Fiat Government and Magic Money

Ken Gorrellby Ken Gorrell, Weirs Times Contributing Writer

Few things irk me more than propaganda masquerading as analysis. These are irksome times.
By executive fiat the president is changing overtime regulations effecting millions of workers. He says it is “good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve”. He made the announcement in a blog posting at the left-leaning Huffington Post. Yes, a blog.
Beyond the staggering chutzpah – a man who has barely dipped a toe into the private-sector labor market lecturing business owners about what is “good” for them – the evidence shows that the president’s plan is based on magic numbers. The Progressive propaganda machine has been working overtime, but their missives are untethered to market realities and fail to pass the smell test. You can read all 295 pages of the proposed change to “29 CFR Part 541” if you want to, but I recommend holding your nose.
From the Executive Summary:
• Currently, the line between “exempt” (i.e., salaried) employees and hourly workers is $455 per week.
• The proposed regulations would set that level to $921 per week. Anyone earning less than $48,000 would become a time-clock puncher.
• This level would update annually using either a fixed percentile or the CPI-U.
Where did the $921 figure come from? If it came from some careful analysis of our complex labor markets, global economic conditions, and the unique challenges of individual business sectors operating in different economic conditions, you’ll find no evidence of it in 295 pages of bureaucratese.
Instead, you’ll find out that $921 is the 40th percentile of national median earnings for all full-time salaried workers. The report says that this “giv(es) support to the Department’s proposed salary level” because “using median earnings as a point of comparison supports that the 40th percentile of full-time salaried workers would provide an appropriate line of demarcation.” In short: It’s a Goldilocks number. Not too big and not too small, it’s just right for the simple minds of the Occupy movement and the usual Progressive cheerleaders. This is not analysis, it’s magic. Watch me pull a number out of my, uh…hat.
“Hey, hey, ho, ho, 40th percentile is the way to go!” sings the president’s Greek chorus. They want you to believe that this rule change will put more money in workers’ pockets, will greatly reduce the hours “imposed” on formerly-salaried employees, and won’t hurt employment. Yet according to the Labor Department, about 5 million Americans will be shifted to hourly, overtime-eligible employees, at a cost to employers of $1.2 billion annually. As Forbes writer Warren Meyer points out, that comes to $261 per worker. The Department expects the base wage rate for regular work hours to fall from $18.38 to $18.21 after this rule (yes, fall), and the average work week to drop one tenth of an hour (yes, just 6 minutes), to 41.5 hours. Small beer compared to what the government is taking from the market.
The delusion goes deeper. According to Judy Conti of the National Employment Law Project, “This will be great for Main Street businesses because more workers will have jobs, and full-time jobs, and they will have more money to spend in their communities on food, gas, clothing and other consumer goods.” She must believe in magic money and that businesses won’t react to increases in labor costs and decreases in labor flexibility. Even if there were more money to go around, higher labor costs would translate into higher product costs, so buying power might actually be reduced.
Businesses have many ways to improve productivity and reduce overhead, as anyone who has used an ATM, airline ticket kiosk, or the new fast-food ordering kiosks can attest. Entry-level workers are especially vulnerable to losing out to technology in the labor market. As well, work can be shifted to salaried workers above the government’s arbitrary cut-off line, so that hourly workers won’t be allowed overtime and mid-level managers will pick up the slack. People like Judy Conti either lack imagination or prefer dogma to data.
Big box stores may be able to accommodate increased labor and regulatory compliance costs, but the small and medium-sized companies on Main Street will have a harder time. The movement to impose higher minimum wages has already closed some doors, and this proposed overtime regulation may shutter more business. The drive to increase overtime may result in “no time,” raising the first rung of the labor ladder beyond the reach of many entry-level workers.

Ken Gorrell can be reached at