Another day, another labor market intervention!
Recently, the Biden administration announced new rules regarding overtime pay and salaried employees. Generally, employees are paid on a fixed rate basis, not by the hour, and therefore do not benefit from traditional overtime pay. But lawmakers decided that lower-paid workers should Also get paid for overtime. This isn’t new per se – what is new is that the Biden administration is increasing the salary cap for this rule to apply. According to Department of Laborfrom July 1St, employees earning less than $43,888 per year will now receive overtime pay, and by 2025, this amount will increase to $58,656.
There are a number of concerns that could be raised. This rule will make hiring less experienced workers more expensive than before. Someone you might have been willing to hire in an entry-level position for a salary of $40,000 a year may suddenly become a less attractive prospect, leading you to favor hiring someone with a track record. more established and better skills. Anecdotally, I often hear people complain about how difficult it is to find even an entry-level job, and it is not helpful for these people to pass laws that make it even more expensive to hire a person for an entry-level position. But perhaps this will be offset by including fewer benefits and benefits, instead of hiring fewer entry-level workers. There are several margins that could be adjusted.
But what struck me in the Ministry of Labor’s announcement was the following line:
“This rule will give back to workers the promise that if you work more than 40 hours a week, you should be paid more for that time,” Acting Secretary Julie Su said.
I found this very confusing. I have held salaried positions below the minimum ceilings currently in force. There were definitely times when I was also working 40+ hours a week. Yet, I did not demand or expect overtime pay because I had already agreed to a fixed salary as part of the negotiation process for the job. If someone then said to me “Oh no!” You worked more than 40 hours per week, but you did not receive extra pay for your overtime! A promise has been broken! I would have just looked at them and wondered what they were talking about. I was receive the salary that I had been promised – there was Never any agreement between me and my employer that work weeks extending beyond 40 hours would result in additional pay. So what promise was broken? Who made this promise?
Secretary Su is talking about reinstating a promise that was never made by anyone actually involved. If I had started receiving a payment lower than my negotiated salary, that would have been a violation of a promise. And this is a role that the government can usefully play: if my employer had promised me a particular salary in the employment contract, but did not keep it, the government could take appropriate measures to restore the broken promise . But this new rule is nothing of the sort. This is not the government enforcing an existing promise (or contract) that was made between two consenting parties. This is the government that fulfills a promise that is kept as agreed, and then forcefully breaks it after the fact. Secretary Su’s actions are best characterized by the words of Darth Vader in The Empire Strikes Back: “I am modifying the agreement. Pray that I don’t change it further.
