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Toeing the Line on Workers' Wages

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Controlling labor costs is a critical component of managing any business. Recent moves by government officials stand to make that task more challenging.

The Obama administration has announced a new rule that will require employers to pay overtime to salaried workers making less than $47,476 a year if they are asked to work more than 40 hours in a given week. Currently, workers making as little as $23,660 can be considered executive, administrative or professional personnel, thus exempt from overtime rules.
No longer will management be able to say, “Congratulations, I am promoting you to assistant manager!” And then not say, “Oh, by the way, you’ll be working 60 hours a week for $24,000.” If enacted in December as expected, the new rule will make an additional 4.2 million Americans eligible for time-and-a-half.

How will employers respond? They may simply make the overtime payments. They may reduce some employees’ base pay so their total compensation turns out about the same once the overtime is added. They may increase some employees’ base pay so they remain exempt from overtime payments and can be asked to work more than 40 hours with no penalty. Or they may hire more workers and have individuals work fewer hours so they remain below the 40-hour limit. Each strategy is acceptable, and none is necessarily a boon to workers. The rule simply means that low-salaried workers will get compensated if they have to work extra hours.

By some estimates, the new rule will actually add jobs to the overall economy because companies will employ more people rather than pay some overtime. Others argue it will worsen the nation’s unemployment problem because the added cost will inhibit hiring, thus hurting the very workers it is meant to help.

That’s the same argument posed by opponents of a higher minimum wage. Economists are mixed about the wisdom of raising the minimum wage to $15 an hour, as California plans to do over the next five years. Some say companies that are forced to pay higher wages will hire fewer workers. Others say that, done gradually, the market will have time to adjust and raise the nation’s standard of living.

One MCN reader expressed a very common sentiment: “As an employer, it’s my right to establish wages for the jobs I offer. It is my responsibility to offer a fair wage and benefits package to employees. If I want to attract reliable, drug- and alcohol-free employees, then I most likely will pay a premium. The minimum wage was never intended to be a living wage, nor should it be.”

At the heart of both these issues are larger philosophical questions: Where is the line between a fair wage and worker exploitation? Where is the line between free market forces and overregulation? Like it or not, when the lines are blurry, it’s the government’s job to step in.