Saturday, May 21, 2016

New overtime regs go into effect

A year ago I posted about proposed new federal regulations on overtime.  This week a revised version  went into effect.  Under the old regs, salaried workers earning over $23,660 had to be paid overtime each week they worked more than 40 hours.  Now the salary threshold has kicked up to $47,476, making 4.2m employees newly eligible.

The net effect will be to increase the cost of labor which will lead to reduced labor hours worked.  Hours worked per person will definitely fall, but employment may or may not change much.  Some employers will add more workers to avoid having to pay overtime, whereas others will substitute capital for workers.

The basic economics of the new overtime rules are very much like those of the minimum wage.  Some workers will come out ahead (those getting overtime that did not used to get it), whereas other workers are worse off because their hours get cut or their job vanishes.  Employers and their customers are worse off because costs have risen; after all, someone has to pay the higher overtime wages.  

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