President Obama is ordering a federal rule change that would require business to pay overtime to more salaried workers. From The Washington Post:
White House officials declined to describe the proposal in detail, suggesting only that they were contemplating a change in the salary threshold that determines whether an employee receives overtime pay for working more than 40 hours a week. Under Labor Department regulations, salaried workers making more than $455 a week are not required to receive overtime pay. Administration officials suggested that the threshold should be raised to somewhere between $550 and $970.
First some context: the labor force participation rate continues to decline for workers in their prime. The share of American adults with a job has flat-lined at a depressed level. We are still some 4 million full-time jobs short of the prerecession level. The number of long-term unemployed continues to hover around 4 million. Real wages have been essentially flat since 2008. In short, the American labor market stinks.
Smart government policy should, ideally, unambiguously boost wages and job growth, right? The CBO say Obamacare will result in “2.5 million people…likely to reduce the amount of labor they choose to supply to some degree because of the ACA.” And Obama’s preferred minimum wage hike would reduce total employment by about 500,000 workers.” What will be the impact of the Obama overtime plan? Here’s what Chad Brooks, owner of eight Qdoba Mexican Grill franchise restaurants in the Pittsburgh area, told The Wall Street Journal:
“What we’ll probably end up doing is putting all of those managers on hourly rates and then not allowing them to work over 40 hours [a week], which means they’re going to take home less money,” he said, adding that managers now work 45 to 50 hours a week and earn between $30,000 and $45,000 a year. “If something goes wrong and your highest-paid employee makes time and a half, that could be devastating.”
And here Daniel Hamermesh, a University of Texas economics professor, told the WaPo:
“I would argue it’s a job-creation program,” Hamermesh said. “There’s no question it gives employers the incentive to cut the hours of some people. But if you do that, it increases the demand for more individuals, and that creates jobs.”
So Obama’s directive might mean less pay for some, but possibly create jobs for others in what is essentially a federal mandated work-share program. Just what is the net effect of the Obama wage floor? And let me add this: as the WSJ story notes, retail shops and other small businesses look to be most affected because they need salaried managers and shift supervisors to monitor “low-skilled workers in need of oversight.” These managers also fill in when these low-skill workers unexpectedly don’t show up for work. Does enhanced OT, then, make it more likely that business is a bit more likely to replace low-skill workers with machines? Tell me, CBO!
What I am pretty sure of is that a) federal wage subsidies are a far more efficient and less market distorting way to boost pay for low-income workers, b) it is odd to ask a small slice of businesses and their customers to deal with these labor market issues rather than America more broadly through government action, c) we need a broader jobs agenda, such as these ideas from AEI’s Mike Strain:
– take advantage of low interest rates to spend money on high-return infrastructure projects;
– rolling back oppressive occupation licensing requirements;
– reforming the federal disability-benefit system;
– admit more high-skill immigrants;
– give unemployed workers a modest cash bonus when they secure employment;
– pay jobless benefits monthly so workers who get a job at the beginning of a pay period could take in both unemployment compensation and a paycheck for that month;
– temporarily reduce or eliminate the capital-gains tax on new business investment;
– offer assistance to some long-term unemployed workers who want to start businesses;
– relocation subsidies to the long-term unemployed to finance a good chunk of the costs of moving to a different part of the country with a better labor market;