Like minimum wage increase, new overtime rule long overdue

July 5, 2015

Hard work should pay off. That belief is at the heart of the American dream.

It also is why the U.S. Labor Department’s plan to make more salaried workers eligible for overtime pay is good news for both workers and the overall economy.

Like an increase in the minimum wage, it is long overdue.

Since 1938, federal law has required hourly workers to be paid time-and-a-half for each hour worked beyond 40 hours per week. There is an exception for managers and professionals, who are presumed to get good pay in return for more flexibility and, often, longer work weeks.

But here’s the problem: the salary level at which that exemption kicks in has been increased only once in 40 years.

In 1975, more than 60 percent of salaried workers were eligible for overtime pay. Because of inflation, that figure has fallen to 8 percent, according to a recent analysis by the Economic Policy Institute.

As a result, salaried “managers” who earn as little as $23,660 a year often work many extra hours for no extra pay. Some end up earning less per hour than the hourly employees they manage. This happens most often in retail and service industries, such as fast food.

This antiquated threshold salary of $23,660 is below the poverty line for a family of four, which is now set at $24,250. As a result, some of these managers are eligible for public assistance, which means taxpayers are directly subsidizing business profits. That makes no sense.

President Barack Obama last year told the Labor Department to review the overtime rule. That resulted in a proposal, announced last week, to raise the salary threshold for workers exempt from overtime next year to $50,440, returning it to roughly the 1975 level, accounting for inflation.

The new rule calls for that threshold to rise over time with inflation, linking it to the 40th percentile of income, which is where it was when the Fair Labor Standards Act became law in 1938.

The White House says the rule change would increase pay for nearly 5 million workers in the first year, 56 percent of whom are women and 53 percent of whom have a college degree.

The president’s action, which does not require the approval of Congress, has drawn howls from business interests and the politicians who receive their campaign contributions and loyally push their agendas.

As with almost every regulation Obama has proposed to help average workers, expand health insurance coverage and clean up the environment, these politicians argue that it will “kill jobs” and hurt the economy. In fact, the opposite is true.

Under this rule, if businesses don’t want to pay overtime to low-salaried managers, they can hire more hourly workers at straight time. That also would give those managers more time for a second job to supplement their income or spend time with their families, as they choose.

Opponents argue that businesses can’t afford to pay workers more, that this isn’t a good time. Have you ever known them to say anything else?

The United States has had 63 straight months of job growth, with businesses creating more than 12.5 million jobs. The Labor Department reported Friday that 223,000 jobs were created in June and the unemployment level fell to a seven-year low of 5.3 percent.

But the problem is that, for nearly four decades, wages have not kept pace with improvements in worker productivity. They haven’t even come close. Middle-class pay has stagnated and been eroded by inflation.

Meanwhile, stock prices are near all-time highs. Executive compensation has soared into the stratosphere. And corporate profits have roughly doubled over the past three decades, rising from 6 percent to 12 percent of gross domestic product.

A recent study found that 90 percent of income growth since 2009 has gone to the richest 10 percent of families.

Why has recovery from an economic crash caused mostly by financial speculation been so slow and uneven? Here is a big reason: consumer spending is the largest driver of the economy, and most people don’t have much extra money to spend.

Like a minimum wage increase, this would help fix that problem and show average Americans that hard work does pay off.

Economic slump reflects middle-class decline

September 5, 2011

Happy Labor Day.

Chances are, if you are one of the majority of Americans who labor rather than own for a living, you aren’t feeling very happy.

This hasn’t been a good year for middle-class workers, much less for the poor. In fact, it hasn’t been a good three-plus decades.

Economic and political forces have hammered working people. Real income for the bottom 80 percent of Americans has been stagnant or falling since the late 1970s. Few paid much attention until the 2008 financial crisis, because the trends were masked by rising personal and government debt.

During these years of middle-class decline, it has been fashionable to bash labor unions. Perhaps that is because people take for granted the things unions fought to make part of the American workplace — the eight-hour work day, overtime pay, the minimum wage, unemployment insurance and safe working conditions. Unions led the fight to end child labor and discrimination against minorities and women. They played a big role in creating Social Security and other government safety-net programs.

After World War II, as much as 25 percent of the work force belonged to unions, and their contracts set standards by which many non-union workers benefited. Last year’s census showed union membership at 11.9 percent, down from 20.1 percent in 1983. America now has 14.7 million union members — roughly the same number of people now unemployed.

Unions have plenty of flaws; all institutions do. But they serve an important role in balancing the power of business. Power without balance becomes abusive. We have seen that with business, labor, government and even churches. It is no coincidence that the decline of middle-class income and security over the past three decades has followed the declining influence of organized labor.

Statistics show that all real income growth since 1979 has gone to the wealthiest 10 percent to 20 percent of Americans, with the wealthiest 1 percent gaining the most, by far. Wealth inequality is the highest it has been since the 1920s.

The deep economic hole that politicians are debating how to fill was caused mostly by financial speculation, unfunded wars of choice and irresponsible tax cuts. But you hear little talk in Washington about a crackdown on Wall Street, real tax reform or scaling back military adventurism.

That is because wealthy interests have largely taken over both political parties. Democrats still give lip service to the middle class and poor, but the GOP has become a wholly owned subsidiary of corporate America.

President Barack Obama speaks Thursday to a joint session of Congress. He will propose a plan aimed at creating jobs, reviving the economy and improving his chances for re-election. Republicans will be against whatever he proposes, because they don’t want the economy to improve anytime soon. If the economy improves, they have less chance of taking back the White House.

The Republican prescription for economic recovery is to do more of the things that wrecked the economy in the first place: less business regulation and more tax cuts. The problem with trickle-down economics is that it only makes wealth trickle up, as the past three decades have shown.

Republican leaders also want aggressive debt-cutting austerity, but only for those who can least afford it. As history has repeatedly shown, this strategy only makes a weak economy weaker.

But it all depends on your perspective. The Main Street economy where most of us live and work is stuck in neutral. But Wall Street profits, corporate cash reserves and executive compensation have never been better. Times are good for the people whose campaign contributions and lobbying have all but shut average Americans out of the political debate.

The public is angry, and Tea Party activists are the most visible reflection of that. But their misguided philosophy plays right into the hands of big business. Why else do you think billionaires are funding those Tea Party organizations?

I am usually not a pessimist, but I see little hope for recovery as long as the interests of corporate America are so divergent from those of working Americans. The economy won’t improve until average people have more money to spend. Until the middle class finds political voice to demand that things change — as organized labor did a century ago — things won’t change.

The middle class squeeze is nothing new

December 2, 2008

Well, the economists finally made it official this week: We’re in a recession. And, guess what? They said it began a year ago.

If you’re like the three-fourths of Americans who consider themselves to be “middle class,” this probably didn’t come as a surprise. Many people feel as if they’ve been losing economic ground for years. That’s because many of them have been.

America has been a generally prosperous nation since World War II, achieving the highest overall standard of living in the planet’s history. The reasons are many, including advances in technology and global economic trends that have made goods cheap and available. Americans have been innovative, entrepreneurial and they have worked hard. At times, the nation has made significant public investments in physical infrastructure, such as highways, and social infrastructure, such as schools.

But the pain being felt in this recession has brought new attention to a trend economists have been watching for years: The rich really are getting richer, the poor really are getting poorer and the middle class has been shrinking steadily since the late 1970s.

It’s a reality that government policy-makers and business leaders must deal with as they try to pull us out of this mess. The issue could be especially important for Kentuckians, who lag their fellow Americans in just about every measure of economic well-being.

At the Kentucky Long Term Policy Research Center‘s annual conference Nov. 20 in Covington, there was an interesting panel discussion about the shrinking middle class and what it means for Kentucky. The news, as you might expect, wasn’t good.

“I see, basically, that middle class dissolving,” said Ron Crouch, a sociologist who has headed the Kentucky State Data Center at the Universtiy of Louisville since 1988. “The issue is it probably takes two incomes to make it in today’s society.”

Middle class is hard to define, but a basic measure is income. A year ago, a study by the nonpartisan Congressional Budget Office reported big disparities in the growth of after-tax household income between 1979 and 2005, as measured in 2005 dollars.

The study found that the poorest 20 percent of American households saw their annual income rise by an average of $900 over that quarter-century. The second-poorest 20 percent, by $4,800. The middle 20 percent, by $8,700.

Things were much different on the high end. The upper-middle 20 percent of households saw annual income increase by $16,000. And the richest fifth, by $76,500. Among the wealthiest 1 percent of households, average annual after-tax income rose by $745,100, from $326,400 to $1,071,500.

Panelist Terry Brooks, executive director of Kentucky Youth Advocates, said Kentucky ranks sixth-highest nationally in the disparity between its richest and poorest citizens and 13th in the disparity between middle- and upper-income people.

Most people define middle class more broadly than just income; it’s more about a feeling of security, Brooks said. Do I feel secure in my job, my home, my health, my retirement and my assets’ ability to weather a setback?

For example, if every member of a family doesn’t have health insurance, “you’re just one bad illness away from risk,” Brooks said.

That could help explain why the Pew Research Center and the Gallup organization reported this year that 25 percent of Americans felt they hadn’t moved forward economically in the past five years, and 31 percent felt they had fallen back. It was the worst result in a half-century of polling on that question. Attitudes are important, because confident consumers spend more, and consumer spending is two-thirds of all economic activity.

Being middle class is an idea Americans hold dear, which is why many people think of themselves as middle class when, in reality, they are either wealthy or poor. It’s especially true for baby boomers, who grew up in the 1950s and 1960s, when most Americans really were middle class.

Paul Krugman, the New York Times columnist and Princeton University professor who recently won the Nobel Prize for economics, has written that, far from being the norm, a majority middle-class America was a relatively brief condition that existed between the 1930s and about 1980.

Over the next few months, we’ll hear politicians and ideological warriors debate how to fix the economy and what role government should play in that. My guess is we’ll hear less than in the recent past about making government smaller, privatizing Social Security and cutting taxes for the rich. After all, some of the pillars of capitalism are lining up for billions in taxpayer bailouts.

The huge post-World War II American middle class was created, in part, though public investment such as the GI Bill, better public schools, affordable home mortgages, good highways, Social Security and Medicare.

Growing the middle class and returning the economy to health again will require more public investment. And it will mean creating smart policies to address demographic trends such as an aging population and inequities among growing minority populations.

A strong middle class is central to America’s self-image, but the way to keeping it strong is hotly debated. Crouch breaks it down into two basic philosophies, which he describes as the John Wayne view and the Little House on the Prairie view. One symbolizes rugged individualism; the other, the idea of “take care of yourself, take care of your family, but also watch out for your neighbor.”

“We’ve got to get off this idea that John Wayne is who we are in America,” Crouch said. “Basically, we’re a country which was built on people helping each other. This society cannot afford to have winners and losers. We’ve got to make everyone a winner.”