Conventional wisdom has it that a politician should never pick fights with the middle class, especially with an election just around the corner. Yet the Bush administration has done just that, creating new rules, due to come into effect on August 23, that will strip up to six million white-collar employees of their right to overtime pay. Shockingly, the White House may well get away with this. What gives?
When the administration first proposed its new overtime rules last spring, the Labor Department argued that the planned changes would do two things. First, they would raise the salary bar below which employers must pay time and a half, from its archaic, sub-minimum wage level of $8,060 to $23,660 a year. Such a long-overdue change could, in theory, entitle an additional 1.3 million low-wage workers to overtime benefits. Nobody seriously questions this number. So far, so good.
The trouble lies with the second big change. The rules governing overtime pay have always included a "duties test," determining which workers do and do not qualify for overtime pay. For instance, under the current criteria, in place since 1938, cooks and registered nurses must receive time-and-a-half for overtime work because they do not hold professional degrees. On the other hand, executive chefs and doctors are exempt. The criteria aimed to distinguish independent professionals from "grunt" workers, and compensate the latter for long hours. But the new rules will blur this distinction -- many cooks and nurses will now be ineligible for overtime pay, even though they often lack college degrees. The Labor Department has downplayed all this by claiming that only 100,000 white-collar workers would be adversely affected by the new classification system.
That claim was false. In June of 2003, the labor-friendly Economic Policy Institute (EPI) blew open the administrations numbers with a study indicating that, in truth, up to 8 million workers could lose their right to overtime under the new criteria. (Under the current system, about 80 percent of the nation's 120 million workers are eligible for overtime.) After union leaders raised havoc, the Labor Department tinkered with the regulations, claiming that they had fixed the aberrations. But in July of this year, the EPI released another study arguing that 6 million workers would still lose their rights under the final regulatory changes. A day earlier, an independent study by three former Labor Department officials came out, expressing similar concerns. The officials, who had served under both Democratic and Republican administrations, criticized the new regulations for "remov[ing] existing overtime protection for large numbers of employees" and for "fail[ing] to protect and promote the interests of working people."
Part of the problem is that the Labor Departments new classification system is overly vague, opening the door to potential abuse. For example, in the past, exemption from overtime used to apply primarily to jobs requiring substantial discretion and independent judgment. The bosses didn't qualify for overtime, while the workers did. But the new regulations define "supervisory roles" so ambiguously that they could apply to anyone from burger-flipping night managers to electricians who occasionally tell other workers what to do.
To see how this could work, one need look no farther than Wal-Mart. Lets say the store promoted some of its workers to supervisory roles, wherein they look after two other workers in a store section. These "supervisors," of course, don't have to be actual supervisorsthey could spend most of their time folding clothes and stocking shelvesas long as they do some nominal oversight from time to time. These are not real managers by any stretch of the imagination. And under the current regulations, these workers would receive overtime because they do not spend most of their time supervising. Under the new rules, however, since their "most important duty" is "lead[ing] a team of [at least two] other employees," they would be ineligible for time-and-a-half. Lest one think that Wal-Mart would never do such a thing, note that the store is currently facing some 30 lawsuits from former assistant managers who claimed that the store gave out symbolic promotions to deny workers overtime pay.
Why was the Labor Department so far off in its estimates? EPI arrived at higher numbers because they looked at those workers who would lose their right to overtime, whereas the Labor Department has focused largely on those who would lose actual pay. The difference is quite crucial. Currently, many workers are held to strict 40-hour workweeks because employers try to limit overtime. But with the new classification rules, companies can force employees such as paralegals, nurses, technicians and secretaries to work longer hours at no additional cost.
"Employers will start by asking their workers to stay an extra hour or so," said Ross Eisenbrey, vice-president of EPI, "and then it becomes two hours, then three hours." Competition will ensure that businesses work their employees as hard as legally possible. "At first you'll just see the risk-taking companies take advantage of the new rules," said Karen Dulaney Smith, an independent wage and hour consultant. "But soon even the most conservative will be making changes, in order to maintain parity." The losers will be American families, who already work an average of 22 more hours per week than they did 30 years ago, according to Karen Kornbluh of the New America Foundation. Expect that number to continue rising.
The administration has offered a weak defense against such complaints. In a hearing before the Senate subcommittee on labor appropriations, Labor Secretary Elaine Chao argued that businesses are currently subject to $2 billion in "needless litigation" because employers have a difficult time understanding the present rules. The proposed changes, Chao argued, will simplify matters and reduce lawsuits.
To be sure, ambiguities will always arise with any set of labor regulations. (How, for instance, does one calculate overtime on business trips?) Yet in all of 2003, only 102 class-action lawsuits on overtime were filed, out of 7 million businesses nationwide -- hardly a crisis. Moreover, employers have been winning more and more of these lawsuits in recent years, according to Camille Hebert, an Ohio State University law professor who was commissioned by the Labor Department to study FLSA litigation. Chao has also pointedly refused to say how many lawsuits actually resulted from deliberate violations by employees.
So will the changes reduce lawsuits? Probably not. "The new regulations clear up some ambiguities, but they will inevitably create a new set of ambiguities and confusion," said Jeffrey Pasek, chairman of the labor and employment group at the Philadelphia-based law firm Cozen O'Connor. If anything, the new rules merely give more discretion and flexibility to employers, making exploitation easier and legitimate litigation harder. Wal-Mart employees, for instance, will have a tougher time contesting their sham promotions. Furthermore, the changes could prove costly to small businesses. "Companies without large legal resources will have to spend a lot of money to make sure they're complying with the new rules," said Michael Harris, a business professor at the University of Missouri in St. Louis.
Chaos claim that the regulations are intended to help low-wage workers has proved similarly suspect. While it is true that the salary bar for mandatory overtime has not been raised since 1975, the new level of $22,100 remains about $5,000 short of the 1975 level after adjusting for inflation. "They set the bar at a completely arbitrary level, designed to be as appealing as possible to small businesses," according to EPI Vice-President Ross Eisenbrey. The Labor Department has also declined to index the salary bar to future inflation, ensuring that the bar will remain artificially low for years to come. And let's not forget that many of the low-wage workers the Labor Department claims it is helping will be exempt under the new rules. Wage investigator Karen Dulaney Smith noted that nursery school teachers will be denied the right to overtime, "regardless of what they teach," meaning that even teachers who spend their days changing diapers and giving snacks -- menial day care tasks -- will not receive overtime.
In truth, the Labor Department never really had worker welfare in mind, as evinced by a January report advising businesses on how to take advantage of the new rules. Among other things, the report helpfully suggests that companies can convert low-salaried workers to a reduced hourly wage and higher hours, so that employees will have to work more than 40 hours but receive no net increase in pay. The report goes on to reassure businesses that the financial impact of the new regulations will be "near zero."
All these problems, however, pale next to the fact that a reduction in overtime makes little economic sense during a time of relatively high unemployment. Overtime pay has always offered employers an incentive to hire more workers. (The more workers, the less need to have any single worker put in extra time.) Eliminating that incentive could well slow the job recovery. No one knows what the long-term effects will be; the Labor Department didn't even try to find out. In the immediate term, the wage cut will put a dent in consumer spending, which has dropped dramatically of late. Say good-bye to the steady recovery.
Can anyone put a stop to this? Senate Democrats, led by Tom Harkin (D-Iowa), crafted a measure to block the new rules in the February omnibus spending bill, but lost support from moderate Republicans as soon as Bush threatened to make the already-delayed bill his first veto. Another amendment, blocking the classification changes, finally passed through the Senate in May, but it could likely die in the Republican-dominated House-Senate conference.
In theory, public outcry could force the Republicans to back down. "The more people that hear about this issue, the more it will resonate," said Maureen Knightly, a spokeswoman for Harkin's office. But a recent Hewitt Associates survey found that most workers are not even aware of the changes. Meanwhile, on the campaign trail, John Kerry and John Edwards have made only desultory mention of the issue, and little noise was made during the recent Democratic convention in Boston. Unless the Democrats give this issue greater exposure, Harkin's efforts will die out all too quietly. No wonder that union leaders like Andrew Stern, of the SEIU, are beginning to question the party's commitment to labor.
The trouble for the Democrats may be that the pro-worker case, while reasonable, is also difficult to make. Significant changes in overtime pay and workweek patterns may take years to become fully noticeable. Right now, labor advocates can only talk about overtime rights and potential changes. At the moment, the administrations hard numbers1.3 million gaining overtime pay, 100,000 losingprobably sound like nothing to worry about, regardless of how poorly they withstand scrutiny.
Indeed, when it comes to economic policy, the Bush administration's strategy has often been to put forth reasonable-sounding proposals whose unpleasant effects are difficult to trace and wont become apparent for a long while. (See Bush's tax cuts.) The White House has gambled that the public will lose interest in this issue, rather than spend months debating the finer points of labor economics.
It shouldnt be this way. The overtime fight offers a perfect opportunity for Democrats to make a very loud and very public stand, especially while white-collar voters are fretting over declining wages. Bring up those overworked nursery school teachers who will lose pay while running glorified day care centers. Bring up returning veterans who are considered "professionals," exempt from overtime. Show how the rules will hurt small businesses, while allowing Wal-Mart to create a stable of fake "supervisors". Make it loud and vivid. By backing down without a fight, the Democrats will lose a chance to land a blow against Bushs economic agenda, and, more crucially, let down the workers they should be protecting.