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Working Overtime

Lynne Fremont
04:02 PM ET (US)
Well, I got an increased return this year. I sure hope that doesnt mean that I have to become a Republican ;)
Aaron LarsonPerson was signed in when posted
10:07 AM ET (US)
Today, Bob Hebert asks why workers aren't getting any increased return, despite record levels of productivity.
Lynne Fremont
06:38 AM ET (US)
Yeah, it is particulary frustrating for tech workers who want to unionize. Not that that happens very often but there are some groups who do want to do that.
10:36 PM ET (US)
In California, many tech jobs were classified as 'creative' work that puts them into the exempt category. Nice trick, that.
Lynne Fremont
02:33 PM ET (US)
That used to be true. But these days, lots of tech workers have been classified as non-exempt. In fact, I seem to remember some new rule that hourly workers who make more than $40/hour dont get time and a half pay. $40 is certainly a living wage and would put folks into the optional overtime.

Naturally once those tech jobs are outsourced out of the country, we wont have the problem of having hourly workers with high wages ;)
02:21 PM ET (US)
I think most people who get a paycheck with the little FICA printout on it, and do not otherwise have experience getting deductions or otherwise reducing their taxes, do indeed see it as Big Bad Gubmint Taking My Money.

I doubt it reduces their overtime, though. People who are non-exempt and benefit from overtime are generally not in an income bracket where such extra income is optional.
Laura Larson
09:59 AM ET (US)
Let's assume a ladder.
03:15 AM ET (US)
Personally, I live in Britain. Higher tax rates don't stop me from working overtime. I work any overtime available, not because I'm going whoop-de-doo about the rate of tax, but because I have an overdraft that's getting out of control and I need to earn every penny that's available.
Lynne Fremont
10:22 PM ET (US)
Heh. I wouldnt be surprised if that was the Bush Administration's advice to employers. I wouldnt be surprised because it is totally stupid!

I dont think your typical wage slave thinks about payroll taxes at all. In a way, since they represent a cost to the employer, they are sort of part a person's wage. At least when figuring demand. But since people dont see those taxes, they dont make the connection that those taxes have anything to do with them. That is if they even realize those taxes exist.

Just about everyone I know who went from a salaried position to doing contract work where they had to pay their own matching taxes was very surprised at how much they had to pay. They also were surprised at how much all their fringe benefits cost.
Aaron LarsonPerson was signed in when posted
08:43 PM ET (US)
Sure, people pay attention to their net wage. Typical wage slaves look at it, shake their heads, and say "I can't believe how much I pay in income taxes." Then they realize that despite their low incomes they're Republicans, and say, "Oh, silly me - most of this is in the form of payroll taxes, which (although determined by my income) aren't income taxes, making me a lucky ducky".

But if you ask that person "How much do you make an hour", they will invariably respond with their gross wage. And that's how virtually all people think about their wages.

Wasn't the Bush Administration's advice to employers who have to pay overtime something along the lines of, "Offer them a lower hourly wage, so the average hourly wage doesn't go up"?
Edited 03-30-2004 08:43 PM
Lynne Fremont
06:56 PM ET (US)
I think people do pay close attention to their net wage. It's the number on the pay check after all. But of course, you are correct that most economic models are based on the premise of "perfect information" which just doesnt exist in the real world.

I am not sure I would be surprised if many lower income workers who have health insurance premiums deducted have lower take home pay than their European counterparts. I am not sure how much that would play into any decisions to work overtime except that it could put them in a situation here they need extra money more than they otherwise would. The thing is they would be paying the same amount for health insurance no matter how many hours they worked. So a higher wage (and the time and a half) might really encourage workers to work the overtime.

Personally I like the time and half labor laws because they discourage employers from working people over 40 hours. Well to some degree and as you mentioned that doesnt even have any effect on salaried white coller workers.
Aaron LarsonPerson was signed in when posted
06:08 PM ET (US)
I'm aware of the economic argument behind the model Ignatius seemingly endorses. However, I simply don't think people are that rational or calculating in their determination of how much to work. To the extent that people base their decision on how much to work on their wage, it is their gross wage, not their net wage. By way of example, people who qualify for overtime peay speak of earning "time and a half" or "double pay" - I have yet to hear one express a consideration of the tax impact on the overtime wage. People get excited about getting a "tax refund" or disappointed when they don't get one - even though a "big tax refund" means that you floated Uncle Sam a big interest-free loan over the course of the tax year.

Also, I would not be surprised if many lower income workers who nonetheless qualify for an employer-subsidized health plan have significantly lower take-home pay than their "higher taxed" European counterparts after their "contribution" is deducted from their paycheck. So they work extra hours not for the joy of "low taxes", but so that they can afford to have both medical insurance and food and shelter.
Lynne Fremont
03:11 PM ET (US)
Oh and I forgot to mention...

A lot of times, people dont have a huge choice about their hours as you have pointed out. They can either work 40 hours or nothing. And that complicates the labor models a lot. I was just explaining a pretty basic simple model that doesnt take into consideration all sorts of things. I am aware of that so you dont need to point it out to me ;)
Lynne Fremont
03:03 PM ET (US)
It is hard for me to explain this without drawing pictures but....I'll give it a shot.

Consider a person as a business. What do they sell? Their labor. But, for every hour of labor they sell, they have to give up an hour of leisure. Generally in a simple model, the higher the wage, the *more* likely a person is to give up that hour of leisure. So, in that sense, lower taxes which have the same effect as a higher wage would encourage people to work more. This is the substitution effect and in *simple* (i.e. hypothetical) labor market models, it is considered to be more significant than the income effect.

The income effect has a lot to do with dimimishing marginal returns. If you are already working 40 hours a week, giving up an extra hour of leisure hurts more than if you were only working 20 hours a week. Also, at some point, people with high incomes decide that they have enough money for everything they want or need so even though their wages might be pretty high, they often cut back on their hours. If I were drawing this for you, I would draw a labor supply curve that is backwards bending.

So what Mr Ignatius is missing is that lower tax rates (which would effectively be the same as raising wages) on the POOR would probably result in increased productivity. But it would have the opposite effect on people with more money. If one wanted to impliment a public policy that would encourage American workers to work more (and I cant really see any benefits to that), one would lower the taxes on the poor and raise them on the rich. Somehow, I dont think that was what this guy was getting at.
02:09 PM ET (US)
How does he explain away the French?

Perhaps Americans work more hours because our mandated vacation time is less. If our government made employers give us a full month off a year, I suspect those of us who could, would take it.

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