Childish Economics

by Don Boudreaux on March 16, 2014

in Nanny State, Reality Is Not Optional, Seen and Unseen, Work

Here’s a letter to the Washington Times:

You highlight several problems with Pres. Obama’s recent move under the Fair Labor Standards Act to prohibit many workers from working overtime unless their employers pay them overtime wages (“Working overtime to stifle job growth,” March 16).  Here are two other problems.

First, because the workers in question generally are paid hourly base wages well above the legal minimum, firms can adjust to Pres. Obama’s mandated higher cost of employing these workers by reducing these workers’ base pay.  The result will be that, during ordinary workweeks (that is, workweeks with no overtime), these workers’ incomes will fall.

Second, to the extent that these workers’ base pay cannot be adjusted downward, employers will have stronger incentives to find ways to automate these jobs or otherwise rearrange their operating procedures to avoid this mandated higher cost.  As a result, some workers will likely lose their jobs because, unlike human labor, computers and other machines aren’t covered by the Fair Labor Standards Act.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030​​​

I leave to the reader the task of working out the likely effects of the above first point on the affected workers’ (1) total annual pay, and (2) lifetime earnings.  I also leave to the (advanced) reader to identify an inconsistency between any minimum-wage advocates who also applaud Pres. Obama’s proposal for its likely consequence of reducing the number of hours worked (that is, for indirectly mandating ‘improved’ work conditions for these affected employees).

….

As I suggested yesterday, I have a very difficult time imagining the economic ‘theory’ that motivates proposals such as this one by Pres. Obama.  The best that I can do is to imagine how a two-year-old child would respond if asked to propose a way to raise workers incomes.

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