April 7, 2016

Working Overtime to Avoid the Truth

Donald J. Boudreaux

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics

Liya Palagashvili

Senior Research Fellow
Summary

The Labor Department isn’t being straight about the likely effect of adding people to the overtime rolls.

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Many salaried workers in the U.S. may soon be obliged to punch a time clock, thanks to the Labor Department’s proposed regulation raising the income level for workers to qualify for overtime. More overtime pay sounds great. But what Labor fails to mention—and its economists surely understand—is instead of paying more workers overtime, many companies will simply cut back their hours or lower their salaries. That’s not a story Labor is comfortable telling. So it doesn’t.

Currently, most salaried employees in the U.S. making more than $23,660 annually are exempt from the requirement that employers pay workers time-and-a-half for every hour over 40 hours weekly. But the Obama administration wants to raise the threshold for being exempt from government-mandated overtime pay to $50,440. This means that about five million more salaried workers will need to have their weekly work hours counted and documented—a requirement that can be practically fulfilled only if these workers “punch” time clocks. The Labor Department is expected to roll out the final version of this regulation in July.

Among the perks of a salaried job are greater job security, a consistent paycheck, work flexibility, and, increasingly, the ability to telecommute. Yet if these new regulations transform five million salaried workers into hourly workers, will there be any new benefits to offset the loss of these perks?

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