Factory Workers Losing Overtime to Cost Controls
Winter has always meant fat paychecks for Juan Carlos Gonzales. That’s the height of masa season at his local food processing job, where line workers can expect plenty of overtime preparing the rich, corn-based dough used in holiday tamales.
No longer. Saddled with rising costs and slowing sales, Gonzales’ employer, Industry-based El Burrito Mexican Food Products Inc., hired temporary employees to work the extra hours this season. Full-timers have been told the practice will continue year-round as part of management’s efforts to put a lid on overtime costs.
“I’m worried,” said Gonzales, a 38-year-old father of two. “My wife is already asking me why I’m not working as much.”
Factory overtime, a phenomenon that boosted workers’ paychecks and helped companies cope with labor shortages in boom times, is falling victim to the nation’s emerging economic slowdown.
Dwindling orders are prompting some manufacturers to lay off workers and slash the hours of those still on the payroll. New federal figures show that the average factory workweek fell from 41.2 hours in November to 40.4 hours in December--the lowest level in nearly five years. Likewise, average overtime logged by U.S. production workers fell three-tenths of a percentage point, to four hours a week in December. Factory hands haven’t worked so few overtime hours since the early 1990s.
Though Southern California’s industrial base largely has avoided the sudden downturn gripping the Rust Belt, some local industries are shedding jobs and feeling the overtime squeeze. In Los Angeles’ textile sector, for example, the average workweek has fallen a hefty 1.5 hours in the last year.
Some fear that the Southland’s huge base of factory workers, many of whom toil in low-wage industries such as apparel and food processing, will be disproportionately affected by a reduction in overtime.
“Workers have seen overtime for so many years that they almost feel entitled to it,” said Rene Castro, a representative of United Food and Commercial Workers Local 770 in Los Angeles.
For their part, factory owners who worked hard to retain good workers in a tight labor market are loath to yank a perk on which so many have come to depend. But slowing demand--coupled with California’s rising minimum wage, increased workers’ compensation premiums, eight-hour overtime rules and exploding energy prices--have blue-collar firms here scrambling to reduce costs that have ballooned almost overnight.
“We’re afraid of losing people, no question,” said Scott Edwards, vice president of a Vernon textile firm that eliminated overtime starting in November. “But there comes a point where you’re more afraid of losing your business.”
Workweek Was at a Postwar High
If the pattern holds, it will signal a turnaround in the way bosses are deploying their workers. Overtime has always increased with economic upticks and fallen in downturns. But the latest boom pushed the factory workweek to a seasonally adjusted 42.2 hours in April. That equals the peak for the nation’s unprecedented 10-year economic expansion and marks the highest level since World War II.
For some employers, overtime was a necessity in a tight labor market. Others were under pressure from top management or Wall Street to keep their staffs lean after the brutal layoffs of the last recession. So when business orders piled up this time around, extending the hours of the existing work force became a quick-and-dirty solution.
Though overtime has risen across much of the manufacturing base, the windfall hasn’t been evenly distributed. Increases have been relatively modest in sectors such as the apparel business, whereas heavy industries such as steelmaking and motor vehicle production saw sharp increases.
Indeed, automotive overtime hours soared so high in the 1990s, peaking at 7.6 hours a week in 1994, that the United Auto Workers repeatedly called on the Big Three auto makers to create more full-time jobs rather than extract more hours from existing line workers.
Experts such as William G. Sirois, a Boston-area consultant on overtime and shift-work issues, say excessive overtime has led to injuries, accidents, even deaths on factory floors--not to mention the risk to consumers if pooped workers churn out defective goods. Sirois contends that overtime remains at excessive levels.
The trouble is, working stiffs have become as addicted to it as have their bosses. Sirois said his firm has found that, at the typical manufacturing company, about 20% of the workers put in about 80% of the premium hours. For these hard-core overtime junkies, the time-and-a-half pay simply becomes too important to pass up.
“These folks make a pile of money” when overtime is bountiful, said Sirois, chief operating officer with Circadian Technologies.
That’s certainly true for highly skilled laborers such as precision machinists, some of whom have seen their annual pay smash the six-figure mark in recent years. Many a northern Michigan vacation home was built on an auto worker’s hefty overtime pay. But for workers such as Gonzales, who makes $7.75 an hour filling plastic containers with masa, guacamole and salsa, the overtime premium has provided a mere hint of the good life.
Extra Hours Yield Small Luxuries
Gonzales’ extra hours tramping around the damp shop floor in rubber boots, a stained smock and a hairnet have provided his family with small luxuries such as a color TV and a computer. He also sends money to relatives in Mexico and wants to save for a house.
A soft-spoken fellow whose tentative smile reveals front teeth crowned in silver, Gonzales says that dream will vanish if the overtime does. He already is considering taking another part-time job to make up for the lost hours.
Ditto for Ulises Gandarilla, a 25-year-old overtime addict who drives a forklift for Belkin Components, a maker of computer cables and accessories that employs nearly 700 people at its Compton headquarters.
The firm has grown so fast that hustling warehouse workers such as Gandarilla have racked up staggering amounts of overtime with their supervisors’ blessing. He proudly boasts of having once worked 120 overtime hours in a single two-week stretch. As recently as November, overtime pay routinely accounted for more than 40% of his typical paycheck.
But that was before Belkin sharply curtailed overtime in December. Though the firm’s revenue continues to expand at a healthy clip, founder Chet Pipkin said he can’t ignore sluggish PC sales and signs of a slowdown in the economy.
“Overtime had simply become a fact of life here,” Pipkin said. “We were paying it even when the order flow didn’t justify it.”
Reducing premium hours has become something of a mission for production manager Thomas Goei, who plucks an overtime report from his computer the moment he reaches his office. He scans time-clock summaries for evidence of employees punching in early to buy breakfast burritos at the lunch wagon, or for stragglers hanging around late waiting for their rides on company time.
“When you have as many employees as we do, 15 minutes here and 15 minutes there adds up,” Goei said. “We’re pretty nice about it. But employees have quickly gotten the message that things have changed.”
Beware the Trappings of OT
End result: Belkin chopped overtime by more than 60% in less than a month. The company would like to keep it that way.
It might seem paradoxical that overtime, which proved a cost-efficient way to boost production during peak periods, tops the list of targeted cutbacks. But employers say they’d rather shed hours than workers, who were tough to find in a tight job market. It’s also one of the few costs over which manufacturers have control.
That’s particularly relevant in California, where energy costs are spiraling out of sight, the state minimum wage just jumped 50 cents an hour, workers’ compensation rates have spiked dramatically and the time-and-a-half overtime rate kicks in after an eight-hour day instead of a 40-hour week like in most states. Meanwhile, many manufacturers lack the pricing power to pass along those increases to their customers.
Though slashing overtime can help shore up the bottom line, managers admit it takes a toll on employee morale. Frank Perez, general manager of El Burrito, said the grumbling around the holidays was hard to ignore as full-time employees responded to temporary workers getting the hours that once went to them. Perez said some approached him quietly, pleading that they needed a few overtime shifts to buy Christmas presents.
“You feel lousy,” Perez said. “It’s hard for them to understand why they’re going home while some new guy gets to stay.”
Not all workers are unhappy that the overtime gravy train is slowing. Raul Villagran, an assistant assembly supervisor at Belkin, says he’ll use his free time to take some classes and spend more time with his girlfriend. A few years ago, Villagran learned the hard way not to base his household budget on overtime. He was forced to take out a loan to pay for an expensive stereo after his extra hours got cut. Never again.
“Overtime is great,” he said. “But you can’t depend on it.”
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Shrinking Overtime Hours
The recent cooling of the national economy appears to have begun cutting sharply into the overtime hours of manufacturing workers. As recently as April, the average weekly overtime for production workers was 4.9 hours, the highest level in more than two years. But the figure for December, 4.0 hours, is the lowest in nearly eight years.
*
Averagely Week Overtime Hours for Production Workers
December*: 4.0
*Preliminary figures subject to revision
Source: U.S. Bureau of Labor Statistics
