Tuesday, July 7, 2015

Obama's new overtime rule will hurt some workers but I don't think he cares

President Obama recently announced plants to issue an executive order that will require employers to pay salaried employees who earn up to $50K/year overtime pay. This rule encroaches on the fundamental right of a person to negotiate the terms of their labor with an employer. And just like the minimum wage and other restrictive labor laws, this new regulation will make it harder for relatively low-skill workers to climb up the income ladder.

As an example, when I worked at Chase Bank after college I earned a salary of $45K/year. I was not subject to overtime pay rules and this gave my boss and I the freedom to create a schedule that worked for the both of us. During the busy times, such as enterprise IT releases, I would work 50 hrs a week in order to make sure the job got done. When the work slowed down, I would leave early on a few days. Over the course of a year I am sure my work week averaged 40 hrs, but it would have been unnecessarily burdensome to both me and my boss to make sure that I only worked 40 hours exactly every week (or 80 hours every two weeks if that is how the rule is designed) or else be subjected to overtime rules. Why should the government intrude on a voluntarily reached agreement such as the one my boss and I made?

Also, the workers who are less productive and who make up for that by working harder and longer will be unable to differentiate themselves along this dimension. It is ironic that some of the same people who praise the "gym rat" - the less talented athlete that puts in the extra work in order to be better on game day - want to deny this same opportunity to people who earn less than 50K/year based on their elitist idea about what a "fair" salary is. If Obama's supporters think that overtime pay for work over 40 hours is such a good idea, I see no reason why it shouldn't apply to athletes, presidents, CEOs, etc. Why should people making less than $50K/year be the only ones who have to deal with this burdensome regulation?

It is important to remember that overtime pay only affects the cost of labor, not the output. What I mean is that a worker who produces $20/hr of output and earns $40K/year for that output does not suddenly start producing $30/hr of output when overtime kicks in. Companies will be reluctant to let workers work more than 40 hours per week even if the worker wants to, since the additional output of the worker will not be worth the additional cost. Thus workers who enjoy their job, such as myself at Chase, and who want to keep working on a day when they happen to be right in the middle of something will be forced to leave so that the firm does not have to pay them overtime. This also applies to the "gym rat". It does not appear to me that either the worker or the employer benefit in either case.

Obama is an interventionist; he thinks that his view of the world is the correct one and thus everyone should conform to that view. He doesn't appreciate the many differences that shape individual lives, nor does he appreciate the individual freedom that is required to deal with such differences. He hears one story about a hotel manager who worked 55 hours one week and only made their (voluntarily agreed to) salary and he immediately thinks that the situation calls for the heavy hand of government. I don't think he believes that people are capable of making their own decisions, or that people have different preferences about their work/life balance. In The Theory of Moral Sentiments, Adam Smith referred to someone who thinks this way as "the man of system":

     "The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder."

Obama is the man of system: To him we are all just chess pieces, to be moved around as he sees fit. Our own principle of motion is of little concern to him. This causes disorder but Obama does not see it because he is blinded by his own arrogance.

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