Paul Krugman, Now Mistaking Less for More

Nobel Prize-Winner Flubs Pretty Basic Question
The other story was about a policy change achieved through executive action: The Obama administration issued new guidelines on overtime pay, which will benefit an estimated 12.5 million workers.
What both stories tell us is that the Obama administration has done much more than most people realize to fight extreme economic inequality. That fight will continue if Hillary Clinton wins the election; it will go into sharp reverse if Mr. Trump wins.
Step back for a minute and ask, what can policy do to limit inequality? The answer is, it can operate on two fronts. It can engage in redistribution, taxing high incomes and aiding families with lower incomes.
It can also engage in what is sometimes called "predistribution," strengthening the bargaining power of lower-paid workers and limiting the opportunities for a handful of people to make giant sums. In practice, governments that succeed in limiting inequality generally do both. (Emphasis added.)

This is from Paul Krugman, "Obama's War on Inequality," New York Times, May 20.

It is clear from the context that Krugman is claiming that the new Obama regulation on overtime pay is an example of "strengthening the bargaining power of lower-paid workers."

He's wrong. It does just the opposite.

Krugman doesn't have to punch a clock. Probably the best way to help him see the point — if, as I doubt, he wants to see the point is to consider his situation with his employer, the City University of New York. Krugman is a salaried rather than an hourly worker, so he doesn't have to punch a clock, and no one is keeping track of his hours.

He can work on his lunch break if he wants, he can work on an airplane, he can work any time and anywhere. 

I don't know the specifics of his deal with his employer, but I am virtually certain of the above claims.

Imagine that you are making between $40K and $45K much less than Krugman's $225K. You are salaried. You don't want or need as much flexibility as Paul Krugman has, but you do want some flex. You want to be able to have an occasional long lunch hour some days and a short lunch hour other days. But this won't always works out to 40 hours a week. Some weeks you will work 38 hours, some 42 hours, some 45 hours, some 34 hours. You ask your employer for that flexibility, and your employer answers, "Fine, as long as the work gets done. And, in return, there might be times not often, but sometimes when you need to come in on a Saturday morning."

You think about that. You respond, "OK, as long as I can take a few hours off in a day, when there's a lull, but I guarantee that the work will get done." Your employer and you agree.

Is there anything in this story that sounds implausible?

What just happened?

You exercised your bargaining power.

Now someone who doesn't know you from Adam comes along and says,

Your agreement with your employer means that some weeks you will work 45 hours. In the weeks that you earn 45 hours, the employer must pay you for 47.5 hours. (Overtime rules require that the employee be paid time and a half for any hours over 40 in a week.)

You may think that those cancel out so that your average is 40 hours a week. Tough. We don't think the same way. Your deal is illegal. The employer must pay you overtime any week that you work more than 40 hours, no matter what happens in the other weeks.

Now the employer has to rethink his earlier agreement. Paying overtime wasn't part of the plan. He can adjust by lowering your base pay so that some weeks you earn less than before and some weeks (the weeks with overtime) you earn more than before. And he must keep track of all these hours, whereas he didn't before. He reluctantly goes along and cuts your base pay.

The arrangement has been altered. You might not like that. You have rent to pay in the 4-bedroom house you share with 3 other single people and you like the certainty of that weekly income. But now the employer, in response to that regulation, has removed that certainty.

Your bargaining power is now less. QED.

Cross-posted from Econlog.