Obama administration to raise US overtime pay threshold

The US federal government has announced plans to raise the threshold above which workers are eligible for overtime pay, raising the incomes of an estimated five million people.

Under current rules, employees earning a salary of less than $23,660 a year are legally entitled to overtime pay at a “time-and-a-half” rate (150%) when they work more than 40 hours per week.

The US Department of Labor, with the support of President Barack Obama, has now proposed to raise this limit to $50,440.

They argue that the overtime threshold has not kept up with inflation, pointing out that while 62% of full-time salaried workers were eligible for overtime pay in 1975, today only 8% are. The existing limit falls under the poverty line for a family of four, which currently stands at just over $24,000 a year.

The liberal think tank Economic Policy Institute (EPI) welcomed the proposal, describing it as “a key step which will help ensure that we have an economy that works for everyone.” They argue that workers who will benefit most from the change include “women, African Americans, Latinos, workers under age 35, and workers with lower levels of education”.

However, the proposed change has been criticized by the US Chamber of Commerce, who claim it will “negatively impact small businesses and drastically limit employment opportunities”.

Our author Ronald Oaxaca strikes a cautious note in his article on the effect of overtime regulations on employment. While acknowledging that such regulations can protect workers, he writes that “regulation of overtime raises employment costs, setting in motion economic forces that can limit, neutralize, or even reduce employment. And increasing the coverage of overtime pay regulations has little effect on the share of workers who work overtime or on weekly overtime hours per worker.”

Read more on this story at the Guardian.

Related articles:
The effect of overtime regulations on employment by Ronald L. Oaxaca
Do labor costs affect companies’ demand for labor? by Daniel S. Hamermesh