BOHANON & CUROTT: Overtime pay advocates, be careful what you wish for

Economic Analysis by Cecil Bohanon & Nick CurottTop congressional Democrats and the Trump administration don’t exactly see eye to eye about overtime regulations. But both sides are pushing to extend overtime pay to millions of Americans who aren’t currently eligible.

While this will burden millions of American businesses, the cost might seem worthwhile to promote labor earnings. Except workers probably stand to lose the most. The proposed changes won’t increase worker compensation but will effectively turn millions of salaried employees into hourly workers who no longer have the flexibility to control their own schedules.

Under the Fair Labor Standards Act, employees who work more than 40 hours a week earn time-and-a-half rates on hours above 40. But salaried workers who earn more than $23,660 are exempt, as are workers with sufficiently advanced job titles. This makes sense. These workers are paid to complete a job, not for hours worked.

Trump’s Labor Secretary Alex Acosta proposes to raise the salary exemption from $23,660 to $35,308 starting next year, making a million currently salaried workers eligible for overtime. The Restoring Overtime Pay Act, a bill recently introduced by Democratic legislators, would raise the limit to $51,064, making 4.6 million current workers eligible. Either proposal will harm workers.

Economic research finds employers respond to exposure to overtime costs primarily by lowering the base pay of salaried employees. Wages and employment conditions are largely competitive, meaning employees are paid based on the additional revenue they generate for the firm. Employers can’t endlessly absorb higher overtime costs and continue to make a profit. Instead, they lower base pay commensurately, re-establishing compensation that’s in line with labor productivity. Employers alternatively make labor-saving capital investments that substitute machines for workers.

A great advantage of being a salaried worker is the flexibility to work more than 40 hours some weeks and less than 40 hours other weeks. This gives the employee a way to balance work obligations with family commitments without forgoing pay. Typically, employers try to limit hours for workers who are eligible for overtime pay to 40 hours a week. Therefore, salaried workers who become eligible for overtime pay under the new rules will lose their autonomy to manage their own schedules.

Meanwhile, regulatory compliance costs rise for employers. State and local governments, not-for-profits, universities and other employers operating on tight budgets are squeezed hardest.

Don’t let politicians win your vote for championing anti-worker and anti-employer regulations just because they sound compassionate. The road to hell is paved with good intentions.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to [email protected]

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