by Mitch Kokai
Senior Political Analyst, John Locke Foundation
If you’ve read the Winston-Salem Journal‘s report on new federal overtime rules, you might be interested in seeing the rest of what I submitted to reporter Richard Craver:
The Obama Labor Department is set to create a textbook example of the law of unintended consequences. In an effort to help more workers get higher pay when they work overtime hours, this new government mandate is likely to have much different effects.
A mandate for higher pay won’t magically create more business revenue to fund the mandate. So businesses will respond by shifting the current uses of their existing resources. Some workers will simply work less overtime and might face more pressure to finish assigned tasks before overtime kicks in. That will mean less time for developing leads or conducting other work that’s time-consuming in the short run but carries long-term payoffs.
To the extent that businesses can adopt more automation, upward pressure on wages and salaries encourages them to do so. If workers in the newly covered categories must work overtime, businesses will find ways to save labor costs elsewhere — possibly cutting back hours or jobs for lower-paid employees.
Even if a business makes no other wage and salary adjustments, it will have less money to spend elsewhere. That means less investment in technology that would make its workers more productive. One consequence is that these workers have less of a chance to earn future salary increases that are independent of government mandates.
Some might argue that this change will simply force businesses to take a small hit in their profits in order to help their hard-working employees. If any companies are able to do that, they are likely to be large companies with more flexibility and resources to cope with a new government mandate. Smaller businesses with tight operating margins won’t have the flexibility. This is a shame, since these are the types of businesses that give a hard-working employee the chance to put in long hours while also building skills and contacts that will help her later in her career.