Giving Middle-Class Workers a Raise

This election season has made it completely clear that Americans see and feel the impact of spiraling inequality. Especially for the middle class—the core engine of the country’s economic growth—people know that the economy isn’t working for them the way it should. Instead, they see the wealthy pulling further away while they struggle to stay afloat.

This conservative Congress has offered few, actionable policy remedies to address inequality—and in fact has committed to obstructing reforms that could ensure more Americans can get ahead. But this week, the Obama administration took a huge step to make it easier for working and middle-class families to take home the pay they have earned and deserve.

The Obama administration has finalized a rule setting the threshold guaranteeing overtime pay for salaried workers at $47,476 a year. With some limited exceptions, salaried workers earning less than this amount will now get time and a half for any for time spent working beyond 40 hours a week, restoring a key wage safeguard for middle-class families.

Just like hourly workers, salaried workers can earn overtime pay if they work more than 40 hours a week. High-income workers like executive, administrative, and professional employees, are exempt from the overtime threshold—which, until today, was just $23,660.

That previous overtime threshold has been steadily eroded by inflation, and is currently set below the poverty line for a family of four. In 1975, the threshold covered 62 percent of salaried workers because their earnings fell below the threshold. Today, that’s only true of about 8 percent of salaried workers. As protection for middle-class workers, this simply doesn’t cut it. Raising the threshold to $47,000 restores the threshold as a credible worker protection once again. The Economic Policy Institute estimates that the overtime fix will benefit some 12.5 million workers.

The benefits of increasing the threshold are many, but for Americans who have seen their own earnings stagnate, the threshold increase is particularly important. Restoring overtime boosts the earnings of working and middle-class families, because employers who want to maintain the same level of output could either pay overtime or raise their covered employees’ salaries over the threshold. Either way, this means more money for workers in need of a raise. Some critics have argued that employers will just lower employees’ base wages to keep take home pay the same, but studies have shown that even with that effect, many employers would still be expected to boost employee wages.

The workers who stand to benefit from the overtime threshold are also people who could use a raise the most. Restoring overtime has an outsized impact on women, black workers, Latino workers, workers with lower levels of education, and Millennial workers struggling to build wealth.

In addition, because the workers impacted by the threshold increase are more likely to put these increased earnings directly back into the economy, restoring overtime will drive economic growth. Workers benefitting from increased earnings will have more money to spend on goods and services, benefitting businesses across the broader economy. Even firms impacted by restoring overtime will have an incentive to hire new workers: rather than pay covered employees overtime, some businesses may choose to hire additional workers to cover the work formerly covered by “exempt” employees.

Other firms choosing not to boost worker pay may prefer instead to cap their covered workers at 40 hours every week. In that case, workers will get access to another benefit rapidly slipping away from them today: time. Workers capped at 40 hours a week will not lose any pay, but they will have more time to spend out of work and with their families. A growing body of evidence shows that many Americans are working longer hours than ever before—a trend that hits economic growth.

Opponents to the rule will rehash tired arguments about how the overtime rule constitutes a burdensome regulation that will kill jobs and put pressure on businesses. But the benefits of the rule are clear: for Americans who’ve struggled to get ahead while watching more wealth flow to the top, the Obama administration’s proposed overtime fix is a big win. By standing in the way, opponents to restoring overtime are simply denying working and middle-class families a raise.

Ryan Erickson is the associate director of economic campaigns at the Center for American Progress.