Obama's Overtime Gambit

For politicians, meddling in markets means never having to say you're sorry.

If you take an economics course, you may learn about the different events that can cause an increase in workers' pay. The demand for the product a worker makes may rise, causing the demand for workers to go up. The supply of workers may decline, causing employers to bid up wages to keep the ones they have.

But there's one event the textbooks don't cover: The president of the United States gives you a raise. Many workers will get news to the effect that he has done just that. But it's not as simple as it sounds.

Barack Obama thinks American companies are not paying their employees as much as they deserve. A White House fact sheet asserts that he intends to "make sure millions of workers are paid a fair wage for a hard day's work."

So he's proposed an increase in the minimum wage, which Congress is not likely to approve. He's also decided that more workers are entitled to time-and-a-half pay when they work overtime—a decision he can implement without legislation.

A 1938 law stipulates that hourly employees who put in more than 40 hours a week have to get a 50 percent premium for the additional hours. Under current rule, those making less than $455 a week are automatically covered, even if they are on salary. The president, however, plans to raise that threshold to expand the number of salaried workers who are guaranteed extra compensation.

Well, not quite guaranteed. The president can insist that workers putting in overtime get paid more. But he can't make employers provide overtime.

If a salaried employee who clocks 50 hours a week suddenly becomes eligible for extra pay for that extra 10 hours, the affected company can cut back those hours to avoid the boost. So there's no assurance that anyone will get more money out of this deal.

Some employees, it's safe to predict, will earn less. Why? Because they will lose their jobs. A worker who is worth employing for 50 hours a week at a salary of, say, $600 a week may not be worth employing for the same salary and 20 percent less work. The employer may eliminate the job because it costs the company more money than it provides in revenue.

From listening to Obama, you wouldn't know that no one is being forced to take these salaried positions. If a rational adult consents to work a certain number of hours for a certain amount of pay, why should the Labor Department veto the decision?

Currently, these workers can choose between hourly jobs that pay extra for overtime and salaried ones that don't—according to their preferences, the job's other features and their alternatives. Under Obama's order, they will have one choice and only one choice.

To cope with the mandated pay increase, companies can simply make sure no one works more than 40 hours a week, hiring more workers to divide up the existing work. That's why the change will actually increase the total number of jobs, says economist Daniel Hamermesh of the University of Texas at Austin, who favors it.

"I think it's a job-creation measure," he told me. But even Hamermesh says the total amount of work done will go down rather than up, because the measure raises the price of labor to employers.

It obviously does. First, more workers will qualify for overtime pay. Second, employers who prefer to avoid that extra cost will have to incur a different one—for recruiting, hiring, managing and providing benefits to the extra workers needed to cover the shortfall.

Economist Tim Kane of the Hoover Institution at Stanford University says the real choice companies will face is not about how to divide up the work among employees. "The tradeoff is not with different labor, it's with capital," he explains. When the government artificially raises pay, "workers at the margin get replaced with machines."

But Obama doesn't have to worry about being held accountable for the unwelcome consequences. The beneficiaries will be grateful to the president for his kind generosity. The victims, who will lose jobs or never be hired in the first place, will blame someone else.

That's why the move was irresistible to the White House. For politicians, meddling in markets means never having to say you're sorry.

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  • Rich||

    [Obama has proposed an increase in the minimum wage, which Congress is not likely to approve; but he can implement time-and-a-half overtime pay without legislation.]

    Gotta keep killing jobs *somehow*.

    /Captain Obvious

  • Pavlov's Cat||

    /Captain Obvious

    Captain Obvious has been around since at least the 1980s. Poor guy just can't get a promotion.

  • Acosmist||

    maybe he went from an Army O-3 to a Navy O-6?

  • Pavlov's Cat||

    Or maybe he's on permanent vacation (decades of administrative leave) from a California police department.

  • Mickey Rat||

    As Kirk said to Picard: Never let them promote you out of the captain's chair.

  • WTF||

    but he can implement time-and-a-half overtime pay without legislation

    Because that power is included exactly where in the constitution? Oh yeah, the FYTW clause.

  • timbo||

    FYTW should be on one of BO's effeminate propaganda slogans.

  • Pavlov's Cat||

    But he can't make employers provide overtime.

    Wanna bet? With this Supreme Court, they'll just declare it wasn't really the President who did it, say that it was a voluntary contractual decision and enforce the contract they just made up.

  • WTF||

    JohnnyRob likes your thinking and is taking notes.

  • Pavlov's Cat||

    Should I have put a /snear at the end?

  • Scarecrow Repair||

    /meow would have done the trick.

  • Number 2||

    You are all missing a point here. You are not exempt from overtime simply because you earn a salary in excess of $455 a week. That is only one requirement, but not the only requirement. You must also be doing the work of a true corporate executive, an administrator, or a professional employee like a doctor or lawyer. The $455 per week figure, like almost all of the FLSA, is a relic from the 1930s and 1940s. Since very, very few executives, administrators or professionals actually earn that little, if all Obama does is raise the salary threshold, it will be meaningless.

    In reality, he may seek to narrow the definition of an executive, administrator or professional so that more of these employees earn overtime. But how exactly do we lift people out of poverty and address "income inequality" -- Obama's purported goals -- by giving overtime pay to people already earning high-five-figure and six-figure salaries?

  • MJBinAL||

    You are not completely correct. The jobs you describe can indeed by salaried. But managers, with direct reporting employees, having the ability to hire and fire, are also eligible to be salaried..

    This includes retail, food service, and other small business. This is Obama's target.

  • Will4Freedom||

    As an hourly-paid contractor, I would sure love to make 1.5 for OT. Espeically on those weekend software releases.

    But what I would love more would be for the Government to get out of the way, get smaller and obey the Constitution.

    I would hope that THEN the Free Market would be allowed to grow and raise the pay of most people.

  • timbo||

    I'll bet that moron never took an economics class.

    The wage argument is so very elementary, only a dumbass Marxist like BO and his cohorts could possibly pervert it so badly.

    He is a retard.

  • G3||

    "To cope with the mandated pay increase, companies can simply make sure no one works more than 40 hours a week, hiring more workers to divide up the existing work. That's why the change will actually increase the total number of jobs, says economist Daniel Hamermesh of the University of Texas at Austin, who favors it."

    He is, of course, totally discounting the marginal costs associated with additional headcount. A more likely outcome will be that companies that can will move to a PEO model where they lease employees for as long as they need and leave the employment costs to someone else.

  • ||

    Laws, who need 'em. I got a phone and a pen, and I know how to use them.

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