Reform of overtime rules not how to address income inequality

In his book, “The Leviathan,” philosopher Thomas Hobbes described what human life would be without a social contract binding people together: “nasty, brutish and short.”

Joseph Williams, in a recent article in “The Atlantic” magazine, paraphrased Hobbes when he described his life as a retail worker as “nasty, brutish and cheap.”

Retailing is one of a handful of American industries that are dependent on human labor and dominated by its costs. “Brutish” is probably an exaggeration, but there is little doubt that jobs in retail and other industries dependent on entry level labor can often be both demanding and unrewarding at the same time.

At the same time it is also true that industries such as retailing, restaurants, hotels and agriculture provide millions of Americans with jobs and incomes — and often their first workplace experience. And in the vast majority of workplaces these workers are treated fairly, and superior performance is recognized and to some degree rewarded.

Few entry-level jobs were intended to be lifetime occupations, largely because the steep learning curve tends to cap productivity and place an upper limit on the value that experience can contribute. The economic underpinning for supporting a family of four on a career restocking shelves or bagging groceries simply isn’t there.

Industries dependent on entry-level labor are often low-margin operations, where profit is earned only through high-volume sales and hawk-like attention to costs. If an outside force such as a labor union or a government mandate raises the cost of labor, then, it usually cannot be simply absorbed within the existing business structure. It is a significant change agent and, as the expression goes, “something’s gotta give.” That something is often the number of jobs.

The most recent government mandate affecting labor costs is a presidential memorandum directing the Department of Labor to revise the Fair Labor Standards Act overtime rules that provide exemptions covering some “white collar” workers.

Under the present federal workplace regulations, hourly work performed beyond forty hours per week must be compensated to include a premium of 50 percent of the normal rate, in other words, time-and-a-half. (There are no current federal rules covering private workplace “golden time,” which is at least double pay for overtime and a matter dealt with in collective bargaining agreements.)

In addition to the many specific occupational exemptions under these regulations, there is a general exemption for what are called professional workers and those having managerial responsibilities. Generally, though, anyone currently paid less than $23,660 per year would not qualify for that exemption irrespective of their job responsibilities. They would be entitled to time-and-a-half for any overtime worked.

It is not clear what rules the Department of Labor may change, or how much they will change them, but based on remarks made by President Obama it is likely that the threshold for white collar exemptions will be moved upward from $23,660 to perhaps $50,000.

The president’s remarks on this subject, unfortunately, have been both puzzling and troubling. Some of the examples of workplace overtime pay abuses he cited, for example, were focused on computer professionals who are already covered in a separate exemption within the white collar worker rules.

Other comments he made appear to focus on workplace abuses like employers requiring workers to perform jobs “off the clock” and, more generally, failing to pay employees at all, let alone overtime, for work required and done. This has been a frequently litigated issue and while there are gray areas with certain jobs, employers have to pay for work they require to be performed.

Despite this, workplace abuse by demanding “off the clock” work can certainly be a genuine problem, and it is more likely to appear in tough job markets. Still, it is not a problem that will be remedied by redefining the overtime exemption rules.

Workplace fairness has always been the goal of the rules under the Fair Labor Standards Act, but fairness is a social standard that can be difficult to define in a law or a regulation. The federal workplace regulations in this area have already constructed a maze that would sometimes confound even the most experienced rat. Hopefully, the Department of Labor will simplify the rules as it reviews the situation.

Remarks by the president and others also hint that the new overtime proposal is part of a larger effort to address income inequality through the workplace. Let’s hope not.

Workplace law and workplace economics are inextricably bound together and changing the rules will have costs as well as benefits. Unless we are honest about those costs, especially in terms of job losses, changing the law enough to have a significant impact on income inequality has “nasty, brutish and doomed” written all over it.

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