Working Overtime for Workers

The Pitch: Economic Update for Thursday, July 11th, 2024

(A note to our readers: Regular Pitch writer Zach Silk is out of the office. While he’s away, Civic Ventures fellow Paul Constant is contributing guest essays. Zach will return in next week’s edition of The Pitch.)

Last month, the economy added 206,000 jobs, exceeding expectations yet again, and continuing one of the longest unbroken periods of labor market gains in American history — 42 months straight of job growth!

Those jobs are paying more than they used to, says Talmon Joseph Smith: “Average hourly earnings rose 0.3 percent in June from the previous month, and 3.9 percent from a year earlier.” Last month marked a solid year of American worker wages rising faster than inflation.

These numbers are strong, but they’re not floating at the heights of the American job market of 2022 and 2023, when workers came roaring back from Covid lockdowns to unprecedented job and wage growth. It’s been clear for months now that the job market is returning to the “merely” very good pre-Covid levels of growth, but with the benefit of added job security. Aaron Sojourner writes that the firing rate has been hovering at record lows since January of 2021.

Federal Reserve Chair Jerome Powell agrees with that assessment, saying this week that “labor market conditions have cooled considerably compared to where they were two years ago.” Powell characterized the job market for American workers as “strong” but “not overheated.”

Take a closer look at where jobs are being created, and you can start to see where the labor market is weakening. About 75% of the jobs created in June were government positions, social work, and health care. For much of the economic recovery from the pandemic, government hiring was lethargic, falling far behind the massive job creation in the private sector, and now public-sector employers are finally hiring again.

The economy actually lost manufacturing and retail jobs last month, which could be a reflection of the fact that American consumers are pulling back on their purchases after several years of price increases. And though the firing rate is the lowest we’ve seen in twenty years, when workers do lose their jobs, they’re generally out of work longer than they have been in recent years.

But we can’t forget what the American people have gained over the last four years. Smith writes that “for workers who are not managers — roughly eight of 10 people in the work force — wage growth has been far stronger than the overall average.”

Just look at this amazing chart showing the total net worth held by the bottom 50% of the population:

The wealth of the bottom half of the economy has basically doubled since the pandemic, bucking decades of decline and slow growth.

A Time for Choices

Virtually everyone agrees that the explosive growth in jobs and wages of 2022 and 2023 has reached a natural end, and now the job market is “merely” very good. That means it’s time for our leaders to decide what kind of future they want for American workers.

The candidates you vote for in the coming election will make that choice. They will decide if we continue to make an investment in workers, building the economy from the middle out and the bottom up, or if we should instead take the trickle-down path by investing in CEOs and the wealthy.

One CEO, Warner Bros. Discovery head David Zaslav, has already laid his cards on the table. Though he refused to endorse either Biden or Trump, Zaslav said of the next leader that “We just need an opportunity for deregulation, so companies can consolidate and do what we need to be even better.”

This is a ridiculous statement. Businesses have had a nonstop opportunity to consolidate since the 1980s, when the trickle-down Reagan Administration changed the way regulators measure mergers and acquisitions. Where once the government fought monopolies in an effort to keep businesses from getting too powerful and hoarding too much of the market, the prevailing measurement from 1980 to 2020 was that if a merger could be said to ultimately lower prices for consumers, it would be allowed.

Let’s call BS on that trickle-down claim right here: While every potential merger is praised by CEOs as a win for consumers, and while businesses might cut consumer-facing prices in the immediate short term after a merger, studies show that mergers kill competition in the marketplace, quickly resulting in higher prices for consumers nearly every time. Kroger executives recently claimed publicly that merging their grocery chain with Albertsons would be a win for consumers, but internally Albertsons executives admitted in an email that “we all know prices will not go down” after the merger. (And none of this is even taking into account the inequitable impacts of a merger — the Kroger and Albertsons merger, for instance, will result in the sale of nearly 600 grocery stores in less profitable areas that will likely result in lost union jobs and the expansion of food deserts in less-wealthy parts of the country.)

That was the trickle-down reality for the last four decades. But after just four years of an administration embracing middle-out economics and prioritizing investments in working Americans over corporations, we’ve already seen skyrocketing wages and a dramatic shift in inequality.

Middle-out economics has helped America emerge from the pandemic with the healthiest economy on the planet. Working Americans did that — they grew prosperity for everyone, including those at the tippy top of the economy. We’ve seen the end result of 40 years of mergers, wage cuts, and other anti-worker policies. Just imagine what 40 unbroken years of middle-out investments in working Americans could do for the future of the country.

What Do Middle-Out Investments in Workers Look Like?

Let’s take one recent middle-out economic policy shift as an example. On the first day of this month, the Biden Administration raised the federal overtime threshold. If you’re a full-time employee making less than $43,888 in a year — whether you’re paid hourly or salaried — your employer must pay you time-and-a-half for every hour you put in over the 40-hour workweek. (The previous threshold was just $35,568.)

This means that as of July 1st, one million more workers are now eligible for extra overtime pay, less overtime work, or a little bit of both. Next January, the threshold will increase to $58,656, making four million more workers eligible for overtime. And the threshold will increase every three years thereafter.

What does this look like in the real world? The Washington Center for Equitable Growth explains that as of this month, “the new overtime rule will extend protections to nearly 1 out of every 5 Black, Hispanic, and women white-collar workers who are currently exempt from overtime.”

And when the full rule goes into effect next year, the Economic Policy Institute estimates that American workers will take home an additional $1.5 billion in annual wages. EPI also finds that the increased overtime threshold will especially benefit workers in low-wage southern states, and workers in fields like “professional and business services, health care and social services, and financial activities.”

These are the kind of policies that will continue to strengthen the labor market, growing the economy from the middle out by ensuring that the workers who have largely been left behind in the last few decades are able to fully participate in the economy — both by spending money at local businesses, and by ensuring that those workers have the free time to spend that money in their communities.

The Trickle-Down Approach to Overtime

To see what trickle-downers have planned for overtime, we have to take a look at Project 2025, a document compiled by a team including dozens of former Trump Administration staffers for the conservative Heritage Foundation think-tank. Mother Jones reports that the labor portion of Project 2025 “was written by Jonathan Berry, who led the Labor Department’s regulatory office under Trump.”

Project 2025 offers two policy solutions for overtime, and they both benefit employers more than workers. The first is a vague suggestion that employers should be allowed to offer workers vacation time rather than time-and-a-half pay in exchange for overtime work.

But vacation time only needs to be paid if workers take it, and as Media Matters points out, “at least 40 percent of lower- and middle-income workers already don’t use their allotted paid time off.” Additionally, in most states employers who fire their employees aren’t legally required to pay out unpaid vacation time, so companies that know they’re about to fire staff can work their employees to the bone, knowing that the vacation time will never be cashed in.

Even more insidious than the vacation-time plan is the Project 2025 proposal that would “extend the overtime threshold from one week to a period of two weeks or one month.” This means that, on the two-week accounting period, your boss can avoid paying overtime altogether by ordering you to put in 60 hours during one busy week and then only scheduling you for 20 hours of work in the next week, because you averaged 40 hours per week in the period. If the overtime accounting period is extended to a month, you can imagine the kind of nightmare weekly schedules that bosses in volatile fields like food service can demand of their employees.

In addition to creating expensive uncertainties for workers (how can a parent schedule or pay for daycare when their bosses can demand that they work a 50-hour week at any time for no additional pay?) and making enforcement of worker protections even more complicated, this policy undermines the 40-hour workweek that has been central to the American workforce for nearly a century. By shifting the bedrock standard into an average 40-hour workweek, Project 2025 loosens the expectations around what employers can legally ask of their workers. A settled standard becomes a mere suggestion.

What This All Means

The distinction between these two policy agendas couldn’t be clearer.

The Biden Administration’s overtime policy grows the economy for everyone by ensuring that even the workers on the lowest end of the income scale can participate in the economy with their time and money — especially women and Black and Hispanic workers, who have long been underpaid and overworked compared to their white male counterparts.

The trickle-down Trump policy takes both wealth and power from workers and hands it up to the corner office, injecting uncertainty into workers’ schedules and taking money out of their pockets.

Some political decisions are complex and murky. But the economic choice between middle-out and trickle-down couldn’t be any clearer. I think if you were to poll Americans on the choice between the Biden Administration’s stronger overtime protections and Project 2025’s overtime proposal, a huge, vast majority of voters would land firmly on the side of the workers.

People innately understand that what’s good for the American worker is good for the American economy. And now that we’ve been given a taste of economic policy that puts the American worker first again, it’s going to be difficult, if not downright impossible, to convince Americans to go back to the old trickle-down status quo.