How Overtime Rules Could Help the Middle Class

This post originally ran in the Wall Street Journal’s Think Tank blog.

The overtime rules the Obama administration announced Tuesday target genuine problems that middle-wage households face. They also do not require approval from Congress.

American workers’ hourly wage growth has nearly stagnated in recent decades. While this broad-based stagnation affects essentially thebottom 70% of the U.S. workforce, policy proposals to boost wage growth too often begin and end with increasing legislated minimum wages. Such minimum-wage increases, while important policies, generally will not filter up to most middle-class households.

One specific change that could help these middle-class households was proposed Tuesday: raising the salary threshold that determines eligibility for overtime pay.

This wonky-sounding change could have large ramifications: potentially giving 15 million workers rights to higher pay.

A little background on all this: Some salaried workers (those not paid on an hourly basis) are, by law, entitled to overtime pay. This eligibility is based in part on criteria regarding the duties they perform. But these overtime rights are automatic if their annual pay is less than a particular threshold. The rationale for having a salary threshold below which workers are automatically eligible involves recognizing that relatively modest pay is a pretty good marker for when employees do not have substantial autonomy over their own time at work and can be ordered to work more than 40 hours per week with some regularity.

But this salary threshold, at $23,660, provides overtime protections to only about 8% of salaried workers. It is based on a threshold set in 1975 that has not been adjusted to keep pace with inflation. The Obama administration has proposed raising the threshold to $50,440 (or $970 per week), a change that could provide overtime protections to 44% of salaried workers. The workers who would benefit from this change earnbetween $23,660 and $50,440. This is the definition of middle-class workers: a full-time, full-year worker earning the median wage (meaning those who earn more than half of the country and less than half) is roughly $36,000.

Some might ask whether there is a real problem, in today’s economy, with making salaried employees work more than 40 hours per week without paying them appropriately. Well, doesn’t that question almost answer itself? If you don’t want to take my word for it that bosses given the chance to get free work from their employees will take it (and that’s what every hour over 40 is for salaried workers without overtime protections), check out employer Nick Hanauer or human resources consultant Fran Sussner Rodgers. Enforcement of the new thresholds is likely to lead to pay increases for lots of workers or the hiring of new workers to spread hours around, which will create new jobs in an economy that still needs lots of them. There is no real downside here.