The Economy Is Killing Overtime

Dan Ackman
Forbes.com
08.23.04

NEW YORK - The effect of new U.S. overtime rules that go into effect today are the subject of intense dispute between labor groups and the Bush administration.

Labor groups are rushing to defend the mid-tier workers they say will lose their overtime pay rights by the millions, while the Bush administration claims that low-paid workers who were not paid overtime wages before will gain time-and-a-half pay.

The basic change in the law is that workers earning $23,660 or less per year are eligible for overtime pay for working more than 40 hours per week. White-collar workers, on the other hand, who earn $100,000 or more per year, are newly exempt from overtime pay. There are also new regulations defining what employees are professional, executive or administrative and therefore exempt from overtime.

It's hard to know in advance how these definitions will be applied in practice. The Labor Department says no more than 107,000 workers will lose overtime eligibility from the changes, while 1.3 million will gain it, the Associated Press reported. But labor leaders say the definitional change could cost up to 6 million workers their overtime rights.

There does not seem to be any reliable data on how many workers in fact receive overtime under the current rules in a given year. But whatever the effect of the new regulations, changes in the economy are likely to have had a far more dramatic effect on the payment of overtime overall.

First, there are far fewer factory workers than there were when the federal regulations under the Fair Labor Standards Act were written more than a generation ago. Today, white-collar workers account for nearly 60% of the work force, according to the AFL-CIO, and that number is expected to increase. Blue-collar workers comprised less than 25%. The service sector accounts for more than three-quarters of all U.S. employment, compared to 17% for the manufacturing sector.

It is easier to count, and therefore pay, factory workers on standard shifts at General Electric (nyse: GE - news - people ) than it is office workers at IBM (nyse: IBM - news - people ) or Microsoft (nasdaq: MSFT - news - people ) who come and go at different times. In any event where workers are covered by union contracts, those contracts, and not the regulations, will determine overtime rights.

But the biggest barrier to overtime is that most people don't work over 40 hours per week. The official data seems counter-intuitive with so many people claiming to work 10, 12, even 18 hour days. But according to the U.S. Bureau of Labor Statistics, the average workweek in 2003 was 33.7 hours. Americans have not worked even 35 hours per week since 1984.

The average hours in some sectors, such as natural resource and mining, construction, and manufacturing are higher. But even in manufacturing, the average workweek was 40.4 hours last year. Since 1980, it has never averaged more than 41.7 hours.

For service workers, the weeks are shorter. The average was 32.4 hours per week last year, perhaps pulled down by the prevalence of part-time workers. Wholesale trade workers put in more time on the job--37.8 hours on average. But retail trade workers at the Wal-Mart Stores (nyse: WMT - news - people ) of the world worked less: 30.9 hours. Even financial workers put in just 35.5 hours a week.

These numbers are, of course, all averages and do not capture the outliers who may work much more. They are also reported by employers, who may tend to understate hours worked, not employees, who are likely to overstate. But the overall trend, both in terms of the nature of employment and its duration, seems to be working against overtime pay, regardless of what the regulations say.

Home Loans Articles, Mortgage Loans Articles, Financial News