The Roman Empire notoriously distracted its citizenry by providing bread and circuses to mollify and distract them from the real problems of their lives and the failures of their government. Washington DC kept up that hoary tradition this week, starting with an all-night Senate session on global warming, conducted by Senate Democrats protesting the lack of action by the US government on the issue.
That protest had two big problems for Democrats’ credibility. First, they control the upper chamber, so they can introduce legislation any time they wish – and they offered no legislation during the all-nighter. Second, climate change falls far down the list of priorities for Americans; according to Gallup, it’s second to last on a non-exclusive list of concerns overall, and near the bottom even among Democrats. The top priorities on Gallup’s list are the economy and unemployment, for voters of both parties.
With the failure of the circus on Capitol Hill, the other end of Pennsylvania Avenue focused on the bread. The White House told The New York Times and other media outlets that President Obama would take executive action to redefine salaried employment in order to expand overtime payment from employers. As usual, this top-down and unforeseen change in regulation will create more problems than it solves, and likely result in lowered compensation rather than the explosion of riches for the working class the Obama administration will claim.
Critics of the administration will object to the unilateral nature of this change, but this does fall within the purview of the executive branch, unlike the minimum-wage demand from Obama. Congress sets the federal minimum-wage level in statute, but the distinction between exempt and non-exempt payroll comes from Department of Labor regulation. Executive-branch agencies can change regulations based on their own authority within the statutory jurisdiction approved by Congress and the President--and this falls well within that authority.
That doesn’t mean it’s great policy, though. Currently, Labor sets the lowest pay level for exemption from overtime at $455 per week, which requires that the job entail some kind of “executive” function, such as supervision of other employees. For a full-time job, that equates to about $11.38 an hour or an annual salary of $23,660. Under current rules, employers do not have to quantify what part of the job entails “executive” responsibilities, which White House officials claim leads to exploitation of low-income workers.
What new level and definition of exempt status will Obama embrace? No one seems to know at the moment, and the White House isn’t saying. Former White House economist Jared Bernstein wants it raised to $984 per week, which equates to an annual income of just over $51,000, slightly above the household median income in the US.
That doesn’t mean they’ll be getting bigger checks any time soon, either. Employers seeking to control costs will likely just exercise a lot more scrutiny of work assignments, and require more from their full-time employees in the forty hours on their regular schedule. That may be especially true at small businesses, the US Chamber of Commerce argued in an e-mail to Bloomberg.
The White House argued that this is about income inequality and economic growth, anticipating the backlash from the business community. The move would “potentially shift billions of dollars’ worth of corporate income into the pockets of workers,” The New York Times explained, adding, “Since the mid-1980s, corporate profits have soared,” and S&P 500 companies have seen profits double since the end of the recession in 2009, without a commensurate increase in compensation for workers. The 2012 share of GDP going to workers hit an all-time low of 42.6 percent, The Times also takes care to note.
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.
This proposal could well accelerate the trend to part-time staffing, convincing businesses to convert in order to eliminate overhead costs, and create savings that can then be applied to short-term gaps in work coverage. That might have more appeal for small businesses that survive on smaller margins, even if it creates more management headaches.
Even these changes, though, are largely for show. A move to a $984/week floor would add five million more Americans to overtime eligibility in Bernstein’s calculations – only 3.5 percent of the number of employed in the US, according to the Bureau of Labor Statistics. It will take months for the Department of Labor to promulgate them, put them through a comment period, and deal with any opposition from Congress, and that timeline starts whenever the White House gets around to making an actual proposal.
All this does is give Obama and Democrats a wonky talking point for the midterm elections, and a way to distract the voters universally impacted by the negative consequences of Obamacare by discussing changes at the margins that will worsen the stagnation in the current economy. It’s just another ring in the circus, with imaginary bread promised to magically appear at some later date.
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