AMERICA’S workers have seen better days. Over the past decade private-sector wages have grown at an average yearly rate of just 0.3% after accounting for inflation—a fraction of their typical pace of growth. One response, embraced by Barack Obama this week, is to oblige firms to grant 5m more workers “overtime pay”—1.5 times their normal wage—for any period they work in excess of 40 hours a week. Hillary Clinton, the probable Democratic candidate for president, called it “a win for our economy and workers”. The economic evidence behind the policy, though, does not justify her enthusiasm.
The Fair Labour Standards Act (FLSA) of 1938 fixes a threshold salary above which workers are not entitled to overtime. The intention is to strip out managers and supervisors who, the argument goes, are harder to coerce into working unreasonable hours and are well compensated for their trouble anyway. But the exemption has not kept pace with inflation. It is now $23,660 a year, below the poverty line for a family of four ($24,250). The proportion of full-time salaried workers eligible for overtime pay has fallen from 62% in 1975 to 8% today. Mr Obama plans...Continue reading
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