54 age group is considerably higher than in the U.S. A 16-and-over base probably is not an appropriate way to compare the two economies.


        • smith says:

          In this case, the rule change is a major part of the law, it tells you who is covered by the law. That is why Bush made major changes to the regulations in 2004. I have previously remarked in comments elsewhere, before Obama made any announcement, that this was regulatory, not dependent on Congress. I’ve also made many comments on this blog going back at least a year on exempt status (I think it should largely be eliminated). Rule changes are so important that Republicans blocked the (neglectful and wimpy) Obama administration from making appointees to the National Labor Relations Board during his entire first term.

          My comment about France is that yes, that country has structural issues that need to be changed. No at-will employment makes it very difficult to replace workers, let them go and later hire someone else. I’m offering the opinion that France’s shorter hours and early retirement, higher taxes and generous social programs, do not cause their high unemployment. Rather it is a few important but economically limiting features, like no at-will employment and burdensome bureaucracy that may actually be the cause.


          • urban legend says:

            The entire rest of the civilized world has dispensed with the barbaric practice of at-will employment. That includes Canada and Australia. Somehow they survive, often with better employment figures than we have.

            Consider high protections of workers a feature, not a bug. Worker confidence in the future stream of income does tend to support demand, the sine qua non of business success.


  2. Larry Signor says:

    I think “maxing contributions” is too facile an analysis. Mr. Obama spent 4 years petting and befriending the ox so he could get re-elected. Now, he works the ox. Think of it as a bifurcated presidency, where 4 years of “do no harm” were spent enabling 4 years serious political and economic change. That is a legacy to strive for.


    • urban legend says:

      Occam’s Razor always results in a facile explanation, doesn’t it? Anyway, your sedond-term scenario looks reasonable (and just about the same thing, I think), but then why was it not initiated in the third week of January, 2013 instead of 14 months later?


      • doverby says:

        I admit that this is just speculation, but it could be that Obama thought that any executive action he took (especially ones that would affect business in any way) would give Republicans a reason not to pass any pieces of legislation he wanted (immigration reform, minimum wage, etc.). It’s part of the reason why he increased deportations so much: he wanted to prove that he could be tough on border security. So yes, I think a lot of it is politics. But now that he knows that nothing will get passed in Congress, he feels free to just kinda let loose. Again, all of that is just a guess, though.


      • Larry Signor says:

        “…why was it not initiated in the third week of January, 2013 instead of 14 months later?”. Good question, to which I have no answer. Perhaps some internal dynamics changed in the White House. That would be the charitable outlook, even if slightly unrealistic.


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