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Government Wage Mandates Bad for Business and Workers

Wage and hour mandates have seen an uptick of late at the federal, state, and local level. This year, at the federal level, the Obama administration dramatically changed the overtime rule. At the state and local level, 17 states made changes to its minimum wage laws since 2014 and “29 localities have adopted minimum wages above their state minimum wage.”

However, recent reporting and research reveal significant unintended consequences of government wages and hour mandates. Not everyone is a winner from raising the minimum wage or making more employees eligible for overtime.

Despite the messaging coming out of the Department of Labor and White House, the overtime rule is extremely unlikely to raise workers’ wages. For one, the DOL admits as much in its rulemaking. It claims the intended goal is to spread around employment. However, increased employment is improbable too. Reporting from Investor’s Business Daily shows managers are just more likely to punch a clock, not earn any additional income and companies are not looking to hire more workers.

CEO Dan Accordino of Carrols Restaurant Group (TAST), whose 717 Burger King locations make it the Restaurant Brands International (QSR) chain's largest franchisee, said that his company is "putting all of our salaried managers on an hourly basis."

Carrols anticipates no effect on the bottom line: "It will not cost -- I mean we're not going to change the compensation of the managers," Accordino said, according to a Seeking Alpha transcript. "We're simply taking (a) 50-hour work week or 55-hour work week ... and converting their current salaries into an hourly rate, assuming the overtime."

Other companies say they will raise prices to deal with increased labor costs, while some say automation is how they will deal with the new overtime mandate. Unsurprisingly, companies are not reacting to the new overtime rule by stating they will just take on greater labor costs.

Similarly, raises in the minimum wage have not garnered the benefits to workers that proponents claimed.

For example, Seattle is in the midst of phasing in its $15 minimum wage ordinance, which hit $13 per hour in January. One positive aspect of the law was it commissioned the University of Washington to study the impact of the minimum wage increase.

In the first report from the University of Washington (UW), it analyzed two questions: What changes has Seattle’s labor market seen since passage of the minimum wage ordinance? And more crucially, which of those have been due to the ordinance itself?

As reported by the Wall Street Journal, “the study notes that only an estimated 73 cents of the increase is owed to the minimum wage.” A rise in wages is mainly a contribution of Seattle’s thriving economy.

As UW stated in a press release:

Although the ordinance appears to have boosted wages for the city’s lowest-paid workers, the benefits of the increase may have been partly offset by fewer hours worked per person and slightly less overall employment, the Seattle Minimum Wage Study research team found. Estimated income gains for the average worker were modest – on the order of a few dollars a week – and sensitive to methodological choices.

In addition to causing a decrease in hours worked, the study found a slight reduction in employment.

As stated by the UW researchers, a strong economy is the best path to higher wages. Governments at all levels should take note of that conclusion. Instead of government meddling in the affairs of private businesses and individuals, government should remove itself from the equation by reducing regulatory burdens and excessive taxes.