Upping Overtime
One Reason Businesses Are Hoarding Cash

Among the reasons that corporate America is holding onto its cash: uncertainty over potentially game-changing regulations like the White House’s proposed hike of the overtime threshold. Its Republican opponents and business leaders are up in arms as the Administration considers introducing a rule that would more than double the threshold—and might do so as early as this week, Politico reports:

By law, any salaried worker who earns below a threshold set by the Labor Department must receive overtime. The current threshold of $23,660 lies below the poverty line for a family four. The proposed rule is expected to raise that to somewhere between $45,000 and $52,000—closer to the median household income—greatly expanding the pool of Americans who qualify for overtime pay.

The overtime threshold is not indexed to inflation and has been updated only once since 1975. It covers 12 percent of salaried workers. Boosting the threshold to $50,440 would bring it back in line with the 1975 threshold, after inflation. By one estimate that would give somewhere between five to ten million workers a raise.

Not that we begrudge anybody any extra money, but it is important to remember that intervention in the form of what is being proposed also has negative effects on the economy. Doubling the overtime threshold would also slow investment, slow job growth, and intensify the pressure on business to automate low value-added functions.

America certainly does need a wage policy that is reflective of our current environment. Increasing the real, after-tax income of the American people, especially for those in the middle of the economy, ought to be the top domestic priority for our government. But raising wages by decree is counterproductive—the most effective way is to increase demand for labor. The way to increase demand for labor is to promote conditions which are most favorable to business development, especially those which are favorable to the development of small business.

But if the GOP and centrist Democrats simply dig in their heels and resist these regulations without presenting an alternative, integrated approach to raising Americans’ real wages, then the politics could turn ugly. Tens of millions of American families are still feeling squeezed after the recession, and stagnant wages are a big part of the problem.

The trouble is, the Obama Administration’s late-stage mania for high-impact administrative change, while the natural response of an ideologically committed administration to the collapse of its congressional support, is a serious factor in increasing the uncertainty that deters investment and job creation. The problems the administration intends to fix are getting worse because of the unintended consequences of its actions. That makes the job and wage situation worse—and intensifies the public pressure on the government to do something.

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