NCPA - National Center for Policy Analysis

Overtime Pay Would Have Little Impact on Poverty

November 25, 2014

The Department of Labor is planning to expand overtime pay to more salaried workers. While the proposal is aimed at combating poverty, Ben Gitis of the American Action Forum explains in a new study that the proposal would do little to improve the earnings of low-income workers.

Currently, overtime pay is available to hourly workers who work more than 40 hours per week and salaried workers earning up to $455 weekly. Gitis examines what would happen were the administration to raise overtime pay for those earning above $455 weekly, analyzing raises for salaried workers earning up to $1,050 per week. According to the report, granting overtime pay to more workers would do little to impact poverty:

  • Depending upon the salary that the Department of Labor chooses to extend overtime pay to, between 0.5 percent (in the case of granting overtime pay to workers earning $550 weekly) and 6.7 percent (if the DOL grants overtime to workers earning up to $1,050 weekly) of salaried workers would benefit from the rule.
  • Of those who will be affected by the extension of overtime pay, less than 1 percent are in poverty.
  • Between 69 percent and 91.2 percent of affected workers have incomes twice the poverty line.
  • Most salaried overtime workers are not the only earner in their family -- they are the second or even third earner.

Moreover, in addition to doing little to combat poverty, Gitis explains that expanding overtime pay will have negative effects on the labor market, as the employers forced to comply with the new regulations will have to find ways to make up for the increased labor costs. Gitis cites a 2003 study which found that expanding overtime coverage led employers to substitute part-time work for full-time work.

Source:  Ben Gitis, "Primer: Overtime Pay Regulation," American Action Forum, November 20, 2014. 


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