November 24, 2023
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New labor rules may create permanent underclass of businesses


Henry Dubroff

Henry Dubroff

America’s small business owners are a resilient group.

We’ve put up with increased regulation, the financial crisis, the credit crunch, unsound fiscal policy and political gridlock.
But since 2004, the total number of U.S. small businesses has been in decline – there have not been enough new business starts to replace companies that were sold or went out of business.

So, when the U.S. Department of Labor announced on May 18 that it was putting into place new rules about overtime that will impact thousands of small businesses, it caught my attention. The rules take effect Dec. 1 and will require most employers to pay overtime to workers earning less than $47,476 per year – whether or not they are managers or professionals. Today that figure is $23,660.

The practical result for many small businesses will be to increase salaries above that level or take a full time job and split it in two to avoid paying overtime.

Coming at a time when many businesses aren’t able to pass along the cost of a paperclip to customers, a question occurred to me. Are we on the verge of creating a permanent underclass of companies that just can’t get the traction required to grow and invest?

There is some evidence for this — the current recovery has been marked by sub-par economic growth despite a lot of new hiring. Low investment and poor productivity growth are big contributors to the slow recovery.

For lower- and middle-income families, average wages have actually been reduced.

Fortunately, I got to pose my question to the person who made the new rules. On May 20, Labor Secretary Tom Perez talked at the Society of American Business Editors and Writers’ annual conference. After his remarks, I asked him about the paradox of small business growth and the possibility of creating a permanent underclass of companies — perhaps as many as two million of them.

Absolutely not, he argued.

“Predictions of doom and gloom are just that,” he said, adding that the “rules were manipulated in 2004” to deny overtime pay to millions of people who deserved it. “Middle class jobs should pay middle class wages,” he said, arguing that the Bush administration’s rules, which classified exempt workers based on duties rather than strictly supervisory roles and declined to index pay levels to inflation, were unfair.

During the session, Perez advocated for a dramatically revamped workplace where enhanced childcare benefits and immigration reform create new opportunities. “Elections have consequences,” said Perez, who says he “loves his day job” and dismissed talk of a vice presidential nomination in a prospective Clinton administration.

But policy decisions have consequences, too. Support for small business has become a hallowed phrase like motherhood and apple pie. But, going strictly by the numbers, the last two administrations have not been able to break the cycle of declining numbers of small businesses, with real consequences to the economy.

Perhaps the idea of a permanent underclass of entrepreneurs is not so far fetched after all.

• Reach Editor Henry Dubroff at