Estimating the Economic Impact of Repealing the FLSA Companion Care Exemption

Labor Law Journal, Vol. 63 (Fall 2012)

59 Pages Posted: 7 Mar 2012 Last revised: 1 Dec 2012

See all articles by Jeffrey A. Eisenach

Jeffrey A. Eisenach

NERA Economic Consulting; American Enterprise Institute

Kevin W. Caves

Econ One Research

Date Written: March 6, 2012

Abstract

Section 13(a)(15) of the Fair Labor Standards Act (FLSA) exempts companion care providers from the FLSA’s minimum wage and overtime provisions, while Section 13(b)(21) exempts live-in workers from its overtime provisions. In December 2011, the Department of Labor proposed to substantially narrow both exemptions, and published a Preliminary Regulatory Impact Analysis (PRIA) which estimates the proposal would have a de minimis effect on both output and employment. We examine the PRIA in detail, and find that it systematically understates the direct costs of the proposed rule in terms of increased wages and various other compliance costs, and understates both the elasticity of demand for companion care labor and the elasticity of demand for companion care services. Specifically, we formally estimate the elasticity of demand for companion care labor, and find demand to be elastic (Ɛ = -1.18), which differs significantly from the PRIA’s estimate (which we show to be erroneous in any case) that demand is highly inelastic (Ɛ = -0.15). Our analysis suggests the deadweight losses from the proposal would far exceed the PRIA’s estimate, and that the costs of the proposal would likely exceed the benefits.

Suggested Citation

Eisenach, Jeffrey A. and Caves, Kevin W., Estimating the Economic Impact of Repealing the FLSA Companion Care Exemption (March 6, 2012). Labor Law Journal, Vol. 63 (Fall 2012). Available at SSRN: https://ssrn.com/abstract=2017109 or http://dx.doi.org/10.2139/ssrn.2017109

Jeffrey A. Eisenach (Contact Author)

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-448-9029 (Phone)
202-466-3605 (Fax)

HOME PAGE: http://www.nera.com

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

Kevin W. Caves

Econ One Research ( email )

United States

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