Obama's overtime proposal becomes new flashpoint in America's slow wage comeback

Ryan Rosenthal opened a healthy-choice sandwich and snack shop in a Minneapolis skyway last fall and now works 60 hours a week with nobody guaranteeing his paycheck but himself.

The shop, called Simpls, has no manager, but Rosenthal hopes to hire one in the future. When he does, he said he'll offer a salary, but likely will have to ask the person to work more than 40 hours a week.

"It's a dilemma because everyone in restaurants is competing," Rosenthal said. "It's hard to push those hours down."

Today, President Obama will visit La Crosse, Wis., to make the case that the federal government should require employers to pay overtime to all salaried workers who earn less than $50,000 per year.

The proposal is the latest salvo in the nation's broader debate about economic fairness, which intensified during the slow recovery from the 2009 recession. Only in the past year has U.S. joblessness dropped below pre-recession levels. Wage growth, meanwhile, has stagnated.

The change Obama is suggesting is designed to boost income for middle-class workers who work long hours with no hope of overtime. But just as with a minimum-wage increase, the change will add costs for businesses and its overall effect is unclear.

"We're living through a time where inequality has become quite severe," said Pete Ferderer, an economist at Macalester College. "There seems to be kind of an imbalance in power between capital and labor, particularly lower-skill labor, and so this is meant to address that."

Ferderer said that he's "ambivalent" about government interference in private dealings between employees and employers and that he believes the rules could disadvantage small, young companies trying to compete with larger firms.

Even so, he said now is as good a time as any for such a proposal, because the U.S. economy is stable and growing, companies are better prepared for the added cost, and evidence is growing that inequality of wage growth and wealth distribution has become a serious problem.

Federal rules now require businesses to pay time-and-a-half wages for any work over 40 hours to those earning a salary of less than $23,660. Obama has asked the U.S. Department of Labor to raise the threshold to $50,440, a level that, in purchasing power, would be equivalent to what the rule was for salaried American workers in the 1970s.

The White House estimates that 5 million Americans and 90,000 Minnesotans would benefit from the change.

The risk of the move is that companies will adjust to the higher cost it imposes by cutting expenses in other ways, possibly by hiring fewer people.

Jobs are a package deal with several types of compensation, including salary, bonuses, commissions, health insurance, retirement benefits, paid time off and overtime, said V.V. Chari, an economist at the University of Minnesota.

"If you force one part of that package to change, then other parts of the package will change," he said, adding that salaries, retirement packages and health care benefits could be put at risk.

He said companies also will face new costs from reporting requirements as the government enforces compliance with the rule.

"It's a very particular group, and it's possible that group will benefit in the short term, but not much," he said. "Overall, it's likely to be a small negative to the economy."

Business groups are already expressing criticism.

"The administration seems to be under the distorted impression that they can build the middle class by government mandate," said David French, a vice president for the National Retail Federation. "There simply isn't any magic pot of money that lets employers pay more just because the government says so."

The added income will be welcomed by front-line supervisors, however. Managers at four downtown Minneapolis establishments said they are glad that the president is addressing the issue and that they would like to be paid for their extra hours. None wanted to be identified publicly for fear of reprisal from their employer.

"That would be an interesting topic to hear Obama talk about," said a hotel manager who typically works 45 to 50 hours a week. "I love my job and I don't mind working more than I'm supposed to … but I would like to be compensated."

The Economic Policy Institute, a think tank backed partly by organized labor, argues that the change is long overdue because overtime rules have not kept up with inflation. In 1975, federal overtime protections covered 62 percent of salaried workers, the organization says. Today only 8 percent are covered.

Josh Petzel, an owner and manager at The Local, a bar on Nicollet Mall, said he has tried to get managers to work four 10-hour days per week to limit their long hours. But it's been difficult to keep all of the positions filled, and The Local hasn't gotten managers to accept four-day weeks.

Only a handful of his employees would be affected by Obama's proposed rule change, but for some businesses, he said, it could cost a lot of money.

"It doesn't come without consequences, but whether it has an adverse effect on businesses is yet to be determined," Petzel said.

At Simpls, Rosenthal said he feels caught between the value of healthy living — the concept behind the meals and snacks he sells — and the need to keep the business afloat. He said he wants his employees to live balanced lives.

"It's great to work toward better balance," Rosenthal said. "But you pay for it."

Adam Belz • 612-673-4405 Twitter: @adambelz