Trump Cabinet brings fresh take on labor policy

While the outgoing Obama administration may want to claim that its economic policies were a resounding success, the reality hardly bears that out.

Gross domestic product (GDP) growth has averaged 1.2 percent during the Obama administration; the country has nearly $20 trillion in debt; real wages are stagnant; and, perhaps most damning, while the reported unemployment rate may only be 4.6 percent, much of the rate’s decline has come from the sharply falling labor participation rate that now sits at only 62.7 percent.

In other words, nearly 95 million Americans are currently out of the workforce, about 7 million more than in 2008.

The Obama administration’s policies carry much of the blame for this poor economic performance. Indeed, despite purported altruistic intentions, the Obama administration’s labor policies have been models of self-defeating goals.

At the top of the list is the Affordable Care Act (ACA).

Because the ACA requires employers to offer health insurance to employees who work more than 35 hours per week, in these tight economic times, companies large and small are scrupulously making sure that their entry-level personnel go nowhere near that hourly threshold. As a result, rather than encouraging firms to offer their workers sufficient hours to support their families, the Obama administration has created an army of part-time workers.

{mosads}The same can be said for the Obama administration’s overtime rule.

Under this rule, the Obama administration sought to force employers to pay time-and-a-half to their employees who worked more than 40 hours a week and who earned less than $47,476 a year. As with the Affordable Care Act, employers again became extremely vigilant to keep employees’ hours down so as to avoid any unintended financial surprises.

The rule also has legal troubles; the United States District Court for the Eastern District of Texas recently granted a preliminary injunction brought by 21 states against the overtime rule, finding that (1) if the case went to trial, a reviewing court would likely agree with the plaintiffs and find that the Department of Labor had exceeded its statutory authority; and, as such, (2) that the states would incur millions in needless compliance costs (irreparable harm) if the rule went into effect.

And let’s not forget the Obama administration’s effort to promote massive hikes in the minimum wage across the country.

When prices rise, the quantity demanded by consumers falls. The same is true for labor. Despite the apparent altruistic intentions of mandated higher wages, the harsh reality is that a dramatically higher minimum will correspondingly reduce the number of jobs or hours for entry-level labor.

The people hurt most are not the affluent suburban kids who would like a summer job at the local movie theater or McDonald’s, but the immigrant and unskilled worker who depend on such jobs to feed their families. As such, mandating massive hikes in the minimum wage has the perverse effect of cutting off the first rung of the employment ladder in the American dream.

Finally, we have the Obama administration’s radical expansion of the “joint employer” doctrine, which some describe as a naked payoff to big labor unions.

For the past several decades, the Labor Department has found that collective bargaining agreements made by a company with its unions do not extend to independent contractors unless it can be shown that said company can exercise direct control over that independent contractor.

In the 2015 Browning-Ferris case, however, the National Labor Relations Board reversed this precedent, ruling that even “indirect” or “reserved” control is potentially sufficient to establish a “joint employment” relationship.

While such a sweeping rule effects a wide range of industries, the Obama administration’s joint employer rule puts the local franchise model, one of the biggest drivers of small business investment in the American economy, particularly at risk.

Why? Because the assistance provided by franchisors to their local franchisees — training, computer software, advice, etc. — can be viewed as “touching” labor and thus exposing franchisors to joint employment.

As a result, the Obama administration’s convoluted interpretation of the joint employer rule could force corporate franchisors to enter into nationwide collective bargaining agreements with labor unions that would dictate the terms of employment to every small, independently owned local franchise operator without even giving these small business any seat at the bargaining table.

Given such onerous entry conditions, there would be little incentive for an entrepreneur to invest in a new local franchise business; to the contrary, many of these small businesses will close.

At bottom, the Obama administration’s ultimate fatal conceit is that it never grasped one of the simplest yet fundamental precepts of economics: Firms are not passive recipients of regulation. For every government action, there is a market reaction. And, as the evidence indicates, the Obama administration’s labor policies have not been good for the American worker.

Fortunately, there is now the prospect for positive change.

Labor markets are complex and sensitive to public policy. Good policy requires expertise, a fact President-Elect Donald Trump appears to grasp in light of his nomination of Andy Puzder as the next secretary of Labor.

As president and CEO of CKE Restaurants (the parent company of Hardees and Carl’s Jr.), Puzder’s knowledge and experience with labor is significant. Plus, he knows firsthand the pernicious effects of the Obama administration’s anti-job policies.

But Puzder is not just a successful executive; he has gone the extra step and thought about these complex issues deeply, going so far as to write a comprehensive book outlining policy recommendations to get America working again.

The end result of President Obama’s preference for loyal party apparatchiks with little or no real business experience (see, e.g., Obama’s choice for the secretary of Labor, former civil rights lawyer and Democratic politician Tom Perez) is plain to see.

Results, not intentions, matter to workers, and Obama’s labor policies are proven job killers. In stark contrast, the president-elect has decided to select several people for his Cabinet who have actually met payrolls — not only Puzder at Labor, but other proven businessmen such Rex Tillerson at the State Department, Steven Mnuchin at the U.S. Treasury and Wilbur Ross at the Department of Commerce.

A pragmatism honed in the rough-and-tumble world of business may be exactly what this country needs to regain its footing in a global economy.

So after eight years of stagnant economic growth, rather than repeat the mistakes of the past, perhaps we should all welcome a bit of fresh perspective in Washington.

Lawrence J. Spiwak is the president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a nonprofit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.

The views expressed by contributors are their own and not the views of The Hill.

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