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OPED: New overtime rules will slow an already sluggish economy
Question: “Should Congress leave President Barack Obama's new overtime pay rules intact?”
Before the advent of modern medicine, a patient who complained of feeling "run down" was a difficult case for physicians.
Splints treated broken legs, but a case of the "blahs" might call for the old standby — leeches — because the era's medical science dictated that bleeding was the best way to bring the "humors" of the body into balance. The irony was that often the prescribed bleeding hastened the patient's decline.
In today's economy, things seem out of balance. Administration policymakers have identified income inequality as the chief ailment; as a remedy for this imbalance, the White House has prescribed regulations akin to 18th-century leech therapy.
To date in 2016, regulators have approved 58 "economically significant" rules where the impact on the economy will exceed $100 million _ a record pace.
In fact, President Barack Obama has pushed through 41 percent more major regulation than his predecessor so far, and he still has seven months to go. Not surprisingly, instead of renewed vigor, the U.S. economy keeps getting ever more sluggish.
The overtime rule — or as Sen. Lamar Alexander, R-Tenn., called it, the "timecard rule" — is a case study in regulatory malpractice.
Perversely, it encourages employers to take work and responsibility away from highly motivated, experienced employees and transfer it to lower-paid, part-time workers. No wonder this economy cannot seem to shake its case of the blahs.
Looking more closely shows that the real benefits of the rule to workers are small. The administration's own data show only one in five of 4.2 million newly covered workers can expect overtime pay under the rule, and the remaining eligible employees are more likely to receive a demotion to an hourly job and a timecard.
Meanwhile, they will be losing the stability, responsibility, opportunity, benefits and flexibility that come with coveted salaried positions.
Worse, the Labor Department predicts that workers who do get overtime pay will first see base wages reduced by an average of 5.3 percent, and the net pay gains for these workers will be less than $20 per week.
While the benefits will be small, all of this federal interference in the workplace adds huge administrative costs.
Employers can expect to see over 2.5 million paperwork burden hours and nearly $2 billion in compliance costs in the first year alone. This is an alarming burden, especially for smaller businesses whose rate of birth has fallen below the exit rate of firms for the first time.
The real problem with the rules is that there is no new money to pay for them. As a general matter, the White House focuses on simply redistributing.
The real solution is better growth. In the last 50 years of the 20th century, our economy grew at an average rate of 3.5 percent annually. Since 2000, the economy has slowed to half that rate, and it has been 10 long years since we saw growth top 3 percent annually.
The most recent jobs report is a clear sign that things are not improving. While the data say that we are technically in a "recovery," to most Americans it feels like a steady decline.
Growth can cure big problems. As economist John Cochrane of Stanford's Hoover Institution notes, achieving annual economic growth of 3.5 percent instead of 2.2 percent — the CBO's current long-run projection would lead to annual real GDP and federal revenues in 2040 that would be 38 percent greater than under the current slow growth trajectory.
Faster growth also creates higher wages and relieves pressure on entitlement programs — all great things.
Steady application of regulation is draining life from the U.S. economy. Like old-fashioned medicinal leeches, regulations are not making it better, and it is time we realized that they are actually making things worse.
To start getting better, maybe our economy needs fewer leeches. Rolling back the timecard rule would be a good place to start.
Douglas Holtz-Eakin is the president of the American Action Forum and a former director of the Congressional Budget Office. His essay addresses the question: “Should Congress leave President Barack Obama's new overtime pay rules intact?”