Overtime Regulation

President Obama plans to raise the salary threshold at which employers must pay time‐​and‐​half for overtime hours (normally defined as those above 40 hours per week). Currently these rules apply to workers with annual salaries up to $23,660; the President’s proposal raises this threshold to $50,400. The new rules will affect about 5 milllion workers according to administration estimates.


What impact will this expanded regulation have on the labor market?


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?