This episode was first released in March, but so much has happened since then in the world of overtime that we thought we’d repost this episode with a new intro. Since this originally aired, Washington state has proposed a new overtime threshold that would expand overtime pay to 250,000+ workers. Since overtime laws haven’t been updated since 1976, this is a big deal! So brush up on your OT knowledge with this episode, featuring Sharon Block and Chris Lu.
Sharon Block is the Executive Director of the Labor and Worklife Program at Harvard Law School. For twenty years, she held key labor policy positions across the legislative and executive branches of the federal government, including head of the policy office at the Department of Labor.
Chris Lu was the U.S. Deputy Secretary of Labor in the Obama Administration from 2014 to 2017. He also served as Assistant to the President and White House Cabinet Secretary under Obama from 2009 to 2013. He is a Practitioner Senior Fellow at the UVA Miller Center.
Jasmin W.: Hello, this is Jasmin from Civic Ventures, with a quick update on over time. Since we first aired this episode, a lot of things have happened. In early March, the Trump administration announced their overtime proposal, which was a threshold of $35,000 a year. And that means that if you make over $35,000 a year, you won’t be overtime eligible. We think this is way too low. But in good news, there are many States that are thinking about working on overtime and are moving forward with new overtime rules.
Pennsylvania and Massachusetts are in the process of looking at their overtime rules and updating their overtime thresholds. And Washington State, where we’re located here at Civic Ventures, has the boldest and most exciting overtime proposal in the country. In early June in Washington State, the Department of Labor and Industries announced an overtime proposal, setting the overtime threshold at two and a half times the minimum wage. Which will be about, in 2020, a threshold of around $70,000.
We expect this issue to continue to pick up speed and for you to see it across the country. So we are re-posting this episode as a refresher. Please enjoy.
Nick H.: One of the foundational labor protections in our economy has been the eight hour day.
Chris L.: It’s basically a central tenant in this country that if you work more than 40 hours a week, you should get paid extra.
Jasmin W.: So one of the things that you hear from business is that earning a salary is a privilege.
Nick H.: Yeah. Here’s the thing, you cannot eat status.
Sharon B.: I don’t think anybody wants the privilege of working without getting paid.
Speaker 5: From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. An honest conversation about how to make capitalism work for everyone.
Nick H.: I’m Nick Hanauer, founder of Civic Ventures.
Jasmin W.: Hi, I’m Jasmin Weaver. I’m a Vice President here at Civic Ventures, and I work on a host of public policy issues for the shop, including overtime.
Nick H.: In the last episode we talked about monopoly and its evil twin, monopsony, which are basically different words to describe concentrated corporate power. In this episode, we’re going to talk about one of the most important labor standards that exists for middle class folks, which is the overtime threshold. It’s something we call the minimum wage for the middle class.
Jasmin W.: And so when we talk about the overtime threshold, what we mean is the salary below which you are guaranteed overtime pay. Nick, I find that when you talk to people about overtime policies, even our progressive allies, people don’t really know what we’re talking about. And even worse, without knowing it they’ve adopted businesses talking points in this area. And a lot of this has to do with the fact that we’ve had four decades of nobody talking about updating these policies. And so people don’t understand what they’re missing out on.
Nick H.: Right.
Jasmin W.: What are people missing out on? What do you think?
Nick H.: Yeah, so one of the sort of foundational labor protections in our economy has been the eight hour day. And the idea that people should basically work about eight hours a day, and that to work more than that tends to ruin your life and be inappropriate. And the way in which our country enforced that standard in a reasonable way, was the overtime threshold. Basically what it was is, if you worked more than 40 hours a week, your employer was required to pay you time and a half for those hours overworked.
And so not only did you get paid for the extra hours of work, but you made it costly for your employer to push you to work more than 40 hours a week. And as a consequence, having been an employer, and by the way in the day when overtime threshold was a really important thing a long time ago, what employers would do, is they would manage over time very, very carefully and they would essentially hire more workers when there was more work. And what happened to our economy, and one of the reasons the middle class is in such terrible shape, is that the overtime threshold used to cover over 60% of workers.
Most workers were entitled to overtime if they worked more than 40 hours a week. And the high point was 60, 65%, something like that. And today just 7% of salaried workers are entitled to overtime, if they work more than 40 hours a week. And so what that means is that the federal threshold today is $23,600, and so that means that if you go to work for a Jack in the Box and you make $24,000 and your boss pitches you a fake title, like Assistant Manager, they can make you work 70 hours a week and not pay you for the 30 hours a week, more than 40 hours, much less pay you time and a half.
And why does that matter? Well, obviously people are working super hard and they’re working harder than they ever have, certainly harder than their parents have and making less and less money. But what’s even more corrosive is that if you let that practice be employed tens of millions of times across the economy, you effectively turn three jobs into two, tens of millions of times. So if you take 30 million workers and make them work long hours, you can effectively take 10 million jobs out of the economy by working people 60 hours a week rather than 40.
And so if you do that for long enough, you soften up the labor market and you give people less bargaining power and you create a high level of structural unemployment, which is fantastic for corporate profits, but a disaster for middle class wages. And that’s why we call overtime the minimum wage for the middle class, is that in the absence of a high overtime threshold it’s really hard, almost impossible I would argue, to build a really robust middle class with good wages and a reasonable life.
Jasmin W.: And we know from both the Bureau of Labor Statistics and Gallup, that people are working long hours. I think the average for a salaried worker in this country is 49 hours per week. And so if you add that up over the millions of workers that are not getting overtime pay, that’s billions of dollars that are not going into their pockets but are going into corporate profits.
Nick H.: Yeah, I mean it’s not billions, it’s probably literally hundreds of billions of dollars that used to be wages and is now corporate profits. But even more than that, it’s tens of millions of jobs, which is also hundreds of billions of dollars that you’ve effectively robbed the economy of. You’ve pulled 10 million extra consumers out of the economy, and instead you have outside corporate profits. And what we know from the last 30 years, I mean there are all sorts of things that have contributed to it, but corporate profits have essentially doubled as a percent of GDP, from about 5% to about 11% or 6% to about 11%. An extra trillion dollars in profits. And a big piece of that is that people don’t pay overtime anymore. That’s one of the reasons.
Jasmin W.: Okay. So the Obama administration, several years ago, tried to raise the overtime threshold at the end of the administration.
Nick H.: They did.
Barack Obama: Only 7% of full time salaried workers are eligible for overtime based on their income. That’s why this week, my administration took a step to help more workers get the overtime pay they’ve earned. The Department of Labor finalized a rule to extend overtime protections to 4.2 million more Americans. It’s a move that will boost wages for working Americans by $12 billion over the next 10 years. We’re more than doubling the overtime salary threshold.
Nick H.: Yeah. And so the Obama administration, through a rulemaking process through the Department of Labor attempted to raise the overtime threshold from 23,000 to about 47 or $48,000, which was 50% of the way to where we thought they should go. We thought they should have raised it to 69 or $70,000, which would have effectively covered the same number of people that were covered in the day. But they took a step, but sadly they did it way, way, way too late in the administration, in the last year of an eight year term essentially. And it wasn’t implemented before they left office. And as a consequence, as soon as the Republicans took over, they … To make a long story short.
Speaker 7: A new law that would make millions of workers in the US eligible for overtime pay is set to go into effect next week, but now faces a cloudy future under the incoming Donald Trump administration [crosstalk 00:08:58]
Nick H.: We were super sad when the Trump administration put an end to the implementation of that rule, which obviously would have affected tens of millions of workers in a really positive way. But there is still hope, because action is possible in the States. And we’re doing that.
Jasmin W.: Yeah. Great. And our first guest, Sharon Block, she was from the Obama administration and can talk to this about a little bit about what she’s seen, and maybe some of her regrets and lessons learned from the Obama administration.
Nick H.: Yeah. And Sharon was one of our partners at DOL, in the Department of Labor in trying to press this rule forward. And I know we all wish that we had gotten more done quicker.
Jasmin W.: Okay. So I’m here with Sharon Block. Sharon do want to introduce yourself?
Sharon B.: Sure. I’m the executive director of the Labor and Work-life program at Harvard Law School. So I came here to Harvard Law School after spending eight years in the Obama administration in different labor policy positions. I worked in the Department of Labor, the National Labor Relations Board, the White House, all in positions focusing on a single issue, of how to make work better for the American worker. For the majority of people in this country who actually have to work for a living.
I came here to Harvard and in the Labor and Work-life program we are really focused on the same issues of trying to raise debates, and have productive conversations about how can we rebalance the American economy, and honestly the political system, in order to reflect the best interests of working Americans.
Jasmin W.: And tell me a little bit more about the center and the Clean Slate Project. I’ve heard about this Clean Slate Project. It’s great name. What is it?
Sharon B.: So the Clean Slate Project is … The goal is to come up with a comprehensive set of recommendations for how to fundamentally rewrite labor law in our country, in order to rebalance the economy and the political system. And we operate under the law that defines how workers can come together to speak in a collective voice about what their interests are in this economy, that was written for an economy that hasn’t existed for decades. And so we’ve seen this diminishing voice for workers in the economy and in the political system.
And we see what the results of that is when workers don’t have an effective voice. It’s astronomical record income inequality in this country. It isn’t an accident when workers had the strongest collective voice in this country, when the highest percentage of workers in this country came together to have a collective voice, we also had much, much lower income inequality. It used to be that as productivity rose, wages rose, and that isn’t true anymore. And so there’s somethings fundamentally wrong with the law. It isn’t a question only about the law, but we believe that the law plays an important role in defining how well workers can express their interests and come together.
Jasmin W.: So the Obama administration, when you were in there, you started a process to update the rules. The Trump administration went in a different direction. What do you … From your time in the Obama administration, what lessons did you learn in working on this issue? And if you could tell your Obama administration self today, if you could look back and give yourself some warnings or change some of the things that you guys did, what would you do?
Sharon B.: So obviously it’s hard to say, but to be honest, I think one thing I would tell myself is that maybe we should have started earlier. This is not easy. We put a lot of work into this because we wanted to do it well and we wanted to get it right. Unfortunately, I think we finished the rule, we did get the rule out obviously before the end of the Obama administration. It immediately came under assault by the Chamber of Commerce and by different corporate interests. And we had to leave before we were done defending it.
And that’s what’s happened, is that the Trump administration has decided not to defend what we did and they just gave in to these corporate groups that attacked the rule. And the result is that the threshold remains at this just unbelievably low number of below $24,000. And so we know that there are millions of workers who are suffering because of them.
Jasmin W.: So one of the things that you hear from business is that earning a salary is a privilege and that workers actually don’t want to track their hours and they don’t want to get overtime. They actually want to be a salaried worker. How do you react to those statements by business?
Sharon B.: I guess I take them with a big grain of salt because I don’t hear a lot of workers saying that. I don’t think anybody wants the privilege of working without getting paid, or without getting paid fairly. We took a very hard look. We spent a lot of time listening to all kinds of people, both to workers and to employers. We held dozens of meetings to hear legitimate concerns. And so there were things that we did in the rule that we thought were responsive to those concerns. There are ways for workers to track hours that are not intrusive or burdensome at all.
And the reality is that there were actually a number of companies who complied with our rules sort of ahead of time. And for the most part they didn’t undo it. So all of the yelling and screaming about how terrible it was going to be, we actually have real world experience with what it was going to be like if our rule had stayed in place. I mean even a company like Walmart complied with the rule ahead of time, didn’t undo that compliance. They are running their business as if the Obama overtime rule was still in effect. And last time I checked they were still in business.
And over time I just think it can sound very technical the idea of setting an over time threshold. But this really … It really is an issue about basic fairness, about people getting paid for the hard work that they put in, or being able to use their time as they see fit, not as their boss sees fit outside of that basic bargain of a salary for 40 hours of work. So I think that it’s important not to get bogged down in the sort of technical details.
Remember how important this is again, again to 4.2 million workers who the Trump administration has turned their back on, and said to them, “We don’t care if you’re treated fairly or not.” And that’s the crux of the issue and that’s what I would want people to think about when they hear about the overtime controversy.
Jasmin W.: Well, thank you so much for your time.
Sarah L.: Hi, my name is Sarah Leibovitz and I’m a producer on Pitchfork. So as Sharon Block just mentioned, when President Obama proposed upping the overtime threshold, some organizations just hopped on board and did it early before the law actually came into effect. And as a result, they’re still doing it. They’ve still upped their overtime threshold. They haven’t brought it back down. And one of those institutions was the University of Washington. Not to say that they did it happily.
Carolyn B.: So several groups that represent universities and higher ed institutions, lobbied on behalf of their constituents and they said that raising the overtime threshold to 48K would put an undue burden on universities.
Sarah L.: That’s Carolyn Brotherton, she’s a postdoctoral researcher at the university of Washington and an elected member of the U-Dub postdocs united bargaining committee.
Carolyn B.: Not just from an administrative standpoint. So the administrative costs associated with either changing everyone’s salary or putting thousands of workers onto an overtime type of pay. Not only would it have administrative burdens, but it would be financially disastrous. So some of the leaders of these higher ed groups said, “If these changes happened, we might have no choice but to raise tuition significantly. Limit the opportunities of researchers who are now paid below 48K because we’re not going to be able to pay them for overtime. And oh, well we might have to lay off a bunch of workers.”
So that’s what universities were saying in 2016, post-docs that are part of the United Automobile Workers Union, which is a union that we’re affiliated with, actually went to DC and advocated on behalf of all post-docs that the overtime threshold should be raised. And that’s because in 2016 the majority of post-doctoral researchers and other non-faculty researchers at universities were paid below $47,000 a year. And in most cities, that means that you’re not even at the cost of living.
We are now paid at the 2016 salary threshold that was passed but ultimately thrown out. So most post-docs are now paid around 48K. The reality is in 2016, when the overtime rules were changed, universities responded very quickly and were able to find funds to raise researcher’s salaries. So in the course of a few months, we all got this huge raise. And interestingly from 2014 to now, the number of post-doc positions at the U-Dub has increased 7%. So it’s not as though we’ve seen a drastic decrease in post-doc positions, nor have we seen the number of positions stay flat. It’s actually increasing. And that rate of increase is similar across different institutions. So we didn’t see these drastic effects that they foretold. In reality, it’s just about universities changing their priorities. The money is there, the priority to pay workers who do the research, who do the teaching, that priority is not there. When push comes to shove they can find the money really quickly, quite easily, and it doesn’t have negative impacts on the number of post-docs that are at this institution.
Sarah L.: So they didn’t go under, the world, didn’t end, things just changed and not even that much. There’s obviously still more work to be done and it can’t all be done by the post-docs union of the university of Washington. But if people like Carolyn and like Nick, keep pointing it out, keep insisting that people are worth more than they think, maybe others will start to notice too. And maybe they’ll do what Carolyn hopes.
Carolyn B.: Yeah. I hate to say it to those people, but they should just think bigger.
Nick H.: Our next guest is an amazing guy and friend of all of us at Civic Ventures, Chris Lou who is a former United States Deputy Secretary of Labor, and the former assistant to the President Obama and the White House cabinet secretary.
Chris L.: I’m Chris Lou, I’m currently a senior fellow at the University of Virginia Miller Center. It’s basically a central tenant in this country that if you work more than 40 hours a week, you should get paid extra. But because the way that the law is designed and the fact that the salary thresholds haven’t been updated now in many, many years, you can have essentially a low wage worker who gets a little bit of managerial responsibility and then is being asked to work 50, 60, 70 hours a week without overtime pay.
That’s not only money that comes out of that worker’s pocket, but it’s time that they don’t have to spend with their families or working in their community. And so what we tried to do in the Obama administration is raise this threshold, essentially double it from about 23,000 to 47,000. This would have helped over four million workers get a much needed pay raise. And unfortunately when the Trump administration came in, they basically killed the rule.
Jasmin W.: And why did they kill the rule?
Chris L.: Well, it’s the same arguments you hear all the time, this is bad for business, it’s bad for workers. Of course none of that is true. We’ve raised the overtime threshold previously. There used to be a bipartisan consensus around this. And you actually now see states around the country including New York, California, Washington State, Pennsylvania, that are taking action on this. So it’s the same arguments that are typically used against raising wages across the board, whether it’s by companies or the ones that are mandated by federal or state governments.
Nick H.: Yeah, I think, Jasmin as you know that we’ve been working on this overtime threshold thing for a really long time, because from our perspective the overtime threshold is to the middle class what the minimum wage is to low wage work. And it’s a hard fight, because it’s more abstract than the minimum wage to get people to understand the importance of it. Forget workers, just policymakers and political leaders. And when we first started working on this, it was absolutely astonishing to me how few of our elected leaders in the Senate or the House had any idea that this threshold even existed. Forget where it was relative to historical standards.
And the reason it’s so abstract and hard to understand, is that the big effect is the second order effect. What most people focus on in their thinking around overtime is that if you work more than 40 hours a week, you will get paid more for those extra hours. And that’s a fantastic and important thing. And they focus on the fact that, well if there’s an overtime threshold, you’ll have more time at home. But by far the bigger effect is the incentive it creates for businesses to hire more workers.
And the most pernicious thing that’s happened to labor standards, and in particular to middle income workers over the last 30 or 40 years, is the way in which honestly people like me have an enormous scale. Turned three jobs into two jobs by getting two people that work 60 hours a week rather than employing three people at 40 hours a week. And then you’ve softened the labor market to make it even harder for middle class people to negotiate higher wages in this sort of terrible negative feedback loop.
And so this is why a high overtime threshold, or a reasonable overtime threshold is so indispensable to building a thriving middle class. And why it’s so hard to get it to signal importance in people’s heads, because it is quite complex. And so as you know we have been talking about this for a really long time, but it’s hard work to get people to focus on it and acknowledge how important it is.
Jasmin W.: Nick, you just did a really good job of talking about why overtime is not a job killer. It’s actually a job creator by restoring-
Nick H.: Unambiguously.
Jasmin W.: By restoring overtime. Chris I’d love to delve into the other part that Nick mentioned, which is over time and its impact on wages. Because we know that wages have been suppressed in this country. What would raising the overtime threshold or restoring, I like to say restoring the overtime threshold.
Chris L.: Updating. [crosstalk 00:24:58]
Jasmin W.: Updating exactly, updating the overtime threshold. What would that do for wages in this country?
Chris L.: Well, let’s take a typical example. So right now the overtime threshold is about $23,000 a year. So you could be a typical employee doing retail and you could be stocking a warehouse. You could be working at a cash register. But because your boss says, “You know what, I’m gonna ask you to open the store in the morning, or shut the store in the evening, we’re going to give you a managerial responsibility.” That then makes you ineligible for overtime. Which means, as we said, you could work 50, 60, 70 hours again at $23,000 a year, which is a low wage in this country.
It’s important to understand that there was a point at which that 23,000 essentially covered about 60% of employees in this country. Because it has not been updated, it only covers about 8%. So as Nick just said, if you’re the typical employer, you now have a couple of options if we raised the threshold, you can either pay that employee more money, time and a half, or you can decide, “I’m still gonna pay you 23,000. I’m now going to take those extra hours that you are working and I’m going to hire somebody else.”
So you’ve now either raised wages for one employee or you’ve given job opportunities to people who aren’t working. That has a pretty powerful effect in lifting up everyone’s wages at one time. And just as importantly, it gives time back to workers, the worker who was working 50, 60, 70 hours a week, if that person is now back to 40 hours, that’s extra time that he or she has with the family, with hobbies, with community service activities and that’s good for our society.
Nick H.: Yeah. And one of the reasons that so many people are salaried by the way, is this is one of the best loopholes that employers can get through, to not have to pay people overtime. And you pitch somebody a fake title like Assistant Manager and if you pay them anything more than the $23,000, 23,600 I think it is right now that Chris mentioned, you can work them as hard as you want without paying any more. Imagine a labor market where two thirds of workers were once again covered.
You have millions more people with jobs, so you lower unemployment, you bring people back into the labor force. You have an enormous amount more demand. So more people are buying things, which forces employers to hire even more workers to keep up with that demand in a positive feedback loop that generates prosperity for everybody. And so lowering the overtime threshold is yet another one of the sort of neoliberal trickled down tricks that definitely has enriched very rich people and has contributed enormously to increasing corporate profits and inequality. But it has been terrible for the broader economy and absolutely devastating to the middle class.
Chris L.: My old boss Tom Perez, when he was Secretary of Labor, he used to talk about … He grew up in Buffalo, New York. And back in the ’70s when you are the assistant manager at a retail store, that was a solid middle class job that you could buy a home and raise a family. I don’t think we would consider that now in most places in the country on $23,000 a year, working 60, 70 hours a week.
Jasmin W.: So this is great. So we know that these policy arguments are won and lost by the stories that people tell around them. And minimum wage, the way that that policy change happened was by the narrative. And I think one of the challenges with this issue is that it’s really complex. It’s really wonky and we’re still trying to figure out what the narrative is that helps people understand this issue and connect with it. So can we talk maybe a little bit about what are the stories that we can tell that help shape this? And also what are the most pernicious lies that are told that help prevent people from connecting with this issue?
Nick H.: Well, the pernicious lie of course is the canonical trickle-down lie, which is that raising wages kills jobs. Which is what the Chamber of Commerce has been saying, well since inception. Why? Not because it’s true, but because it’s the best way ever devised to keep wages low and profits high. And there’s obviously no evidence for this. And in fact, Chris you may recall that even our opponents, when we were fighting this through in the rulemaking process, admitted that it would probably create jobs. And still somehow that was turned into a bad thing. I mean I think that citizens just have to learn, if there’s one lesson that we must teach them, it is that these things aren’t said because they’re true, they’re said because they’re effective intimidation tactics. We just have to push through.
Jasmin W.: Can you Nick, as a former manager, can you unpack what goes through your head if you don’t have to pay people for the additional time over 40 hours? I think workers feel this from the worker’s side, but can you unpack what it is? What are the incentives there for a manager?
Nick H.: Oh, good golly. I mean, it just goes right in your pocket. If I can get three workers worth of work out of two people, that’s enormously profitable. Now as a practical matter, if everybody does it all that happens is that workers just get poorer and managers incrementally get richer, which is largely what has gone on. But what raising the overtime threshold does too, is it forces companies … One of the things that happens is anybody who earns a salary anywhere near the new threshold gets a giant raise. Right?
Because it’s just so much cheaper and so much more simplifying to not have to track the hours and to just be able to continue to exploit people. And I grew up in a family manufacturing business as you may recall. And oh my gosh, we thought about overtime a lot. It was a thing that we thought about every day, because as you’re managing flows of work, paying overtime, which was something we did every week, was extremely expensive. And so we thought very carefully about how we would have to hire more people to accommodate the work and so on and so forth.
Jasmin W.: And as the threshold has gotten out of whack it hasn’t been updated [crosstalk 00:31:12]
Nick H.: People just don’t care anymore. You just call everybody an Assistant Manager and you’re good to go. And so anyway, I think that’s part of the problem. And the other thing, it’s not just that the threshold is low. We have excluded huge numbers of classes of workers from overtime. Chris, can you speak to that?
Chris L.: No, this is exactly right. I mean there are a whole classes of workers that are excluded and then there’s a duties test, which is way too complicated to explain, about whether somebody qualifies as a manager, does not qualify as a manager. All those things need to be re-looked at as well. We’re not even doing that here. We’re simply just raising the dollar threshold, to try to update it from where it was back in the 1970s, so we’re not even taking the hard things. And yes, we can have a dispute about whether if I open the store in the morning, I’m considered a manager, not a manager. We’re not even doing that.
Jasmin W.: Yeah, absolutely. So we started to talk about narrative and Chris, I thought it’d be great if you could unpack a little bit some of the arguments that our opponents use around updating the overtime threshold. In particular the main argument that they use is that employees like earning a salary, it’s prestigious and they hate tracking their hours. Can you unpack that a little bit?
Chris L.: Well, first of all somebody who has worked retail in the past, it’s a pretty common thing to check in and checkout and punch a time clock. So that’s not really tracking hours. But this idea that somehow it’s prestigious to earn $23,000 a year to get kind of a fake Assistant Manager title and work 60, 70 hours. That might be true if you are working at a much higher salary level. But I suspect at that wage level, people would rather have the extra time at home, or they would have the extra money. And I think most workers see through this kind of fake Assistant Manager title when the only real managerial responsibility they have is perhaps opening the store in the morning or closing at night.
Nick H.: Yeah. Here’s the thing, you cannot eat status, and you can’t help your kids with homework with fake status, and you can’t go on vacation or come home and be with your family with fake status. People know, particularly lower wage workers know, that this is just a game that people play. And the cheapest thing in the world for me as an employer to do for you, is to print some new business cards for you with a different black ink on it. Far better to spend $35 printing new business cards for you or even less just giving you a new title, than paying you an extra $10,000 a year. I mean, it’s just egregiously stupid to believe that people should be willing to make that trade off, that I use a slightly different arrangement of letters to refer to you and get to pay you 10 or $20,000 less a year. It’s a complete lie.
Jasmin W.: You in the Labor Department dealt with a lot of the potential foes of this issue. Some of the unexpected foes. Maybe Chris, you could talk about some of the foes, just who they are and maybe Nick you can unpack what we can learn from that. How about that?
Chris L.: Well, I mean some of the most compelling arguments we got against the overtime updating was from nonprofits, was from universities, was from organizations that hired for instance home health workers. And a lot of the money that’s coming into reimburse them is through the federal government. Now we could actually have a larger argument about maybe the federal government, whether it’s through Medicaid or Medicare, is reimbursing at way too low levels. But we did hear a lot of compelling arguments from nonprofits that they simply couldn’t afford this.
Nick H.: Yeah. So I’m much less sympathetic to this argument from my friends in the nonprofit world. And we face this vociferously in our efforts around the $15 minimum wage in Seattle when it first came out. And here’s why I’m not sympathetic to the argument. And it is that the vast majority of these nonprofits serve poor people and the needs associated with poverty. And here’s why that argument is just crazy. Their argument essentially is, “We need to continue to pay poverty wages to our employees so that we may serve people who come to us because they are paid poverty wages.”
And I have a way better idea. Maybe if we paid people not poverty wages, we wouldn’t need so many people working for nonprofits, helping people who have problems as a consequence of poverty. And of course, that’s not what they want to hear. But it is true. And as a society we should endeavor to have an economy that does not permit people to be in poverty if they have jobs. And then we won’t need so many nonprofits helping people in poverty. I just have no tolerance for these arguments that we should continue to exploit people because there are … Some parameter may have to change or some trade-offs may be necessary. And I don’t buy it from the universities either. You know what? Figure it out, figure it out. Spend less on football, pay the coach a little bit less, but pay the people who are at the bottom more. There’s no excuse for it.
Jasmin W.: I’m struck by, given the importance of this issue, how hard it is to get it to get traction. Why do you think that is?
Chris L.: Well, as we’ve been talking about, I think the overtime threshold is not as easy to understand as simply raising the minimum wage. But I will say this, again analogizing to the minimum wage. Every time that comes on the ballot for voters, it wins. It wins in Red States, it wins in Blue States. And what I’m encouraged by is the number of states that are now taking a look at the overtime threshold, particularly in the face of federal inaction. As we mentioned, both Pennsylvania and Washington state are considering rulemaking on this. I think this is the next horizon of ballot initiatives and I think if we can make a compelling argument to voters, and get this on the ballot, this wins.
Nick H.: Yeah.
Jasmin W.: Chris, I guess we should end with, is there anything that you’re working on right now that you’d like to give a plug for, or anything that we haven’t covered that you want to make sure to mention?
Chris L.: I’m spending a lot of time right now thinking about paid family leave, and again in the face of inaction in the other Washington, how we can encourage more companies to do the right thing and extend paid family leave. Whether it is again minimum wage, overtime, paid family leave, whether it’s better benefits, these are the things you do that make us a richer society. And it’s also the kinds of things you do when the economy is booming. If you can’t make these changes now, we’re not going to make them when the economy turns South. So I’m looking at the whole panoply of pro worker policies that we can push. And again, it might not happen in Washington DC at this time, but we can make important changes either at the state or city level or even just at the private sector level.
Jasmin W.: Great. Well I think that’s a wrap. Yeah.
Chris L.: Thank you.
Nick H.: [crosstalk 00:38:02] thanks Chris.
Chris L.: Always [crosstalk 00:38:04]
Jasmin W.: Thank you so much Chris.
Nick H.: Thanks.
Jasmin W.: So to sum up, not only do we need to update the overtime threshold to protect and maintain a true middle class, we probably need to raise the threshold a lot to catch up with several decades of inaction. How much do you think we need to raise the overtime threshold?
Nick H.: So I have a principle in my head, which is that we should raise the overtime threshold and peg it at the bottom 66th percentile of earners, which today is 70 ish, maybe a little bit more, $75,000. Why? If you’re in the top third of earners, well good for you yay, you’re on your own. But if you’re in the bottom two thirds, you’re almost certainly doing what someone else told you to do. And if you work over time, you’re doing it at their bidding and they should pay you for it. Or they should have an incentive to not force you to work those hours. And I think that’s a really reasonable and robust principle. And if we enacted it, the country would be a lot better off.
Jasmin W.: Yeah, I agree. And I think one of the interesting things when you talk to folks about the threshold is, they immediately start freaking out at you because we currently have a threshold below $24,000 a year. And so they hear the 69,000 or 70,000 and they think, “Oh my God, you’re saying that I have to raise every worker salary to that amount.” And that’s not the case. That’s not what we’re saying.
Nick H.: No.
Jasmin W.: Employers have a choice, as you just said. They can either raise people to threshold or they can pay people overtime when they work them more than 40 hours. Or if they don’t want to pay overtime, they don’t have to work people over 40 hours a week.
Nick H.: No, it’s not that hard. It’s really not that hard. It’s not that big a lift. And of course, employers prefer not do it. I’ve been an employer, believe me I feel their pain. It is great fun and very profitable to make people work 70 hours a week and pay them for 40. But obviously that’s creating a lot of harm in our economy over the longterm. And it’s certainly savaging the middle class.
Jasmin W.: And by bringing the threshold back to a reasonable number and updating it to where it once was, workers win no matter what choice their employer makes.
Nick H.: Correct.
Jasmin W.: They either get more time, they get more money in their pocket, they get more time with their families. So no matter what.
Nick H.: They get more coworkers, it’s all good.
Jasmin W.: Exactly, exactly. And so I think we should maybe end on a hopeful note, which is although the Trump administration killed the overtime updates-
Nick H.: The federal.
Jasmin W.: The federal ones. States can take action. And right now we’ve seen New York and California have already updated their overtime thresholds. California’s in 2022 will be above $62,000 a year for their threshold. They’ve also expanded overtime protections to a number of workers that traditionally weren’t covered in California. And Washington and Pennsylvania also have open overtime rulemaking processes right now. And there’s a number of other states in 2019 that we expect to move. So there are things that people can do at the state level to protect workers even while the federal government chooses not to move and protect workers in this way.
Nick H.: Yeah. And citizens need to be involved in those efforts and to put pressure on their elected representatives to do the right thing.
Jasmin W.: Absolutely. For the next episode, Felicia Worne joins us to discuss why getting out of poverty is so hard. Since we recorded this episode, the Trump administration announced a new overtime rule, including an overtime threshold of $35,000. Here’s Nick with some thoughts on that.
Nick H.: We worked super hard with a whole bunch of other activists at the end of the Obama administration to get those folks to raise the overtime threshold, from its insanely low $23,600 up to a reasonable number. And it was inadequate where the Obama administration landed, but it was $47,000. Certainly a decent amount. But just to be clear, if the overtime threshold today covered the same proportion of workers that it did in the ’70s, it would have to be about 70 or $75,000 a year.
Sadly, the Obama administration did that rule too late in their term and it was not fully implemented. And what was the first thing the Republicans did when they took office? They blew it up. Now the Trump administration is going to come out with their own overtime rule and the number is a ridiculously, pathetically low $35,000. That means that if earn more than $35,000 a year, you are not entitled to overtime. That’s a ridiculously low number. It covers a really small proportion of the workforce and it is massively inadequate to the challenge that we face as a nation.
Frankly, it’s a pretty sad day in America that this is what labor policy is, and we’re going to have to work really, really hard to bounce these clowns out of office and enact a rule that can actually cover the majority of Americans, which is where that threshold needs to be. Don’t let them make you believe that it’s a big step. It’s certainly not. But that’s where we’re at.
David Goldstein: I’m David Goldstein, senior fellow at Civic Ventures. So we had a question from a listener on our previous episode on stock buybacks. Ed Sefcheck asks, what happens to stock when a company buys it back? Is it legally dissolved or considered to be in some kind of surplus account? Can it be resold if a company for some reason wants to lower its stock price? Why is this not illegal as fraudulent market manipulation?
Well, I’m gonna start with the last question first. It used to be, it used to be before 1982 when the SEC, during the Reagan administration changed the rules or reinterpreted the rules to allow companies to do these large stock buybacks. But before then, they weren’t actually that common out of fear that they would be charged with market manipulation, since in fact the sole purpose of doing these large stock buybacks is to raise the share price, that is manipulate it.
As to what happens to the stock when they buy it back, well what really matters here is the number of outstanding shares. That’s what you’ll see when you go to a financial site. How many shares are outstanding and that’s the number that is used to determine EPS earnings per share. And so for the most part, these shares actually disappear. Companies can always reissue shares. It’s not common for companies to go to the market with a secondary offering. But what does happen, and this is very key to this cycle of stock buybacks and executive pay, is that today executives are largely compensated with stock.
And so on the one hand, they’re using profits to buy back stock to reduce the number of shares outstanding. On the other hand, executives and sometimes employees are rewarded with new stock that dilutes the number of shares out there lowering EPS. And so this whole process of stock buybacks is really integral to a ballooning executive pay. It’s the way they reward themselves out of profits without actually writing themselves a check.
If you have any questions, comments, or suggestions for future episodes or guests, please send them to us at email@example.com and we’ll try to address it in an upcoming episode.
Speaker 5: Pitchfork economics is produced by Civic Ventures. The magic happens in Seattle in partnership with LARJ media, that’s L-A-R-J media and the Young Turks network. Find us on Twitter and Facebook at Civic Action. Follow our writing on Medium at Civic Skunkworks, and peek behind the podcast scenes on Instagram @pitchforkeconomics. And one more, you should definitely follow Nick on Twitter @NickHanauer. As always, a big thank you to our guests and thanks to you for listening from our team at Civic Ventures.
Nick Hanauer, Zach Silk, Jessyn Farrel, Jasmin Weaver, Stephanie Ervin, David Goldstein, Paul Constant, Steven Paolini and Annie Fadely. See you next week. You want me to do it one more time?
Jasmin W.: Even worse.
Speaker 5: And the answers are even worse than you think.
Speaker 7: That’s too much.