Seeing Some of the Unseen Effects of Imprudent – and Officious – Labor Regulations

by Don Boudreaux on May 21, 2016

in Regulation, Seen and Unseen, Work

My friend Mike Long sent the following to me by e-mail, which I share here with Mike’s kind permission (ellipses are original).  (Mike’s note is in response to the U.S. Department of Labor’s newly imposed overtime-pay diktats.)

Others have probably commented on this possible effect of the new overtime rules but I haven’t read anything. In addition to more automation, I predict that these rules will accelerate the trend of companies outsourcing more and more work to contract labor vis a vis the “gig” economy, eventually eliminating almost all hourly employees from the payroll and their associated wages and benefits (think health care, vacation, sick time, etc). Eventually you will reach the point where the only employees a company has will be highly valued, highly compensated ones. This effect would probably have happened in any case but at a pace that would have given lower skilled employees more time to integrate themselves into the brave new world of “gig” work. Instead there will likely be massive disruptions to the labor market and peoples lives. The increases in minimum wages may also accelerate this trend.

To carry this concept a little further (and others probably have) . . .

It may even be the case that highly skilled workers will find it advantageous to be contract workers rather than employees. Many high tech startups already get started in this fashion, hiring programmers and design engineers on a contract basis. One possible scenario is that these “gig” contracts might include some kind of revenue sharing clause so the worker earns a share of future sales. As the time from initial concept to first revenue from a customer gets shorter and shorter this type of arrangement becomes more and more feasible. From the perspective of a founder this also has the advantage of requiring less up front capital to start a company, especially when there is no need for a large investment in capital equipment. Instead of selling their concept to venture capitalists founders will be selling it to the skilled and experienced workers they hire as contractors.

Taken to extremes this leads to “virtual companies” who have almost no employees, and no physical presence. And no payroll taxes, no reporting, no regulatory compliance, no discrimination, …..

And here’s another quotation from another-friend’s e-mail, the American Spectator‘s Ross Kaminsky:

The fundamental question [about these overtime-pay diktats is] “What business is this of the federal government’s?”


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