One economic story that's been under the radar for a while now is the possibility that the Obama administration will reform overtime law. The latest development came on Monday from Politico, which said the change could come as early as this week.
Overtime pay law says that any worker who meets a series of qualifications must be paid 1.5 times their regular wage if they work more than 40 hours a week. Almost two-thirds of U.S. workers are paid on an hourly basis these days, and nearly all of them are covered by the law. But the formula for which salaried workers — the final third — are covered is more complicated: they have to fall below a certain income threshold, and they have to not fall within certain exempt categories like "administrative, executive and professional" employees.
The trouble is that income threshold doesn't adjust with inflation and it hasn't been updated since 1975. It currently stands at $23,660, which is below the poverty line for a family of four. Employers have also exploited grey areas in defining those exemptions.
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As a result, only 11 or 12 percent of salaried employees are currently covered by overtime law.
No one knows exactly what the White House will propose. But the general thrust is that the threshold needs to be updated and the definitions for exempt salaried workers tightened up. One proposal by the left-leaning Economic Policy Institute would return the threshold to what the 1975 level would've been if it were updated for inflation. That would cover over 10 million additional workers.
What makes this particularly interesting is it's a change the executive branch can undertake on its own authority. President Obama doesn't need Congress. Needless to say Republicans and business-friendly interest groups are coming out of the woodwork to oppose the change, claiming it will kill jobs.
That fear makes little sense. For one thing, jobs were doing fine back in 1975 when overtime law was still at the proposed threshold. Moreover, what strengthening overtime laws would do is incentivize employers to hire new workers — instead of giving their current workers additional hours — whenever they want to up production. If anything, this would create more jobs; you're taking the amount of work employers want to see done and breaking it up into smaller chunks that can be distributed to more people. It will probably help more Americans re-enter the labor force.
The only way this change could cut jobs is if the vast majority of firms already have a perfectly rational and balanced business model, with no room anywhere to divert more of their overall revenue to workers. Given the current scale of shareholder payouts and profit margins, that assumption seems exceedingly unlikely.
But this can also be taken much further: Yes, overtime law should be updated. But the ultimate goal should be to shorten the work week itself for all workers, hourly and salaried alike. Over the last few decades the productivity of the average American worker — how much economic output is generated per hour worked — has increased significantly. It would make sense to take some of that increased productivity as leisure time rather than as income. That way Americans would have more time for their families, communities, hobbies, friendships, travel, etc, instead of succumbing to endless workaholism.
But for the last few decades, the amount of hours worked by the average American has dipped only slightly, while going down considerably more for most every other advanced Western country. Their citizens now work considerably less each year than Americans, even while maintaining perfectly respectable Western standards of living. In fact, here at home, the 40-hour work week appears to be dying as most workers now spend more time on the job.
Unfortunately, those aforementioned Republicans and business interests will oppose this idea even more strenuously. And it's not hard to see why: Shortening the work week while maintaining everyone's living standards will by definition require directing a bigger chunk of the flow of income in the economy towards workers. Pay has to stay level while hours decrease. And that would mean directing a smaller flow of that income towards the rich.
This is a matter of simple math, and would hold true regardless of how the extra income reached workers. They could get it through a bulked-up social safety net (that's generally how most European countries do it); they could get it through increases to tax and wage subsidies like the Child Tax Credit and the Earned Income Tax Credit; they could even get it if, by some miracle, we were able to keep the economy at full employment all the time so workers could just bargain their wages higher. In every instance, the result is the same: reduced inequality.
One of the big distractions in the inequality debate is the insistence in some quarters that we worry about growth (the size of the overall pie) instead of distribution (the relative size of the pie's pieces). What should be obvious is that, at this moment in time, given the current size of the pie, increasing the supply of jobs while shortening the work week and keeping pay steady isn't possible if the relative sizes of the pieces don't change.
Sure, if inequality stopped growing tomorrow, then we could possibly wait for the pie to keep growing and let everyone's slice get bigger. But inequality hasn't stopped — it's getting worse. Even as the pie gets bigger, the slice going to the rich gets bigger as a share of the pie, while the slice going to everyone else gets smaller.
One way or another, the share going to the rich will have to shrink in the here and now. And the rich really don't want it to do that. As obviously good as this move to less work should be, it isn't some natural and inevitable product of increasing societal wealth. It would've happened already if it were.
It's going to be an explicitly political project, and one America will have to actively choose to take on.
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