Tag: Fair Labor Standards Act

Fixing the Problem They Created

What the what?

As the New York Times reported yesterday, President Obama intends to barge unilaterally into a hotly contested area of employment law by ordering the Department of Labor to develop regulations “to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as ‘executive or professional’ employees.” 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.”

Several thing to unpack here. First, as Olson points out, labor law is already a nightmare. The example he cites is that many business refuse to give cell phones to employees lest that be interpreted as an admission to working them after hours. If this regulation goes into place, employers will have to guess whether an employee is eligible or exempt from overtime, with thousands or millions of dollars in the balance. The change may hit small business hard and hit low-wage employees harder. Many businesses may get rid of “transition” jobs where people who work on an hourly basis can be tested out in salaried management positions.

Second, the ostensible reason for this is that employers are working employees harder these days, putting many on salary to avoid paying overtime and trying to squeeze every ounce of productivity out of them. But there’s a reason for that and it’s not because employers are evil. It is because hiring new employees has become very expensive. And the reason it has become expensive is because of Democratic pushes for mandated insurance, Democratic pushes for more extensive employer insurance, Democratic pushes for higher minimum wage, Democratic pushes for more more more more more. Even if this falls into place and millions of employee exemptions are rescinded, it may not result in wave of hires. Because overtime for a good employee is often worth more than the start-up costs of a new and untested one.

(Actually, I think the likely result of all of this stuff is going to be to push employers toward fewer employees and more contractors.)

This isn’t a constitutional issue, actually. The FLSA does give the executive the authority to decide the criteria for exemption from overtime. And maybe there’s a case to be made that the system is being abused (assuming you think it’s the government’s business to dictate labor conditions like this). But I’ll raise the same objection I did to the minimum wage: why would you hit businesses with this when unemployment is our nation’s biggest problem?

Quite simply because we have an Administration that doesn’t understand the Law of Unintended Consequences.