When Pro-Business Is Pro-Labor

Have you ever wondered why there is a Department of Labor? Why isn’t the Department of Commerce enough to represent the interests of everyone in the business world? If something is good for commerce, that usually means businesses are growing and hiring and paying higher wages. Isn’t that also good for workers?

The idea that management and labor are invariably at odds is a Marxist idea. Which is to say, it’s outside mainstream economics. Similarly, the idea that government intervention can help labor in its struggle against management is also contradicted by what mainstream economists know. Labor market regulations that help some workers, often do so at the expense of other workers. More often than not, intervention makes all workers worse off.

This issue takes on new relevance with Donald Trump’s choice of Andrew Puzder to be the new Secretary of Labor. Puzder is the CEO of the parent company of a fast food empire that includes Carl’s Jr. and Hardee’s and employs some 75,000 workers. He is controversial because he has the idea that labor and management are no more at odds than department stores and the people who shop there.

Just as a shopping center brings together buyers and sellers of women’s lingerie, the labor market brings together buyers and sellers of labor services. In both cases, mutually beneficial exchange makes everyone better off. The fast food industry is highly competitive by the way. As one manager explained to me, “If you don’t pay the going wage or if you skimp on benefits or mistreat your employees, they’ll go across the street and work for your competitor.”

Puzder has the unconventional idea that government intervention in the labor market usually prevents labor and management from doing things that would be good for both. Most economists would agree.

The gig economy, of which Uber is the epitome, is a perfect example of an unregulated labor market. Because Uber drivers are independent contractors rather than “employees,” there is no minimum wage. There is no overtime pay requirement. Ordinary labor law just doesn’t apply. That means the EEOC is irrelevant, as is the Disabilities Act, OSHA and a host of other labor market regulations.

If you read the editorial page of the New York Times, you are encouraged to believe that Uber drivers are being exploited because they don’t have the “protections” that other workers have. In fact, I travel a lot and I use Uber a lot and I am in the habit of asking Uber drivers what they think. The results of my informal survey: out of every 15 or so drivers questioned, roughly 14 tell me that they prefer to be independent contractors rather than employees.

Those answers are remarkable when you stop to think about all the ways in which the tax law favors employment. For example, employers and employees can pay health insurance with pre-tax dollars, they can make more generous contributions to retirement accounts and they can take advantage of Flexible Spending Accounts (FSAs) to pay for child care expenses and medical expenses not covered by health insurance with pre-tax dollars.

Despite all those benefits foregone, what Uber drivers tell me they like best about not being employees is flexibility. An Uber driver might work 60 hours one week and only 10 hours the next, for example. They are completely free to integrate their work life and their personal life in ways that allow them to get the maximum benefit from both.

Ironically, President Obama and many Democrats in Congress want to bring an abrupt halt to this kind of activity. By arbitrarily extending overtime regulations to more workers, the Obama Labor Department wants to punish any worker who wants the same kind of flexibility Uber drivers have. Punish? Yes, punish.

As economists Scott Sumner, David Henderson and Don Boudreaux have explained in separate posts, there’s no such thing as a free lunch. If we applied the overtime rule to Uber drivers, for example, a driver would not be able to work more than 40 hours unless he is 50 percent more productive (earning 1 and ½ his normal income) in the extra hours.

The reasoning doesn’t change if an employer is involved. On the well tested theory that workers are paid the value of what they produce, over time regulations mean that workers won’t be able to work more than 40 hours unless they are 50 percent more productive in the overtime period. Or, if the demands of business require more hours for other reasons, employees can expect less pay and fewer fringe benefits to offset the additional pay required by the regulation – so that overall pay matches overall productivity.

Almost all labor market regulations are defended on the grounds that they are forcing employers to do something good for their employees. In fact, economics teaches that the full burden falls on the employees themselves.

A $15 minimum wage means that you are not allowed to work unless you can produce at least $15 of goods and services in an hour. If you are not that productive, expect less training, fewer nonwage benefits and other perks of employment. Mandatory sick leave and mandatory vacation pay forces employees to take their compensation one way, instead of in a way they might have preferred. These regulations also hasten the day when kiosks and robots substitute for human beings and our labor market looks more like France, where the unemployment rate for young people is 24 percent.

In an ideal world, buyers and sellers of labor services would be able to engage in mutually beneficial exchange without asking permission from government. Let’s hope President Trump and Secretary Puzder can help us move in that direction.