Labor and the State: A Lesson in Counter-Productivity

Like many speakers, as a starting point for anecdotes, or as an establishment of credentials, I sometimes start out my lectures by mentioning how long I’ve been with my current employer, how long I’ve had my license, or how long I’ve been in my industry. Last week, I caught myself as I mentally added up the latter, and realized that I have been in the workforce now for forty-four years.

But it is probably a story worth recounting, particularly when Labor Day rolls around, because as I think back on my time in the workforce, one can’t help but conclude that this country has become a much, much worse place for workers over these several decades.

What’s that, you say? Not possible? In the past 44 years, OSHA has issued reams of regulations to make our workplaces safer. The EPA has issued reams of regulations to ensure that our workplaces’ furnaces burn cleaner and their scrap and other waste is safely handled. The Department of Labor has divided itself up into countless agencies to track and clock and report and research our workplaces, all, no doubt, with the best of intentions, to make workers happier and more successful. So how can I say that the result of all this well-intended progress is a net negative for the American worker?

I was raised on the south side of Evanston, just two blocks from Chicago’s Rogers Park neighborhood. I attended St. Nicholas’ parish grammar school in central Evanston; my parents both worked in Chicago. Dad worked downtown, and took the Howard El every day. Mom worked part time, in Rogers Park.

Mom’s job was very convenient for a mom who wanted to be part time. Just a few minutes’ drive from home, she ran the import desk at a family-owned liquor distributorship. The hours were great: 9am to 6pm, three days a week.

The challenge was that I got out of school at 2:30, and these were the days before schools offered after-school programs or daycare programs. But there was no problem, as this was a business owned by family friends who already employed the kids of a couple other employees. I could work there with Mom for those hours.

So it was that I would take the city bus as soon as school let out at 2:30, and ride into town to be at my little desk in the wine department by 3pm. I would work from 3pm to 6pm, filling out forms on wine imports, using rubber cement to affix wine labels to BATF wine approvals, for Mom to marry up with her Customs forms. Some days I had three hours of work to do at my desk; when I was done in two hours, I emptied ashtrays or garbage cans, whatever I could do to make myself useful.

They paid me sixty cents an hour, which may not sound like much, but it was 1971 and I was an eight-year-old kid. Three hours a day, three days a week, this worked out to $5.40 per week. After the cost of the one-way bus trip (I went home with Mom), it was still over four bucks… a fine wage for nine hours of work in those days before Carter-era inflation for a little kid without expenses!

A grown man with a family could not have housed, fed, and clothed his family on sixty cents an hour, even in the early 1970s. But that wasn’t what I needed. Outside of the rare eight-year-old who can star in a hit sitcom or movie, eight-to-twelve-year-olds (I worked there for four years), simply aren’t worth a head-of-household salary. But they don’t need one, do they? They need education and experience.

This arrangement – which the company offered to several of their employees who didn’t have a daycare option for their youngsters – was essentially the gentlest, best possible kind of apprenticeship. Where old apprenticeships would have set a ten-year-old in front of an oven, a lathe, an anvil or loom, this one had a comfortable child-sized desk in an air conditioned office, just five feet from the kid’s mom or dad.

And it gave me – and the several other kids of the proprietor’s family members and other employees who had the same deal – a wonderful chance to learn a trade in the best of conditions at an early age.

We did not do this for the money. We wouldn’t have been worth even whatever the government calls a minimum wage at this point. But we learned a skill. In my case, filling out these government forms – wine label approvals and other import documents for BATF, FDA and Customs – was a starting point for what was to become my career in Customs brokerage and international transportation.

When I give a class today on Customs regulations such as international transactional valuation, product classification, origin marking and agency regulations, I can honestly speak with the authority of someone who’s been doing it his entire life. And I can honestly reassure my audiences that it’s not as daunting a task as it may sound; when I tell them that, with practice, an eight-year-old kid can do it, I’m speaking from experience!

Governments – and the cheerleaders of government known as statists – seek to set values for every job. They try to look out from their perches in Washington, D.C., and convince us that a job must pay a certain standard price, even a “living wage” – whatever that is – oblivious to the fact that there are vast differences in the cost of living between city and suburb and farm town, between a single employee and a married father of four, between an expert established in his career and a youth just finding his way in the world of work.

My 60-cent-an-hour part-time job as a youth was, in many ways, the best job I ever had, because it spared me from being a latchkey kid (walking home to an empty house three afternoons a week) and because it introduced me to the career I now enjoy.

Modern enforcement of child labor laws and similar regulations make it impossible for any but the smallest of family businesses to offer this kind of an opportunity, and the world is a worse place for that limitation.

At its most basic core, a business exists for one reason: to produce a profit and thus employ its owner(s).

Whether you’re setting up a shoe repair shop or a restaurant or a factory or a bank, the goal is to deliver a quality service that will bring in lots of paying customers, and to manage the costs of delivering that service in a way that enables a positive delta between cost and revenue.

Over the timespan of my career – I’ve been in the fulltime workforce for thirty years, but because of my early start, I’ve been working for forty-four – I’ve witnessed a lot of changes. These changes may have been well-intentioned, and many of them have indeed been beneficial, but they’ve undeniably made the business’ job of managing that cost-revenue delta much more of a challenge. Consider:

Governments – both federal and state – have set minimum wages for a long, long time. Like most destructive elements in American government, these things really took off during the New Deal. In 1940, the minimum wage was 40 cents an hour. In 1947 it was raised to 75. It hit a dollar in 1955, and by the time I started working in 1971, it was $1.60. All along the way the federal government gradually increased the number and types of businesses subject to these controls, and gradually increased their levels of enforcement as well.

With full enforcement of the minimum wage, my mom’s employer could not have continued to have kids helping their parents. Trebling the cost of each employee would have made this an unaffordable extra for them. We kids would just have wound up being latchkey youths, and when we started legally looking for part time jobs at sixteen, we would have done so without experience. As it was, I was able to get a part time job – on the books and fully legally – at sixteen, with plenty of experience, setting me on the path to my current career.

Every economic study shows that increasing the minimum wage kills jobs. Cities such as San Francisco and Seattle, which have recently jacked up their local minimums to $15/hour, have seen jobs flee in record numbers, as fast food restaurants automate their ordering processes and businesses move to the suburbs as soon as their leases end.

The minimum wage is well-intentioned – no question about it – but it is terribly destructive.

Another area that has received greater attention over the decades is the effort to keep children out of work. Again, there are excellent reasons for this. The ghastly conditions of many 19th and early 20th century factories, reported by the journalists of that era and emphasized by unionizers and populist politicians, did indeed require reform. There were textile mills, clothing factories and coal mines with ten year old kids suffering through twelve hour days. It made sense to crack down. The government of an “affluent society” should not tolerate such abuse.

But the problem with allowing government to regulate such things is that it cannot effectively distinguish between the employers that would be dangerous to children and the employers that would not be.

My situation was the safest possible environment. Nine hours per week that did NOT interfere with my schooling…. heat in the winter and air conditioning in the summer… working alongside a parent at a desk my own size. This had literally nothing in common with a kid operating a sewing machine for 12 hours in a sweatshop, or hauling coal in a dangerous mine.

But the law sees only our ages, and bans millions of kids from this opportunity. As companies grow big enough for the regulators to notice, they now have to withdraw their old offer to employees of letting their kids help out at the office, gently learning the trade.

Another of the brilliant ideas of the Depression – this one actually predated the New Deal, being named for and signed by pseudo-Republicans James Davis, Robert Bacon, and Herbert Hoover – is the concept of the prevailing wage, as instituted in the Davis-Bacon Act.

The prevailing wage is a method of ensuring that businesses don’t win government contracts by being competitive. In fact, as the nation sank into depression, government work became more and more desirable, so contractors with power sought to exclude their less-connected competitors from these precious bids.

Davis-Bacon – and similar laws at the state level – decree that the union wage in an area must be paid to all workers on government contracts. This is – by any sane definition of the term – a violation of the theory of anti-trust law in the private sector. It’s an exclusionary program, designed to keep government-funded jobs from going to non-union companies (in fact, at the time of its implementation and still to a lesser extent today, Davis-Bacon was essentially an anti-black provision, though it’s doubtful whether the politicians who first supported it realized the racist motivation of the unionized companies that pushed them to support the laws).

In anti-trust law, companies cannot collude to set a common price floor, because it’s bad for the consumer. Davis-Bacon and its children are legal only because anti-trust law doesn’t apply to the government, but it has the same effect: a legally mandated prevailing wage bars the government from saving tax dollars by selecting a non-union bidder who offers the same (or superior) quality at a lower price. The taxpayer suffers, and the unconnected bidder suffers as well because without being forced to compete on price, the established and connected bidder has an insurmountable lead on government bids.

Over the period we’re discussing – the changes in the labor market from the 1960s to the present – Davis-Bacon has been assaulted many times, but has never been defeated. And it has done more damage than ever before, simply because of growth in the volume of government contracts.

A century ago, these United States were still relatively compliant with the Founding Fathers’ belief in a small government. Their goal was – as the modern conservative and libertarian goal remains today – to enable the limitless potential offered by limited government.

But as government has grown, so too have government projects. Every federal roadway and bridge, every federal office building and parking lot, every federally-contracted engineering and construction job, every federally-contracted supplies acquisition – must fall under Davis-Bacon unless it qualifies for a rare exception. States too have grown in size; states with prevailing wage laws – such as Illinois and Wisconsin – overspend their tax dollars by somewhere between ten and forty percent on every project by being forced to disallow non-union bidders from consideration (the wide range caused by the gulf between labor-heavy projects and materials-heavy projects).

Davis-Bacon and its children have therefore made this a harder country in which to start up a new business or grow an existing one. As government has grown and the private sector has stagnated, more and more of the contracts available are government contracts; more and more of those are therefore skewed to favor the established and connected. This is not the legacy our Founding Fathers intended for us.

The federal government, and now most states as well, gradually established new regulatory agencies over the 20th century. As the mission creep of our once-Constitutionally-limited government proceeds apace, Congress writes a ten-page law, and some agency writes a thousand pages of enabling legislation to explain and enforce it.

So the best of intentions results in a permanent bureaucracy with a permanent cost to the economy. Some of this is worthwhile; much of it is not, and is in fact counterproductive, largely because government simply does not know when to declare victory and stop.

In the 1960s, cars and trucks produced a lot of pollution and burned up a lot of fuel. So in 1975, the feds produced the Corporate Average Fuel Economy (CAFÉ) standards to force automakers to redesign engines and exhaust systems to burn cleaner and more efficiently. Within a decade, the catalytic converter and better designed systems enabled better gas mileage and a vast reduction in pollution. But the government doesn’t know when to stop. They keep promulgating ever-more expensive, ever-more pointless requirements, rather than stopping after the great advances of the early years.

In any efficiency program, you eventually reach a point of diminishing returns. American government agencies surpassed that point decades ago. Today, most of their efforts are far more destructive than any hope of helpfulness, due to the resources required by both the private and public sectors for compliance and enforcement. It costs a mint to keep this massive leviathan operating, and that dead weight being pulled by a struggling private sector is killing us.

In our childhoods, we are all taught the advantages of saving when we’re young. Our fathers sit us down, when we’re teenagers or college students, or when we get our first full time jobs, and have that Serious Talk, in which they explain how saving even a small amount when we’re young can become a huge amount by the time we retire. The longer a good thing is in place, the longer it can work its magic for your benefit, whether it’s an investment account, an apple tree, or an education.

Unfortunately, we don’t often consider the corollary as it applies to government and economics.

When government institutes a regulation (outside of the very few that incorporate a sunset provision from the outset), that regulation becomes a permanent fixture in our society. It requires brick and mortar buildings, employees, supplies, and all the societal costs that accompany such things. More taxpayer dollars to allocate to fund it directly… more non-taxpaying area for the police, fire departments and roads to serve it at the cost of the local and state governments where it’s situated.

And most of all, more of a regulatory burden to teach the private sector to obey.

The burden of these regulations adds to the cost of doing business, a different level for every business, but it has a terribly destructive effect. A company needs to pay employees to fill out forms, compile figures, give classes… employees who would otherwise be involved in the productive manufacture and sale of the companies’ goods are now doing things for the government without compensation. They are a drain on the company, not a benefit.

Again, we must stress that not all government regulations are harmful. Most are well-intentioned, some are absolutely imperative (like the HazMat transportation regulations in 49CFR 171-178, for example). But so many others remain in existence long after they’ve outlived their usefulness. We in Illinois must still have our auto emissions tested at expensive testing centers, even though any purported need evaporated thirty years ago.

These agencies take on a life of their own. They never go away, they just add ever more burdens to the manufacturing community.

First there was one form, estimated at a day per year. Then another form, estimated at another day per year. Then another, and another. Then some mandated training, then some mandated reports. Then another form. Always just estimated at a few hours of work, or a day of work, or just a couple days of work. It all seems so inoffensive, so manageable.

But when you add it up, you see that these government mandates are like the compound interest of investment. They grow; they replicate, they eventually require whole departments to manage internally, or force companies to hire outside compliance experts to provide the service of regulatory compliance at a huge fee.

The statist would beam with pride and say “See, we’ve created work for these compliance experts!”

But the economist looks with horror and declares “No, you’ve just poked holes in the bottom of the boat, more and more holes over the years, draining out the resources of the business, making it ever more difficult to stay afloat!”

As a result, whole industries have fled the United States for countries with fewer regulations, lower taxes, fewer restrictions on hiring and management. You can’t blame them. You can only blame a regulatory environment that has lost its way, a bureaucracy that has transformed from being a pathway of good intentions into being a highway to hell, leaving ever-fewer job and career opportunities for us all.

The solution is simple, and undeniable. We need government at all levels – federal, state, and local – to focus on identifying the myriad government-instituted burdens on the American workplace, all the dead weights of government that reduce job opportunities and drive companies out of business or out of the country, and start sunsetting those destructive programs and agencies.

John F. Di Leo is an international trade lecturer and trainer. An area chairman of the Maine Township Republican Party in the 1980s and county chairman of the Milwaukee County Republican Party in the 1990s, he has now been a recovering politician for eighteen years (but, like any addiction, you’re never completely cured). While the family business mentioned at the beginning is left unnamed, the author is eternally grateful to the opportunity they afforded him in his youth, and wishes the government could be made to understand the damage it does to its citizens by restricting their ability to take advantage of such opportunities today.

Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included. Follow John F. Di Leo on Facebook or LinkedIn, or on Twitter at @johnfdileo or his own site at JohnFDiLeo.com.

In my youth at age 12, I became a newspaper boy for the Philadelphia Evening Bulletin in Ocean City, NJ. I had to be bonded because in addition to delivering and collecting the newspaper, I was also collecting ‘insurance’ money for funeral expense policies. The concept of ‘minimum wage’ and bicycle delivery of newspapers never crossed anybody’s mind in those days. In spite of various moves I delivered newspapers until I finished High School.

If there are still bicycle delivery of newspapers today, I don’t know where they are. Did I gain by that job? You BET YOUR SWEET PATOTIE! A missed delivery was misery yet being stiffed for payment was my problem. Learning to handle a job at a young age forms character that lasts a lifetime!

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