Law versus ethics: how the new overtime pay rule will play out

In any discussion of ethics , someone is bound to bring up the law: it is okay to do something if something is not against the law. The logical conclusion of this belief is that ethics is irrelevant in the presence of the law.

The recent stories relating to minimum wage and the overtime pay rule changes (for example, link) argue strongly against such a point of view. The law has stipulated that non-managerial (i.e. lower-wage) workers must be paid 1.5 times salary for any overtime work. The Obama administration has now raised the maximum salary to be considered non-managerial from ~$24,000 to ~$48,000. This reportedly will raise wages by $1.2 billion annually.

This rule change is designed to combat gaming of the existing rule. Employers avoid paying overtime by just paying employees above the $24,000 threshold and calling them "managers" even though they aren't managing anyone or anything. If you have to pay someone 10 hours overtime per week at $24,000 base salary (i.e. $12 hourly @ 50 weeks a year, 40 hours a week), that means paying an extra $180 per week, or $9000 annually. So the employer saves up to $8000 by paying this employee $25,000 and calling the position a "manager".

The new rule changes the numbers/thresholds but keep the structure in place. It will just lead to another round of gaming.

According to the article, some employers are already scheduling meetings with employees to change their compensation packages. It's clear that some employers will elect to hire more part-time help, and others may just adjust base pay, and still others will find ways to nullify the revised rule. Fundamentally, the allocation of profits between the employees is a zero-sum game. Whatever is paid to workers is not paid to corporate management.

The other issue is one-size-fits-all. It's surprising that this wage level does not vary with geography or industry. There is a practical problem here. Pay levels are not publicly available so it is hard to create granular rules, much less to monitor them.

This takes us back to ethics. I don't believe that purely legal approaches will solve the problem of fair pay for workers. Fairness is pitted against self-interest/greed. One positive result of the rule revision is to generate discussion around this topic. Any discussion should include ethical considerations.

The same kind of gaming rules affects many predictive models. The Google Pagerank algorithm is a way to estimate the "importance" of any given webpage. It is quite a powerful scoring mechanism because most people reportedly do not scroll past a few pages of results. Thus, there is a "land grab" for the first-page real estate on Google and other search engines. An entire cottage industry known as SEO/SEM has arisen, which promotes a bag of tricks to game the algorithm. Even though Google does not disclose the full details of the algorithm, this doesn't stop gaming because you can reverse-engineer the algorithm to a certain extent. The gaming defeats the original intention of Pagerank which is to surface the most relevant content for users. More rules lead to more gaming but more discussion of ethics will help.

Comments

[Jonathan]

An example: people spend huge amounts of time talking about the NFL's catch rules and how they need to be clarified without realizing that any clarification will most likely lead to new issues of catch or not. You don't mention the graphical aspect but I assume you think about that: a rule defines a shape in which probability functions and can be mapped. Change the rule and you get a new shape, which highlights the fact that rule changes don't have zero effect. I think people tend to assert that because they think more linearly as though raise this rate, this behavior changes and they cancel, when in fact behavior maps much more complexly.

I sometimes wonder if outside of physics and mathematics is there a rule which can exist without qualification and thus gaming. As in, thou shalt not kill ... but of course we justify killing in myriad ways. Sort of a Goedelian question.

[Ken]

Ethics and the law are two separate things. That is why different people can reach different ethical principles. For example there is an ethical position that some people take that it is wrong to perform experiments on animals that we would not be prepared to perform on humans. I think that is the position of Peter Singer, and Australian philosopher at one of the major American universities. The law has a different position that the requirements are lesser for animals.

What we would like is for our laws to reflect our ethical principles. This is what we usually do. We decide that it is ethically wrong to steal or murder and have laws that back that up, to make sure that people behave ethically. Hopefully we will eventually make some things that also are ethically wrong criminal, for example removing money from a company when it should be obvious that in the future it will go bankrupt as a result.

The gaming of algorithms is similar to the problem of benchmarking. The tend to get sed a lot in government funded areas such as health and education. As an example, in Australia we have an evaluation of research output. This has a lot of problems relating to how it is constructed. It doesn't matter how many authors a paper has, it counts as one publication in that research area, so I'm encouraged to do lots of collaborative research with other unis. Academics are also either counted as researchers or not if they are less than 40% research. So what is happening is more teaching only academics and more full-time researchers destroying the model of how a traditional uni works.

Spiegelhalter who now works a lot with risk but previously was involved with benchmarking and WinBUGS has commented that one of the major disasters in a UK hospital happened because all the administrators were focussed on was their benchmarks, not on how their hospital was operating.

[maryjane]

great information.