Prepare to be fascinated. Last week I noted that a Texas judge had blocked the Obama administration’s new overtime rules. The basic issue here is simple: the law states that you’re exempt from overtime rules if you’re a “bona fide” executive, administrative, or professional (EAP) employee. But what does that mean? That’s up to the Department of Labor, which has always had a two-part test. First, you have to have the actual duties of an EAP employee. Second, there’s a salary floor: you have to make more than a certain amount. This is basically designed to keep employers from pretending that someone is an EAP even though they’re paying them peanuts.
The previous floor, set in 2004, was $23,660, or about $29,000 in 2014 dollars. The new rule raised that to about $47,000. The judge ruled that was too high. At $23,660, it made sense that no one under that level could possibly be a bona fide EAP. But at $47,000? Maybe they could.
Was the judge right? Jared Bernstein, who’s been deeply involved in this issue, writes today that he’s not. The basic problem is that the judge accepted the Bush administration’s number as gospel without considering the entire history of the salary floor. Adjusted for inflation, here’s what it looks like since 1940:1
The new level of $47,000 looks perfectly reasonable in historical context. In fact, it’s the 2004 number that looks way out of whack. But what if you use PCE instead of CPI as your inflation measure?
Now it’s the $47,000 number that looks like an outlier. Maybe the judge was right?
I don’t think so. As a matter of bloggy interest, we can certainly argue whether CPI or PCE (or some other measure) is “best” for measuring long-term inflation. However, they’re both widely used and perfectly acceptable in a broad sense. If the Department of Labor uses CPI, that’s a reasonable choice, which the court should give deference to under the Chevron rule. Beyond that, if DOL chooses to look at the historical record for the salary floor, rather than solely at the Bush administration’s number, that’s also reasonable and deserves deference.
Bottom line: the Labor Department set the salary floor in a reasonable way, backed by plenty of empirical evidence. (More empirical evidence than just the historical level of the salary test, I should add.) If anyone was out of line here, it was the Bush administration, not the Obama administration.
1The actual raw numbers are a little tricky to figure out. From 1950 through 1975, DOL used two different salary floors related to a “long test” and a “short test.” (Don’t ask.) As near as I can tell, the best fit to the previous floors is an average of the two, so that’s what I used. Bernstein has more on this here.