The Hill, November 25, 2014
It's not news that the pay of middle-class workers has been virtually flat for more than three decades. Since 1979, the productivity of American workers — what they produce in an hour — has increased by 65 percent. Meanwhile, the inflation-adjusted hourly pay of workers in the middle of the earnings distribution — what they can purchase with what they are paid for an hour's work — has gone up just over 6 percent. Much of this productivity increase has been captured by companies that are sitting on large cash cushions while middle-class families struggle to make ends meet. Ambitious proposals to address this disparity have been proposed. A government program to make much-needed investments in our crumbling infrastructure, for example, would provide opportunities for numerous private companies to expand employment in good-paying jobs and make investments in new equipment and technology. But such a program would require Congress to act, and consequently it's on nobody's agenda.
That doesn't mean, however, that nothing can be done to raise the earnings of middle-class Americans. Here's a modest proposal that could help do the trick: Let's pay these workers fairly for every hour they work. Everyone knows that employers can ask salaried employees — supervisors, customer service representatives, social workers, counselors, support staff in law firms, insurance sales agents, food service managers — to work well past the 40-hour workweek without having to pay them for their time. Only salaried workers earning an annual income less than $23,660 ($455 a week) are eligible for overtime pay when their workweek exceeds 40 hours. This salary threshold has been raised to adjust for inflation — in 1975 by the Ford administration and again 10 years ago during the George W. Bush administration. In both instances, the presidents asked the Department of Labor to adjust the salary cutoff for overtime pay to take into account the effects of inflation. While the increases in the cutoff were welcome when they occurred, they failed to fully account for the effects of inflation. And the problem has only worsened in the last 10 years. Today, just 11 percent of salaried workers are eligible for overtime pay when they work more than 40 hours a week, down dramatically from the more than 65 percent of salaried workers who were eligible for such pay in 1975.
In March 2014, President Obama, like his Republican predecessors, asked the Department of Labor to update the rules governing overtime pay to take into account the effects of inflation and make sure that salaried employees who lack bargaining power vis a vis their employer are fairly paid for the hours they work. If the Department of Labor adjusts the salary cutoff for eligibility for overtime pay to bring it back to its 1975 level adjusted for inflation, salaried workers earning up to $984 a week ($51,168 a year) would have access to overtime pay for hours above 40 in a week. About 6.1 million white collar workers would be eligible to earn time-and-a-half pay for every hour worked over 40 hours a week. This guarantees that these employees are fairly paid for the extra hours they work, and could provide a meaningful boost to their income.
Of course, employers could choose to expand the hours of part-time workers who would prefer longer hours or hire additional workers and avoid paying overtime wages to current employees. While that would not raise the pay of middle-income workers, it would guarantee that these workers were actually paid for every hour they work. And it would increase the time they could spend with their families. It would also boost the earnings of a different group of middle-class workers who currently lack the hours they want or may even be unemployed.
While far from a complete answer to the stagnant wages of middle-income workers, raising the salary threshold, adjusted for inflation, to where it was in 1975 is an indispensable part of the solution.
Appelbaum is a senior economist with the Center for Economic and Policy Research and co-author, with Rosemary Batt, of the book Private Equity at Work: When Wall Street Manages Main Street.