A recent article in American Thinker by Eileen F. Toplansky lucidly explains how the standard provisions of Obamacare, plus additional “rules” (i.e. executive orders) made subsequently by the president’s pen and Blackberry, created a negative economic situation and then made it worse. As has been the case with central planning interventions into the economies of socialist nations across the world over the last century, the Obama administration’s tinkering with the American health care system has needlessly created more problems than it solved.
To understand how companies used to compete with each other to attract and retain valuable employees, as well as understand how governmental interference into this process with idealistic but clumsy, counter-productive regulations takes some study and patience. However when we take the time to examine the details, we begin to see how businesses’ self-preserving actions make sense, while the government’s counter-proclamations end up actually hurting the American workers they are trying to help. Toplansky’s article, which I’ve reprinted below in its entirety, does an excellent job of making the complex understandable and is well worth the read, as are her supporting links.
Beware Obama, the Benevolent (by Eileen F. Toplansky)
When President Obama stages a photo op to publicize signing a measure he claims will “help” American workers, you can be almost certain that “unintended consequences” will outweigh any intended benefits. Lacking even an elementary understanding of how a market economy works, he only makes things worse.
In an effort to avoid the Obamacare mandate, many companies reduced workers to fewer than 30 hours per week. This reduction of employees to part-time status continues to cause endless difficulties. Employees have fewer hours and less income than they want, and employers have a harder time staffing their companies. But the Obama administration continues to expand its grip on all aspects of American life.
In 2014, the Labor Department proposed that under the Fair Labor Standards Act, about five million U.S. workers [would be] newly eligible for overtime pay by more than doubling the salary threshold. This change is already being felt by many companies and now it will extend to colleges and universities.
How do businesses react? In some cases, “employers may attempt to convert these workers to an hourly wage, lowering their pay in the process so that their total weekly compensation, including overtime, remains constant. Other workers, whose salaries are just under the exemption threshold (expected to be $970/week in 2016), might see a small bump in their weekly pay to raise them above the new threshold.”
Some employers are apt to restrict workers to 40 hours per week in order to reduce overtime costs. Since the cost of compensation for regular (non-overtime) work should not change significantly as a result of these rules, employers would have an incentive to hire more part-time or full-time employees to make up for the lost overtime hours. Furthermore, because of the “duties test” managers may “be robbed of their flexibility” to assist with non-managerial parts of a job, thus impacting business operations.
In 2015 Corey Stern of Business Insider, confirmed that the change to overtime rules could have a slightly more important effect on payrolls than paychecks, “since employers will want to avoid paying time-and-a-half for routine work, they may opt to limit overtime work and hire new workers to make up the difference.”
In 2014 John Hayward explained that “[t]he number of people who must be paid overtime will increase by an estimated 10 million, delivering a staggering blow to smaller business operations, especially coupled with ObamaCare costs and a minimum-wage hike.” In fact, “[i]t will, of course, backfire hideously, as overtime opportunities grow more scarce for all employees, increased labor costs are passed along to consumers, and it dawns on business managers that they can minimize the mandatory overtime risk by cutting hourly wages. But it’ll sound real good to voters. President Obama wants to give you a raise.”
And in his usual sleight of hand, Obama will claim that total employment has risen but this is merely because the companies are responding by hiring more part-time employees to offset the new overtime rule. And round and round we go.
For companies with revenue of more than $500,000, the overtime change could add a painful cost — one effect will be that businesses “will simply pass the cost along to customers.” So, if “prices are raised as a result of this, how does that help the economy?”
Christine Mai-Duc explains that “the National Retail Federation said few workers would actually see bigger paychecks. ‘There simply isn’t any magic pot of money that lets employers pay more just because the government says so,’ said David Frenchon, NRF senior vice president for government relations.” Furthermore, “[t]he U.S. Chamber of Commerce said the new rules would especially hurt small businesses.” In fact, employers are “much more likely to cut wages and bonuses or reduce hours to avoid paying overtime.”
George Leef maintains that the Fair Labor Standards Act is not only unconstitutional “but [it] also encourages coercive federal meddling in matters best left to voluntary processes of competition and contract.”
This is vintage Obama style. First he denies people full-time status via Obamacare with the result that people make less money and now, he claims he will give people more money by changing overtime rules — the consequences be damned.
This is a recipe for disaster. Where is all this money supposed to come from? As the renowned economist Walter E. Williams repeatedly reminds us, “government is not a source of wealth.” By aiming his sights at businesses, yet again, Obama refuses to pay attention to just what creates wealth. As such, we all suffer from his animus toward the free market system.
Concerning the effect on colleges and universities, Melanie Trottman asserts that
[s]chools across the country are bracing for a surge in personnel costs as they prepare for the Obama administration’s overhaul to overtime-pay rules.
While the rule will apply to employers of all kinds, higher-education institutions say their missions and circumstances mean they’ll be hit in ways that other types of employers aren’t. School officials, who say they’re under pressure to keep a lid on tuition, have warned of cuts in student services, degree offerings and labor-intensive research [.]
Some schools have decided to give raises in order to avoid the overtime. Sounds terrific to a leftist utopian. But the “University of California school system, . . . faces “a $39 million-a-year tab for raises to avoid paying overtime to thousands of postdoctoral scholars, librarians and specialists.” The University of Iowa says it would limit work hours of staff. And a state university in Missouri could cut some employee benefits.” Then there is a “whole class of workers who aren’t even subject to the overtime-pay regulation, including many at colleges and universities who have teaching responsibilities, such as professors.” Will their status eventually change via the new regulations?
Thus, “Vanderbilt University in Nashville, Tenn., calculated that nearly half its employees would be eligible for overtime pay, up from about a third now. It would cost about $7 million a year to increase salaries of the newly eligible workers to keep them exempt from the rule — or more than $9 million to switch them to hourly employees logging 10 hours of overtime weekly.”
Postdoctoral scholars, librarians and specialists will be affected. For example, “[t]he University of California said . . . it would have to boost salaries for about 70% of nearly 12,000 workers classified as postdoctoral scholars, librarians and specialists to avoid the hassle of having to monitor and pay for these postdocs’ overtime hours.” Consequently, the increased costs would place enormous strain on the university’s budget.
Students are already burdened with onerous debt. The Obama lie of wanting to assist the American middle class is once again exposed and his claim that he wants to rein in student debt becomes yet another prevarication.
So Obama the Benevolent takes away and then allegedly gives back — all the while causing havoc and, of course, making it harder for businesses, the middle class and overburdened students. But the photo-ops show a smiling President exclaiming what a caring compassionate man he really is. What we have here is yet another power grab by America’s most rabidly leftist socialist President. The left operates by creating chaos. First it was businesses, then it was the health care system, and now it is the educational system. Most decidedly, “Obamanomics is bizarrely insistent on the belief that making labor more expensive prompts businesses to purchase more of it, no matter how often that belief crumbles upon contact with reality.”
When the market economy cannot develop of its own but is manipulated by government sanctions, it creates disequilibrium. It results in unintended, often negative consequences but, in Obama’s case, it is quite intended. This translates into economic autocracy, that will continue to hurt America in the long run.