Saturday, August 10, 2013

The Overtime Loophole

Part 1 | Part 2 | Part 3

President Obama has been talking up the idea of raising the minimum wage. I would certainly support such a move. But until we require the minimum wage to always be a living wage, there's more work to do.

Author's Note: This is the last in a three-part series that began with Breaching the Social Contract and Lien Times for Startups.

“No one who works full-time
should have to live in poverty.”

President Barack Obama
in his State of the Union speech, February, 2013

People are having trouble making ends meet. There are signs of it all around, but it's not always spoken about. It's embarrassing, after all, and something people often just endure rather than talk about out loud. But shame gave way to outrage recently, and shy silence to loud cries of incredulity, when when McDonald's published a “Sample Monthly Budget”  (see excerpt at right).

What caught they eye of many was the unabashed acknowledgement, right up front, that McDonald's knows they are not paying enough for a person to live on, and that of course their employees will need a second job. That their pay is not a living wage was no surprise to anyone, but that McDonald's was willing to so casually acknowledge that fact was quite striking.

Not only that, but also striking was that the sample budget doesn't even mention obvious costs like food, clothing, and gasoline. And though it mentions health care, it seems to think $20/month is enough. That's not even a full copay for a doctor visit on most plans, much less a payment for the plan itself.

Curiously, the McDonald's 2012 annual report speaks proudly of its employees as part of its McFamily, and of their jobs as “a career.” I asked the all-knowing web what the difference was between a job and a career, and it referred me to Yahoo, which offered lots of talk about careers being things you build, things you work toward, or something that doesn't just pay the bills but is a passion. Merriam Webster defines career as “a profession for which one trains and which is undertaken as a permanent calling.” Hmmm. A permanent calling that doesn't pay enough to live. What could possibly go wrong?

In fairness, though, we probably owe McDonald's a thank you for publishing this budget. It doesn't show them to be much different than I'd imagine many other employers to be. It's just unusually honest and invites public discussion with a new degree of specificity. We don't have to guess what they're thinking. They've spelled things out.

For example, what leapt out at when I saw this budget, was that it acknowledges an ugly reality of modern employment that everyone probably knows about, but that gets far too little open discussion: that Big Business has found a pretty reliable way around overtime laws.

In the McDonald's budget, it's plain that they expect employees to work additional hours to break even. That's the reason for the second job. But just as obviously, they're not offering to let their employee work those hours at McDonald's. Why?

Is it that they're not open that many hours a week? No, McDonald's has a lot of interest in being open late. Is it that they want their employees to be well rested? Well, obviously not. The budget says the company expects their employees will be working long hours, just not for them. So it's not about more hours to rest up.

Antitrust laws notwithstanding, I imagine what's really going on is something like this: Suppose I have a company where I want to employ 100 workers at very little money for 80 hours without overtime. And suppose you do, too. That would violate employment laws and maybe also make a mess of various corporate policies. So I get an idea. I call up my friend Donald, who has a business similar to mine, and we get together to brainstorm about this problem:

Donald has an idea: “How about I cut my workers to 40 hours a week and you do the same? Then I'll hire your 100 workers, also for 40 hours, and you can do the same for me. We'll each now have 200 workers instead of 100, each working at 40 hours instead of 80 hours. Presto. Problem solved: We each get what we want, 8000 hours of work a week, but with no messy overtime for the employees.”

I'm skeptical this is what's intended, but Donald is insistent: “Nonsense,” he says of my concerns, “if they didn't want us to do this, they'd pass a law against it. Instead, they've created an economic incentive for us to do this. Congress must know it happens, so since they don't make a law against it, they must want us to do it.”

“But this Congress doesn't want to pass any laws,” I reply, still not convinced.

“Not my problem,” Donald responds. “I can't be running my business based on made-up constraints that my competitors aren't shackled by. It wouldn't be a fair fight.”

“But what's fair about cheating workers out of overtime?”

Donald scowls at me. “First, it's not cheating. And second, they signed up voluntarily. They could have gone elsewhere if they didn't like the deal you were offering.

“Like where? To your company? You'll offer them the same rotten deal that you suggest I offer. What if everyone does that trick you're suggesting?”

I don't know if a conversation like that ever happened. It might have. If it did, I'm sure there are no records. But, conversation or not, it seems clear to me that the companies engaged in this practice know they are doing it.

If the reason people were taking second jobs was to reach for something extra—not something they need to live, but something nonessential—that might be okay. But the McDonald's budget is a clear admission that these companies know that they aren't paying any kind of living wage. A claim to the contrary wouldn't pass the laugh test.

Employees have no real choice but to work overtime to break even. And since they have to do the overtime with another company, they won't get overtime pay. That's called an externality: These companies get the benefit, and the cost is someone else's problem—the employee's, to be exact. If the companies were paying time-and-a-half for that overtime work, the employee wouldn't have to work as many hours for the same money, or the employee would make more money for working so many hours. That seems the clear intent of the overtime law, even if not the letter of it. But the companies have found a way around it.

So what's to be done? To get the discussion onto something concrete, I suggest a tax. There being no employer to collect the extra money from, I suggest the government can pay it—up to the level of a living wage. Then the government can tax the employers to recover the cost. In that way it's also “revenue neutral” and the anti-tax folks should have nothing to object to.

If a worker is paid so little that he must work 80 hours for two employers, he's due 40 hours of half-time pay because he was only paid a straight wage, not time-and-a-half. At tax time, he gets a credit for the half-time pay. The government then taxes the two employers for their share of the cost, based on the number of hours each employed the worker and how much they paid him below a living wage. For every hour they underpaid him, a bit of tax is held in reserve to cover the very likely situation that he'll file for overtime.

None of this keeps an employer from offering overtime work directly and honestly with their own company. That would avoid the tax. Or they can just pay a living wage. That would avoid the tax, too. I'm not suggesting a tax because I'm fixed on taxing people. It's just a tool of last resort to make sure employers can't find a legal loopholes to hide from what should be their responsibility.

Let businesses find another way to make their money than on the backs of employees. Let them offer good products and services at prices that more fairly incorporate all legitimate costs of those products and services rather than hiding those costs by pushing them onto workers and society.

Author's Note: If you got value from this post, please “Share” it.

This third part of a 3-part series was originally published August 10, 2013 at Open Salon, where I wrote under my own name, Kent Pitman.

The other articles in this series are:
Breaching the Social Contract (part 1)
Lien Times for Startups (part 2)

Original graphic created from data obtained at

Tags (from Open Salon): monthly budget, budget, necessities, essentials, paying enough, overtime, forced overtime, unpaid overtime, overtime law, antitrust, antitrust law, collusion, tax, poverty, jobs, employment, mcdonald's, sample monthly budget, loophole, overtime loophole, second job, another job, extra job, make ends meet, making ends meet, business, taxation, politics, social contract, minimum wage, living wage, externality

Friday, August 9, 2013

Lien Times for Startups

Part 1 | Part 2 | Part 3

Author’s Note: It became clear after writing this article and seeing some of the comments that my use of the word “startup” had been misinterpreted. I had not meant to imply anything so narrowly specific as Wikipedia attributes to this term, but rather to speak generally about any newly formed business, however owned, funded, or organized, that has not yet achieved its targeted, financially self-sustaining state. I'll thank you here in advance for respecting my intent and not getting side-tracked by my arguably poor choice of words.

We hear all the time how with great risk should come great reward. It's used as a way of justifying the flow of dollars to the founders of a company after it succeeds. These courageous benefactors of society have put their heart and soul into the company at great personal risk to themselves and their families, and so when the profits come rolling in, they deserve to share handsomely in the spoils.

Well, isn't that also what the people living at less than a living wage are doing? In my recent article Breaching the Social Contract, I noted that since the minimum wage is not tied to a living wage, minimum wage workers run a daily personal deficit as they struggle to survive. There's risk in that as well. They've put themselves out to make the company successful. Shouldn't they share in those spoils, too?

I'd like to see all workers paid a living wage, not just a minimum wage, but when discussing that idea, I often hear the concern that companies might not be able to turn a profit if wages were required to be so “high.” Funny how seldom one hears that same concern as those same companies think about paying their CEOs millions. “Just a cost of doing business. We'll find a way—we'll have to,” they mutter with steadfast determination, just as our nation's best schools have taught them to do. No problem too difficult for American ingenuity—other than finding a way to treat our most vulnerable citizens with dignity, I mean.

But, okay, suppose we accept that as a premise for this discussion that we need to ease cash flow for startups. Founders of a company, even if they'll later be paid millions, often do take a lower salary in exchange for stock, so let's say it's acceptable for workers in the company to be paid a minimum wage that's below a living wage while the company is getting going.

Even so, the founders are getting delayed compensation for taking their lessened salary. Why not delayed compensation for workers who are taking less than a living wage? We could say that before a dime of profit can be enjoyed by a company's owners, all workers must be making a living wage. After all, if there is profit to be paid out, then by definition there is surplus. So no one can claim that there is no money available for paying a proper wage at last.

And since it's really obvious that employees earning below a living wage have been making the largest sacrifice, risking their very day-to-day survival, it seems to me they should have a priority claim on money that might otherwise be deemed surplus, or profit.

Traditionally, the founders of a company will negotiate profit-sharing details as they form a legal partnership arrangement, but lower-wage workers rarely have the kind of clout needed to participate in that, so they need force of government to require that they're treated equitably.

One way government could help would be to maintain not just an official minimum wage but an official living wage. Everyone would always have to pay at least the minimum wage, but the difference between the living wage and whatever lesser wage they were paying would become a sort of priority debt that the founders were accumulating as they brought their company toward profitability. They could continue to continue to carry this debt while the company got up and running, but all the while there would be a sort of lien against the future profits of the company by the workers who had worked at this startup rate.

It seems to me that the only businesses that would not be able to accept rules like this are ones that could never break even without an ongoing tax on their employees' very ability to survive. If that's how a company is profiting, such businesses shouldn't exist anyway. If the company is profiting in other ways, there's no reason all workers who contributed to that profit shouldn't share at least to the degree of having enough money to live. Once a company is alleging any form of profit, that doesn't seem an unreasonable demand.

And anyway, if the debt to the workers ends up being huge, it certainly calls into question the claim so often heard that all the risk was on the part of the founders. Workers who've made a major sacrifices certainly deserve not to be overlooked.

Think of the decision to pay workers below the living wage as coming with a cost—the requirement to make such people a kind of temporary partner. Or think of it like members of a cooperative, where special priority shares get purchased by working at these lower-than-reasonable wages. Using one of these ways of thinking, a low-wage worker might finally be able to see their sacrifice as investment, and the founders could feel better that they weren't exploiting their workers.

Of course, if a company continues to lose money, it might legitimately claim that it can only ever afford a minimum wage. Perhaps it would never be able to make good. But that's a risk the founders take as well. And it's unlikely anyone would form a company with the intent in mind of never making money. So everyone is motivated to make things work: The owners will still want to make money. They'll just have to do it on the basis of an honest surplus based on product or service value provided, without the externality of a subsidy imposed on employees too poor or otherwise disempowered to defend the importance of their own contribution.

The ultimate purpose of this would be to assure that a company had not just a moral but a legal responsibility, once profitable, to treat its workers fairly, paying them a living wage. It doesn't require that a company profit—that would require magic. But it just says that profit must never come at the expense of someone's living wage. And it acknowledges risk that has always been there but rarely if ever spoken of—the risk of the day-to-day survival of the company's least well-paid workers.

And, yes, it does occur to me that companies might do creative tricks involving bankruptcy or splitting the sale of assets and debts to wash themselves of this kind of lien. I think that could be legislated around. After all, no one thought it too complicated to write laws that keep human beings from eliminating their education debt. Where there's a will, there's a way. It's amazing how obstructionist the capitalists can be when they think they're about to lose an entitlement to free flow of cash at someone else's expense. But I think we as a society can do it anyway.

Don't worry. In spite of their protests, the capitalists won't find any particular set of rules so onerous that they lose interest in making money. And if they did, others would surely step forward to take their place. It'll just mean whoever's in the game will have to find different and more fair ways to make money. Nothing wrong with that.

Author's Note: If you got value from this post, please “Share” it.

This second part of a 3-part series was originally published August 9, 2013 at Open Salon, where I wrote under my own name, Kent Pitman.

The other articles in this series are:
Breaching the Social Contract (part 1)
The Overtime Loophole (part 3)

Tags (from Open Salon): profit sharing, profit, cooperative, co-op, coop, partner, duress, inequality of bargaining, bargaining, deficit, unemployment, employment, jobs, cycle of poverty, poverty, penalty, punishment, reward, success, failure, entrepreneurship, entrepreneur, wealthy, poor, rich, inequity, investment, living wage, minimum wage, reward, risk, startup, social contract, politics

Sunday, August 4, 2013

Breaching the Social Contract

Part 1 | Part 2 | Part 3

When discussing the really obscene amounts of money some rich folks have amassed in the world, the justification I always hear is: “It's their due. They are the ones taking the risk, so they should get the spoils.” I understand why they say that, but I still don't buy it. It's at best an oversimplification, and at worst just a clever lie designed to put a nice face on institutionalized inequity.

Of course, lie or not, I don't doubt that the rich believe the excuse. They need to believe this wealth is rightly earned through the risks they took. It soothes their conscience to believe that. So they repeat the excuse a lot, and they find after a while that they do believe it.

“They risked everything to get there,” say others, trying to vary the wording just a little. In this form, the parallel between “risk everything” and “get everything” makes it seem ever so fair, like a carefully balanced scale, with the same quantity on both sides: “risk everything, win everything.” What could be more obvious justice? Except the “everything” risked was only one's private fortune, if one even had one at the time—they may have had little to lose—and the “everything” to be won is a lot more.

The net worth of the Walton family, who inherited the Wal-Mart retail chain, was pegged earlier this year at $115.7 billion. I somehow doubt that they risked that much to get that much. Even the late brothers Bud and Sam Walton, who founded the company and I'm sure worked quite hard, still had human limits on what they could contribute. In present day, I'll bet the combined Walton family wealth exceeds the combined wealth of every one of their employees, probably every employee past and present. Did the family work harder than all of the other employess put together? That seems an unlikely truth.

If the rich really did have a way to take unbounded risk in exchange for unbounded reward, that might be a different matter. But bankruptcy laws generally place a bound on risk, preventing folks from having to pay back more than a certain amount in really extreme cases. This allows them to start over, sometimes even more than once. We coddle our rich in ways we don't our poor.

By “rich” here, of course I mean the class of folks that feel entitled to be rich, because even when they are without money, they are rarely without a whole social network who sees them as differently poor than those who were always poor, and who understand that these particular poor need to be made rich again before all is right.

Likewise, when I speak of the “poor” in this context, I mean those who are not similarly entitled to riches by virtue of birth or connection. Odd that these should be called the “entitlement class.” The reverse would seem more apt.

Poor folks often don't actually go bankrupt. They may just get stuck in a cycle of poverty that restricts their lives, but they may not have the luxury of time, money or knowledge to do a proper bankruptcy, or even know it's possible, so they never clear their debt.

In fact, we've done to this class of people something the rich would never tolerate: We've taken the primary longshot investment they could make that might raise them out of their poverty, education, and have written it into law that if this longshot fails, they may not clear their education debt. We would never do that to a rich person's longshot. And why? Because we want to encourage entrepreneurs, I'm told. But we don't want to encourage people to invest in education?

Closer to the truth, I fear, is that those people buying the lobbyists that write our policies are comfortable that their own kids are going to end up educated, and they really just can't find it within themselves to care about anyone else being educated. In fact, they'd probably rather we have a broad underclass of exploitable poor ready to work at junk jobs, since that offers a direct profit advantage to them. Right now they have to get their ultra-cheap labor from abroad, which means managing at a distance, dealing with foreign governments, and lots of transportation costs.

Just think of the Utopia the US would be for them if only they could achieve real poverty here at home. Once minimum wage is eliminated and overtime regulations are repealed, pay could drop to a level where the rich could afford to offer tons of jobs and get everyone to shut up about unemployment. A job for everyone—maybe two or three, actually, since the pay for any one of them would never be enough. Isn't that what the liberals have wanted? Jobs? Imagine the joy the conservatives would feel in being able to satisfy that request if allowed to do it on their own terms.

And when the rich do need a few educated folks to work for them, they can always import them from other countries. There are plenty who would love to come here, and they'll take lower wages than those in the US because they grew up in a part of the world where the cost of living and of getting an education was lower. In effect, we're now outsourcing education because many of the heirs apparent to our educated jobs have gotten their degrees elsewhere. The fact that the people who are thus educated may not be American citizens is a mere detail, irrelevant to the business. And anyway, a less-talked-about aspect of modern immigration reform is the desire to ease the path to citizenship for these people, so they'll be citizens soon enough.

And, hey, I'm not xenophobic. I don't mind people coming from the outside, especially if they're going to become citizens, commit to living here and invest in our society. But I do mind a great deal using that trend as an excuse not to educate those who are already citizens. Our first responsibility is to them. If education is too expensive or ineffective here, our priority should be to make it cheaper and more effective. We can't treat our existing citizens as expendable just because it's cheaper or easier to fill STEM jobs from the outside.

Now let me come back to risk, because we were talking about education as the big risk. An education is needed for a good job, but it's not a guarantee of a good job. There are lots of people with college degrees working at retail outlets and fast food places. So getting an education is actually a huge risk, and we've allowed Congress to eliminate bankruptcy protection for those whose investment utterly fails. When the money coming in from those low-paid jobs doesn't pay back the loans, there is no escape for them as there would be for the rich when their investments fail.

Nor is that the only risk. There's the day-to-day risk of not having enough food, health care, housing, heat or air conditioning, and so on. The sad truth is that the minimum wage, which many of these people make, is not a living wage. That's also true, by the way, for some making over the minimum wage—say, minimum wage plus a buck. They're still not breaking even either, but they just don't have a catchy title like “minimum wage worker” to describe their plight. They may even be made to feel guilty for not speaking appreciatively about being above the minimum. But really, they're all in the same boat until they're at the level of a living wage.

After all, the minimum wage doesn't measure anything related to anyone's ability to survive, so being above it doesn't really mean one is somehow surviving. It just measures, through its distance from a living wage, how much we as a public are willing to stand by and watch people sink before we finally decide to care. And whether a person works at minimum wage or barely above, if they're not making a living wage, they're still running a daily deficit. Yes, deficit. The “D” word. And although the Republican Congress worries a lot about deficits, they really only worry about public deficits, and only because they themselves might have to pay. They imagine these private deficits are the result of private choices, and they're well-practiced at chiding people about the need to take responsibility for their own actions.

Never mind that these others have taken responsibility. Many got an education. Most work every day. By and large, most folks do their part of what should be our social contract: Be a good citizen, improve yourself, contribute the skills and strength you have to the general good. That should be enough that society should treat you as one of its own without insulting you by suggesting in the end that you're asking for a handout or not taking responsibility. If anyone is not taking responsibility, it's Society. We asked these people to do these things. They did what they were asked and are now beaten up for it and told they must suffer.

Implicit in our request that people work full-time should be that they be given work that will support them. Implicit in our request that people educate themselves should be that we'll find something to do with that education. And if some jobs don't require education, let's not treat the people who go that path as if they've disappointed us. Society asks different things of different people, and we need to treat everyone who does their fair share with a certain baseline respect. We've got a ways to go on that.

Meanwhile, back in the real world, the poor are stuck in situations they didn't freely choose. As Adlai Stevenson once aptly summed it up, “A hungry man is not a free man.” In bargaining for a way to survive, there is huge inequality of bargaining power. That, in turn, makes a mockery of any notion that the poor really elect their fate, and calls into question whether it's their responsibility to fix a problems they didn't create.

As Adam Smith put it in his book The Wealth of Nations:

“It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”

It therefore falls to those of us who are not economically disempowered to speak in support of those who are, to acknowledge the legitimacy of their plight, and to stop insulting them by saying they should take responsibility for their actions. Of necessity, they take responsibility each and every day. They're not failing us. We're failing them. And it's time we took some responsibility.

Author's Note: If you got value from this post, please “Share” it.

This first part of a 3-part series was originally published August 4, 2013 at Open Salon, where I wrote under my own name, Kent Pitman.

The other articles in this series were:
Lien Times for Startups (part 2)
The Overtime Loophole (part 3)

The Adam Smith quote was borrowed from the Wikipedia entry, “Inequality of Bargaining Power.” It's quite a fascinating entry full of very instructive and powerfully-expressed quotations. If you have the time, I recommend that article as important reading.

Tags (from Open Salon): politics, social contract, bankruptcy, risk, reward, responsibility, entitlement, minimum wage, living wage, education, investment, inequity, walton, wal-mart, rich, poor, wealthy, class, entrepreneur, entrepreneurship, failure, success, reward, punishment, penalty, poverty, cycle of poverty, immigration, xenophobe, xenophobia, xenophobic, jobs, employment, unemployment, stem, college, degree, tuition, cost of education, deficit, congress, bargaining, inequality of bargaining, duress, adam smith, adlai stevenson