Politics & Policy

An Unnecessary Overtime Reform

Last month it was the minimum wage, today it is overtime: The regulatory state is the gift that keeps on giving Barack Obama the opportunity to indulge his meddlesome tendencies. Tens of millions remain out of work, economic growth is anemic, his signature health-care law is such a dog’s breakfast of policy contradictions and wishful thinking that even he himself refuses to enforce it, and, though he has a sort of reverse Midas touch on matters economic, his adventures in micromanagement continue — this time as he seeks to overhaul overtime rules that are all of ten years past their last major overhaul.

The changes would make certain overtime-exempt employees, such as lower-level restaurant managers, eligible for overtime. Whether they would actually collect any overtime or be sent home at 39:59 each week is unknowable.

#ad#What is knowable is that there are two fundamental economic lessons that Barack Obama cannot seem to learn: One is that the federal government cannot command productive private-sector jobs into existence; the second is that the federal government cannot command higher total wages in private-sector jobs. As with the proposed minimum-wage hike — which would cost the economy 500,000 or more jobs — overtime rules beget economic tradeoffs. As the price of labor goes up, some businesses will simply hire fewer people or lay off current employees, seek ways to pass costs along to consumers or suppliers, or even eliminate certain business activities entirely if they become cost-prohibitive. The end result may or may not be higher total wages; it is as likely to be higher wages for some and unemployment for others. The president, a longtime practitioner of free-lunch economics in which the benefits are advertised and the costs ignored, has a moral duty to consider both sides of the equation. It may be that he simply cannot, but it is in any case clear that he will not.

With real economic growth under 2 percent, growth in employment and wages is difficult to achieve. In response, the president proposes to revise regulations issued under the 1938 Fair Labor Standards Act to make more workers eligible for overtime, apparently still operating under the Keynesian-lite hypothesis that giving a policy goose to wages will increase consumption and consequently growth. He might have consulted his own Bureau of Economic Analysis, which identifies as prominent among the causes of our slower economic growth “a deceleration in nonresidential fixed investment,” meaning that investors are not putting their money into factories, equipment, and other productive assets — a critical source of economic growth and those good-paying middle-class jobs that Washington is always going on about.

Here, the president’s proposal is doubly destructive: Factories need people to run them, and the president’s overtime rules will, if they work out the way he desires, make those workers more expensive. Perhaps more significant, the lack of a stable regulatory environment discourages investment — it is difficult to forecast costs if labor regulations are going to change every time President Obama sees a discouraging poll from Gallup.

Implicit in the president’s reasoning here is his familiar zero-sum class-warfare analysis. The financial markets have been doing well, and corporate profits are very strong, but employment and wages are stagnant or declining. If your thinking is sufficiently shallow, then using overtime rules to move a little bit out of the profits column and into the wages column seems like a practical solution, and possibly a moral one. But it ignores important economic realities: The people who are doing the worst and placing the largest drag on total wages are not full-time workers exempt from overtime rules — a relatively small population — but people who have no jobs or only part-time jobs. The president’s proposed overtime changes would probably make that situation worse rather than better, adding another disincentive to full-time employment on top of the very strong one created by his health-care law.

Regulations beget regulatory disputes, and there has been substantial litigation over the rules as they stand, fighting out such questions as who counts as a manager and what counts as work. The fear of being sued for back wages has caused employers to impose highly regimented and occasionally draconian rules on their workers, for instance by making it a mandatory firing offense to work on one’s lunchtime or another scheduled break. It should go without saying that a regulatory innovation that makes employer-employee relationships less flexible rather than more flexible is undesirable from both parties’ points of view. President Obama proposes to raise the bar of inflexibility, which means that prospective employees will have to prove to their employers that they are worth not only the wage but the hassle — and the latter is becoming a more important consideration every year. President Obama’s overtime proposal will almost certainly raise the wages of some of his law-school buddies, but to the typical worker it offers a coin-toss between a possible pay bump and possible unemployment.

The Editors — The Editors comprise the senior editorial staff of the National Review magazine and website.

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