Thursday, July 2, 2015

Perfect Timing for the New Overtime Rule

The June jobs report (223,000 jobs added and unemployment rate down to 5.3%) extends the longest period of private sector job growth in our country's history.

But there are two things that are causing concern. First of all, the labor force participation rate (LFPR) dropped 0.3 percentage points to 62.6%. As I've written before, it is important to keep in mind that there are several factors that affect this number:

1. The increasing number of baby boomers who are retiring
2. The increasing number of high school graduates who are going directly to college
3. The number of people who find it difficult to get a job because of a criminal record

I haven't seen anyone attempt to quantify this, but it would also be interesting to find out the number of people who are voluntarily leaving the job market for early retirement (or other reasons) because Obamacare has made that a viable alternative. That might also be a factor.

Finally Betsey Stevenson, a member of the Council of Economic Advisors, points out that the change in LFPR might be credited to something as simple as the fact that the survey tracking it was distributed earlier than normal last month.

Taking all that into consideration, the big focus on the LFPR drop is probably over-heated. Of all the potential explanations, the one that should spur us to action is the need for passage of something like the REDEEM Act, which would allow non-violent offenders to have their criminal records expunged.

The other cause for concern in the jobs report is much more significant - little to no increase in wages. That's why this is the perfect time for President Obama's new overtime rule. In the best case scenario, people who are working overtime but not getting paid for it would get a big pay increase.

Republicans who are criticizing the new rule suggest that it will mean fewer jobs. That is completely counter-intuitive. What many employers are likely to do is hire more employees in order to avoid paying overtime. That means more jobs, not fewer.

But here's where the timing is important. We are now at or near what economists consider "full employment." If the new overtime rule had been implemented during a time of high unemployment, businesses would have likely hired those new employees at lower wages - thereby actually depressing wage growth. That is highly unlikely now.

Due to federal regulations regarding the need for public comment on these kinds of changes, the new overtime rule won't go into affect until next year. When it does, employers will have two choices, (1) give existing employees a raise via overtime pay, or (2) hire more employees. Either way it's a win for workers.

1 comment:

  1. There is almost nothing government can do to insist that working people get a fair share of the wealth they produce. So steps such as this rule, raising he minimum wage are about it. And while the President worked to have this secured by Congress, it is now totally clear it will NOT be, so he acted. But people had better vote wisely in 2016. If either a bad president or bad Congress are elected, this OT rule will dissolve.

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