Bill De Blasio's Bill

Monday, July 29, 2019
Image credit: 
lev radin, Shutterstock

Bill de Blasio, the much disliked mayor of New York City, has virtually no chance of winning the Democratic presidential nomination for 2020. And it is a good thing, too, because his grandiose Workers’ Bill of Rights is a sure-fire recipe for economic disaster. His proposal tampers with every key feature of employment law.

Mayor de Blasio believes employment relationships are a zero-sum game, and he wants to strengthen the position of workers against their employers by kneecapping the latter. He insists that employers be required to provide paid family leave, pay higher wages, and to treat all temporary staff as “employees,” so that they too receive statutory protections. Additionally, his proposal mandates that employers may only terminate employees “for cause.” These recommendations, among other changes, would strengthen labor unions. To de Blasio, for workers to win, employers must lose. He wholly misses that by his proposal their fortunes are linked together in a lose-lose embrace.

Several flawed assumptions undergird his Workers’ Bill of Rights. First, he repeats the common claim that the position of ordinary workers has stagnated over the past four decades. But this claim is rife with difficulties. The quality of goods and services has significantly improved over time—computers have replaced typewriters, and smart devices have made rotary phones obsolete. No one alive wants to go back to the 1970s. Wage measures cannot adequately capture quality and lifestyle improvements. Also, wages are a smaller fraction of an employee’s total income due to the rise of fringe benefits.

In addition, de Blasio misses how progressive policies have also slowed wage growth. Conventional wisdom mistakenly views unions as a positive force for wage increases. However, high union wages are unstable as nonunion firms undercut the competitive position of their employers in the marketplace for goods and services. The rapid decline in union membership to about 6 percent of the workforce in the private sector is not attributable to legal changes designed to thwart unionization.

In addition, wage growth and labor market participation has been more robust under President Trump than under President Obama. The protective legislation that Obama championed served as barriers to entry to marginal employees. Though Trump avoided that mistake, his perverse take on international trade barriers will surely filter through the economy, dampening both GDP and wage growth. De Blasio’s labor market proposals will not make matters better.

Consider his proposal that employers can only terminate their staff “for cause.” As I have long argued, the “at-will” employment contract is in wide use because the “at-will” standard is superior to the for-cause one. For starters, no one can offer a coherent and comprehensive account of what counts as “cause.” Would it be permissible to lay off workers in a declining market? After all, it could be poor management rather than worker weakness that accounts for the failure. A for-cause requirement imposes senseless administrative costs, which, when shared by employer and worker alike, drive down both wages and profits.

Mayor de Blasio worries that workers may be fired out of spite, due to invidious employer practices, including discriminatory treatment, or for any other whimsical reason. But powerful market and reputational forces punish firms that do these sorts of things. His own proposal that proudly trumpets that “employers can only fire workers for failure to properly do their job and only after appropriate warning or due process” necessarily relies on slippery terms like “properly” and “appropriate,” which are hard to apply, especially by a remote bureaucrat who may know very little about an individual firm’s culture and practices. This requirement imposes devastating restrictions not just on the worst of employers, but on the best of them as well. It’s doubtful that Mayor de Blasio could run his own presidential campaign under such rules.

The for-cause requirement also fails on distributional grounds. At present, employers are free to hire untested and often risky workers to “at-will” contracts because if they do not work out, the employers don’t have to choose between an unproductive worker and an unappetizing law suit. This is especially important in the start-up and gig economies, where high turnover rates are the norm given the countless midcourse corrections needed to revive a faltering firm or fine-tune a successful one.

The de Blasio proposal purports to give workers more security by reducing the risk of being fired. But in fact, the for-cause requirement negatively impacts workers in two ways. First, they will be more reluctant to quit their current position because they will have fewer job opportunities in the wider market, and most of those will come at lower wages. Second, the increased labor market rigidity will increase the risk of firm bankruptcy. Given the interdependence between employer and workers, any mandated shift in contract terms will only increase overall system risk, bringing both employers and workers down with it.

Mayor de Blasio’s proposal also mandates that employers guarantee paid vacations, sick leave, and leave for family emergencies. Such policies may make good sense for some employers if privately tailored. But workers who are guaranteed these benefits by law must accept reduced wages to fund their mandated benefits. Ultimately, what works for some firms may fail for others. Contractually, these arrangements only survive if they leave both sides better off than before. But if the government sets the wrong mandates, firms could fall apart.

For example, workers across many companies could take family leave for the month of April with little to no consequences. However, this would be devastating for tax and accounting firms whose employees are most needed during peak tax season. And may two key employees exercise that right at the same time? Must the firm guarantee work to any replacement worker? De Blasio only thinks of the supposed immediate benefits to an individual worker, ignoring the long-term threat that his mandates impose on firms both large and small.

De Blasio also wants to give workers in the gig economy the same protections of permanent employees. But freedom of contract is even more important in rapidly changing markets where no one quite knows the right set of terms at the outset.

In the gig economy, workers prize flexibility in choosing when, where, and how much to work. Many of them work on a part-time basis, pursuing other jobs, college degrees, or trying to meet special financial burdens. How could anyone apply maximum hour or minimum wage laws to these workers, when their contracts are always pegged to particular trips or tasks, and not to time? Does the time between rides count toward their hours? How are the idle hours between gigs to be allocated for drivers who work simultaneously for two or more carriers—to one firm, the other, or to neither? Does it matter whether they are having lunch or waiting for a call?

The point is, de Blasio’s proposal simply won’t work. No one claims that these markets are free from firm abuses, including forms of tip theft by employers. But the correct regulatory approach relies on focused responses to individual abuses, not comprehensive regulation that kills off market experimentation. The high demand for gig economy jobs is no fluke, and the effort to stop the excesses could kill off the entire business model.

Which brings us to his last two shopworn proposals: minimum wages and strong unions. Basic economic theory states that it is not possible to improve on the operation of a competitive market, which is what both of these regulatory approaches do. It is very difficult in the abstract to give an accurate account of the damage done by a minimum wage law because so much depends on the difference between the market wage and the minimum wage. Where that is small, employers and employees can work around it. But when the gap becomes large, the market shuts down, and the losses mount. It is worth noting that the low federal minimum wage of $7.25 per hour has been accompanied by a market which has resulted in substantial gains for teenage workers, low skilled workers, minority workers, and ex-convicts.

The story with unions is much the same. Unions are given local monopolies that allow for strikes, lockouts, and protracted bargaining costs. No firm works better when mandatory unions force them to deviate from sound competitive practices. But the level of damage generated by mandatory unionization increases with the heterogeneity of the workforce, the rate of entry of new competition, and degree of product innovation and worker turnover. All of these factors are on the rise, which is why unions are declining.

De Blasio fails to understand that successful markets depend on long-term stability, which generates gains to all parties. Markets require local information to let firms make the constant adjustments needed to preserve their businesses. Only voluntary relationships can provide that arrangement. Mayor de Blasio’s effort to impose a one-size-fits-regime fails in this regard, as in all others. His candidacy may prove a political blip. Let’s hope his bad ideas do, too.


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