Hot on the heels of the Administration’s and the Democrat’s push to raise the minimum wage comes an announcement that rules regarding overtime pay will be changed. For those not familiar with the byzantine rules regarding overtime, employees who operate in a supervisory or managerial position can be dubbed “exempt,” i.e. not covered by a mandate that hours worked over 40 be paid at time-and-a-half if their salary doesn’t exceed a threshold. As of now, the report is that threshold will be increased substantially.
The political purpose (some would say the primary purpose) of these actions seems to be as a wedge issue for the upcoming mid-term elections. The Democratic Party is understandably and justifiably nervous that various factors, including the mess that is ObamaCare, a stagnant economy, and an electoral map that favors the Republican Party will lead to a loss of its majority in the Senate and loss of seats in the House. While the divided Congress has made it that much more difficult for Obama to pursue his agenda (though he’s working around that with his unilateral expansion of executive authority), a fully Republican Congress would be a real problem for Obama and the Dems. No longer would he have Harry Reid preventing votes on “uncomfortable” issues, meaning he’d have to wield his veto power a whole lot the final two years of his term if he wanted to hold fast to his agenda. This wouldn’t play well for the party in the 2016 elections, since the charge of obstructionism could easily shift from the GOP onto him and his party.
Set the short-term politics aside, though, and consider the purported purpose of these efforts to increase, via legislation, the compensation of lower-wage workers. This is one of the enduring themes of liberal politics – the use of government force to reduce income “inequality,” to ensure that the lowest-income workers aren’t exploited by employers and the corporate world. Yet the imposition of rules that are meant to get low-level workers better pay ignore two realities: that forcing wages to a level that isn’t market equilibrium harms economic growth by misallocating resources, and that rules changes have consequences. It is the latter that I will address herein.
Money doesn’t grow on trees (no, not even for a government that can print it), and the extra money to pay for these mandates must come from somewhere. Shallow thinkers and class warriors think that employers will simply reach a bit deeper into their overstuffed and bottomless pockets, but the presumption of these deep pockets ignores the basic realities of markets and competition. If employers in the aggregate had all this extra money lying around, it would certainly be used for productive purposes. Those who didn’t would lag the competition and eventually fade away. And, if employers were earning far more than they “needed” to warrant their remaining in business, competitors would undercut their prices and take market share. This is all basic economics, and anyone who isn’t willfully blind in support of an agenda recognizes it.
If a job that in a free market equilibrates at $5 an hour must be compensated at $8 an hour, employers will find a way to adjust their operations in response. Moreso, setting the wage for that low-skill job higher expands the available labor pool for that job. People who have enough work skills to land an $8 an hour market-wage job will compete for that lower skill job and crowd out some of those who would take the job at the $5 market wage. The Left ignores this particular bit of basic economics and dismisses the long list of studies that support the adverse effect minimum wage laws have on the employment of the unskilled, but dismissal doesn’t make the facts go away.
Similarly, setting overtime wage rules rather than letting the market sort them out can prompt employers to change the way they manage their workers. An extra element is introduced into scheduling, given the financial incentive to minimize the overtime hours worked. Balancing schedules rather than simply letting the more motivated or “hungry” work more hours is now in the best interest of an employer, and the only way a “hungry” employee can make up for this barrier to overtime is by being so obviously more productive than his co-workers that the employer sees overt and obvious benefit to granting that overtime instead of shifting the hours around. Given the nature of most lower-wage jobs, this can be a difficult sell. And, by expanding the pool of workers to whom the overtime rules apply, the government blocks a greater number of motivated workers from working extra hours.
If some of this sounds hypothetical, rest assured it is not. It is how I, as a small businessman, manage overtime hours, and it’s what I’ve heard from my peers as well. Of course, there are other responses motivated by such rules, including raising prices (something increasingly difficult to do without harming volume commensurately), automating some tasks and finding ways to get more productivity from fewer hours worked.
Actions have reactions, and in the case of the imposition of statist rules by politicians, the reactions are often adverse and unanticipated by the politicians. Not only will some workers, especially those with the weakest skills, be harmed by these rules, but many more will be precluded from working more than a government-mandated standard work week, even if they want to.
One of the core elements of the “American Dream” is upward economic mobility. This nation has been the destination for countless millions who sought to make better lives for themselves through hard work. The relative freedom to work, to, as the Protestant work ethic declares, “be left alone in their toil,” has been a hallmark of this nation for centuries. Yet as the size and scope of government grows, the freedom that people have to pursue their version of the American Dream fades. This latest bid to help workers is only the latest in a long list of government interferences and involvements that harm mobility, that lock people into a particular social stratum, and that discourage the ethic and mindset that built the nation.
Some think this is deliberate, that there is a secret Machiavellian plan unfolding that’s meant to lock people into a mindset of dependence and at an economic level that will guarantee their perpetual need for nanny government. It’s very tempting to come to that conclusion, but that would necessitate also concluding that statist politicians are very smart, very coordinated, and have a grand master scheme they’re unfolding over decades. The evidence is overwhelming, however, that most politicians are not all that smart (especially when it comes to such a long con), that they pander to whatever’s in vogue at the moment, that they’re enamored of making grand gestures (no matter how they turn out), and that they don’t think about much beyond the next election.
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