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Donald Trump’s campaign promise to make overtime pay tax-free seems to have left Democrats looking like deer caught in the headlights. It looks like a pro-worker measure, even though it is bad from many perspectives.
It actually should not be hard for progressives to think their way out of this one. It just requires going back to the original rationale for the Fair Labor Standards Act (FLSA) in 1937, which set the length of the normal workweek at 40 hours.
While the Act does reward workers by giving them a 50 percent wage premium when they work more than 40 hours a week, another purpose of this premium was to discourage employers from forcing workers to put in long hours. The idea was both to ensure that workers had a reasonable amount of leisure time to enjoy with their families or for other purposes, and to encourage employers to hire more workers instead of requiring that their existing workforce put in long hours.
If we remember this simple point, it is obvious how we can do better for workers than Trump’s tax-free overtime. Rather than having taxpayers subsidize employers who make their workers put in long hours, we can simply increase the wage premium for overtime. Instead of requiring employers pay a premium of 50 percent of the workers’ ordinary wage for hours above the 40-hour standard, we can require that they pay a 100 percent wage premium.
This means that if a worker’s ordinary hourly wage was $35.00 then they would get $70.00 for each hour they worked in excess of the normal workweek, rather than $52.50 as is now the case. This would both put more money in the worker’s pocket and mean that the employer is paying it rather than the taxpayer.
While it might be nice to give manufacturing and construction workers (those most likely to get overtime pay) some additional money, it’s hard to make a case that this should come out of the pockets of lower paid retail and restaurant workers. It is important to remember that overtime is generally mandatory. If employers want to force workers to put in extra hours, they should be the ones who pick up the tab.
This change in the overtime wage premium is also harder to game. With the Trump tax scheme, it’s easy to imagine employers playing around with the reported (not actual) lengths of workweeks to maximize the tax subsidy.
The increased overtime wage premium might also have the intended purpose of the FLSA when it was passed, of discouraging employers from requiring workers to put in long hours and instead encouraging them to hire more workers. If we want to see more people employed in manufacturing and construction, we should be giving incentives to hire more workers rather than fewer workers, as is the case with the Trump tax scheme.
If we want to get really radical, we can actually amend the FLSA to have the overtime wage premium kick in at 38 hours or even 36 hours. After all, it’s been almost 90 years; a 10 percent reduction in the length of the workweek over this period hardly seems unreasonable.
It doesn’t take too much arithmetic to realize that cutting the length of the average workweek by 10 percent means roughly a 10 percent increase in employment in the industry. It’s not easy to envision policies that would increase employment in construction and manufacturing by 10 percent, certainly Donald Trump’s trade policy is not going to do the trick.
Of course, the story will not actually be that simple. There may be some changes in demand and output. Also, many companies will continue to work employees 40 hours or more and just pay out more money in overtime wages. That would be fine too. We would have a 5 percent pay increase to workers putting in a 40-hour week, or a 10 percent pay increase if we double the overtime wage premium. And again, this money is coming from employers, not taxpayers.
We might also think it actually is a good thing if workers had shorter workweeks, as was the case when the FSLA was passed. The goal of the labor movement, pretty much forever, has been for workers to have enough time to live decent lives and also enough money to pay the bills.
It would be great if Democrats could put some version of this increased overtime wage premium on the table in the current debate on making overtime tax free. They are not obligated to play dumb all the time.
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