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Another Obama fallacy and a new, binding constraint on voluntary private arrangements: in the latest example of administrative rule-making gone berserk, the Obama Administration (via The Department of Labor) is proposing a drastic change in the definition of an exempt employee, increasing the salary threshold for the exemption from $23,660 to as much as $52,000. This is likely to change the status of a large number of workers, but as Warren Meyer explains, not in the way the administration hopes.

Obama and his advisors imagine that this change will actually increase the incomes of a large number of workers — that employers will begin paying overtime to hard-working supervisory and administrative employees. Meyer quotes Politico‘s headline: “Barack Obama poised to hike wages for millions.” But employers are not indifferent to the cost of a given labor input.

As Meyer asserts, currently exempt employees who now earn a salary between the current and the new thresholds may well be converted to hourly, non-exempt employees. And those now working extra hours are likely to be working fewer hours under the new rules. In fact, they may well see their hours and incomes reduced. Some employers will be able to automate certain tasks to compensate for the reduction in labor input, as Meyer suggests. Or perhaps more part-time workers will be hired.

There is another issue at stake, however, in addition to the mere calculation of workers X hours X the wage rate. Meyer expresses disgust at the way the new threshold could change relationships between employers and certain employees. As he tells it, the change will convert ambitious young managers into clock-punchers. In case that sounds too much like a negative personality change, a more sympathetic view is that many workers do not mind putting in extra hours, even as it reduces their effective wage. They have their reasons, ranging from the non-pecuniary, such as simple work ethic, enjoyment and pride in their contribution to reward-driven competitiveness and ambition. Hours worked gives exempt employees an additional margin along which to prove their value to the enterprise. Obama’s proposal takes that away, which may penalize employees with less talent but strong ambition. Opportunity’s knock is getting softer.