Labor Law and Overtime

by Jack R. Jones
Originally published on md.lp.org, 30 December 2011

Abstract

An economic problem for labor that many cite is the minimum wage as being not high enough (Liberals) or too high (Conservatives) or should not be one (Libertarian). I personally think the over time law is a greater problem than the minimum wage law and is an unintended consequence causing labor’s depressed wages.

Labor Law: Overtime and its Unintended Consequence

In my opinion, there needs to be a change in the overtime law. The 1930 labor laws are outdated and in need of revision. They are a problem in that they were written to a particular and traumatic time, and in my opinion biased toward corporate privilege. Most of my fellow libertarians favor picking on the minimum wage law as the most problematic, however, after some thought about it, I think the overtime law has created more of a problem by way of creating a fixed mind-set about the workweek.

My thoughts on this over time have lead me to the opinion that the overtime law has done more to depress wages and job opportunity than the minimum wage law.

My reason for thinking this is based on a study reported on by the Association of Part Time Professionals in the early 1980’s. The study showed that the workweek had steadily declined from 72 hours per week at the beginning of the Industrial Revolution in England until it went flat at 40 hours per week from the 1930’s through the 2000’s. Had the trend continued we would now be in the range of 20-25 hours per week, however, we are still around 40 hours per week. The ceiling of 40 hours as the start of overtime has had the unintended consequence of also being the floor to the length of the workweek. Note that anyone who works less than 40 hours per week is said to work “part-time” 40 hours being “whole time” instead of just working “X” hours per week. As economic efficiency has allowed more production per worker in a 40 hour per week job there is a decrease in the number of workers needed. Given that there are two ways to absorb the efficiency, fewer workers per hour or fewer hours per worker, we need to look at which one is least complex economically. I believe fewer hours per worker will lead to full employment and therefore a lower need for government provision of social safety nets.

I think that a “free market” effect could be achieved by changing the positive feedback loop of overtime law to a negative feedback loop to stabilize the economy by changing the law to have counter balancing set points based on unemployment and inflation. I would suggest that the overtime would apply to all employees, that is converting salary into wage. If one cannot get the job done in the allotted time then the worker has exceeded their ability or the job is too big and another worker is needed. Management will have to decide which case it is and not simply opt to get more work for free.

My Proposal:
Each year the unemployment rate and inflation rate could be used to adjust the next year’s overtime point by decreasing or increasing the hours at which overtime pay begins, see the chart below.

% Unemployment % inflation
0-0.9 ==> -1 hour 0-0.9 ==> +1 hour
1-2.9 ==> -2 hours 1-2.9 ==> +2 hours
3-5.9 ==> -3 hours 3-5.9 ==> +3 hours
6-9.9 ==> -4 hours 6-9.9 ==> +4 hours
10+ ==> -5 hours 10+ ==> +5 hours

For example, in a given year the over time law is at 40 hours; inflation, say is 1%, raises the overtime to 42 hours; and the unemployment, say was 6%, decreases the overtime to 38 hours for the coming year. Should the conditions remain the same the following year, overtime will start at 36 hours. Thus the overtime hour will decrease until the point that higher wages from jobs chasing workers causes enough inflation to start increasing the work week. What the actual unemployment, due to job changing, is can set the rate lower than the 0.9 if experience shows it to be so.