Jeb Bush has created a flap with another statement about America’s workers. In an appearance in Council Bluffs, Iowa, on Tuesday, he said Barack Obama’s proposal to expand overtime pay to millions more managers and white-collar workers would result in “less overtime pay” and “less wages earned”.
Numerous economists attacked Bush’s statement, calling him woefully misinformed. And several studies on the rule contradict Bush’s assertion that the overtime rules would “lessen the number of people working”.
Daniel Hamermesh, a University of Texas labor economist, said: “He’s just 100% wrong,” adding that “there will be more overtime pay and more total earnings” and “there’s a huge amount of evidence employers will use more workers”.
Indeed, a Goldman Sachs study estimated that employers would hire 120,000 more workers in response to Obama’s overtime changes. And a similar study commissioned by the National Retail Federation – a fierce opponent of the proposed overtime rules – estimated that as a result of the new salary threshold, employers in the restaurant and retail industries would hire 117,500 new part-time workers. The study also warned that the overtime change could cost the increased US retail and restaurant industries $9.5bn a year, unless those industries made money-saving changes in response.
During his remarks Tuesday, Bush criticized Obama’s proposed overtime rules, which would extend overtime coverage to managers earning below $50,440 a year. Under current rules, employers can deny overtime pay to “exempt” salaried managers earning more than $23,660 a year. This meant that a $25,000-a-year fast-food assistant manager working 60 hours a week might not receive any overtime pay. (US law generally requires time-and-a-half pay for all hours worked above 40 per week.)
“It’s this prescribed top-down approach that is the wrong approach,” Bush said. “The net effects of the overtime rule will be, if history is any guide, there will be less overtime paid, less wages earned.”
Jared Bernstein, former chief economist for Vice President Joe Biden and a senior economist with the liberal Center for Budget and Policy Priorities, said employers might reduce the number of hours many managers work to minimize or avoid any overtime pay.
“If employers want to avoid overtime pay, they hire more workers on straight time and that creates new jobs,” Bernstein said. “Even staunch opponents agree with that and disagree with Mr Bush.”
In his Iowa remarks, Bush said the new rules would prohibit many bonuses. “If you want to give a bonus to a manager in your store or in your company, instead of requiring higher pay, this law won’t allow it,” he said.
Ross Eisenbrey, a vice-president of the Economic Policy Institute, a left-of-center research group, said: “Bush should be embarrassed about how misinformed he was.” Eisenbrey said the proposed rules do nothing whatsoever to bar employers from paying bonuses. “All of that is exactly wrong – and pretty much nonsense,” he said. Eisenbrey and Bernstein wrote a seminal article that helped persuade the Obama administration to change overtime rules.
Bush stumbled into hot water for another comment last week, when he said American workers “need to work longer hours” to earn more. When that statement was widely attacked by those pointing out that low-wage earners already work quite a bit, Bush insisted he was referring to part-time workers only. And many economists have said his statement that he could achieve 4% annual economic growth by increasing hours worked is pie in the sky .
According to the Labor Department, the new rules would expand overtime pay to 5 million additional workers and increase pay nationwide by at least $1.5bn a year.
Some conservative economists have argued, however, that the changes will result in no overall increase in earnings. They say companies would cut the salaries of exempt managers so that with their new overtime pay factored in, their compensation would remain unchanged.
Bernstein acknowledged that employers might reduce the base pay of some managers. But he added: “It’s wholly unrealistic to think companies will go to 5 million managers and say ‘We’re cutting your pay.’
“There will definitely be more wages earned,” he continued, “some by incumbent workers and some by new workers who will be working straight time.”
Economists agree that many managers will be assigned less overtime because companies dislike paying time-and-a-half. The result: many managers will have more leisure time.
Michael Strain, a labor economist at the right-of-center American Enterprise Institute, sympathized with Bush’s sentiments on the overtime rule. “In general what he seems to be saying is that this will place restrictions on firms, how they operate and how they structure their compensation packages,” he said. “In some cases the impact will be positive, and in some cases, negative.”
Strain acknowledged that the proposed changes could result in more employment – fast-food managers might have their hours cut to 40 a week from 60, and additional workers might be hired for 20 hours a week to handle some of their responsibilities.