It's the wages, stupid

"I'm no economist," to paraphrase Republican presidential hopefuls. But even a casual reader knows that for 35-odd years the lion's share of economic growth has gone to the wealthiest, and that the trend has accelerated in the last decade.

We're told, e.g. by David Leonhardt, that arresting the trend and creating wage growth is a gigantic mystery, and that Democrats, ostensibly the party of the less-than-wealthy, can only nibble around the edges, as with middle class tax cuts. That is, get GDP growth out of near-neutral and wage pressure will rise.

Now cometh billionaire Nick Hanauer, this generation's class traitor extraordinaire, to call bullshit and place the spotlight squarely on labor law and deliberate policy choices that have eroded workers' leverage vs. owners.  His focus is on wages -- specifically, in the piece below, on overtime pay. You can extrapolate and imagine a party that focuses relentlessly on the rules governing pay and workplace rules. I'm quoting an extended chunk here because I want to add my drops to the ocean, i.e. get a few more people to read this:

So what’s changed since the 1960s and 1970s? Overtime pay, in part. Your parents got a lot of it, and you don’t. And it turns out that fair overtime standards are to the middle class what the minimum wage is to low-income workers: not everything, but an indispensable labor protection that is absolutely essential to creating a broad and thriving middle class.

In 1975, more than 65 percent of salaried American workers earned time-and-a-half pay for every hour worked over 40 hours a week. Not because capitalists back then were more generous, but because it was the law. It still is the law, except that the value of the threshold for overtime pay—the salary level at which employers are required to pay overtime—has been allowed to erode to less than the poverty line for a family of four today. Only workers earning an annual income of under $23,660 qualify for mandatory overtime. You know many people like that? Probably not. By 2013, just 11 percent of salaried workers qualified for overtime pay, according to a report published by the Economic Policy Institute. And so business owners like me have been able to make the other 89 percent of you work unlimited overtime hours for no additional pay at all.

In my defense, I’m only playing by the rules—rules written by and for wealthy capitalists like me. But the main point is this: These are rules that President Barack Obama has the power to change with the stroke of a pen, and with no prior congressional approval. The president could, on his own, restore federal overtime standards to where they were at their 1975 peak, covering the same 65 percent of salaried workers who were covered 40 years ago. If he did that, about 10.4 million Americans would suddenly be earning a lot more than they are now. Last March, Obama asked the Labor Department to update “outdated” regulations that mean, as the president put it in his memo, “millions of Americans lack the protections of overtime and even the right to the minimum wage.” But Obama was not specific about the changes he wanted to see.

So let me be specific. To get the country back to the same equitable standards we had in 1975, the Department of Labor would simply have to raise the overtime threshold to $69,000. In other words, if you earn $69,000 or less, the law would require that you be paid overtime when you worked more than 40 hours a week. That’s 10.4 million middle-class Americans with more money in their pockets or more time to spend with friends and family. And if corporate America didn’t want to pay you time and a half, it would need to hire hundreds of thousands of additional workers to pick up the slack—slashing the unemployment rate and forcing up wages.

The Obama administration could, on its own, go even further. Many millions of Americans are currently exempt from the overtime rules—teachers, federal employees, doctors, computer professionals, etc.—and corporate leaders are lobbying hard to expand “computer professional” to mean just about anybody who uses a computer. Which is almost everybody. But were the Labor Department instead to narrow these exemptions, millions more Americans would receive the overtime pay they deserve. Why, you might ask, are so many workers exempted from overtime? That’s a fair question. To be truthful, I have no earthly idea why. What I can tell you is that these exemptions work out very well for your employers.

Will the Democrats seize on these proposals to help the middle class fast? Nah:

It is my sense, based on my conversations with government officials, that the administration is buying the line from corporate lobbyists who are arguing that such rule changes would devastate their bottom lines, forcing them to lay off workers. You know, the old trickle-down gambit—if workers earn more money, it would be bad for business, the economy and workers. The Obama team, in other words, is buying into the same discredited theories that were used to erode the threshold in the first place. Officials will very likely raise the overtime threshold just enough to say they’re doing something, without actually doing much of anything for the middle class or our demand-starved economy at all.

“We capitalists will tell you that our increasing profits are the result of some complex economic force with the immutability and righteousness of divine law. But the truth is, it is simply a result of a difference in negotiating power. As in, we have it. And you don’t.”

But here’s a little secret from the corner office: The arguments that the corporate lobbyists are making—about how badly business will be hurt—just don’t add up. What is adding up instead are the trillions of dollars in corporate profits and stock gains that corporations have made over the same decades that your hours climbed and your wages fell. From 1950 to 1980, during the good old days of U.S. economic might—the era in which the Great American Middle Class was created—corporate profits averaged a healthy 6 percent of GDP. But since then, corporate profits have doubled to more than 12 percent of GDP.

So where have all the profits gone? Gone to corporate buybacks, everyone. I'll let you flip back to Hanauer for that part of the argument and stop pretending I have anything to add except "read this."

Call me naive, but I can't see anything that makes Hanauer's diagnosis and prescriptions unworkable, other than the most powerful lobbies on the planet (okay, that's a big one, but let's focus for a golden on the merits) and maybe pacing (perhaps you can't jolt wages too fast). I realize that global competitive pressures may have more to do with workers' lost leverage than Hanauer allows -- but not as much (I suspect) as we're led to think.

There's a reflex, usually a good one, to assume that dazzlingly simple policy prescriptions are too simple. Obviously increasing overtime won't fix our economic and social ills at a stroke. But focusing a party's heart and soul on rolling back the Reagan rollback of workers' rights might.

Even that may be too simple. I would like to hear what rigorous liberal economists such as Dean Baker and Brad De Long think of Hanauer's read on our economic ills and what to do about them.

P.S. From a somewhat different angle, Thomas Piketty avers that the U.S. sold its middle class birthright for a mess of Reaganite pottage

Related: Is the tax code the best route to attacking wage stagnation?