November 27, 2009
Overtime Creeps Back Before Jobs
Manufacturers Pay Extra to Spur Productivity as Uncertainty Makes Hiring Risky
By KRIS MAHER and TIMOTHY AEPPEL
CLEVELAND — Overtime is returning at many manufacturers, boosting workers’ battered wages and helping companies increase output during a period of uncertain growth. But the trend could prevent the improving economy from creating new jobs — at least for now.
Executives say boosting overtime is the most cost-effective way to handle tentative increases in demand as the nation emerges from a severe recession. Overtime enables companies to increase productivity to meet rising customer orders without adding fixed costs such as health-care benefits for new hires. If business suddenly slows, they can dial back hours without having to make costly layoffs.
And for workers who are still employed after an extended period of job cuts, reduced hours and unpaid furloughs, overtime offers a chance to catch up to their pre-recession income and pay off debt.
“Since overtime is more costly than straight time, there comes a point that it makes sense to take on new workers,” said Sophia Koropeckyj, managing director of Moody’s Economy.com. She notes that coming out of the recession earlier this decade, the machinery and fabricated-metals sectors began adding jobs 18 months after they started increasing overtime.
In October, the manufacturing sector shed 61,000 people, while those still employed were working more hours: Overtime increased 6.5% to 3.2 hours per week in October from September’s level of 3 hours and 14% from the 2.8 hours of overtime averaged in the second quarter.
“That’s still light compared to the norm,” said James Meil, an economist at Eaton Corp., a diversified manufacturer in Cleveland that turned to furloughs during the slump. Mr. Meil said overtime at manufacturers averaged as high as 4.6 hours a week during the most recent boom.
Executives also view overtime as a motivational tool, and say that if workers are eager for fatter paychecks from overtime, they will likely be more productive.
“So much of production is attitude. Just adding pockets of overtime when it’s appropriate tends to” improve workers’ attitudes, said Jack Schron, president of Jergens Inc., a 65-year-old family-owned machine shop that makes quick-release pins for everything from military machine-gun mounts to Nascar racing cars. The Cleveland company, which has a wall of framed pictures of employees with 25 years’ service, shed more than 25 of its 300 workers and axed overtime hours early in the downturn.
But to the relief of workers such as Dave Gibney, Jergens recently added overtime. Mr. Gibney, a 35-year-old machinist, started peppering his supervisor three times a day with requests for overtime in late August, when he saw orders reviving. Working the standard 40 hours a week, he had fallen behind on his monthly $875 mortgage payment. He is now up to between 42 and 47 hours a week.
“Eventually they’re going to hire new people. I just feel in the meantime, it’s better to pay a few good people a little extra,” he said.
About 10% of workers at Jergens receive overtime regularly now. “Right now you’re not seeing a huge number of jobs being added because we’re all going through this incremental growth,” Mr. Schron said.
Overtime helps provide a middle-class lifestyle for many hourly workers. Those with specialized skills, such as nurses, are often among the first to benefit from added hours because their jobs are difficult to assign to temporary workers.
JB Brown, president of Bremen Castings Inc. in Bremen, Ind., said it makes sense to have employees working 10% overtime for two months. After that, it is more cost effective to hire new people.
At this point, overtime still is most effective. “Our people are happy to work those hours, because it’s been a weak summer and spring,” Mr. Brown said. It is better for community relations, too. “Why would we want to hire somebody in a small community and then lay them off?”
Robin Hundt, 48, laid off a year ago from a motor-home factory, is working 50-hour weeks at Bremen. The overtime is crucial for Mr. Hundt, who built a home before losing his previous job, and has $1,500 monthly mortgage payments — a stretch on his Bremen base income of $25,000. “I talk to my supervisor for any overtime I can get,” he said. “Everybody wants to work as much as they can. They want to stockpile before something happens to them.”
Elsewhere, others are still hoping for overtime. Simon Brunstetter, a 50-year-old machinist at Jergens in Cleveland, is still working 40 hours, but pushing for more hours.
Mr. Brunstetter used to make $7,000 to $10,000 a year in overtime, a hefty premium on a $40,000 base pay and enough to help pay for trips to Hawaii and Alaska. Mr. Brunstetter said it may be “greedy” to want more hours when colleagues had been laid off. But with three children, including one in college, he said, “I’ve got to look after my family first.”