The federal minimum wage set by the FLSA is currently $7.25 per hour, although in some states and cities it is considerably higher. For instance, in Connecticut and Illinois the minimum wage ($8.25 per hour) is almost 14 percent higher than the federal minimum wage, while in the state of Washington the minimum wage ($9.00 per hour) is 24 percent higher. Minimum wage legislation is controversial. Those in favor believe that it raises the standard of living for the poorest members of society. Those who oppose it argue that it results in higher levels of unemployment and poverty among low-skilled workers because it discourages firms from hiring and/or retaining workers. Opponents also claim that minimum wages encourage U.S. firms to open overseas plants in low-wage countries (such as Mexico and the Philippines), thereby creating more unemployment at home. This debate has not yet been resolved, probably because the minimum wage is set at a much lower level than most U.S. firms are willing to pay. However, the debate is being rekindled by a growing number of local governments passing “living wage” (wage needed to secure a decent standard of living) legislation that sets the minimum wage at a much higher level than the federal minimum of $7.25 per hour. For instance, the city of Santa Cruz, California, passed a requirement for public sector employers who contract or subcontract with the county to pay a “living wage” of $13.08 per hour, or $14.27 per hour if they do not provide benefits. At the time of this writing there is legislation pending in Congress to raise the minimum wage to $10.10 per hour minimum.

The FLSA requires that nonexempt employees be paid one and a half times the standard wage for each hour they work over 40 hours a week. This provision was intended to stimulate hiring by making it more costly to expand production using existing employees. In fact, however, many firms would rather pay overtime than incur the costs associated with hiring additional employees (recruitment, training, benefits, and so on).

The U.S. Department of Labor requires that employers guarantee overtime for workers who earn up to $23,600 a year, up from the ceiling of $8,660 established in 1975. The change covers manual laborers, other blue-collar workers, and managers who earn $23,660 per year or less, whether they are paid a salary or an hourly wage. Employers can exempt white-collar workers from overtime pay who make more than $23,660 per year if they do some “professional, administrative, or executive” duties or are “team leaders,” whether or not they supervise workers.77

Overtime can make a big difference in an employee’s paycheck, and it can also derail an organization’s cost-cutting efforts. Consider, for instance, the following story. Like many other state employees in California, prison nurse Nellie Larot was hit with furloughs that cut her annual salary: It dropped $10,000, to $92,000. But she more than made up for it by working extra shifts, raking in $177,512 in overtime, according to state records. Her total $270,000 in earnings the same year eclipsed the $225,000 paid to Matthew Cate, then-head of the entire California state prison system. Ex-Governor Arnold Schwarzenegger’s decision to furlough workers three days a month was made to save money. Ironically, to make up for these lost hours and maintain minimum service levels, many employees who are filling the gap are taking home paychecks fattened by overtime—more than $1 billion in a single year.78

Equal pay should not be confused with comparable worth, a much more stringent form of legislation enacted in some countries and used in a few public jurisdictions in the United States. Comparable worth calls for comparable pay for jobs that require comparable skills, effort, and responsibility and have comparable working conditions, even if the job content is different. For instance, if a company using the point-factor job-evaluation system we described earlier finds that the administrative assistant position (held mostly by women) receives the same number of points as the shift supervisor position (held mostly by men), comparable worth legislation would require paying employees in these jobs equally, even though they might be exercising very different skills and responsibilities.

The considerable controversy surrounding comparable worth legislation centers mainly on how it should be implemented rather than on its main goal of pay equity between the sexes. Supporters of comparable worth legislation favor using job-evaluation tools to advance pay equity, pointing out that many private firms already use this method to set wages. Opponents argue that job evaluations are inherently arbitrary and that they do not take sufficient account of jobs’ market value. For example, comparable worth proponents have often said that markets treat nurses unfairly because society links the profession to women’s unpaid nurturing role in the family. Despite all the problems with implementation, comparable worth is already being used in many countries, including Britain, Canada, and Australia.79

The OFCCP may evaluate compensation in an effort to monitor compliance with EEO. This agency has extensive powers because it may revoke federal government contracts from employers—a costly loss in revenue for many firms.

During the past 40 years, OFCCP has focused most of its efforts on the implementation of affirmative action plans (see Chapter 3). Recently, however, that emphasis seems to have shifted to more focused investigations of discrimination claims, sometimes involving groups who are not considered protected classes (see Chapter 3). For instance, recently more than 530 African American and Caucasian workers who were turned down for jobs with Tyson Refrigerated Processed Meats, Inc. in Vernon, Texas, recovered $560,000 in back pay and interest under a conciliation agreement the company signed with the OFCCP. Fifty-nine of the workers will receive job offers as laborer positions become available at the bacon-processing plant. “The Labor Department is committed to leveling the playing field for all workers,” said OFCCP director Patricia A. Shiu. “A company that profits from taxpayer dollars must not discriminate, period!” The settlement, known as a conciliation agreement, resolves an investigation by OFCCP into the facility’s hiring practices, which showed that African American and Caucasian job applicants were much less likely to be hired than similarly situated Hispanics applicants. As a federal contractor, Tyson is prohibited from discriminating against workers on the basis of gender, race, sex, religion, nationality, disability, or status as a protected veteran.80 Other recent cases where the OFCCP negotiated major settlements for past wage discrimination include Goodwill Industries, Bertucci Contracting Co. LLC, and shipping giant Federal Express.81