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Fed Reacts to Job Reports, Why Doesn't Department of Labor?

We had another jobs report below expectations this morning, coupled with a rare revision downwards of last month’s jobs report. This ends a summer of jobs reports that have revealed just how soft the economy is.

The economy added just 142,000 jobs last month, well below economists’ expectations of 203,000. Moreover, the numbers for August were revised downwards by a substantial amount—37,000—which is something that usually only happens during recessions. Hourly wages even went down, albeit by an insignificant penny.

The economy looked like it was regaining momentum earlier in the year, but that is now lost. There had been hints that the Federal Reserve might move to raise interest rates as early as its October meeting, but as Politico reports, that seems unlikely now. The Federal Reserve, for all the mystery that surrounds its operations, at least takes account of current market conditions.

The same cannot be said of the nation’s employment regulators like the Department of Labor and the National Labor Relations Board. Both bodies have made moves over the past few months that make flexible working arrangements difficult. Thereby, they have discouraged both businesses from hiring and workers who would prefer flexible arrangements from getting the working conditions they want. Examples include:

  • The Department of Labor’s interpretation of the Fair Labor Standards Act*, which essentially says that most independent contractors have to be classified as employees, and therefore subject to a host of cost-increasing regulations.
  • The Department of Labor’s proposed overtime rule, which will significantly increase costs on businesses that promote from within if they wish to encourage aspirational staff to work longer hours. (The likelihood is that hours will be cut instead.)
  • The National Labor Relations Board’s decision on “joint employer” classification and its impending rulings on franchises and contingent workers. These decisions threaten business models that sustain 8.5 million jobs across the U.S.

With this regulatory onslaught ongoing, it should not be surprising that job growth has slowed (although there are clearly many other factors at work as well).

Nevertheless, we know that the Fed adjusts its policies to try to keep people in jobs as part of its dual mandate. Janet Yellen might want to have a word with Secretary of Labor Thomas Perez as to why he is making her job harder.

*This is, by the way, an excellent example of “regulatory dark matter.”