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.
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