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I simply cannot remember an Oval Office quite so devoid of economic thinking. The latest example is the pending regulatory change, announced yesterday, which would raise the salary level above which certain classes of workers would be exempt from receiving overtime pay. Accordingly, the overtime pay requirement would be extended to vastly more workers. As the White sees the labor market under current rules, “a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay. It’s even possible for employers to pay workers less than the minimum wage per hour.”
Wow. Suppose that the market-determined competitive salary for such workers putting in 50-60 hours per week is say, $750 per week, or $39,000 per year. (For purposes of clear thinking about this issue, the actual number does not matter.) Assume now that such work were to require only 40 hours per week; does President Obama actually believe that there would be no change in the competitive market salary? In other words, it is rather obvious that the market-determined salary reflects the long hours that some workers must devote to their jobs: a requirement for harder work, other factors held constant, reduces the supply of workers willing to provide it, thus raising the market salary.
Accordingly, market competition does see to it that hard work is rewarded. Perhaps outside observers believe that the additional salary is insufficient. Perhaps they would not choose such work without a larger reward. Perhaps they believe that those who do accept the competitive market salary are irrational in some sense. But until we have some “objective” measure of “fairness”—a mirage if ever there was one—only market competition can tell us the value of extra-hard work, in the form of prices determined by millions of individual choices made freely.
Jason Furman, the Chairman of the Council of Economic Advisers and one of the very few people in this administration able to think clearly, obviously knows this elementary truth. It will be amusing to hear his rationalizations in support of the administration stance.
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