I note in this essay the curious fact that part of the Obama administration’s sales pitch for this new diktat is the prediction that a government-imposed hike in employers’ costs of employing workers will cause employers to further economize on the employment of those workers. While the administration’s prediction of just how such economizing will play out is unrealistic, the administration is here correct to realize that employers respond to higher labor costs by further economizing on the use of those workers who are now more costly to employ.
This prediction that Uncle Sam’s new overtime-pay diktat will cause employers to further economize on the use of now-more-costly labor is offered by the Obama administration without fanfare or discussion. This prediction is offered as if it is the obvious result of straightforward economic analysis. Again, in this particular matter the administration is correct: the demand curve for labor slopes downward to the right. Labor made more costly will be used more sparingly.
Yet this correct Obama administration prediction is wholly at odds with the administration’s – and with countless pundits’ and professors’ – insistence that raising the minimum wage does not cause employers to economize on the use of the workers who, because of the higher minimum wage, become more costly to employ. Indeed, when some ‘unprogressive’ economist predicts that a government-imposed hike, through minimum-wage legislation, in employers’ cost of using low-skilled workers will cause employers to further economize on the use of such labor, accusations fly that such a prediction is nothing but the result of ideological blinders or of a simplistic application of ECON 101 to complex reality.
Progressives sing their own scientific praises for being free of the simplistic dogma that allegedly leads ‘unprogressive’ economists to predict, without prior and confirming empirical investigation, negative employment effects of minimum wages. “We are more data-driven than thou!” boasts the Progressive to the ideological simpleton. (Of course, in reality this boast is unwarranted; it reflects the boasting Progressive’s methodological naïveté.) “We do not dare,” continues the boasting Progressive, “to make any claims about the effects of changes in costs until and unless we find in the empirical data evidence of such changes.”
So, where are the Progressive economists on the matter of this overtime-pay diktat? Why do they not – in response to the administration’s data-free prediction that employers will further economize on the use of workers whose employment becomes more costly to employers – hurl accusations of ideological blindness, or of policy-making done unscientifically, at Pres. Obama, Labor Secretary Perez, and the mandarins in the Department of Labor? Where is the hard empirical evidence that the administration’s prediction is justified?
Liya Palagashvili’s and my longer study of this new overtime-pay diktat is here .