Obama Is Taking One of the Boldest Economic Steps of His Presidency

Obama Is Taking One of the Boldest Economic Steps of His Presidency

Barack Obama is feeling good. 

Last week, Supreme Court decisions protecting the Affordable Care Act and legalizing same-sex marriage helped secure the president's legacy as one of the most effective liberal presidents in modern American history. Then he ended the week with a soaring eulogy honoring the fallen from the Charleston massacre, hailed by some as the defining rhetorical performance of his presidency. 

This week, he's keeping the momentum going: On Thursday, Obama will announce his plan to update a neglected rule on wages that would extend overtime pay to roughly 5 million Americans. 

What's the rule? Under current law in the U.S., an employer is not required to provide overtime pay — 1.5 times the regular rate for every hour worked beyond the 40-hour workweek — to salaried employees making more than $23,660.  

That threshold used to be much higher. In 1975, 62% of salaried workers were eligible for overtime pay under federal law, but today, about 8% are, according to the Economic Policy Institute. The rule has only been updated once since 1975, and it's not tied to inflation. The current salary threshold of $23,660 per year is less than the poverty threshold for a family of four. 

But Obama plans to more to boost the overtime threshold to more than two times higher than it currently stands. According to the Huffington Post, the administration plans on having the new cut-off to be around $50,400 a year. That will extend overtime benefits to nearly 5 million more Americans. And the rate will be indexed to inflation, meaning that it won't languish simply because future administrations choose to ignore updating the threshold. 

In a blog post for the Huffington Post on Monday, Obama wrote that the new rule will be "good for workers who want fair pay, and it's good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren't."

A big step: The $50,400 figure is higher than was anticipated by economic policy observers earlier this year. It's not quite as high as progressive billionaire Nick Hanauer called for — $69,000, to match the share of 1975 workers who received overtime (without taking into account demographic changes in the workforce) — but it's a significant improvement over the current threshold, which leaves millions of low-paid Americans without any compensation for being overworked.

"The new threshold will protect more workers from being taken advantage of by their employers, giving some higher pay for working overtime and others reduced hours without any reduction in pay," EPI's Ross Eisenbrey wrote of Obama's plan. "It will boost wages, which have been largely stagnant for the past 35 years, create hundreds of thousands of jobs and give more family time to millions of working parents." 

Obama can make the rule change without congressional approval, but it's quite likely that it will be challenged in the courts and in Congress during future legislative battles.