A dismal May jobs report — where only 38,000 jobs were added to economy when 162,000 were expected — was the lowest mark since September 2010. Another sign that the economic recovery is still wavering is poor GDP growth. In the first three months of 2016, the economy saw a weak 0.8% growth rate, a decline from 1.4% from the last quarter of 2015.
In addition, labor force participation rate is back down near a 38-year low, with 94,708,000 Americans not in the workforce.
But maybe this shouldn’t be a surprise, since the two main federal labor agencies have perversely been waging a regulatory war on work.
New regulations from the Department of Labor (DOL) and National Labor Relations Board (NLRB) impose huge costs and much uncertainty on employers, and that deters job creation and business expansion.
Congress should do something, such as using its power of the purse to stop agencies from enforcing those harmful rules. But unfortunately, it looks like Congress is going to miss a golden opportunity to rein in those harmful mandates.
On June 7, the Senate Labor, Health and Human Services, Education, and Relations Agencies Subcommittee finished the funding bill for the DOL and NLRB. Absent from the bill is any provision for defunding enforcement of costly regulations, even after strong words from Sen. Lamar Alexander, R-Tenn., and Speaker Paul Ryan, R-Wisc., against the DOL’s new mandate on overtime pay.
To their credit, Sen. Alexander and 43 other Republican senators did file a resolution of disapproval under the Congressional Review Act in an effort to roll back the overtime rule. Yet, the resolution will face a presidential veto, and realistically Republicans cannot muster enough support to override the veto. With an appropriation rider to void the overtime rule, Republicans would have had a better chance of success at blocking the regulation.
How bad is the overtime pay mandate? It was publicly billed as a plan for giving workers a raise, but the fine print of the actual regulation states that raising wages is not one of its main policy objectives. Meanwhile, unintended consequences of the rule abound.
Wages cuts will make up for 80% of overtime costs, according to U.S. Bureau of Labor Statistics economist Anthony Barkume. And many salaried workers on a management track will be demoted to hourly status, which means a loss of benefits like paid leave, flexible schedules and bright career opportunities.
It is also extremely costly for employers to familiarize themselves with the new overtime rule.
The DOL estimate pegs the administrative costs at $677 million in the first year, but other projections predict much higher costs. Instead of employers investing in innovation that increases productivity, the overtime rule forces employers to deploy resources to comply with the rule and track employee hours.
But the overtime rule isn’t the only problem. Another missed opportunity not addressed in the labor appropriation bill is the NLRB’s unprecedented rewriting of joint employer liability. The NLRB abruptly ruled that companies may be held liable for labor violations committed by another employer they contract with — like franchisees, contractors and temporary staffing agencies — even if they do not have direct control over the separate entity’s workforce.
How bad is the joint employer mandate? Exposing large companies to increased liability and associated costs can only have an adverse impact on job creation and small business. To avoid liability, businesses may take a variety of actions, none of them good.
For example, large businesses could bring back in-house non-core functions they commonly outsource to improve efficiency and productivity. In the franchise industry, the parent company may take direct control over operations of franchisees or close stores.
These options would take away opportunity from entrepreneurs that want to start a small business. In December, analysis from FRANdata, an information and analysis provider to the franchise industry, projected that at least 40,000 small businesses in over 75,000 locations would be put at risk from the NLRB’s new joint employer standard.
Jobs are also on the line. Expanding joint employer liability means big businesses will be less likely to contract with small businesses, which drive job creation. According to the Small Business Administration, small businesses have provided 66% of all net new jobs since the 1970s.
These are just a couple examples of federal labor agency action that are impeding economic growth and recovery, which Congress could have dealt with in the appropriations process. Congress should have tried harder to save jobs and job creators from these costly and misguided rule changes.
Originally posted to Investor's Business Daily.