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America Gave Up on Overtime—and It’s Costing Workers $35,451 a Year

13 minute read
Updated: | Originally published:

If it feels like you’re working longer hours for less money than your parents or grandparents did, it’s because you probably are. Adjusted for inflation, average hourly wages have actually fallen since the early 1970s, while average hours worked have steadily climbed. American workers are increasingly underpaid, overworked, and overwhelmed.

What went wrong? In part, overtime pay.

If you’re under the age of 45, you may have no idea that overtime pay is even a thing. But believe it or not, middle-class workers used to get a lot of it, while you likely don’t get any at all. That means that every hour you work over 40 hours a week you work for free, contributing to a giant pool of free labor that modern employers have come to expect and exploit. Profits are up, real wages are down, and income inequality has soared to its highest level since the Gilded Age.

Think about it. If, as your employer, I can convert 2,000 40-hour-per-week jobs into 1,600 50-hour-per week jobs, then I get to pocket the wages of 400 workers. At the median annual wage that comes to over $20 million, more than enough to buy myself a brand new private jet—every single year. And while I’m jetting around to exotic locations, you’re struggling to arrange childcare to cover all those extra hours you have to put in at work.

It wasn’t always this way. Overtime pay was one of the biggest deals of the New Deal reforms—along with the prohibition of child labor and the establishment of a federal minimum wage, it was one of the three core provisions of the Fair Labor Standards Act (FLSA). The FLSA literally changed the way we think about work: by establishing a salary threshold below which workers were guaranteed time-and-a-half pay for every hour worked over 40 hours a week, it was the FLSA that created both the weekend and the eight-hour day. “Except perhaps for the Social Security Act,” President Franklin Roosevelt declared on the FLSA’s passage in 1938, “it is the most far-reaching, far-sighted program for the benefit of workers ever adopted here or in any other country.”

He wasn’t exaggerating. From 1938 into the 1970s a robust federal overtime standard served as a kind of minimum wage for the middle class, providing both a valuable source of extra income and an invaluable shield against the imposition of exploitative working hours. At its inception the FLSA set the minimum wage at one-half the median wage and the overtime threshold at three times the minimum—an amount equal to 1.5 times the median wage, a level high enough to cover about two-thirds of salaried workers. Over the next few decades, thanks in part to these strong labor standards, real wages at all income levels broadly grew in lockstep with growth in worker productivity. Year after year as the median wage grew, both the minimum wage and the overtime threshold were regularly adjusted upward to maintain the FLSA’s intended 0.5 (minimum) to 1.0 (median) to 1.5 (overtime) ratio. For more than three decades overtime pay was the norm; most American workers expected to be paid 150 percent of their regular wage for every hour worked over 40 hours a week, and most employers expected to pay it. And since time-and-a-half gets expensive fast, employers were strongly incentivized to hire more workers in order to avoid routinely incurring the added cost.

But sometime around 1975 the prosperity of working Americans was dramatically severed from that of the economy as a whole. Entranced by an emerging free market neoliberal consensus, both Congress and federal regulators quietly abandoned the historic 0.5 to 1.0 to 1.5 ratio, allowing the overtime threshold and the minimum wage to be relentlessly eaten away by inflation. Our current minimum wage of $7.25 an hour now stands at little more than a quarter of the median wage and has not been adjusted since 2009. At one point, the overtime threshold remained unchanged for 29 years. And absent the strong labor standards the FLSA once provided, wages inevitably stagnated too. Today’s median wage of $52,520 stands at just 54 percent of what it otherwise would be had its growth continued to track growth in worker productivity. In fact, over the past 45 years, nearly all of the benefits of economic growth have accrued to top one-percenters like me.

Today’s $35,568 overtime threshold now stands at only 67 percent of the already diminished median wage and covers only 15 percent of salaried workers, compared to over 60 percent in 1975. If you earn more than $35,568 a year (and 85 percent of American workers do), chances are you’ve been misclassified into an “exempt” position that does not receive any overtime pay at all. As the memory of overtime pay fades away, employers are taking full advantage. According to a 2019 Gallup Poll, 52 percent of full-time workers report working more than 40 hours a week; 39 percent work at least 50 hours a week, and 18 percent work at least 60. Yet few of these workers are paid a penny of overtime for all the extra hours they put it in on the job. Overtime pay is no longer the norm. As a result, Americans are working longer hours at lower wages while employers and shareholders reap record profits.

But it doesn’t have to be this way.

Unlike the $15 minimum wage, which remains hopelessly stuck in the Senate, the U.S. Department of Labor has the regulatory authority to raise the overtime threshold without any approval, action, or interference from Congress. That means there are no contentious reconciliation bills to negotiate, no filibusters to fear, and no cynical obstruction from “pro-business” lawmakers based on some long discredited neoliberal principle. President Biden can’t just raise the overtime threshold through executive order; to survive legal challenges there are strict rule-making procedures that must be followed. But if his administration acts boldly and decisively, tens of millions of overworked voters will go to the polls in this November’s mid-term elections knowing that a Democratic president just delivered them a well-earned raise. And the higher Biden raises the overtime threshold, the larger the number of Americans who would benefit.

Read More: America’s 1% Has Taken $50 Trillion From the Bottom 90%

To be clear, we’re not talking a one-off tax cut or relief check or temporary credit here. This isn’t a handout; it’s a substantial and permanent bump in weekly middle-class pay. According to Gallup, full-time workers report working an average of 47 hours a week. If they got paid an additional time-and-a-half for all seven of those extra hours—instead of the current norm of zero dollars—that would amount to an average 26.25 percent increase in weekly pay. At the current median weekly full-time wage of $1,010, that would come to an additional $13,787 a year (or $27,573 for a two-worker household). And that may even be an underestimate. According to a 2021 survey by the payroll services giant ADP, North American workers now put in an average of nine hours of unpaid overtime every week—the equivalent of $17,726 a year in stolen income ($35,451 for a two-worker household) at the full-time median wage. Either way, it’s a lot of money. Just imagine how much better off the typical middle-class family would be with either a few tens of thousands of dollars a year of additional income—or a few hundreds of hours of reclaimed free time.

Fifty years ago, “free time” was something your parents looked forward to spending with their friends and family. Today, “free time” is something you’re expected to surrender to your boss. And the pandemic-inspired work-from-home “revolution” isn’t make things any better. In fact, according to ADP, those working from home report putting in even more unpaid overtime than their traditional workplace counterparts.

That’s right, unpaid overtime has become so normalized that we even impose it on ourselves.

Union organizer Christian Smalls speaks following the April 1, 2022, vote for the unionization of the Amazon Staten Island warehouse in New York.
Union organizer Christian Smalls speaks following the April 1, 2022, vote for the unionization of the Amazon Staten Island warehouse in New York. - Amazon workers in New York voted establish the first US union at the e-commerce giant, a milestone for a company that has steadfastly opposed organized labor in its massive workforce.Andrea RENAULT- AFP

But after waves of COVID-19 and all the death, disease, and disruption it has wrought, American workers are finally growing sick and tired of being sick and tired, with record numbers of them quitting their jobs in pursuit of higher pay, better working conditions, and more free time. Some have dubbed this “The Great Resignation,” but in at least one sense of the word, it’s the opposite. Over five decades of steadily eroding labor standards Americans had grown resigned to being locked into an abusive relationship with their employers. But rather than resignation, what I believe we’re witnessing is a Great Realization—that life is too precious, fragile, and short to waste it working long hours at low pay for companies that couldn’t care less about the lives of employees and their families.

Workers are quitting their jobs because they know that they deserve better, and you can see this realization in the polling data. According to one survey, a third of workers who switched jobs during the pandemic saying they took a pay cut in exchange for a better work-life balance. While most Americans may not remember a time when overtime pay was an uncontested middle-class right, when presented with the policy as a viable option, it draws strong support across party lines. According to a January 2021 poll of likely voters across over 65 swing congressional districts, an overwhelming 77 percent of respondents supported raising the overtime threshold to $83,000 a year. $85,000 would be a level sufficient to restore protections to the same 63 percent of full-time salaried workers that were covered in 1975. Likewise, a February 2021 poll of likely voters in four key states (AK, AZ, ME, and WV) found similarly high levels of support. And there’s no good economic or political reason for the Biden administration not to aim even higher. Had the median wage continued to track productivity growth like it had when the FLSA’s labor standards were strongest, it would stand at around $100,000 a year today. Adhering to the old 1.5 times median ratio, a $150,000 overtime threshold would be morally, economically, politically, and legally defensible.

No doubt opponents will argue that raising the overtime threshold by any measure would be a surefire “job killer,” because that’s what they have always cynically argued about every policy intended to benefit working people, from child labor laws to workplace safety regulations to the minimum wage. And in the case of overtime, this job-killer logic is particularly wrong. In fact, it has been the steady erosion of the overtime threshold over the past 50 years that has been the real job-killer, enabling corporations to effectively convert three 40-hour-a-week jobs into two 60-hour-a-week jobs, and to pocket the 40 hours in lost wages. I know, because as a venture capitalist and serial tech entrepreneur I built a lot of personal wealth doing exactly that. Of course, do it at a single tech startup and you end up with a bunch of miserable burned-out twenty-somethings working crazy hours in exchange for decent pay and a shot at striking it rich off stock options. But do that 60 million times across the entire economy, and you effectively kill 20 million middle-class jobs. This has been the most underappreciated driver of stagnant wages and rising inequality over the past 50 years: the jobs lost to a steadily eroding overtime threshold.

Read More: Why Young People Are Quitting Their Jobs and Not Going Back

According to a study by the RAND Corporation, rising inequality since 1975 is responsible for a $50 trillion upward redistribution of wealth and income from the bottom 90 percent households to those in the top 1 percent—roughly $2.5 trillion in 2018 alone. That $2.5 trillion is enough to more the double median income—enough to pay every single working American in the bottom nine deciles an additional $13,728 a year (an amount remarkably close to the additional $13,787 a year the median wage earner would take home if they were paid time-and-a-half for the average seven hours of overtime worked every week).

In the midst of the current labor shortage many workers have been pressed to put in even more unpaid overtime. But raise the overtime threshold to a level high enough to once again cover the vast majority of workers, and employers will have a choice: they can either pay time-and-a-half for every hour of overtime, substantially raising their workers’ effective wages, or they can slash overtime hours and hire more workers—tightening the labor market, raising workers’ wages, and ultimately drawing more Americans back into the workforce. Either way, American workers win, gaining more free time and/or more money. And in the end, businesses win too, because what’s good for the American middle class is good for the American economy. In fact, the U.S. economy was never stronger or more broadly prosperous as it was during the three decades in which the overtime standard was most robust. This is the first rule of a mature market economy: when workers have more money, businesses have more customers and hire more workers. It’s a positive feedback loop in which we all prosper together.

Given that the economics are so sound and popular support is both strong and bipartisan, there is absolutely no political downside to going big on overtime. President Biden promised to fight for working Americans and raising the overtime threshold is by far the most impactful win possible without pushing a bill through Congress. In the short run, it would substantially raise wages for tens of millions of Americans. In the long run it would create millions of new middle-class jobs while restoring a modicum of balance to our busy lives. And if opponents file lawsuits to block it (and they will regardless of the number chosen), the politics are even better, for it gives Biden the opportunity to be seen by voters fighting—and winning—on behalf of the American middle class.

Free labor may sound good to corporate CEOs, but it’s terrible for working families and the economy as a whole. If Democrats know what’s good for them, they will raise the overtime threshold to at least $85,000 a year and proudly run on it, leaving it to Republicans to explain to mid-term voters why the American middle-class should be expected to work overtime for free.

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