The Obama administration has issued a new regulatory fiat on overtime pay, requiring that time-and-a-half compensation be extended to almost all workers, including salaried managers and administrators, earning up to $47,476 — nearly twice the median individual wage. From that we may draw two conclusions: The first is that the law gives federal regulators too much independence in setting these rules without congressional actions; the second is that the Obama administration continues to make economic policy badly where it need not make it at all.
The new rule presents employers with a dilemma, but have no fear: Vice President Joe Biden assures us that “either way, the worker wins.” Biden reaches this conclusion because he believes, or at least pretends to believe, that employers have only two choices: Raise workers’ annual salaries or hourly wage above the $47,476 mark or pay employees time-and-a-half when they work more than 40 hours in any week. In reality, there are other options. For example, a fast-food franchise might hire two part-time employees for every full-time employee it might otherwise have hired, ensuring that the part-timers never get anywhere near 40 hours, much less an overtime-eligible 41st hour. Investing in automation to replace a $25,000-a-year order-taker might not be attractive, whereas making the same investment to replace a $47,476-a-year order-taker with some administrative responsibilities might. Another outcome, a very likely one, is employers adopting very rigid policies about working hours, as Walmart and similar firms long have done.
Another likely outcome is that salaried workers in entry-level management positions (such as assistant managers at restaurants) will be demoted to hourly workers, which will make it easier for their managers to keep track of their hours and stay within the limits of the law. Basic administrative tasks can be assigned to an hourly shift leader as easily as they can to a salaried assistant manager.
And employees who would be grateful for extra pay at the regular rate for additional hours worked? Too bad.
Our overtime system was designed for an industrial economy, not a service economy. Putting in a 50-hour week as a receptionist, a hotel manager, or a telephone customer-service desk is a different proposition from working a 50-hour week in a coal mine or on a Ford assembly line. (Indeed, if you’ve seen how many help-wanted ads there are for social-media operators, it must surely seem that a great deal of 21st-century work would not seem much like “work” at all in any other era.) That a single set of rules should cover both construction sites and Wendy’s is at odds with the diversity and the complexity of the modern American economy.
Our overtime system was designed for an industrial economy, not a service economy.
Progressives, normally so eager to consider the European example, should turn their eyes abroad. In Switzerland, for example, there is no national minimum wage, and there is no weekly threshold for mandatory overtime pay, practices instead varying from sector to sector, and also from region to region. In Australia and many other countries, there is a separate lower minimum wage and looser overtime rules for “junior workers,” meaning those 21 years of age and younger working mainly in service-industry jobs, and also for those apprenticing for higher-paying jobs. The United States applies one policy from Manhattan to Yeehaw Junction, one set of practices for commercial welders and commercial bankers. This is foolish and counterproductive, and a sterling example of the worst sort of one-size-fits-all progressive thinking.
#share#Congress has resisted the urge to radically raise the minimum wage; instead, states and localities have enacted their own higher minimum wages with varying degrees of intelligence and prudence. It may very well be that $15 an hour makes sense for New York and Los Angeles (though we doubt this) but it almost certainly is not the case that what’s appropriate there is appropriate in the rural Midwest. Overtime rules ought to be handled in roughly the same way: The federal government would do better to stand pat and let states and cities decide for themselves what makes sense. This is an occasion upon which the best advice is: Don’t just do something, stand there.
No one is well-served by having politicians trying to operate businesses by remote control from Washington.
Between the grievously misnamed Affordable Care Act and heavy regulations such as the new overtime rule, the Obama administration has created a number of very strong incentives to offer part-time rather than full-time employment. There are many reasons to prefer that young people and new workers work full-time rather than part time: They acquire skills more rapidly in full-time work, and investing 40 hours (or 50 hours) in a modest job provides some preparation for investing long hours in a more substantive job later in one’s career. And flexibility, including the flexibility to put in extra hours during busy periods in exchange for compensatory time off during slow periods (as is common under current practice), is an important virtue for workers in the 21st-century economy.
No one is well-served by having politicians trying to operate businesses by remote control from Washington — not business owners and investors, to be sure, but not employees, either, in that their prosperity and stability is bound up in some measure with that of their employers.
And, of course, the best cure for stagnant wages and poor terms of employment is a growing economy that demands a great deal of labor. The Obama administration hasn’t quite delivered on that, and regulatory overreach is a poor substitute for a genuinely thriving labor market.