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John C. Goodman / Mar. 24, 2013

Free the Workers

The labor market is one of the most regulated markets in our economy. Minimum wage laws effectively tell teenagers they cannot work unless they can produce $7.25 an hour. When the ObamaCare mandate kicks in next year, that hurdle will climb to more than $15 an hour for many potential employees. OSHA regulations dictate what risks workers may and may not take while on the job. Wage and hour laws dictate what wage rate a worker can accept in order to be able to work at nights and on weekends. Those same laws tell many parents they can't take off to see their kid's soccer game and make up the time in the next pay period.

The labor market is one of the most regulated markets in our economy.

Minimum wage laws effectively tell teenagers they cannot work unless they can produce $7.25 an hour. When the ObamaCare mandate kicks in next year, that hurdle will climb to more than $15 an hour for many potential employees. OSHA regulations dictate what risks workers may and may not take while on the job. Wage and hour laws dictate what wage rate a worker can accept in order to be able to work at nights and on weekends. Those same laws tell many parents they can’t take off to see their kid’s soccer game and make up the time in the next pay period.

The law encourages such employer-provided benefits as health insurance and pensions by creating tax advantages at work that are denied to individuals who provide for themselves. But those same laws make employee benefits non-portable, prohibit employees from choosing between taxable wages and non-taxed benefits, and in other ways conflict with the needs of modern families.

A whole slew of laws are designed to make it easier to form labor monopolies and buttress their monopoly power – including laws that take away many employer rights to discourage the formation of unions and the right not to deal with them once they have been formed. The Davis-Bacon Act effectively tells non-union workers they can’t work unless they can produce enough value in an hour to match the above-market wage paid to union employees.

Occupational licensing laws keep potential entrants out of 92 different trades, in the average state, covering almost one-third of all workers. These regulations, for example, prevent you from putting a bowl over someone’s head, cutting around the edges and collecting 50 cents for the effort unless you have undergone many hours of training in barbering.

Now for a surprise. Amid this sea of regulatory activity a tiny island of freedom is emerging. An international free market for labor is blossoming and you don’t have to leave this country to participate in it.

But first, a personal story. I myself am participating in a free labor market, although I can’t tell you exactly why.

I employ a trainer to instruct me in Pilates. Although her hourly fee is way above the minimum wage, there is no legal requirement that it need be. If I see her on nights and weekends, there is no requirement that I pay her time and a half. I generally pay for 10 sessions in advance, but if she wants to take off time one week and make it up later, she will be violating no federal law. Also, we do not have to worry about licensing requirements. I am free to employ her based on my own judgment of the quality of her services, irrespective of what the state of Texas happens to think about the matter. And there is no OSHA requirement that the Pilates equipment we use meets the federal government’s view of what is “safe.”

I don’t have to be a tax collector for the IRS. There is no withholding.

My instructor takes care of her own taxes. I’m not a spy for the IRS either. I don’t file a 1099 form.

I am under no legal obligation not to discriminate. If she becomes disabled and can no longer perform at her previous peak, I can dismiss her with no legal repercussions. I can’t be sued for sex, race or age discrimination. I can legally discriminate on the basis of religion, sexual orientation, physical appearance or on the basis of any other irrational whim that pops into my head. Of course, the reverse is also true. My instructor can fire me for any irrational reason she happens to think of.

But why? Why do my Pilates instructor and I have so much freedom when just about everyone else in the labor market is drowning in a sea of regulations?

I really don’t know the answer to that question. I mean, technically I know. The regulatory zealots just haven’t gotten around to Pilates. As a result they have inadvertently allowed the existence ofa sort of enterprise zone – a small area of the market that the regulation-frenzy somehow overlooked. But I can’t think of any rational reason why my Pilates instructor and I have so much freedom that other people don’t.

By the way, the zones of economic freedom in the labor market are more widespread than you might think. At last count, there were 10 million people in the United States who work as “independent contractors,” escaping many of the regulatory burdens that afflict everyone else. And that doesn’t count the underground economy.

Almost everyone who writes for a living (who is not technically an employee) is participating in a free labor market. For example, almost every guest editorial you see in almost any newspaper was written by someone who was paid less than the minimum wage. Every crossword puzzle you see in The New York Times was constructed by someone who got far less than the minimum wage. Nor did they get any employee benefits or any Social Security match. Nor are they protected by anti-discrimination laws. I can think of no logical explanation for any of this.

Okay, now to the international scene. At The New York Times economics blog, Nancy Folbre writes:

Take a look at the brave new world of online piecework platforms, like Amazon’s Mechanical Turk, which allows employers, politely termed “requesters,” to post jobs for a “global, on-demand, 24 x 7 work force.”

Workers are offered pay for completion of a series of Human Intelligence Tasks (HITs), easily fragmented activities (like transcription, categorization or tagging) in which computers actually need assistance from carbon-based life forms like ourselves…

What started as a niche experiment has become a major global industry. Like some other activities, like work at call centers, digital piecework represents a form of virtual labor migration that denationalizes employment. Research by Panos Ipeirotis, a computer expert at the Stern School of Business at New York University, estimates that Mechanical Turk alone engages 500,000 active workers in more than 100 countries, with workers heavily concentrated in two countries: the United States (with 50 percent of the total) and India (with 40 percent).

For her part, Folbre worries that all this freedom may be bad for workers – a common view among many economists, including Paul Krugman, who view labor monopolies as a good thing. Yet it is a strange view, considering that the father of economics, Adam Smith, went to some effort to explain why the Medieval guild system (the forerunner of the modern labor union movement) was bad for society as a whole. The standard view of the guild system is the view Adam Smith had:

Ogilvie (2011) says they regulated trade for their own benefit, were monopolies, distorted markets, fixed prices, and restricted entrance into the guild. Ogilvie (2008) argues that their long apprenticeships were unnecessary to acquire skills, and their conservatism reduced the rate of innovation and made the society poorer. She says their main goal was rent seeking, that is, to shift money to the membership at the expense of the entire economy.

I invite the readers to tell me what you think.

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