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Earlier today, the Department of Labor published a new rule requiring overtime pay for workers who make up to $50,400 a year are eligible for overtime pay if they exceed 40 hours a week.

The idea, championed by President Obama, is this: If more employees are eligible for overtime pay (the average American worker makes less than 50 grad a year), then businesses will either pay their hardest-working employees more, or hire more workers to avoid paying the additional overtime penalty. The DOL estimates about 5 million people will benefit from this new ruling.

So this is wonderful, right? It’s well-known that for many people, employers can require more than 40 hours a week at no extra pay because employees are salaried and not hourly. The Cato Institute offers an opinion:

“In the very short run, employers affected by this expansion may have little choice but to pay their employees higher total compensation; in the very short run, employers have few ways to avoid this added cost.

But in the medium term, employers will invoke a host of methods to offset these costs: re-arranging employee work schedules so that fewer hit 40 hours; laying off employees who work more than 40 hours; or pushing such employees to work overtime hours off the books.

And in the longer term, employers can simply reduce the base wages they pay so that, even with overtime pay, total compensation for an employee working more than 40 hours is no different than before the overtime expansion.

So, expanded overtime regulation will benefit some employees in the very short term; cost others their jobs or lower their compensation in the medium term; and have no meaningful impact on anything in the long term.

Is that a victory for middle class economics?”

We at CRI agree with Cato. Just like with every other “well-intentioned” government law, those who are likeliest to “suffer” from it (in this case, employers), will find a way around it, especially in the long-haul. Employees who demonstrate clear value will likely not have to worry about their jobs, but anyone who doesn’t demonstrate clear value should be concerned. While many will benefit right away with the increases in pay, new hires may find their base pay is lower, so their potential overtime is lower. After all, time-and-a-half for a worker at $8.50 an hour is much less than at $15 an hour.

Plus, those who benefit now could see hours cut or, if the overtime pay began to turn business revenues from a profit to a loss, the businesses will lay off employees to stay in the black. This is what’s happened for many people as a result of the ACA: turning full-time workers into part-time in order to avoid the penalty, or simply paying the penalty and dumping people into the health exchanges, since that’s cheaper than offering health insurance. And with insurance companies asking for premiums increases, things are not looking up for American workers.

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