President Obama's proposal to modernize overtime eligibility rules is
an important way to raise many workers' income, Jared Bernstein reminds us—and it might have a few other, less obvious, effects. Obama's proposal would raise the amount that non-supervisory salaried workers could earn and still be eligible to earn time and a half if they worked more than 40 hours per week, benefiting 5 million workers. But, Bernstein writes:
I’d like to highlight a new paper co-authored by one of the nation’s top experts in the economics of overtime, economist Daniel Hamermesh, which sheds some interesting new light on the potential impact of the update: It could very well make those affected by it happier.
That may sound like a big “duh.” Some workers—those who should be getting overtime pay now but aren’t—will surely be made better off by a change that ensures they get time-and-a-half if they work OT. But employers might decide to hire new straight-time workers rather than pay current workers extra for OT (which is why Hamermesh called the reform a “job-creation program”).
So some workers might find themselves working fewer overtime hours after the reform. What Hamermesh et al show is suggestive evidence that this change could improve these workers’ life satisfaction.
Many employers now use the absurdly low overtime eligibility threshold of $455 per week as
a loophole to exploit workers. It's common for fast food and retail businesses, for instance, to create salaried "manager" jobs with few managerial duties but requiring long hours spent stocking shelves, cleaning, or other work that would otherwise be done by an hourly worker. That way, the employers don't have to hire more hourly workers and they don't have to pay the salaried "manager" overtime.
In general, as long as employers can make low-salaried workers stay late or work weekends, they have no incentive to hire more people. And the cost—in financial terms and quality of life—to the people working 50 or 60 hours or more a week is obvious. So while the data suggesting that expanding overtime wouldn't just make people happier because they had more money but because many would end up working fewer hours comes from Japan and Korea, there's reason to believe it might hold true in the U.S. as well. No, workers whose bosses hired more people to avoid paying overtime wouldn't be earning time and a half—but they aren't now. At least under Obama's proposal they'd get to go home and relax rather than working extra hours for nothing.