Wednesday's release of third-quarter wage data – a 3.1 percent gain over the past year – is encouraging, and perhaps a sign that American workers will finally enjoy a long overdue bump in their paychecks. However, more proactive steps are needed if we want to make up for decades of wage stagnation.
One proven approach is raising overtime pay.
Despite the nation reaching an unemployment rate not seen in almost five decades and employees being more productive than at any point in our nation's history, the typical worker takes home less money now than before Donald Trump took office. Corporate profits are soaring because of tax cuts, yet an astonishing 40 percent of Americans can't afford an unexpected $400 expense.
The cause of America's wage stagnation problem is clear: policymakers have failed to adopt proven measures to raise pay. That's why it was so significant that Amazon coupled its recent decision to raise its employees' wages with a commitment to support an increase in the federal minimum wage, which hasn't gone up in over nine years.
At the state and local level, there's reason to be optimistic about worker pay. On November 6, voters in states like Arkansas and Missouri and cities like Anaheim will consider ballot initiatives to raise local minimum wages. This is a vital course correction away from the trickle-down policies that have failed to spread corporate profits to average Americans.
However, raising the minimum wage on its own isn't enough. If we want to restore an economy that works for everyone, not just the wealthiest few, more needs to be done. One way to put the middle class back at the center of the economy is through overtime pay.
Typically, an employee who works more than 40 hours a week is entitled to time-and-a-half pay for any extra hours. The problem is that most managers aren't eligible for overtime pay. So, a lower-wage employee could be given some managerial responsibilities – for instance, opening the store in the morning – and be forced to work 60 or 70 hours a week without overtime pay. Even if she spent the rest of her day performing physical duties like stocking shelves or working a cash register, her quasi-managerial status would render her ineligible for overtime pay.
Right now, workers who earn over $23,660 a year could find themselves laboring more than 40 hours a week without earning overtime compensation. That's why the Obama Administration moved in 2016 to double the salary threshold from $23,660 to $47,476 under which all employees must receive overtime pay. Raising this threshold made 4 million more workers eligible for overtime pay. It's no wonder this policy been called "a minimum wage hike for the middle class."
With the typical salaried employee working 49 hours a week, this policy change would've provided a substantial uptick in paychecks. To be sure, some employers might've chosen to hire additional workers instead of paying overtime to existing staff. That's a good thing, because it creates job opportunities for more people. And for the employee who goes from working 60 hours a week to only 40 hours, she now has more time to attend her child's soccer game, pursue a favorite hobby, or give back to the community.
This was a sensible and long overdue policy change. But shortly after coming into office, Donald Trump pulled back the Obama overtime rule despite promising in his inauguration address to address the plight of "struggling families across the land." The effect of this reversal has been longer hours for workers and an estimated $1.2 billion in lost wages.
Currently, only 7 percent of full-time workers in the U.S. are covered by overtime protections, a significant drop from the 62 percent that were covered in the 1970s. While the Trump Administration dawdles on proposing a new federal overtime standard, states and companies have stepped in to fill the void.
In Pennsylvania, Gov. Tom Wolf is using his rulemaking authority to adopt the Obama overtime salary threshold and increase wages for nearly a half million workers in his state. This follows a similar regulatory process that is occurring in Washington state, as well as overtime pay increases already enacted in California and New York.
Overtime has become a big issue in the Ohio governor's race, with Democrat Rich Cordray attacking his Republican opponent, Attorney General Mike DeWine, for filing suit against the Obama overtime regulation, which would've benefitted over 327,000 Ohioans. And, despite the rollback of the Obama regulation, companies like Walmart and White Castle have gone ahead and implemented the higher overtime threshold.
There's never been a better time to provide a pay raise to America's middle class. After all, what good is a booming economy if employees are stuck at work late into the evenings or on weekends? And what kind of society requires the majority of people to put in more than 40 hours a week for no additional pay?
For nearly 100 years, there has been bipartisan agreement on the importance of overtime pay. With the failure of the Trump Administration to take action, it's encouraging that others are moving to revitalize the American middle class.
Chris Lu served as Deputy Secretary of Labor during the Obama Administration and is now a senior fellow at the University of Virginia Miller Center. You can follow him on Twitter at @ChrisLu44 .
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.
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