Who promises anything – Econlib

A new day, a new labor market intervention!

Recently, the Biden administration announced new rules regarding overtime and salaried employees. Generally, employees are paid a flat rate, not hourly, so they do not receive traditional overtime pay. But lawmakers have decided that lower-paid workers should Also receive overtime compensation. This in itself is not new – what is new is that the Biden administration is raising the salary cap to make this rule apply. According to the Department of Laborfrom July 1st, workers earning less than $43,888 a year will now receive overtime pay, rising to $58,656 by 2025.

There are a number of concerns one could raise. This rule will make hiring less experienced workers more expensive than before. Someone you might have been willing to hire in an entry-level position at a salary of $40,000 per year may suddenly become a less attractive prospect, leaving you preferring to hire someone with a more established work history and better skills. Anecdotally, I often hear people complain about how difficult it is to find even an entry-level job, and it doesn’t help such people to pass laws that make it even more expensive to hire someone for a job at an entry-level beginning level. But perhaps this will be offset by including fewer benefits and perks, rather than hiring fewer entry-level employees. There are multiple margins that can be adjusted.

But what struck me about the Labor Department’s announcement was the following line:

I found this very confusing. I have held salaried positions that were below the minimum limits currently in force. There were certainly times when I worked more than 40 hours a week. Still, I didn’t demand or expect overtime pay because I had already agreed to a steady salary as part of the negotiation process for the job. If someone said to me, “Oh no! You worked more than 40 hours a week, but did not receive any additional overtime compensation! A promise has been broken!” I would have just stared at them and wondered what the hell they were talking about. I used to be that I got the wages I was promised – that was true never any agreement between me and my employer that working weeks last longer than 40 hours would result in extra pay. So what promise was broken? Who made that promise?

Minister Su talks about restoring a promise that no one ever actually made. If I had received a payment that was less than my agreed salary, That would have been a breach of promise. And that is a role that the government can usefully fulfill: if my employer had promised me a certain salary in the employment contract, but did not keep it, the government could take appropriate steps to restore the broken promise. But this new rule is nothing like that. This is not the government enforcing an existing promise (or contract) made between two consenting parties. This is the government making a promise that is kept as agreed, and then forcibly breaking that promise. Minister Su’s actions are better characterized by Darth Vader’s words in The empire strikes back: “I’m changing the deal. Pray that I do not change it further.”