The Obama overtime plan seems kind of underwhelming

Image Credit: shutterstock

Image Credit: shutterstock

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;

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

35 thoughts on “The Obama overtime plan seems kind of underwhelming

  1. Some of your proposals makes sense; some don’t. Spending money on infrastructure is so obvious it’s only conservatives who are against it (not all of them!). Oppressive licensing requirements? Makes sense, but I’d like to see the numbers about how many jobs are being held up because of this.

    More high skill immigrants? HI-B visas? We don’t need more scientists and engineers. I’m in the engineering field and it’s pretty well saturated. Unless you’re talking importing billionaires, that proposal won’t create jobs.

  2. The government needs to stand aside and allow capitalism to bring us back to a robust economy. We need less government not more regulation. Regulation is about predetermining winners and losers. Since there is no evidence presented that current overtime pay regulations are somehow holding back the economy or perhaps a friend of a friend of an Obama regime official has a personal complaint, that change for the sake thereof, is required or even desirable.

  3. So let me see if I understand this, Mr. Hammermesh. If the University of Texas cut back your responsibilities and pay to hire more associate professors and teaching assistants, you’d think that was a good thing because it “creates jobs”? Really? Then the ultimate job creator would be if got to a one:one ratio of classes and professors? Why don’t you propose that to the U of T?

    • George Orwell said it best:

      “There are some ideas so absurd that only an intellectual could believe them.”

      This administration seems wedded to the proposition that jobs become more plentiful by making it more expensive for employers to hire. We’re supposed to take any of these things seriously?

      • Their underlying faulty premises are that companies & businesses exist to provide jobs, and that companies don’t respond to cost incentives.

        It would be absolutely hilarious, if the problem weren’t already so serious.

        • The underlying fallacy is that an enterprise dedicated solely to profit will not exploit investors, workers and consumers in a competitive race to the lowest common denominator.

          Or as Alan Greenspan said of the banks’ and Wall St.’s stampede into mortgage-backed crap: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

          • Make that xxx dedicated solely to short-term profits xxx

            Once upon a time, the director of the First National Bank of Opossum MD were smart enough not to sh*t where they eat.

          • Do you object when customers dedicated solely to minimizing their costs exploit businesses in a competitive race to the lowest price for what they’re buying?

          • “Do you object when customers dedicated solely to minimizing their costs exploit businesses in a competitive race to the lowest price for what they’re buying?”

            Well, I thought that ‘s how free enterprise works, but the answer is depends. Price is only half of the value proposition, and quality of service is a big piece of the second half. (Hint: The customer is always right.)

            ” please explain ‘competitive race to the lowest common denominator.’ ”

            How about an example? The world was introduced to slamming shortly after long-distance telephone service was deregulated in the ’80s. That’s when Grandma says no but that wily salesman puts in the paperwork to switch her anyway. States started to keep logs on which carriers were generating the most slams. Fast forward a couple years and the winner was … AT&T! The former monopolist hired contractors to do the slamming but the point was clear. If getting down and dirty was what it takes….

            Someone has to set minimum standards. Why is it do you suppose that “salaried” workers who make less than $455/wk must be paid overtime? Could it be to prevent a massive, exploitative switch?

          • Your example is unclear and poor, Turd.

            Are you asserting that consumers (your hapless fictional “grandma” is exhausted from your constant browbeating) were worse off with choice and being “slammed,” and better off without choice?

            You also fail to take into account the price effects of deregulation, airlines being the best example. Ticket prices and service improved dramatically. There are many more examples.

            Someone has to set minimum standards.

            Ah yes, the omnipresent and omniscient “someone” backstop of leftists. It’s ok Turd, you can just go say it – government. We know what you mean.

            So you believe government should set minimum standards for pretty much every industry, everywhere in the country and economy.

            Interesting. We have a lot of that already, along with armies of regulators. Unemployment is 14% and the economy is stalled.

            Have you ever considered the fact that 1) your belief is wrong, and 2) causing the problems you so desperately wish to solve?

            Could it be to prevent a massive, exploitative switch?

            Why do you believe these people are being “exploited?” You need to define the term. And what makes you think government doesn’t exploit people?

          • How exactly can I be exploited? My compensation and time devoted to earn it are either acceptable to me or not. Are you saying that someone who works 50 hours or so a week for $1000 can’t figure out that they’re getting $20/hour?

          • Well, Seattle Sam, some years it’s chicken for workers and some years it is feathers. At the moment, absent a better job offer, it’s feathers. Kinda in line with the wingnut too-lazy-to-work trope. Takes a job offer.

            Ummm Mesa. Choice only works if Grandma gets to make it. Who is to say she is being slammed to a better LD carrier?

          • Choice only works if Grandma gets to make it.

            Ummm Turd, she didn’t get any choice under Ma Bell, did she?

            Who is to say she is being slammed to a better LD carrier?

            Nobody. Slamming was wrong, and she could switch.

            Who are you to decide she’s better off with government monopoly?

          • Look Mesa. You asked how a competitive race to the lowest common denominator works. I showed with one example among many. (What’s in your hot dog vs what COULD be is another.) Now you want to change the subject to deregulation. I’m thinking we’d devolve to the subject of Marvel comicbooks before you can hold your own, so thanks but no thanks.

          • No, you didn’t Turd. You gave an uneconomic opinion, based on nothing other than your personal preference. This is what we refer to in economics as “utility.”

            This is an economics blog, and if you cannot economically defend your arbitrary assertions, I shall have to ask you to stay.

            Because you are an increasingly easy target.

          • The first law of economics. For every economic theory, there is an equal and opposite theory.
            The second law of economics. They are both wrong.

          • Turd, please.

            The economist joke is, on one hand, and on the other…..etc.

            Newtonian mechanics has nothing to do whatsoever with economics.

            You would have been slightly witty had you suggested Heisenberg uncertainty with parallel universes and 3 hands, but FAIL.

          • The Austrian school walked ten paces from the barn, turned, shouldered their muskets and …. Mises, Dummkopfs! Nottink but Mises.

          • Ja,und wer haben zwei grosse buben.

            Habst du eighentlich etwas important zu sagen, oashloch? Oder die gleiche scheisse?

          • Make that “kapitalisieren” among your many other misspellings. Mesa: poorly schooled in two languages.

          • I had the strangest dream last night that Turd went full Eurotard and started criticizing spelling in a language he doesn’t even speak.

            Oh, wait….

            Turd, you’re a moron in any language.

          • Mesa’s father: “You took my money for tuition from me and then used it to party?
            Mesa: Hey, you increased the money supply and I misallocated it.

          • Turd’s whore wife: Honey, did you get the foodstamps yet?

            Turd: No, dear, the kids blew it all on drugs before we got to the car.

          • Guess you whore wife will have to go sell herself some more to make up for the shortfall, Turd.

            Geriatric call girl can’t be a real big market, though. How do you survive?

          • Cribbed this from Wild Weasel on Reddit. Changed the name to impune the judgment of a certain dogmatist on this thread.

            “Mesa was walking home one evening and came upon a clearly depressed man standing at the edge of a bridge, looking like he was about to jump. I called out to him to wait, and ran over to see what was the matter.
            “It’s this country,” he lamented. “It’s falling into ruin and there’s nothing I can do about it. The election was the last straw. I don’t want to live on this planet anymore.”
            “Man you are so right,” Mesa said. “Say, are you a conservative, or a libertarian?”
            “A libertarian,” he said.
            “That’s great!” Mesa said. “See, you’re not alone. Are you a free-market libertarian or a libertarian socialist?”
            “Free-market libertarian,” he said.
            “Me too!” Mesa said. “Paleo-libertarian or neo-libertarian?”
            “Paleo-libertarian,” he said.
            “Hey, so am I!” Mesa said. “Chicago or Austrian school of economics?”
            “Austrian,” he said.
            “Me too. Hayek or Rothbardian strand?”
            “Rothbardian,” he said.
            “Same here,” Mesa said. “Are you a consequentialist or deontological libertarian?”
            “Consequentialist,” he said.
            So Mesa said, “Die, statist scum!” and pushed him off the bridge.

  4. Poor todd, he doesn’t have the slightest idea of what is going on in the real world…

    The Obama overtime plan seems kind of underwhelming“…

    Well Jimbo doesn’t also strike you that Obama’s attempt at minipulating wages by decree as more than a bit illegal?

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