The Labor Department rule, issued under the federal Fair Labor Standards Act of 1938 (FLSA), is set to take effect on Dec 1.
It’s exactly the kind of Obama administration regulation that Trump and congressional Republicans have vowed to repeal.
A new Congressional Budget Office (CBO) report draws a bulls-eye squarely on its back. It’s filled with plenty of ammunition to justify the move.
Here’s the kicker: Without the rule, corporations would see profits rise by $1.3 billion in 2017 and somewhat lesser amounts until 2020.
On the downside, abolishing the rule would reduce total earnings in the economy by $510 million in 2017, the CBO estimates.
But despite socking disposable income, the CBO report actually claims real family income would rise without the rule change. How does it arrive at that seeming leap in logic?
Although workers who qualified for overtime under the rule would see their incomes fall, the CBO estimates real family income would rise, overall, by $2.1 billion next year and between $1 billion and $1.7 billion in subsequent years.
Most of those gains, however, would go to families with business income. They make up the top fifth of family income distribution–in other words, the rich. Other families would see a small benefit through lower prices, the report says.
The rule change is designed to address changing employment trends. More corporations are shifting workers from hourly to salaried jobs, which have traditionally been exempt from overtime rules.
At the same time, they are requiring those workers to work more than the standard 40 hours per week. Some economists say the move not only allows companies to pay less for more work, but also puts a damper on hiring and reduces jobs.
Under the new rule, about 900,000 workers who regularly or occasionally work overtime would earn more–or work less–because of the new rule.
But the report suggest the benefits will be outweighed by the hit to corporate profits, while the overall benefit to the economy will be negligible.
Among its chief findings, employer payrolls would decrease with a concomitant increase in corporate profits. The report also notes that while employees would be working longer for less pay, family income would actually rise, adjusted for inflation.
The CBO reconciles that sleight of hand by arguing that corporations will be more likely to cut prices in the face of higher profits. But nothing suggests that companies wouldn’t just sit on the cash or use it for other purposes, such as acquisitions.
Canceling the rule would also act as a disincentive for companies to hire additional workers, because they would be able to squeeze more work out of their existing employees without paying for it. The CBO doesn’t address that point.
The devil is apparently in the details.
Right now, two thresholds–$23,700 and $100,000–determine who is eligible for overtime pay.
Salaried workers who earn less than the lower threshold would be eligible for overtime pay with only a few exceptions. Those who earn above the higher threshold would excluded if they perform executive, administrative or professional duties.
Under the new rule, those thresholds would rise to $47,500 and $134,000, The rule also requires those thresholds to be adjusted every three years, starting in 2020, to account for inflation and other economic changes.
If the new rule is cancelled by Nov. 30, private-sector companies would save $470 million next year in payroll, according to the report.
Workers, however, might see some benefit because employers might increase overtime hours, according to the CBO. Corporations might also be motivated to increase spending on capital goods, such as plants and equipment, although none of that is set in stone.
As a result the report estimates corporate revenues would rise by $860 million in 2017 and by lesser amounts in subsequent years through the elimination of compliance costs and benefits from higher capital spending.