Obama Orders More Overtime

Mar 14 2014 @ 2:39pm

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The White House announced on Wednesday that Obama would raise the weekly wage cap on overtime pay:

Under current regulations, salaried employees making less than $455 a week must be paid overtime, a threshold set in 2005 by the Bush administration. In 1975 it was $250 per week, the equivalent of $970 in today’s dollars. The White House is not yet revealing its proposed new cap—which will be subject to public comment and will likely face strong opposition from the business community—or when it will kick in. But a White House official said the proposal will help “millions,” and offered up California and New York as models for the proposal. Those states have set thresholds of $640 per week and $600 per week (which will increase to $800 per week and $675 per week in 2016), respectively.

McArdle connects the overtime push to “The Politics of Crap Retail Jobs”:

These days, it seems that a lot more people are finding that these jobs in fast food or retail are “the best we can do”; it’s no longer housewives and teenagers looking for some extra income. Meanwhile, in many ways the work has gotten worse. Employers, themselves facing brutal competition, are using software packages to help them schedule workers in ways that maximize their profitability while maximizing inconvenience to employees. Hours are kept low to ensure that workers don’t qualify for overtime, much less benefits — and because the software requires employees to make available many more hours than they actually get, they often can’t even string together two part-time jobs to make a full-time income.

Meanwhile, the folks scheduling them are often people who would like to get a better job with more opportunity but can’t find one. They too feel trapped in jobs that don’t pay much but require too many hours for them to pick up a second shift somewhere else.

These workers may not be numerous enough to succeed in unionizing Wal-Mart. But they are numerous enough to make up a powerful political force.

Walter Olson points out that the executive order will have unintended consequences:

As with the expansion by decree of minimum wage law, it will be interpreted in some quarters as an undiluted boon to the employees it covers – their employers will either raise their pay or limit the hours they are expected to work, or both, and how could they be anything but happy about that? But as the piece quotes Cato’s Dan Mitchell as warning, “There’s no such thing as a free lunch… If they push through something to make a certain class of workers more expensive, something will happen to adjust.”

At Forbes, Daniel Fisher explains some of the mechanisms by which that will happen. It will probably become harder to retain exempt status, for example, for “management-plus” jobs, such as one where a shift manager is expected to fill in occasionally at the register during a cashier’s break. That will hit smaller establishments especially hard, while yanking away transitional positions by which ambitious hourly hires can cross over to management.

Morrissey agrees:

Right now, the exemption allows businesses to claim overtime exemption for people earning $455 a week or more (annual salary of $23,660)* just by asserting that any part of their duties is “executive” in nature. That’s a ridiculously low level, but businesses have structured their work forces on the basis of this regulation. No matter what level the White House chooses, it’s going to impact staffing decisions; the question is how bad it will get, and how many jobs end up going from full- to part-time in defense of potential unforecasted costs in smaller businesses especially.

Jared Bernstein addresses criticisms of the order:

[Y]ou hear the knee-jerk “job killer” response from the business lobby. But in this case, the logic doesn’t follow. If a currently ineligible salaried worker becomes eligible for overtime pay by dint of this change, her employer can easily avoid paying her the overtime premium by hiring a new worker at the “straight time” wage. And this happens to scratch another labor market itch we have right now: weak job creation. That’s why Dan Hamermesh, a highly respected labor economist who’s studied this issue for decades, said about the president’s proposal in an article in The Washington Post: “I would argue it’s a job-creation program.”

But this argument doesn’t impress Pethokoukis:

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? … [R]etail 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!

(Chart from Jared Bernstein)