Could the US overtime ruling create more jobs?

The U.S. Department of Labor just proposed raising the overtime threshold – what you can be paid and still qualify to be paid “time-and-a-half” beyond 40 hours per week – from $23,600 a year to $50,400.

This is a big deal. Some 5 million workers will get a raise. (See accompanying video, which we made last month.)

Business lobbies are already hollering this will kill jobs. That’s what they always predict – whether it’s raising the minimum wage, Obamacare, family and medical leave, or better worker safety. Yet their predictions never turn out to be true.

In fact, the new rule is likely to increase the number of jobs. That’s because employers who don’t want to pay overtime have an obvious option: They can hire more workers and employ each of them for no more than 40 hours a week.

It’s high time for this change. When the overtime threshold was at its peak a half-century ago, more than 60 percent of salaried workers qualified for overtime pay. But inflation has eroded that old threshold. Today, only about 8 percent of salaried workers qualify.

Overtime pay has become such a rarity that many Americans don’t even realize that the majority of salaried workers were once eligible for it.

We just keep working longer and harder, for less. A recent Gallup poll found that salaried Americans now report working an average of 47 hours a week—not the supposedly standard 40—while 18 percent of Americans report working more than 60 hours a week.

Meanwhile, corporate profits have doubled over the last three decades – from about 6% of GDP to about 12% – while wages have fallen by almost exactly the same amount.

The erosion of overtime and other labor protections is one of the main factors worsening inequality. A higher overtime threshold will help reverse this trend.

Finally, a bit of good news for hard-working Americans.

This article is published in collaboration with Robert Reich. Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. 

Image: Morning commuters are seen outside the New York Stock Exchange, July 30, 2012. REUTERS/Brendan McDermid.