President Barack Obama has plans to expand workers’ entitlement to overtime pay. The move may be good politics – putting Republicans in an awkward position and making nice with Democrats opposed to his free-trade agenda. But it isn’t going to do workers much good.
At the moment, salaried workers making more than $455 a week don’t qualify for mandatory overtime pay. The administration plans to raise the threshold – the level is discretionary – to $970. It says that roughly 5 million more workers will be entitled to time-and-a-half pay for any hours in excess of 40 a week.
There are two main problems. The first is that the change, according to economists who’ve advocated it, won’t do much to raise incomes. Employers will cut wage rates to keep their outlay fixed. “The costs of increased coverage would ultimately be borne by workers as employers set base wages taking expected overtime pay into account,” write Jared Bernstein, a former White House adviser, and Ross Eisenbrey of the Economic Policy Institute.
The good news, as Bernstein and Eisenbrey point out, is that if wage costs don’t rise, there’ll be no reduction in the demand for labor, so employment won’t suffer. The bad news is: Then what’s the point? After a careful reading of their 7,000- word paper, the answer to that question remains rather vague.
The policy’s real purpose, they suggest, is to reinforce the norm of a standard 40-hour week. Perhaps that is a valuable thing to do – though the benefit is less clear-cut than the wage increase Obama claims to be summoning by executive command. But this worthy advance in norms needs to be weighed against the costs, which is where the second problem arises.
The change imposes a new compliance burden(including the risk of litigation) on affected employers – a significant cost in its own right. Work schedules will have to be changed, job responsibilities altered. In addition, cuts in base wages aren’t the only way to avoid a higher payroll. Instead of hiring more people for 40-hour weeks, companies may employ more part-timers, or try to classify workers as contractors rather than employees – leaving them with fewer protections, not more.
All these adjustments, and the further interventions they’ll call forth, are a waste of resources. The steady accretion of regulatory burdens on employers has accelerated in recent years and is one of the things holding American enterprise back. Obama should be looking for ways to help businesses succeed, rather than for ways to distract them from that task.
Wage stagnation is a pressing issue. But it cannot be solved by White House fiat. Fiscal and monetary policies that restore full employment are crucial. Increasing the supply of well-educated workers, and promoting innovation and competitiveness will push up incomes, too.
Under the heading of “middle-class economics,” there’s a long list of smart measures the government can adopt to help working people prosper. Micromanaging the labor market isn’t on it.
