Going It Alone

President Obama Takes on Income Inequality, Without Help

Facing an economic emergency when he first took office, President Barack Obama was inclined to give bankers and business leaders whatever room for maneuver they needed in order to restore growth. Now, five years into a recovery that has failed to help many of the workers and homeowners who suffered most from the fallout of the 2008 financial crisis, the president has turned his attention to income inequality. The shift in priorities is welcome, if also long overdue.

Since the recession ended, corporate profits have doubled and are now at record highs; meanwhile, the share of national income that is paid to workers has fallen to an all-time low. The financial industry, buoyed by the Federal Reserve, is back to its old opulent ways. Last year, Wall Street paid out $26.7 billion in bonuses—which, as former Labor Secretary Robert Reich has pointed out, is enough to double the pay of all full-time minimum-wage workers.

Of course, there’s a limit to what a president can do when the party in control of one house of Congress denies that income inequality is even a problem. The GOP’s obduracy on this issue has kept the federal government from adopting any policy that might increase the take-home pay of low-income workers. Despite overwhelming public support for raising the minimum wage, for example, House Republicans have dismissed the idea as a job-killer. Most economists disagree, but nowadays conservative politicians don’t seem to worry about what most economists think: whenever the “ivory tower” contradicts lobbyists for the “job creators,” the GOP ignores it. Happily, the president has found a few ways to address income inequality that don’t require congressional support. He recently issued an executive order raising the minimum wage for all federal contractors to $10.10 an hour. And now he has directed the Labor Department to make more U.S. workers eligible for overtime pay.

The principle of extra pay for extra work, established in law by the 1938 Fair Labor Standards Act, is today routinely sidestepped by employers. While anyone paid by the hour gets 1.5 times his or her base wage for overtime work, salaried workers who earn more than $455 a week are exempt from overtime pay as long as their employer classifies their jobs as executive, administrative, or professional. As a result, manual laborers who happen to supervise other manual laborers are being counted as executives, and employers are promoting workers to salaried “management” positions just so they can get away with paying them less while making them work longer hours.

The easiest way to correct this abuse would be to raise the income threshold. The current cap of $455 a week, or $23,660 a year, is below the poverty line for a family of four. Adjusted for inflation, the cap in 1975 was more than twice as high. This meant that most workers were guaranteed overtime pay no matter how their employer chose to describe their work. Today, only 12 percent of workers enjoy this guarantee.

The business community has responded to the president’s directive with predictable alarm. Republicans are miffed because he is taking full advantage of his executive powers. Having refused to cooperate with him for the past five years, they now respond with indignation whenever he acts without them. They argue that changes to the overtime rules are at best a distraction from high unemployment, at worst another job-killer. “If you don’t have a job, you don’t qualify for overtime. So what do you get out of it? You get nothing,” said House Speaker John Boehner. “The president’s policies are making it difficult for employers to expand employment. And until the president’s policies get out of the way, employers are going to continue to sit on their hands.”

In fact, more equitable overtime rules are likely to increase employment. As Jared Bernstein, the former chief economist to Vice President Joseph Biden, put it, “If a currently ineligible salaried worker becomes eligible for overtime pay by dint of this change, her employer can easily avoid paying her the overtime premium by hiring a new worker at the ‘straight time’ wage.” Once workers are properly compensated for their extra work, it may be cheaper for employers to hire three people to work forty hours a week than to pay two people to work sixty hours. But however employers respond—by paying better or hiring more—low-income workers will have more money to spend, and higher consumer demand will in turn lead to higher employment. In this case, as in most others, the demands of economic justice align with the conditions for a healthy economy. In a consumer economy like ours, high levels of inequality inhibit growth. As long as the Republicans refuse to acknowledge this, the president will have to go it alone, settling for policies that may slow the trend toward greater income inequality but won’t reverse it. Given the scale of the problem, these policies may seem like half-measures, but they’re better than noting—and much better than empty rhetoric.



Commenting Guidelines

It seems that too many of our President's fellow Democrats are afraid to express any opinion or support for the President's initiatives and proposals. Unless there is a groundswell of people willing to stick their necks out and even risk losing re-election, nothing will happen in the next years of his term of office. Just what the Establishment wants - gidlock and no change whatsoever.

As the editorial implies, there will be no significant impact upon income inequality in the U.S. until we change the tax structure.  Unfortunately, for various reasons, that idea is no more popular with Democrats than it is with Republicans.  

If we take this gridlock to its logical conclusion, and keep on marching toward a new Age of Robber Barons, the logical outcome would seem to be an eventual populist revolution of some sort.  We have come close at least twice during the 20th century, during the Great Depression and again during the Civil Rights Movement.  We were spared because of great leaders who arose in those times.  Is it safe to assume that it will happen again?

Or, is it preferable to use the orderly processes for change which our Constitution provides?  

At least, the churches can continue to raise the moral questions and try to persuade politicians to abandon gridlock for the sake of the country.


The editorial doesn't mention the one thing Republicans (lead by Paul Ryan) seem willing to consider: expanding the Earned Income Tax Credit for some people.  Though this may sound like a good idea, since it increases income for some in poverty, it's the wrong approach.  Increasing the minimum wage and fixing overtime rules require closer to living wages from the people who should pay them, employers.  Expanding EITC means that we either increase the deficit (how could you, Rep. Ryan??) or tax ALL of us more...since the Republicans are dead set against getting more taxes from only the wealthiest.  The President has shown some interest in the expanded EITC, but I hope that's only to call the Republican's bluff and/or to use it as part of a package including a higher minimum and updated overtime rules.

The Editors describe the major problem as "manual laborers who happen to supervise other manual laborers are being counted as executives, and employers are promoting workers to salaried 'management' positions just so they can get away with paying them less while making them work longer hours."

The President's approach may do some good (and may produce some unexpected adverse results, too) but misses the mark. A better approach to the problem described would be to use the considerable resources of the Department of Labor to enforce the existing laws. Specifically, any firm that fictionalizes a manual worker into the title of "manager" or Executive" to avoid overtime pay violates the clear wording of the FLSA. Why not find a few cases of this abuse, and prosecute them with much publicity? That process, with press releases and television news coverage, would spread empoyee awareness of the law's provisions, and ways to contact the Department of Labor to report violations.

The Editors do seem to doubt that true management work, which by its nature often requires flexible hours, differs from work that lends itself to a more "9 to 5" setting. In the latter, overtime, if needed, should properly be paid, and employers may indeed find it less expensive and a better fit, to hire "three hours to work forty hours per week than two workers at sixty hours per week." These situations (bona fide management or executive jobs vs manual workers) are not, as the Editors (and the Vice President) imply, interchangeable. The difference is real, and worth enforcing.