President Obama wants to raise the federal minimum pay for salaried executives from $24,000 to $52,000. His proposal is below.
As of this writing, the video has only 12,000 views. Perhaps because it’s a complex issue. So let’s try and break it down and understand what this could mean for you and the economy.
In the eyes of the federal government, there are two types of employee.
- Hourly: lower skilled workers paid on an hourly basis with overtime.
- Salaried: skilled professionals or managers with a stake in the business. Read about the qualifications for salaried work here.
For instance, at a car factory, the employees working the machinery on the floor are typically paid hourly, working “on the clock.” Their supervisor is often “off the clock” and doesn’t report hours.
Hourly employees are blue collar. They usually perform specific, rote tasks and don’t have a lot of say in the company’s operation. In return, the employee is guaranteed an hourly wage and overtime pay for every minute worked.
The salaried employee works with greater autonomy and control of their financial density. They’re white collar. In return, they have a guaranteed salary, no matter how much or how little they work.
The minimum federal weekly salary for a salaried employee is $455 a week, raised from $250 in 2004 by George W. Bush (which, if adjusted for inflation, would be $553 today). But many states have their own laws. In my state, New York, the minimum is $600 a week. Obama now wants to raise that to $1,000 a week for the whole country.
Is a raise in minimum salary good for you, the economy and the country?
OBAMA’S PERSPECTIVE: THE FEDERAL GOVERNMENT NEEDS TO HELP THE AVERAGE WORKER AND IN DOING SO IT WILL MAKE US A STRONGER COUNTRY.
Obama explains his truth on the matter:
We’ve got to build an economy that works for everybody, not just a fortunate few. We know from our history that our economy grows best from the middle out, when growth is more widely shared. So we’ve got to restore opportunity for all – the idea that with hard work and responsibility, you can get ahead.
This philosophy is supported by empirical evidence from The Economic Policy Institute, a progressive think tank, who in a recent study concluded “the vast majority of U.S. workers—including white-collar and blue-collar workers and those with and without a college degree—have endured more than a decade of wage stagnation.” Moreover, corporate profits are at an all time high. To stop this wealth inequality, Obama holds, the federal government should intervene and force companies to share their wealth with their employees. This will create happier, more productive workers and increase the United States’ productivity. Additionally, if mid-level workers are making more money and increasing their savings, they might be more empowered in the future to quit their jobs and start their own businesses. Greater wealth distribution from the top-down means a greater, stronger people and country.
DARWIN’S PERSPECTIVE: WE’RE IN A HYPER-MERITOCRACY NOW AND ARTIFICIAL INFLATIONS WILL DO MORE HARM THAN GOOD.
Obama’s policy might be too conservative. He asks Americans to look to “our history” for economic renewal and to “restore” an old way of life. Some question wheather that’s even possible in our current technological landscape. Tyler Cowen, a moderate libertarian and economics professor at George Mason University, notes that 60% of the jobs lost in the recession were “mid-wage” occupations, while 73% of the jobs created after the recession were for lower-wage occupations—jobs that paid $13.52 an hour or less. From these stats and others, Cowen concludes:
Demand is rising for low-pay, low-skill jobs, and it is rising for high-pay, high-skill jobs, including tech and managerial jobs, but pay is not rising for the jobs in between…. There is no point in employing another assistant. It’s the manager who is the scarce input, and that is one way to think about why managerial salaries have been going up so much.
Cowen’s point in simple language: progressive technology has taken us into an era where average workers aren’t necessary. Machines do their jobs now. The small, cognitive elite runs the show on autopilot. Artificial inflations like redefining the salary of an exempt executive employee won’t help the middle class. It will just make mobility harder and make average workers less desirable to employers.
MY PERSONAL OPINION?
I definitely see some positives to increasing the minimum salary.
- It makes it harder for companies to abuse exempt employees. Fast food restaurants, retail stores—any operation involved in physical labor— seem to abuse employee exemptions and this could fix the problem here.
- It helps empower certain middle class workers, particularly those who have worked a long time at major corporations without a raise.
- It provides the government with more taxable income to reduce the deficit.
Yet, I’m skeptical of how this empowers employees with technical, creative, or business backgrounds.
Imagine a small company. This company has 15 workers. These 15 workers are broken into three tiers.
- 5 are computer scientists with advanced math and science degrees and many years of professional experience. They make around $80,000 a year and are salaried employees.
- 5 are junior analysts with moderate skills, some experience, and a lot of promise. On average, they make about 40k annually and are all salaried.
- 5 are basic operators paid a small hourly wage.
How would the company respond to this law?
Managing overtime isn’t easy—it’s an awful grey area, particularly for mid-level workers on computers. Do I have to clock out at lunch? What about when I’m eating at my desk? How about the 20 minutes I spent chatting with my friend on Gchat? Or researching something vaguely related to my job? What about when I’m at work but reading Facebook? Or that occasional phone call with my boss to quickly clear something up just after I’ve left the office? (Payroll companies do provide technology for workers to clock in to make this easier, but it’s burdensome, and the most effective ones allow a supervisor unlimited access to employees’ screens. Large corporations might do this. But small and mid-sized businesses will either just break the law, remove non-executive hires from their workforce, figure out harmful loopholes, or be forced to big brother their employees.)
Mid-level employees also often can’t execute tasks as fast as a more advanced and experienced employee. So, what do you do? You trim the fat. You fire the average workers. You promote your best junior analyst to an executive and make them exempt. Then you go poach more executive talent hires who are more experienced and can get the work done faster. And you outsource a lot. So our hypothetical company ends up looking like this:
- 7 executives making over 100k a year. (Pay the best people more, let the rest go.)
- No mid-level employees. But various agencies for outsourcing, or a lot of temporary workers on a project by project basis. Occasional poaching of people from those agencies who are good enough to become executives at the company.
- 8 cheap workers who specialize primarily in menial, dead-end tasks related to making the executive staff more efficient and productive. Essentially, personal assistants.
From here, we can identify four initial concerns with a minimum salary increase.
1. It encourages a corporate caste system and discourages mobility/mentorships in the workplace.
You’re either a highly proficient executive making a lot of money or a lowly wage slave. Where is the middle ground? What about the young people who need time to improve their skills? What if the company can’t subsidize their learning with time-and-a-half overtime pay? Or, for older people who want to switch careers? Top executives will be more insular and less willing to take risks. Why hire a cadre of employees who show potential when you could just hire one or two experts who don’t need managerial assistance to do what the company needs?
2. It supports centralization of power and hurts small and medium-size business.
Imagine that you’ve started a company. You’re making about $200,000 in revenue a year. You hire two people at a $35,000 salary. Because you’re a new company, you need these people to work 40, maybe even 50 hours a week. But you can’t afford to pay them overtime.
These two employees are not starving. They’re not even in poverty. They’re in on the ground level, though. They have the potential to rise and become top executive talent. A federal push to increase the salary for exempt executives could make this illegal. A law like this might hurt corporate profits, but it won’t lessen their power. It could even strengthen it by making it harder for small and mid-sized companies to take their own operations to the next level, compete with the large corporations, and affect change.
3. It rewards automation and outsourcing.
As employment law gets more complex, companies will be further incentivized to remove humans altogether from the workplace. Consider Facebook. Last year, they generated $7.872 billion in revenue with only 6,337 employees. How can a company with so much revenue have so few employees? In the new economy, for better or worse, technology and tech geniuses are everything. The average person is at best secondary. Additional labor laws, particularly on the middle class, just impel the smartest minds to further dedicate themselves finding ways to work with machines instead of humans, or just use mechanical turks.
4. It corrodes employee autonomy.
The future of work is about empowering employees, not controlling them. The best companies already do this. Think about Apple’s Bluesky program that allows employees time to work on their own passion projects. Or the lesser known 37 Signals or Auttomatic, where employees don’t have regular hours, or even scheduled time at a central office. Or even a giant like IBM, where 40% of their employees telework. This is the future of business and it’s about allowing employees to live their lives on their own time—not abide by some arbitrary 9-5 schedule. The future isn’t about clocking hours. It’s about increasing employee autonomy. Making it more difficult for employees to reach the threshold of salaried level discourages this freedom and makes companies into overlords that need to focus their energy on monitoring time instead of employee development and satisfaction.
Core Concern: this might kill the average worker.
The economy is run by a cognitive elite who knows how to manipulate machines. More top-down restrictions on employment incentivizes leaders to relentlessly find ways to create self-serve customer interactions that obliterate middle management completely. This is already happening at grocery stores with self check-out. It’s happening in the military with drones. It’s happening with website development with companies like Squarespace. It’s even happening in the writing world with the likes of YouTube, Kinja, Medium, and Thought Catalog—where instead of paying content creators, the focus is on building technology that sources content for free while only paying a few elite creators. And don’t forget Amazon and their mission to automate the whole retail sector.
What then will be accomplished by this law? It might make it harder for the average worker to become a salaried executive and it will likely encourage companies to invest more in technology and less in people.
This seems like a simple law. Aren’t these concerns a bit hypersensitive?
Small shifts can have huge consequences. This is one that will be felt by small and medium-size business all around the country. Complex, diverse, and nuanced realties can often be hidden behind simple rhetoric.
Obama’s strategy also seems be that of a fox, not a wolf. He hides his intentions, and quietly makes small changes that in due time add up to real change. Obama revealed this approach rather elegantly in an interview with The New Republic about how he got rid of “Don’t Ask Don’t Tell”:
There were advocates in the LGBT community who were furious at me, saying, “Why don’t you just sign with a pen ordering the Pentagon to do this?” And my argument was that we could build a coalition to get this done, that having the Pentagon on our side and having them work through that process so that they felt confident they could continue to carry out their missions effectively would make it last and make it work for the brave men and women, gays and lesbians, who were serving not just now but in the future. And the proof of the pudding here is that not only did we get the law passed, but it’s caused almost no controversy. It’s been almost thoroughly embraced, whereas had I just moved ahead with an executive order, there would have been a huge blowback that might have set back the cause for a long time.
This employment change has the potential to have an intense impact, even though it’s being presented as something very simple. Just like with the LGBT community and the Pentagon, the point is not to violently confront the core issue—but to silently institute a new regime structure with vagueness instead of transparency, to make moves so coy that they’re hard to criticize, because at the moment, they seem inconsequential.
Perhaps the law will incorporate the concerns above and be strategic in which industries it targets. Perhaps a lot of good can come from this and I didn’t stress the positive aspects of the legislation enough . But a federal readjustment of what it means to be an executive is something that needs to be approached with the precision of a scalpel, not the blunt force of an axe. I’m pessimistic of the ability of a massive bureaucracy to approach this with the attention necessary for positive economic change. But, I still have hope. That’s why I voted for Obama in the first place. So here’s to hoping.