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The Obama administration’s initiative to expand overtime pay protections may present tough choices for businesses, but several economic studies suggest companies won’t respond with new hiring.
Employers would rather reduce working hours than pay more to keep their employees on the job. And they’re not likely to hire new workers to pick up the slack, perhaps because of the costs of recruiting and training new employees.
That may be why the White House has been reluctant to claim its new proposal on overtime pay would lead to faster economic growth by pushing companies to hire more workers. Instead, officials have cast expanded overtime pay as a question of fairness.
The effect on hiring “certainly wouldn’t be a primary focus right now,” said Betsey Stevenson, a member of the president’s Council of Economic Advisers. “What we’re trying to take a look at is how we can make the labor force as fair as possible for all workers and that people get rewarded for a hard day’s work with fair wages.”
Republicans, however, said broader overtime mandates would have a negative effect on growth. The administration’s announcement “seems engineered to make it as unappealing as possible to be an employer creating jobs in this country,” said Sen. Lamar Alexander, R-Tenn.
Although lower-paid workers could benefit from expanded overtime protection, there is evidence that employers find ways to blunt some of that pay increase. Employers can reduce hours worked or move to replace employees through automation, for instance. In some cases, they may simply decide to reduce production in response to higher labor costs, choosing to raise the risk of lost revenue rather than face the increased costs. After a while, they may also find a way to slow the growth in wages to reduce the overall compensation they pay to employees who work overtime.
Business world actions in response to an overtime pay increase will be somewhat muted, in all, but the impact on the labor force remains subject to debate.
“If the goal is to compensate workers more for long hours, it might accomplish that to some extent, whereas if the goal is to increase employment, there’s no good evidence that it does that at all,” said Stephen Trejo, a labor economist at the University of Texas who has studied overtime.
California offers a useful precedent. For years, state law required paying time-and-a-half to women who worked more than eight hours a day. In 1980, the state sought to expand the state’s overtime protections to male workers.