Labor Lost a Friend

John C. Goodman
|
Posted: Feb 20, 2017 12:01 AM
Labor Lost a Friend

Last week, Andy Puzder, President Trump’s pick to become Secretary of Labor, withdrew from consideration for the post. That is a huge loss for American workers.

For those at the bottom of the income ladder, there is no better system than a free labor market. Adam Smith recognized that fundamental truth more than 200 years ago and economic studies ever since have confirmed it. Puzder understood this – both as an employer and a thinker.

As far as I know, Puzder would have been the first Secretary of Labor who has created thousands of private sector jobs – employing 20,200 at last count, through Hardees and Carl’s Jr. restaurants. Either directly, or indirectly through his franchisees, Puzder paid salaries, provided benefits and gave thousands of young people the opportunity to acquire the job skills necessary to reach the first rung on the ladder of economic success.

But Puzder was even more important for another reason. He would have been the first Labor Secretary who could have forcefully and articulately made the case that labor does best when government is held at bay. In other words, he could have explained to workers throughout the country that most of labor law is hurting, not helping, those who work for a living.

Alas, it was not to be. Instead of leading the Labor Department, he will return to the private sector. We lost a huge opportunity to introduce Washington, D.C. to the lessons of textbook labor economics.

Almost everything we have been told about government and labor is based on myths -- myths that persist, despite solid economic evidence. For example, we have been told for years that government is necessary to keep job sites safe. In fact, careful economic studies have shown that the Occupational Health and Safety Administration (OSHA) regulations have had no effect on worker injury rates or worker mortality. Keeping the workplace safe, it turns out, is one of the ways employers recruit good employees and retain them.

We have been told repeatedly that we need government intervention to prevent employers from discriminating against minorities and women. Yet when former Congressional Budget Office director June O’Neal and her husband reviewed the economic studies they found little evidence of that. Federal laws appear to have had some impact in the South on the wages of blacks in the early days. But throughout the rest of the nation and everywhere today, these laws appear to have no impact on the average wage paid to women, blacks, Hispanics and others. It appears that the wage you earn depends on your productivity. Not your sex or your race.

When Adam Smith was alive, medieval guilds (the forerunners of today’s labor unions) dominated urban commerce. They had the power to dictate who could and who could not be a butcher, a baker or a producer of dozens of other goods and services. The guilds set prices and wages. They curtailed output in an effort to extract monopoly rents. As Smith pointed out, workers at the bottom stayed at the bottom because of this exercise of economic power.

In his classic study, Economics of the Colour Bar, Professor William Hutt showed that South Africa’s white labor unions used their government-granted powers to suppress competition from black workers. The country’s equivalent of the minimum wage prevented blacks from lowering their wage offers in order to compete for jobs. Equal-pay-for-equal-work laws meant that employers suffered no economic penalty for hiring whites rather than blacks.

But we don’t need to go half way around the world to see effects like these. The historical record makes clear that the sponsors of the Davis-Bacon act, requiring the payment of the “prevailing (union) wage” on federal construction projects, was motivated by a desire to keep black workers from competing with whites for construction jobs.

As I have written before at Townhall, the economic evidence on the minimum wage is clear: it closes off job opportunities – especially for minority youths who most need the training and discipline that a first job can offer. It does almost nothing to lift households out of poverty. And it seems to serve no worthwhile purpose other than to help union workers price their less skilled competitors out of contention for jobs. Likewise, President Obama’s executive order forcing employers to expand the number of people eligible for overtime pay almost certainly hurt the very workers the regulation was designed to help.

This is not an argument for abolishing all of labor law. It is an argument for a careful cost-benefit analysis of existing regulations and a much more careful review of any proposed new ones.

The cost of all the paperwork, the administration, the legal fees and all other costs associated with labor regulation comes out of the pockets of workers themselves.

As Andy Puzder might say, these costs vanish in a heartbeat when you hire a robot.