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Wednesday, August 17, 2011

Want to Increase Jobs? Eliminate These Laws

Politicians are always proposing new laws to fix problems. But what if we eliminated laws instead? What laws would you get rid of to decrease the unemployment rate?

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DM Andy said...

Is there any evidence that removing such laws would increase the employment rate?

If I were an owner of a business then I wouldn't employ more people than I needed to work there. If people are easier to hire then great, but where's the mechnicism for that leading to me hiring more.

In fact, it's possible that it'll work the other way. Employees may be more fearful of being fired and so will save more, spend less and decrease demand for products and services.

Switzerland's unemployment rate is currently 2.8%, a figure that the US can only dream of. In Switzerland there are serious obstacles to firing someone. In Switzerland you can't fire someone without cause, sickness is not considered a reasonable cause and any employee fired can take their case to a court for a judge to decide if it was fair or not. Added to that Switzerland has minimum vacation time of 4 weeks, maximum working hours of 45 hours/week and statutory maternity leave.

If you were right, shouldn't Switzerland have a worse jobs record than the US?

Ask a Manager said...

Switzerland is a significantly smaller country with a different culture.

EHRL, you are brave for taking this on. And I was glad to see you citing Reason Magazine -- I'm a huge fan (of both Reason and reason).

Suzanne Lucas said...

I waited a good week after the article came out to tackle it. I love Reason too. I'm not 100% on board with the article, of course, but thought it was full of interesting premises.

I've long wanted to abolish the FLSA. It brings nothing but trouble.

And DM Andy, I happen to live in Switzerland. Ask a Manager is right--the culture is SIGNIFICANTLY different. For instance, it's against the rules in our apartment building to do laundry after 10:00 p.m. or before 7:00 a.m. It's illegal in many towns to use the town parks between 12:00 and 2:00 p.m. Many apartment buildings have rules against flushing your toilet after 10:00.

They are the hardest workers you will ever meet--until 5:00 when everyone (and I mean Everyone except the expats) goes home.

And get this, they don't believe dandelions are weeds. Strange people, these Swiss folks.

They also have a myriad of different laws regarding money. The tax structure is completely different. The school system is different (you get tracked in 5th grade towards college or vocational and it is extremely difficult to move between the two). One of their major political parties is spectacularly and openly racist.

Their health insurance is very different than the American system. They also openly discriminate by age and gender in hiring.

Plus, every male is required to serve in the military and then keep his shooting skills up by re-certifying every year. Every Swiss household has a military grade weapon in it.

So, while I love Switzerland with all my heart and hope to stay here a long time (plus the Swiss Frank is very strong against the dollar), you would need to change a lot more than a few employment laws to emulate the Swiss.

Oh, plus the chocolate.

Mike C. said...

Uh, the reason people aren't hiring is because demand is down, not because there is a minimum wage or employees have some token protections against bad employers.

Tell me, why does Norway have a higher rate of entrepreneurship than the United States given their stricter laws? And don't give me the "it's a different culture" or "they're smaller", because I can just as easily point to individual states that have higher rates of employment "in spite of" increased protections. I also pointed out Australia and Germany.

Or lets go the other way. Somolia doesn't have any of the laws you'd like to see removed, and yet I don't see much job development there. Why is that?

Mike C. said...

And for an actual solution we either need to start a world war or reinvest in a modern Works Progress Administration. There is plenty that needs to be done from infrastructure maintenance to high speed rail and internet infrastructure that needs to be done. Allow the states to borrow from the Fed at their lower rate to tide them over like they do for the banks.

In the short term folks would have work and would be pumping money into the system and in the long term we would have more opportunities for new business growth.

See, we can improve things without having to resort to demeaning practices for employees.

DM Andy said...

Okay, I'll accept that Switzerland is a very different culture so I'll restrict my argument to the United States.

Twenty two states are right to work states, the other 28 (and DC) are not. Is there any evidence to suggest that the right to work states are any more successful at creating employment than the others?

Again there might be a cultural mismatch, the right to work states tend to be more Southern than the others. But it's hard to see from the raw data any pattern that proves your view. The state with the lowest unemployment (North Dakota, 3.2%) is a right to work state but so is the state with the highest unemployment (Nevada 12.4%). Montana (union, 7.5%) has a lower unemployment rate to Idaho (right to work, 9.4%), New Mexico (union, 6.8%) has a lower unemployment rate than Texas (right to work, 8.2%), Kentucky (union, 9.6%) has a lower unemployment rate than Tennessee (right to work, 9.8%).

To be fair, I've seen suggestions that the unemployment rate in right to work states in total is as much as 0.3% lower than in the others. But could a slight effect such as that not be down to the race to the bottom. That wouldn't be creating employment, just moving it around from place to place.

If you're going to suggest that employees should pray every day that their manager won't have a bad day and fire them then you really ought to have evidence and not blind prejudice.

Suzanne Lucas said...

DM Andy--actually, Investors Business Daily just did an analysis of the right to work vs forced union states. It's here:

They found RtW states are better off overall.

Mike, and where does the money come from for these public works programs? It has to come from somewhere.

If you loosen restrictions and clarify somethings like Health Care, you'll get more stability in the markets. More stability means people are more willing to invest money in businesses and people.

If I'm concerned that I may lose my job in the next 6 months, I'm probably going to put aside money into a savings account instead of using that money to go on a vacation. While it's good for me to have a savings account, if I went on vacation, my money would help pay the salaries of the hotel workers, waitresses, and any tourist attractions I may visit.

Mike C. said...


Yes, the money comes from the Federal Government. As I write, ten year t-bills are at 2.16%, and there are tax cuts that can be eliminated if you're that concerned.

Look, I agree the health care thing was a debacle. The fact that Medicare wasn't opened up to folks willing to pay the fees was a travesty. But you aren't going to create stability by getting rid of important employee protections. I can't imagine many young women of child bearing age are going to feel comfortable about their jobs when their employer can get rid of them for fear of becoming pregnant or the old classic "taking jobs away from men".

Look, you keep harping on government regulations, but you need to clearly tell me how it is that plenty of developed nations have way more regulations than the United States, such as Australia, Norway and Germany and are doing much, much better than we are at developing their economies in the aftermath of this recession. It flies directly in the face of your hypothesis.

Mike C. said...

Additionally, all of those nations have much higher union memberships - in Germany union/employee representatives often sit on the board of directors!

Why is Germany doing so well in the face of that?

Suzanne Lucas said...

Here's a link to a graph of German unemployment rates:

Now, here's a link to a graph of US unemployment rates:

You can adjust the US graph so that it covers the same time period. If you do that you'll see something very interesting--Germany's unemployment rate is lower than the US rate now, and has been for a few years. However, for many, many years the US rate was consistently lower than the German rate.

I would ask, what changes has the US made and what changes has Germany made in the past few years to get that flip-flop? I honestly don't know the answer as I don't pay a good deal of attention to German politics, but it's certainly something worth investigating.

DM Andy said...

I'm not prepared to give my credit card details to read the article. But there was a free version here which looks like the same article.

So, let's break down the evidence:

A lot of the article talks about the success of right to work states in attracting businesses to move to their state. That's not creating work, that's moving work from one place to another place and creating a race to the bottom.

Right to work states have generally lower unemployment rates and the article what I think was May 2011's data to say that right to work states have an average of 7.9%, and compares it to a national average of 9.1% but not to the average of union states. That's 8.2% (on July data), the reason for the surprising figures is that smaller states tend to have lower unemployment rates than larger states. I get a little suspicious of articles that cherry pick their data.

I've done my own look using July 2011's data (Excel or Mac Numbers file available on request) and found that population adjusted rates are 9.1% for union states and 8.8% for right to work states. That's not a huge effect given that right to work states are getting net jobs from other states.

Employment grew by 100% in right to work states and 56.5% in other states between 1977 and 2008 according to Richard Vedder of Ohio University. I could not find his report, but suspect that's raw employment numbers in a period when greater population growth was experienced in the South and Southwest. I would be very interested in seeing the data used and find it interesting that a report produced for Indiana Chamber of Commerce this year doesn't use up to date information, stopping it's time series just when recession hit. Is the 2008-11 data less favourable to the right to work argument?

Slightly playing the man instead of the ball, but Richard Vedder is a Adjunct Scholar at the American Enterprise Institute. This is important because Gordon Lafer, University of Oregon and Research Associate of the Economic Policy Institute claims that wages of people in right to work states is lower than
other states by $1,500 per year. Although Investor's Business Daily does quote Lafer, they don't reproduce any of his findings.

One last point. All the numeric data in the article supports the right to work case. That just feels like cherry picking to me.

DM Andy said...

By the way, I'm no expert on Germany so I don't know if it's the full effect but remember Germany reunified in 1990. At the point of reunification, East Germany had an unemployment rate of 0% because every economically active adult worked for the state. As the East German state apparatus was dismantled and it's industries privatised, unemployment in the East went up.

This late, I could only find a couple of data points, in May 2000, the rate was 16.9% in former East Germany, 7.5% in former West Germany. By 2005 1.4 million people had left the East for the greener pastures in the West, equalising the unemployment rates a little.

Maybe that helps?

Mike C. said...

@Suzanne -

The reason in the past few years at least is because the German government had a policy of subsidizing worksharing programs. Employers would take a cut by keeping on employees at reduced hours, and employees would have slightly reduced wages.

In the short term, employment remains lower, people need fewer social services and the cascade effect of demand being lowered is dampened because people are still employed and spending money.

In the long term once things start looking up it's trivial for employers to give additional hours and demand goes up. Employees are still in practice of whatever skills they have so retraining is kept at a minimum.

The whole point is that this was done without gutting worker's rights or removing regulations. It feels like many who are advocating for such policies are looking for ways to pocket a few extra bucks for themselves without any benefit to society or the economy at large.

Look, I'm no foe of free market systems, I feel like I need to make that clear. It's just that I've seen time and time again that the neutered state of our regulatory system means that those with a certain means (individuals and groups) are able to skirt the rules or shape them to be ineffective in the first place.

Like I said before, if a lack of government regulation is the one and only answer, then why isn't business booming in Somalia?

HRIS Systems said...

Are we sure eradicating these laws would be more beneficial, though?

Another Evil HR Director said...

No one is suggesting that all employment laws be dumped. However, there are 1000's of laws, both federal and state, that make being in business way more difficult and expensive than it should be. The cards are actually stacked against the employer.

An employer is required to enforce various laws. Many times that means taking action against employees who break those laws. Then, the employer essentially gets screwed when it loses unemployment claims, workers' comp claims, discimination claims, etc., etc., etc. because the government sides with the employee. Do you see the vicious circle here, Mike?

And, do you really see all the regulations that exist as "token" protection? I guess you're one of those people who feel your employer should behave as your parent and provide your every need, regardless of performance, regardless of market worth, regardless of anything that makes business sense.

Mike C. said...

@Another Evil HR Director:

Don't "guess" what it is that I do or do not believe. It's an incredibly lazy debate tactic. I've made an honest effort to say what it is that I believe and I expect that others do the same.

If you want to address anything I've actually posted, feel free.

Another Evil HR Director said...

Fine. So answer my questions. Do you feel that all the regulations that exist are "token" protections? Do you think employers should behave as your parent and provide your every need, regardless of performance, regardless of market worth, regardless of anything that makes business sense?

I've read many of your posts. Your position is always that the employer (and HR professionals) are akin to evil incarnate. That seems more than lazy to me.