“Blindsided … stunned …” These are the reactions from business groups and Republicans to yesterday’s announcement of a redefinition of overtime exemption from Barack Obama, according to The Hill. Both have been fighting the White House proposal to raise the minimum wage to $10.10 an hour, which lost support among Democrats after the CBO estimated it would cost 500,000 jobs by 2016. This time, Obama can go it alone … sort of:
Business groups and congressional Republicans are blasting regulations President Obama will announce Thursday that could extend overtime pay to as many as 10 million workers who are now ineligible for it.
While liberals lauded the plan as putting more cash in the pockets of millions of workers, business groups warned it would damage the economy and Republicans said it was another example of executive overreach.
Trade associations already battling the White House over a proposal to raise the minimum wage to $10.10 per hour said they were blindsided by the announcement.
“This came as a shot out of the blue,” said David French, the National Retail Federation’s senior vice president for government relations. “Just on the surface, this looks like an enormous new administrative burden.”
It’s not really executive overreach, though. Unlike the minimum wage, which is set by statute and has to be amended by Congress, the definition of overtime exemption is handled by Department of Labor regulation. However, that regulatory process takes quite a long time, and it may be months or even into next year before Labor can act on the directive from Obama. Business groups and Congress will weigh in on the proposal, and no doubt Republicans will demand a CBO analysis of the impact of this change, too.
And … what is the proposal, anyway? No one knows, and the White House isn’t saying. Right now, the exemption allows businesses to claim overtime exemption for people earning $455 a week or more (annual salary of $23,660)* just by asserting that any part of their duties is “executive” in nature. That’s a ridiculously low level, but businesses have structured their work forces on the basis of this regulation. No matter what level the White House chooses, it’s going to impact staffing decisions; the question is how bad it will get, and how many jobs end up going from full- to part-time in defense of potential unforecasted costs in smaller businesses especially. Ron Fournier reports that former Obama economic adviser Jared Bernstein wants it raised to about $51,000, which would impact five million workers, or less than 4% of the currently employed in the US.
The real problem in flat compensation, though, is the dysfunctional job-creation that exists under Obamanomics — high regulation, hikes in capital-gains tax rates, and ObamaCare. I argue in my column for The Fiscal Times that this is just another intervention that’s likely to produce a lot of unintended consequences, like the rest of the White House’s policies:
Almost all of these ills, however, and especially that of burgeoning corporate ledgers, comes from the interventions conducted by the Obama administration’s economic policies. At the end of prior recessions, the US has acted to reduce costs on investment through lower taxes and regulatory costs.
The Obama administration has piled on in both areas, especially with the added hiring costs of the Affordable Care Act and the 2012 increase in the capital-gains tax rate. Capital that might have gone into business expansion that creates jobs instead stays in corporate coffers to earn interest instead of return on risk.
In a growing economy, businesses would add staff to deal with increased demand, not increased regulation and mandates from Washington. The civilian workforce participation rate has dropped to lows not seen since the Jimmy Carter era, and chronic unemployment has made workers nearly powerless in the labor market.
In a healthy economy with robust job creation, employers would not be able to force low-income workers into exempt definitions, because those workers would find better-compensated work elsewhere. Businesses that might have hired more workers are now looking for ways to duck the costs of employer-subsidized health insurance by cutting hours to less than 30 a week.
The problem Obama claims to be solving is largely that of his own making – and this top-down change will have significant consequences as well. The White House argues that it will either force employers to pay overtime or to hire more workers to perform the work. Forcing a change of any significance through regulation now, with job creation at stagnation levels, will not inspire confidence in the necessary expanded investment to boost hiring and then compensation.
Can Obama do this on his own? Yes, within the parameters of regulatory changes at Labor, and the White House has already said it will respect that process. Should he? Republicans and the business community will have trouble defending the current definition, but this ignores the real problems of the economy – and may well aggravate them, especially if the redefinition is as sharp as Bernstein wants. It’s recutting a shrinking pie rather than figuring out how to make it larger, and it’s bound to fail in every way except perhaps politically — and even that win will be minor and short-lived.
Update: I rewrote the explanation of the current definition in order to make it more clear.