The economic - and spiritual - cost of regulation zealotry - today's edition

Here's another example of the cause-and-effect sequence discussed in yesterday's post about Uber and Lyft exiting Austin, Texas.

Andy Puzder at Forbes brings us today's case study:

Today the Labor Department released its new overtime rule requiring that employers pay overtime to salaried managers who earn less than $47,500 per year, doubling the previous threshold of $23,660. Labor Secretary Tom Perez is promoting it as a means to increase middle-class wages claiming that “the overtime rule could… help millions of workers get back into the middle class.” As with the Obama Administration’s other efforts to regulate their way to economic prosperity, it will not deliver as promised.

The Labor Department claims the rule will benefit roughly five million employees and raise overall wages by around $1.3 billion. But this is a static calculation that simply counts up the number of affected employees and mistakenly assumes that employers will accept the increased labor costs associated with such a regulation and make no moves to avoid or offset them. 

The real world is far different than the Labor Department’s Excel spreadsheet. This new rule will simply add to the extensive regulatory maze the Obama Administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere. In practice, this means reduced opportunities, bonuses, benefits, perks and promotions. 

The consequences Perhaps the biggest consequence of the rule is that it will cause some employers to reclassify salaried employees as hourly, and set schedules so they can more easily track hours worked and avoid excessive claims for overtime. For example, taking a manager’s current salary and allocating it across 45 hours (with 5 hours of overtime pay) will result in no increased labor expense or increased salaries. However, it would mandate five hours of overtime, rather than allowing managers to take advantage of the flexible schedules they currently enjoy. 

Most employers incentivize their managers to run the businesses they manage like they own them with salaries and incentive compensation including performance-based bonuses rather than overtime pay. Owners set their own hours and work the hours necessary using their best business judgment rather than a schedule set by a superior. For many beginning managers, this new rule will reduce or eliminate that flexibility and the bonus potential associated with good performance. Turning highly sought-after entry level management careers into hourly jobs where employees punch a clock and are compensated for time spent rather than time well spent is hardly an improvement on the path from the working class to the middle class.

In the case of Austin and the ride-sharing services, the services pull out when new regulations are imposed. In the case of Wendy's, food-ordering kiosks replace counter people when a higher minimum wage is imposed. In the case of mandated overtime pay,  employees' incentives to work toward manager positions are diminished.

But more basic than these economic consequences is a principle that has spiritual implications. Government telling a private organization how to conduct its operations is tyranny, pure and simple. And if people are not free to form organizations and run them as they like, the second greatest gift bestowed on them by their Creator after their lives is rendered meaningless.