A new study from a free market think tank suggests that employers will not respond well to a proposed overtime rule by the Obama administration.

The report from the Mercatus Center at George Mason University says that employers will likely cut wages and hours if the federal government raises the threshold at which an employee can be exempt from mandatory overtime pay from $23,600 annually to $50,440.

Employees whose hours or pay have been cut will react by taking on second jobs, the report predicts.

Echoing a criticism that has been made of efforts to raise the minimum wage, report authors Donald J. Boudreaux and Liya Palagashvili predicted that raising the overtime threshold so significantly might result in more automated services.

The authors also charged that raising the overtime threshold significantly would bring workers who should be salaried under an hourly wage regime. They specifically highlighted tech startups, saying that a tough overtime regulation would make it hard for innovators to get their businesses off the ground.

“Given that the birth of start-ups is on a decline and the death of startups is at a peak, we believe it would be unwise to further hamper the technology start-up market by adopting the proposed regulation,” they wrote.

Forcing companies to shell out more money in overtime might reduce their ability to offer workers incentive-based pay, such as bonuses.

“By eliminating or reducing these bonuses in response to the expanded overtime pay mandate, employers lose an important tool for better ensuring adequate worker performance,” said the report.

Finally, the study hit back on allegations from the Department of Labor (DOL) that raising the threshold will advance worker health by incentivizing employers to avoid making employees work overtime. The average overtime load for U.S. employees is only 3.3 hours, the authors pointed out, arguing that that would not make or break somebody’s health.

Instant Insights /

Free market group outlines potential consequences of overtime rule

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