88m3
Fast Money & Foreign Objects
BY NICK HANAUER December 1, 2014 at 12:16 PM EST
Photo by Flickr user melfoody.
Editor’s Note: When’s the last time you worked overtime? How about the last time you worked overtime and got paid for it? If you’re in the middle class, probably not recently.
Only Americans who make less than $23,660 a year are eligible for time-and-a-half pay after working 40 hours a week. Today, that’s only 11 percent of salaried workers. It didn’t used to be this way, and it doesn’t have to stay this way, argues venture capitalist Nick Hanauer.
Just like President Obama has taken executive action on immigration, Hanauer believes the president can and should take executive action to raise the salary threshold for overtime eligibility.
Hanauer’s a billionaire who made his fortune as one of the original investors in Amazon. The current rules are written to benefit wealthy capitalists like him, he admits. So, you might ask, why does Hanauer care about overtime pay for people who make less, much less, than he does?
“Ironically,” he writes, when “you earn less, and unemployment is high, it even hurts capitalists like me.” That won’t surprise Making Sen$e readers who’ve heard his brand of “middle-out economics.” Closing the income gap wouldn’t just benefit the middle class; a stronger middle class is the source of economic prosperity for everyone, he thinks. Watch him make that argument to Paul Solman below.
Making Sen$e first caught up with Hanauer in Seattle last spring, where he was pushing for the city to pass a higher minimum wage. Just as the minimum wage is crucial to improving the economic outlook of low-wage workers, overtime pay is essential to the middle class’s prosperity — and everyone else’s. Hanauer explains why that matters to him, as a venture capitalist, in the following essay which first appeared in Politico Magazine.
– Simone Pathe, Making Sen$e Editor
If you’re in the American middle class—or what’s left of it—here’s how you probably feel. You feel like you’re struggling harder than your parents did, working longer hours than ever before, and yet falling further and further behind. The reason you feel this way is because most of you are—falling further behind, that is. Adjusted for inflation, average salaries have actually dropped since the early 1970s, while hours for full-time workers have steadily climbed.
Meanwhile, a handful of wealthy capitalists like me are growing wealthy beyond our parents’ wildest dreams, in large part because we’re able to take advantage of your misfortune.
“Fair overtime standards are to the middle class what the minimum wage is to low-income workers.”
So what’s changed since the 1960s and 1970s? Overtime pay, in part. Your parents got a lot of it, and you don’t. And it turns out that fair overtime standards are to the middle class what the minimum wage is to low-income workers: not everything, but an indispensable labor protection that is absolutely essential to creating a broad and thriving middle class.
In 1975, more than 65 percent of salaried American workers earned time-and-a-half pay for every hour worked over 40 hours a week. Not because capitalists back then were more generous, but because it was the law. It still is the law, except that the value of the threshold for overtime pay—the salary level at which employers are required to pay overtime—has been allowed to erode to less than the poverty line for a family of four today. Only workers earning an annual income of under $23,660 qualify for mandatory overtime. You know many people like that? Probably not. By 2013, just 11 percent of salaried workers qualified for overtime pay, according to a report published by the Economic Policy Institute. And so business owners like me have been able to make the other 89 percent of you work unlimited overtime hours for no additional pay at all.
In my defense, I’m only playing by the rules—rules written by and for wealthy capitalists like me. But the main point is this: These are rules that President Barack Obama has the power to change with the stroke of a pen, and with no prior congressional approval. The president could, on his own, restore federal overtime standards to where they were at their 1975 peak, covering the same 65 percent of salaried workers who were covered 40 years ago. If he did that, about 10.4 million Americans would suddenly be earning a lot more than they are now. Last March, Obama asked the Labor Department to update “outdated” regulations that mean, as the president put it in his memo, “millions of Americans lack the protections of overtime and even the right to the minimum wage.” But Obama was not specific about the changes he wanted to see.
So let me be specific. To get the country back to the same equitable standards we had in 1975, the Department of Labor would simply have to raise the overtime threshold to $69,000. In other words, if you earn $69,000 or less, the law would require that you be paid overtime when you worked more than 40 hours a week. That’s 10.4 million middle-class Americans with more money in their pockets or more time to spend with friends and family. And if corporate America didn’t want to pay you time and a half, it would need to hire hundreds of thousands of additional workers to pick up the slack—slashing the unemployment rate and forcing up wages.
The Obama administration could, on its own, go even further. Many millions of Americans are currently exempt from the overtime rules—teachers, federal employees, doctors, computer professionals, etc.—and corporate leaders are lobbying hard to expand “computer professional” to mean just about anybody who uses a computer. Which is almost everybody. But were the Labor Department instead to narrow these exemptions, millions more Americans would receive the overtime pay they deserve. Why, you might ask, are so many workers exempted from overtime? That’s a fair question. 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.
Since the Republican Party’s takeover of both houses of Congress in the midterm elections, all the talk in Washington has been about what won’t get done because of gridlock between the White House and Capitol Hill. And Obama has talked of moving things forward by making unilateral changes to immigration law and climate protections.
But what about the most basic need of all—jump-starting the real economy by giving more middle-class Americans a fair shake? You would think that for a Democratic administration, raising the threshold back to where it once was would be a no-brainer, but I have grave doubts that administration officials are heading in this direction. In fact they are likely to raise the threshold only partly, and the Obama administration has not yet grappled with the broader question of how moves such as this are critical to helping to restore America’s middle class. How do I know? Intuition. OK, I admit it, more than intuition. I’ve had conversations with administration officials about their forthcoming policy changes. And the scuttlebutt out of the Labor Department looks promising—for corporations. Not the middle class.
It is my sense, based on my conversations with government officials, that the administration is buying the line from corporate lobbyists who are arguing that such rule changes would devastate their bottom lines, forcing them to lay off workers. You know, the old trickle-down gambit—if workers earn more money, it would be bad for business, the economy and workers. The Obama team, in other words, is buying into the same discredited theories that were used to erode the threshold in the first place. Officials will very likely raise the overtime threshold just enough to say they’re doing something, without actually doing much of anything for the middle class or our demand-starved economy at all.
“We capitalists will tell you that our increasing profits are the result of some complex economic force with the immutability and righteousness of divine law. But the truth is, it is simply a result of a difference in negotiating power. As in, we have it. And you don’t.”
But here’s a little secret from the corner office: The arguments that the corporate lobbyists are making—about how badly business will be hurt—just don’t add up. What is adding up instead are the trillions of dollars in corporate profits and stock gains that corporations have made over the same decades that your hours climbed and your wages fell. From 1950 to 1980, during the good old days of U.S. economic might—the era in which the Great American Middle Class was created—corporate profits averaged a healthy 6 percent of GDP. But since then, corporate profits have doubled to more than 12 percent of GDP.
That’s about a trillion dollars more a year in profit. And since then, wages as a percentage of GDP have fallen, you guessed it, by about the same 6 percent or 7 percent of GDP. Coincidence? Probably not. What very few Americans seem to understand is that that extra trillion dollars isn’t profit because it had to be, or needs to be or should be. That extra trillion dollars is profit because powerful people like me prefer it to be. It could have been spent on your wages. Or it could have gone into discounts to you, the consumer. We capitalists will tell you that our increasing profits are the result of some complex economic force with the immutability and righteousness of divine law. But the truth is, it is simply a result of a difference in negotiating power. As in, we have it. And you don’t.
***
Still, it’s hard to blame the administration for doing so little to defend middle-class workers when most middle-class workers aren’t even aware that they’re being ripped off. But I know. And a lot of other business owners know. We just don’t talk about it. 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. But this downward pressure on wages doesn’t end there.
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.
This is why, in a recent Gallup poll, salaried Americans now report working an average of 47 hours a week, not the allegedly standard 40. And 18 percent of you report working more than 60 hours per week. Yet at the same time, you’re taking only about 77 percent of your paid time off. According to a survey commissioned by the U.S. Travel Association, U.S. workers now use an average of only 16 vacation days a year out of the nearly 21 days they earn—the lowest in more than four decades. Why? Often because they’re terrified of working fewer hours and falling short of their employers’ demands for ever more productivity. And many of these unused vacation days are forfeited: an estimated $52.4 billion worth each year that goes to owners like me.
Now obviously, take away our license to force 10.4 million Americans to work extra hours for nothing, and smart capitalists like me would try to limit overtime as much as possible. I mean, time-and-a-half pay sure adds up fast! So many of you would be unlikely to see much of an immediate bump in take-home pay. Instead, we capitalists would be forced to hire millions more people to do the work you currently do for free. That would drive down unemployment. And a tighter labor market would drive up wages for the first time in 40 years.
“And just like raising the minimum wage would nudge up incomes for those workers earning somewhat above it, restoring the overtime threshold would push up incomes for many workers currently earning above $69,000 too.”
So you see, when I say that the overtime threshold is the minimum wage for the middle class, I’m not just playing with words. In the exact same way that the erosion of the federal minimum wage—from an inflation-adjusted peak of about $11 an hour in 1968 to only $7.25 an hour today—has held down wages for low-income Americans, the simultaneous erosion of the overtime threshold has also held down wages for the American middle class. And just like raising the minimum wage would nudge up incomes for those workers earning somewhat above it, restoring the overtime threshold would push up incomes for many workers currently earning above $69,000 too.
Photo by Flickr user melfoody.
Editor’s Note: When’s the last time you worked overtime? How about the last time you worked overtime and got paid for it? If you’re in the middle class, probably not recently.
Only Americans who make less than $23,660 a year are eligible for time-and-a-half pay after working 40 hours a week. Today, that’s only 11 percent of salaried workers. It didn’t used to be this way, and it doesn’t have to stay this way, argues venture capitalist Nick Hanauer.
Just like President Obama has taken executive action on immigration, Hanauer believes the president can and should take executive action to raise the salary threshold for overtime eligibility.
Hanauer’s a billionaire who made his fortune as one of the original investors in Amazon. The current rules are written to benefit wealthy capitalists like him, he admits. So, you might ask, why does Hanauer care about overtime pay for people who make less, much less, than he does?
“Ironically,” he writes, when “you earn less, and unemployment is high, it even hurts capitalists like me.” That won’t surprise Making Sen$e readers who’ve heard his brand of “middle-out economics.” Closing the income gap wouldn’t just benefit the middle class; a stronger middle class is the source of economic prosperity for everyone, he thinks. Watch him make that argument to Paul Solman below.
Making Sen$e first caught up with Hanauer in Seattle last spring, where he was pushing for the city to pass a higher minimum wage. Just as the minimum wage is crucial to improving the economic outlook of low-wage workers, overtime pay is essential to the middle class’s prosperity — and everyone else’s. Hanauer explains why that matters to him, as a venture capitalist, in the following essay which first appeared in Politico Magazine.
– Simone Pathe, Making Sen$e Editor
If you’re in the American middle class—or what’s left of it—here’s how you probably feel. You feel like you’re struggling harder than your parents did, working longer hours than ever before, and yet falling further and further behind. The reason you feel this way is because most of you are—falling further behind, that is. Adjusted for inflation, average salaries have actually dropped since the early 1970s, while hours for full-time workers have steadily climbed.
Meanwhile, a handful of wealthy capitalists like me are growing wealthy beyond our parents’ wildest dreams, in large part because we’re able to take advantage of your misfortune.
“Fair overtime standards are to the middle class what the minimum wage is to low-income workers.”
So what’s changed since the 1960s and 1970s? Overtime pay, in part. Your parents got a lot of it, and you don’t. And it turns out that fair overtime standards are to the middle class what the minimum wage is to low-income workers: not everything, but an indispensable labor protection that is absolutely essential to creating a broad and thriving middle class.
In 1975, more than 65 percent of salaried American workers earned time-and-a-half pay for every hour worked over 40 hours a week. Not because capitalists back then were more generous, but because it was the law. It still is the law, except that the value of the threshold for overtime pay—the salary level at which employers are required to pay overtime—has been allowed to erode to less than the poverty line for a family of four today. Only workers earning an annual income of under $23,660 qualify for mandatory overtime. You know many people like that? Probably not. By 2013, just 11 percent of salaried workers qualified for overtime pay, according to a report published by the Economic Policy Institute. And so business owners like me have been able to make the other 89 percent of you work unlimited overtime hours for no additional pay at all.
In my defense, I’m only playing by the rules—rules written by and for wealthy capitalists like me. But the main point is this: These are rules that President Barack Obama has the power to change with the stroke of a pen, and with no prior congressional approval. The president could, on his own, restore federal overtime standards to where they were at their 1975 peak, covering the same 65 percent of salaried workers who were covered 40 years ago. If he did that, about 10.4 million Americans would suddenly be earning a lot more than they are now. Last March, Obama asked the Labor Department to update “outdated” regulations that mean, as the president put it in his memo, “millions of Americans lack the protections of overtime and even the right to the minimum wage.” But Obama was not specific about the changes he wanted to see.
So let me be specific. To get the country back to the same equitable standards we had in 1975, the Department of Labor would simply have to raise the overtime threshold to $69,000. In other words, if you earn $69,000 or less, the law would require that you be paid overtime when you worked more than 40 hours a week. That’s 10.4 million middle-class Americans with more money in their pockets or more time to spend with friends and family. And if corporate America didn’t want to pay you time and a half, it would need to hire hundreds of thousands of additional workers to pick up the slack—slashing the unemployment rate and forcing up wages.
The Obama administration could, on its own, go even further. Many millions of Americans are currently exempt from the overtime rules—teachers, federal employees, doctors, computer professionals, etc.—and corporate leaders are lobbying hard to expand “computer professional” to mean just about anybody who uses a computer. Which is almost everybody. But were the Labor Department instead to narrow these exemptions, millions more Americans would receive the overtime pay they deserve. Why, you might ask, are so many workers exempted from overtime? That’s a fair question. 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.
Since the Republican Party’s takeover of both houses of Congress in the midterm elections, all the talk in Washington has been about what won’t get done because of gridlock between the White House and Capitol Hill. And Obama has talked of moving things forward by making unilateral changes to immigration law and climate protections.
But what about the most basic need of all—jump-starting the real economy by giving more middle-class Americans a fair shake? You would think that for a Democratic administration, raising the threshold back to where it once was would be a no-brainer, but I have grave doubts that administration officials are heading in this direction. In fact they are likely to raise the threshold only partly, and the Obama administration has not yet grappled with the broader question of how moves such as this are critical to helping to restore America’s middle class. How do I know? Intuition. OK, I admit it, more than intuition. I’ve had conversations with administration officials about their forthcoming policy changes. And the scuttlebutt out of the Labor Department looks promising—for corporations. Not the middle class.
It is my sense, based on my conversations with government officials, that the administration is buying the line from corporate lobbyists who are arguing that such rule changes would devastate their bottom lines, forcing them to lay off workers. You know, the old trickle-down gambit—if workers earn more money, it would be bad for business, the economy and workers. The Obama team, in other words, is buying into the same discredited theories that were used to erode the threshold in the first place. Officials will very likely raise the overtime threshold just enough to say they’re doing something, without actually doing much of anything for the middle class or our demand-starved economy at all.
“We capitalists will tell you that our increasing profits are the result of some complex economic force with the immutability and righteousness of divine law. But the truth is, it is simply a result of a difference in negotiating power. As in, we have it. And you don’t.”
But here’s a little secret from the corner office: The arguments that the corporate lobbyists are making—about how badly business will be hurt—just don’t add up. What is adding up instead are the trillions of dollars in corporate profits and stock gains that corporations have made over the same decades that your hours climbed and your wages fell. From 1950 to 1980, during the good old days of U.S. economic might—the era in which the Great American Middle Class was created—corporate profits averaged a healthy 6 percent of GDP. But since then, corporate profits have doubled to more than 12 percent of GDP.
That’s about a trillion dollars more a year in profit. And since then, wages as a percentage of GDP have fallen, you guessed it, by about the same 6 percent or 7 percent of GDP. Coincidence? Probably not. What very few Americans seem to understand is that that extra trillion dollars isn’t profit because it had to be, or needs to be or should be. That extra trillion dollars is profit because powerful people like me prefer it to be. It could have been spent on your wages. Or it could have gone into discounts to you, the consumer. We capitalists will tell you that our increasing profits are the result of some complex economic force with the immutability and righteousness of divine law. But the truth is, it is simply a result of a difference in negotiating power. As in, we have it. And you don’t.
***
Still, it’s hard to blame the administration for doing so little to defend middle-class workers when most middle-class workers aren’t even aware that they’re being ripped off. But I know. And a lot of other business owners know. We just don’t talk about it. 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. But this downward pressure on wages doesn’t end there.
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.
This is why, in a recent Gallup poll, salaried Americans now report working an average of 47 hours a week, not the allegedly standard 40. And 18 percent of you report working more than 60 hours per week. Yet at the same time, you’re taking only about 77 percent of your paid time off. According to a survey commissioned by the U.S. Travel Association, U.S. workers now use an average of only 16 vacation days a year out of the nearly 21 days they earn—the lowest in more than four decades. Why? Often because they’re terrified of working fewer hours and falling short of their employers’ demands for ever more productivity. And many of these unused vacation days are forfeited: an estimated $52.4 billion worth each year that goes to owners like me.
Now obviously, take away our license to force 10.4 million Americans to work extra hours for nothing, and smart capitalists like me would try to limit overtime as much as possible. I mean, time-and-a-half pay sure adds up fast! So many of you would be unlikely to see much of an immediate bump in take-home pay. Instead, we capitalists would be forced to hire millions more people to do the work you currently do for free. That would drive down unemployment. And a tighter labor market would drive up wages for the first time in 40 years.
“And just like raising the minimum wage would nudge up incomes for those workers earning somewhat above it, restoring the overtime threshold would push up incomes for many workers currently earning above $69,000 too.”
So you see, when I say that the overtime threshold is the minimum wage for the middle class, I’m not just playing with words. In the exact same way that the erosion of the federal minimum wage—from an inflation-adjusted peak of about $11 an hour in 1968 to only $7.25 an hour today—has held down wages for low-income Americans, the simultaneous erosion of the overtime threshold has also held down wages for the American middle class. And just like raising the minimum wage would nudge up incomes for those workers earning somewhat above it, restoring the overtime threshold would push up incomes for many workers currently earning above $69,000 too.
) vote republican because of 'social' issues. Then the rethugs turn around and institute policies that screw the middle class. Democrats are not much better, because their policies tax the middle class and keep the poor in a cycle of dependence. I personally feel that neither side benefits us and that's why I remain independent 
when that company downsizes. When you are content and comfortable with you current circumstances and don't try to switch it up or at least enchance your marketability that's a YOU problem. A lot of "middle class" people think that 20 year secretary tenniorship is worth something when it's not. The job market is competitive so as long as you are an employee you have to understand the concept of adapting and changing based on the current market. Workers are assets to companies and just like any other asset you either appreciate or depreciate.