If you have a job, you might be working overtime — and chances are, you aren’t getting paid for it.
Around the country, most people aren’t. This is particularly problematic in Hawaii where the middle class is struggling mightily with the high cost of living.
Think about it: If more residents of the islands earned time-and-a-half when they worked more than 40 hours a week, the price of paradise would be a little less burdensome. The minimum wage of $7.75 bumps up to $11.63 for those extra hours, and a middle-class employee who earns $20 per hour would get $30 in OT. For some residents — in the state where the largest percentage of people work more than one job — overtime might actually lift them up, as opposed to a second gig that just keeps them afloat.
The trend, though, is moving in the other direction. The percentage of people who enjoy any overtime salary has fallen precipitously for two generations. Forty years ago, nearly two in every three employees could benefit from it. By 2013, just one in nine workers received overtime pay, according to a report from the Economic Policy Institute, meaning that the other 89 percent of regular workers didn’t earn an extra penny.
At the same time Americans have been working more and more. In poll after poll since the start of the 21st century, full-time workers have repeatedly told Gallup they work an average of 45 to 47 hours a week. Eighteen percent said they worked at least 60 hours, which breaks down to five 12-hour days on the job each week.
This is part of why much of the middle class — both nationally and in Hawaii — feels like they are struggling more than their parents did. Residents of the islands work more hours to earn their stagnant middle-class incomes, which have lost a lot of ground to the costs of housing, transportation, education and utilities. This undermines their ability to buy a home, invest and otherwise prepare for retirement.
Given that the Fair Labor and Standards Act, which has mandated overtime pay for many workers since 1938, remains in place, what has changed? The threshold for earning overtime has fallen sharply in real terms. It hasn’t been indexed to inflation and was only increased once since 1975.
Today an employee must earn less than $23,660 annually to be guaranteed overtime pay if she or he works more than 40 hours per week. That wage — which adds up to less than $2,000 per month — doesn’t even get a family of four up to the poverty line.
In the run-up to the 2014 congressional election, President Barack Obama asked the U.S. Department of Labor to update the salary threshold that applies to overtime, as well as to tighten rules to prevent employers from “cheating” to avoid paying extra to hard-working employees.
The president didn’t suggest how much the new salary threshold should be increased to, but various levels have been floated.
At a time when President Obama faces difficulties getting major initiatives through a Republican-controlled Congress, broadening the parameters of overtime is something he can change without any support from the political opposition.
Jared Bernstein, an economic adviser to Vice President Joe Biden, suggested that most employees who earn an annual income of $50,500 or less should be able to earn overtime. Democrats in the U.S. Senate sent a letter to the Obama administration in January calling for a new threshold of $56,680, which would allow about half of all employees the possibility of earning overtime pay.
Some House Democrats have pushed for a higher income level of $69,000, which would cover an estimated 65 percent of employees, according to the Economic Policy Institute. At that level, it would restore the share of employees capable of earning overtime to 1975 levels.
Billionaire philanthropist and entrepreneur Nick Hanauer authored an essay, which has been republished by web media like Politico and PBS, in favor of the $69,000 cap. If Obama did that, Hanauer wrote, 10.4 million middle-class citizens “would suddenly be earning a lot more than they are now” — or having more time to do what they want, including trying to earn more outside of their main job.
Interestingly, at a time when President Obama faces difficulties getting major initiatives through a Republican-controlled Congress, broadening the parameters of overtime is something he can change without any support from the political opposition. The Fair Labor Standards Act, passed at the tail end of the Great Depression, allows him to update the rules on overtime. A decision is expected to come fairly soon.
Many types of workers who are paid by the hour are eligible for overtime. First-responders like cops, firefighters and paramedics get it, as do most employees of restaurants, store salespeople and construction workers, among others.
But about 50 million workers are specifically exempt from overtime pay, according to minimumwage.org. Common professions that usually don’t come with overtime include teachers, nurses and paralegals. Similarly, people who tend to set their own hours — like independent contractors, outside salespeople and many tech industry workers — rarely have access to it. The same goes for agricultural and farm workers, and live-in employees, such as housekeepers. The Fair Labor Standards Act also specifies that executives, administrators and other professionals who earn more than $455 each week are out of luck.
“Why, you might ask, are so many workers exempted from overtime? That’s a fair question,” Hanauer wrote in his recent essay. “To be truthful, I have no earthly idea why. What I can tell you is that these exemptions work out very well for your employers.”
The wealthy entrepreneur says that as part of the Labor Department’s update of overtime rules, the Obama administration could simply remove the exemptions on many fields, adding many millions of additional employees to the list of people who can earn extra pay by taking on more than a full work load.
Hanauer offered what might seem to be a counter-intuitive trickle-up argument in favor of broadening the parameters for overtime. Paying people time-and-a-half, or the threat of it, he argued, would strengthen America’s middle class, and that would likely end up benefiting wealthy people, like him.
He sees such a de facto middle-class pay increase helping on multiple fronts. If corporations pay more, then the middle class would have more money to spend, which would then pass into the broader economy. And if America’s companies decided not to pay current employees time-and-a-half to do more than their full-time work, they could hire “hundreds of thousands” of new employees to do so. This would, he noted, further lower unemployment and likely lead to increasing wages as companies competed for employees as jobless rolls shrink.
“I just make it clear that I trust you to get your job done in the time allotted. And then I hand you twice as much work as you can reasonably do in a 40-hour week.” — Nick Hanauer, billionaire venture capitalist and entrepreneur
For people who argue that this would simply lead businesses to simply pass on increased labor costs to customers, Hanauer noted that corporate profits’ share of gross domestic product increased from 6 percent in 1950 to more than 12 percent of GDP in 1980. That massive growth occurred during the three decades in which the American middle class thrived.
But since then, he added, “wages as a percentage of GDP have fallen, you guessed it, by about the same 6 percent or 7 percent of GDP.” He suggests this shift is part of why middle-class salaries stagnated.
In Hawaii, inflation-adjusted median household incomes are lower today than they were across the state a quarter century ago. In 1989, they peaked on Oahu at $76,239, in Maui County they topped out at $72,839, while Kauai hit a high point of $70,310. Hawaii Country reached its peak salary level of $56,087 in 1969.
Hanauer laid out his perspective as a businessman on the way things are now across the country. “In the absence of a law requiring me to pay you overtime if you earn under a certain amount, you end up working harder — and the harder you work, the fewer employees I need. The fewer employees I need, the higher the unemployment rate. The higher the unemployment rate, the more leverage I have to ‘encourage’ you to ‘do what it takes’ to keep your job. And so you work even more hours, pushing unemployment up and wages down. And that, my friends, is one of the little tricks that keeps you poor and me rich.”
“You see, we capitalists will never actually ask you to work overtime. I don’t even track your hours. I just make it clear that I trust you to get your job done in the time allotted. And then I hand you twice as much work as you can reasonably do in a 40-hour week.”
When employees do more work for less pay, they can undermine their own position and simultaneously help to depress wages and increase unemployment for others, he noted, adding that this can also weaken consumer demand and even slow innovation.
This unhealthy situation ultimately becomes a problem for the Hanauers of the world. “Ironically,” he explained, “when you earn less, and unemployment is high, it even hurts capitalists like me.”
Hawaii’s stagnant salaries of recent decades show that the venture capitalist isn’t the one feeling the real pain.
If you want to know which jobs are eligible for overtime, click here.
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