May 18, 2016 8:49AM

Overtime Regulation Update

Following up a proposal announced last year, the Obama administration is set to raise the salary threshold at which employers must pay time‐​and‐​half for overtime hours (normally, those above 40 hours per week). Currently these rules apply to workers with annual salaries up to $23,660; the new rule raises this threshold to $47,476. This will affect about 4.2 million workers, according to administration estimates.

What impact will this regulation have? 

In the short run, many employers will indeed pay higher total compensation to affected employees, given limited options for offsetting the mandated increase in wage costs. This is the outcome sought by regulation advocates.

In the medium term, however, employers will offset these costs by re‐​arranging work schedules so that fewer employees hit 40 hours, by laying off employees who work more than 40 hours, or by pushing such employees to work overtime hours off the books.

In the longer term, employers will reduce base‐​level wages so that, even with overtime, total compensation for employees working more than 40 hours is no different than before. 

Thus, expanded overtime will benefit some employees in the short term; cost others their jobs or lower their compensation in the medium term; and have no meaningful impact in the long term.

Is that good policy?