Why enforcing U.S. labor standards may be more important than ever

People look at their respective computer screens during a resume writing class in Dallas, March 2017.

Despite President Donald Trump’s promise “to stand up for the American worker,” his administration has already taken major steps to roll back worker protections. In March, Trump proposed eliminating and the Republican-controlled Congress did eliminate rules discouraging the awarding of federal contracts to companies with a history of stealing their employees’ wages, violating workplace safety standards, and/or illegally discriminating in hiring and pay. The president’s “skinny budget” then proposed a 21 percent cut for the U.S. Department of Labor, and last month, the Office of Management and Budget directed agencies to begin the process of reorganizing, raising concerns that the administration intended to consolidate enforcement and oversight.

The administration’s full budget proposal for fiscal year 2018 only heightens these concerns about worker protections. That’s why it is worth keeping in mind the consequences of budget cuts and consolidation of enforcement responsibilities for workers in the United States. Because of fundamental shifts in the way the U.S. labor market is organized, regulatory oversight is arguably more important now than ever.

Department of Labor agencies such as the Wage and Hour Division, the Occupational Safety and Health Administration, the Mine Safety and Health Administration, and the Office of Federal Contract Compliance Programs all play key roles in enforcing basic employment protections for American workers. The Wage and Hour Division, for example, ensures that employers abide by the Fair Labor Standards Act’s minimum wage, overtime, child labor, and nursing mothers’ break-time provisions, in addition to enforcing the job protections under the Family and Medical Leave Act and other critical labor standards designed to provide protections to workers.

Effective enforcement of basic labor standards is key for functional capitalism. A growing body of research suggests that labor standards improve productivity and economic performance. For instance, wage and work-time regulations can translate into greater worker productivity and lower employee turnover. Safety standards can reduce costly accidents and health care costs. And employment protection—including job-protected family leave—can encourage labor force participation and spur innovation.

Four key structural changes to the U.S. labor market make rigorous “strategic enforcement” of worker protections especially critical.

First, as Boston University economist and former Department of Labor Wage and Hour Division Administrator David Weil demonstates in his recent book, the U.S. labor market has “fissured,” and employer-employee relationships are more complex than ever before. Employers have contracted out, subcontracted, outsourced, and devolved many functions that were once accomplished in-house. Fissuring can occur because a business is motivated to focus on core competencies, but it can also result from a business’s desire to shift labor costs and liabilities to small-business or third-party intermediaries such as temp agencies. Multiple studies document the increasing incidence of employee misclassification—identification of employees as subcontractors—in order to subvert compliance with labor policies ranging from payroll tax, workers’ compensation, and other related taxes. Because most existing workforce regulations assume a straightforward relationship between employer and employee, fissuring creates significant challenges for effective enforcement of existing labor standards.

Second, the decline of union density increases the importance of government enforcement of worker protections. The private-sector union membership rate declined from 16.8 percent in 1983 to 6.7 percent in 2015, the last year for which complete data are available. Unions have typically played a critical role in implementing workforce policies, not only through political leverage but also due to their key role in assisting workers in exercising their statutory rights. A decline in unionization therefore reduces the ability of regulators to oversee the workforce effectively.

Third, America’s New Deal-era regulatory framework is out of sync with current structures of industrial organization. Most of our workforce protection regulations were designed at a time when the typical business entity was a manufacturing company such as General Motors Corp., a large workplace establishment with a stable workforce, expectations for career-long employment, fixed facilities, and clear structures of employment responsibility and liability. The fissuring of the U.S. workplace has changed all of this, but the shifts in industrial organization are due not only to fissuring but also to fundamental shifts in the composition of the U.S. economy. Today, employment is no longer primarily in manufacturing but rather in services such as health care, retail, and other sectors characterized by substantial shares of low-wage, lower-skill workers and a very different set of economic and competitive factors than the manufacturing economy of the 20th century. Production and work is organized very differently in childcare and health care, for instance. These changes now apply to small employers and larger employers alike. The largest private-sector employer in the United States today is Wal-Mart Stores Inc., which is organized very differently from the General Motors of the 1950s.

Finally, technological change is rapidly changing the kinds of jobs available and the organizational design of those jobs, creating a new set of risks of worker abuse that pose real oversight challenges. For instance, an increasing share of work is done at home via computer after the close of normal business hours, rendering the tracking and enforcement of hours regulations increasingly complicated. How should work hours be tracked for an employee of multiple employers that sometimes operate as one entity but sometimes operate as independent entities?

These four fundamental characteristics of the contemporary labor market—a fissured workplace, weak labor unions, new forms of industrial organization in the economy’s dominant sectors, and technological change—come together to make effective, strategic enforcement of labor protections more important than ever before. Workers in the industries with the lowest levels of compliance are the least likely to trigger complaint-driven investigations, making agency-directed investigations all the more important. This is one reason why rumors of a merging of the Department of Labor’s Office of Federal Contract Compliance Programs with the Equal Employment Opportunity Commission has generated significant concern from multiple stakeholders. The OFCCP conducts investigations of federal contractors that primarily are initiated by the agency—rather than complaint-based—to deter discrimination against women, minorities, and veterans, while the EEOC is primarily an individual-complaint-based body designed to uphold civil rights protections.

Much has been made of the current administration’s new policy ideas, budget cuts to existing benefits programs, and rollbacks of regulatory statutes. Yet in light of the character of the contemporary labor market, it is important to remember that nonenforcement of existing law is a fundamental problem for millions of workers in the United States.

May 24, 2017


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