President Obama is renewing his push for new overtime rules. The key change he wants is to raise the salary level at which “professional and managerial” workers can be exempted from overtime rules simply by being salaried rather than hourly workers. While this change would cause economic damage to many businesses, likely either leading to job losses or a reduction in full-time positions, if passed it will be uniquely painful to our nation’s capital.
Under current rules, so called “white collar” workers making over $23,000 per year can be paid a set salary rather than at an hourly rate, meaning they do not need to be paid overtime if they work more than eight hours per day or forty hours per week. That pay level was last adjusted in 2004 and in a growing number of locations would be below the minimum wage. Employers can treat workers making more than that as hourly and pay them overtime, but many businesses exempt many employees using the flexibility in the current law.
If President Obama gets the pay level at which workers can be treated as salaried and employers are not required to pay overtime raised to his desired level of $50,440, lots of restaurant, store, and factory supervisors will no longer be able to work over forty hours per week or shifts longer than eight hours without their employers having to pay overtime. Thousands of ordinary business would run up against the rules, for example, possibly preventing an ad company employee from pulling an all-nighter in search of the perfect pitch to make to a prospective client. While the swath of businesses and employees that will be impacted by this rule change is large, one American city will be particularly impacted by the change: Washington, D.C.
Perhaps, President Obama did not pay attention during the brief period he was Senator Obama (he was, after all, busy running for president for most of his partial term), but many Congressional staffers are paid less than $50,000 per year, yet exempted from the overtime rules due to their “professional” status. Yes, when Congress is in session, no staffer works only eight hours per day. Unless Congress exempts itself from the new rules, Congress is either going to be very short staffed or face a large increase in the cost of their office staffs.
Further, Washington, D.C. is home to a particularly large concentration of federal workers. One treasured perk these several hundred thousand employees enjoy is the ability to flex their work hours. In particular, many work schedules such as four ten-hour days in order to lessen the number of times they must experience the worst of DC’s rush hour traffic. Under the President’s proposal, all such workers who make less than $50,440 would most likely lose that privilege since the federal government will not want to pay them overtime (actually, it probably doesn’t care, but a Republican-controlled Congress won’t give them the money to pay overtime to all those employees).
The President seems to believe both that every employer is eager to exploit their workers and that workers are unable to understand the payment terms they are being offered and make a good decision about whether or not to accept the job given those terms. We are supposed to be a country that operates mostly through the mechanism of free markets. We already interfere in labor markets with the minimum wage and the current overtime rules. The only pressing reason for this change seems to be that the President thinks he looks good politically by regulating a transfer or income from business owners to workers.
Unfortunately, to the extent that workers do manage to collect higher pay thanks to the rule change (as opposed to employers finding ways to avoid overtime for these currently-exempt workers), the extra pay is more likely to come from customers than from employers. Since all those workers are also customers when they go out and spend their money, any gains realized will quickly evaporate in higher prices charged to cover the increased employee compensation costs.
It is one thing to interfere with a market when a market failure needs correcting (reasonable environmental regulations fall in this category). It is another to interfere with voluntary transactions that would strike the vast majority of workers as ordinary and beneficial for both sides. This proposal would force a one-size-fits-all policy onto an estimated ten million workers, many of whom like their jobs just fine the way they are. Employers, employees, and people who ever shop or eat out should all oppose this change since they all may be hurt by it. The gains here are political, not economic, and that makes it a terrible policy.
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