Jobs & Labor Reform: Facts, Figures & Recommendations (Issues 2006)

Jobs & Labor

By Tim Kane, Ph.D.

The interaction between employer and employee may be the most important one in a nation’s economy. America is thriving—creating more jobs with lower unemployment rates than other industrialized nations—primarily because it has freer labor markets. Instead of pursuing economically corrosive policies to "protect" workers, lawmakers should emphasize what is right with the U.S. economy. History proves that protectionism of all kinds destroys prosperity and growth. Policymakers can and should continue to liberate both employers and employees from outdated and overly restrictive federal labor laws.

Recommendations

Enhance union accountability. Over the past 20 years, union membership has declined steadily from 20.1 percent of the workforce to 12.5 percent. Organized labor is disintegrating, partly because it is wedded to an older business model of large, lifetime employers. Unions too often fail to represent what contemporary workers actually want and have become bloated, political, and plagued with a combination of corruption and stagnation. To stem this decline, Congress should encourage and extend the Labor Department’s recent effort to enforce financial transparency through its LM-2 program, starting with hearings to highlight the findings so far. Congress should stiffen penalties for inaccurate or late reports, add an independent auditing requirement, and assure that workers have the final word—via secret ballot—on who represents them. Lowering the number of petitions needed to trigger union certification and decertification elections would make it easier for workers to bring in unions where they are needed and remove unions that have become corrupt or ineffective. Union membership and support should be an individual choice, based on an individual member’s best interests and conscience.
No bailouts. When big companies stumble, they instinctively turn to Uncle Sam for protection, but bailouts are a recipe for rewarding poor performance. A level playing field means that smaller companies should not have to fight against subsidized big companies with well-connected lobbyists or be subject to higher taxes to pay for the subsidies. Highly unionized manufacturers with troubled pension systems will turn to Congress in 2006 and the years ahead for special favors and tax breaks. They should be told to face the music and modify their business practices to be competitive in the free market.
De-federalize the minimum wage. Congress has not raised the minimum wage since 1996, and it is now undeniable that average wages have risen during that time, proving that a higher minimum wage is unnecessary. Over the decade, however, more and more states have raised their own local minimum wages so that nearly a majority of Americans now live in areas with a minimum wage that is higher than the national minimum. This state freedom should be celebrated, because state-level experimentation is how societies learn and improve their institutions. But why do states not have the equivalent freedom to lower their local minimum wages? The evidence indicates that states with high minimum wages have higher unemployment rates, which confirms what most economists believe. The Fair labor Standards Act should be amended to allow states the freedom to experiment with different labor regulations.
Make compensatory time available to all. The Fair Labor Standards Act specifies that when covered employees work for more than 40 hours in a given week, they must receive overtime pay. What if an employee would rather forgo the pay and instead take extra time off? Most hourly workers do not have this choice. "Compensatory time" gives workers the ability to accumulate paid leave hours (at time-and-a-half) for future use when they work overtime. Wider use of comp-time would give workers more control over their working hours, allowing them to balance the need for personal time against their work responsibilities.
Reform unemployment insurance. Research indicates that the current unemployment insurance (UI) program lengthens terms of unemployment for recipients. Congress should consider revising the way UI works, from modest consensus reforms to the introduction of private re-employment accounts. These accounts, which provide funds that workers may use as unemployment benefits, for retraining, or even as a bonus if they find work quickly, have the potential to increase the pace at which recipients return to the workforce, but caution is in order: Reform could take many paths and deserves more study—and especially more state freedom to innovate.

Charts & Tables

Chart 1:Employment/Labor Force Growth Over Key Time Periods
Chart 2: The Unemployment Rate