August 18, 2011
by Diana Furchtgott-Roth
The White House announced that President Obama will deliver a major address on job creation early in September. Mr. Obama could address proposed Labor Department regulations that would hobble employers with paperwork, reducing hiring.
These regulations include affirmative action rules for minorities and women at on-site construction jobs for federally-funded projects; requirements for federal contractors to keep records of the race, sex, and earnings of employees; rules governing dust levels in coal mines; and rules to expand preferences for veterans in the workplace.
Such regulations are even more extraordinary in light of Mr. Obama's avowed pursuit of regulatory simplicity and reform. He has issued executive orders to cabinet agencies and to independent agencies to evaluate costs and benefits of regulations.
The president's regulatory agenda, available at www.reginfo.gov, lists 4,257 proposed rules now pending, up from 4,225 in the fall, and 3,943 a year ago. On one hand, Mr. Obama asks for simplification. On the other, his agencies spew out more rules, more paperwork requirements.
Space does not permit detailed discussion of all these rules.
Consider just one, the proposed Labor Department rule from the Office of Federal Contract Compliance Programs entitled "Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors.
Regarding Protected Veterans." It takes up 67 single-spaced pages in the Federal Register. The comment period closed on July 11, and the Department is reviewing comments in order to publish a final rule notice by December.
About 26 million workers are employed by federal contractors, according to the Labor Department's Web site, almost one-fifth of the economy's 139 million employed workers. The more time and money an employer must devote to regulatory compliance, the less likely the employer is to hire new hands. Like it or not, that's a fact of life.
The new rule would require procedures for federal contractors and subcontractors that would be time-consuming and costly.
Laws requiring affirmative action for veterans have been in place since 1974. The Labor Department writes that "the proposed regulations would strengthen these affirmative action provisions, detailing specific actions a contractor must take to satisfy its obligations."
Do veterans need yet more regulation meant to discourage discrimination against them in hiring? Is such discrimination common? The July unemployment rate for veterans, at 8.6 percent, is lower than the overall unemployment rate of 9.1 percent, as calculated by the Labor Department.
The requirements for posting job openings apply to all employers who hold a federal contract of at least $100,000-to all employees and all hiring, not just the workers employed on that federal contract. New rules for the written affirmative action plan apply to employers with at least 50 total employees across all parts of the company.
The Department estimated that the new rule would cost $61 million per year. But the estimates understated costs by more than ten-fold, according to the Equal Employment Advisory Council, a group of businesses that submitted comments. The Council believes that costs will be $825 million in the first year, and $727 million each year thereafter.
The Council reported that the Department underestimated numbers of workers subject to the rule. Plus, Department estimates did not account for costs of lost work due to mandated annual all-employee meetings to inform workers of the rule. Other costs, such as reading and understanding the rule, forming partnerships with groups that promote veterans' hiring, and developing benchmarks to measure increases in veterans' hiring, were also underestimated.
Even the $727 million annual cost is likely low, in my opinion. When the government tells you who you have to hire, hiring is no longer a competitive practice, and business is no longer efficient or competitive. Turning approximately 20 percent of the workforce into a job placement service for the federal government will cost more than $727 million, a small fraction of a percent of GDP.
Even the American Legion, a congressionally-chartered organization to help veterans, thought some requirements too burdensome. In published comments, the Legion wrote, "The American Legion believes that [job listing regulations] could place an undue burden on contractors, including many veteran-owned small businesses and service-disabled-veteran-owned small businesses. Rather than placing such an undue burden on these contractors - the government should make it as easy as possible for companies to post their job listings with any employment service."
Some businesses, especially small ones, simply cannot survive with these rules. Those that can survive will have higher costs and be less inclined to hire employees. The ironic result: in the name of helping veterans, the Labor Department's policies will mean fewer jobs for everyone, including veterans.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, was a Senior Fellow at Hudson Institute from 2005 to 2011.
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