How Labor Regulations are Raising Consumer Prices, Costing U.S. Jobs, and Impeding Economic Growth

Service-providing industries are projected to account for more than 90 percent of the job growth in the U.S. economy before 2026, making the service sector the primary engine of the American global competitiveness and prosperity. Yet, a series of misguided legislative and regulatory initiatives are jeopardizing the growth of the service sector and threaten to unleash a host of unintended consequences across states and cities around the country.

ACI’s New Study focuses on four issues in particular: imposition of a $15 minimum wage, mandatory paid family leave, predictive scheduling rules, and the imposition of a joint employer standard.

A $15 minimum wage has already destroyed hundreds of small businesses and many more jobs in cities like New York and San Francisco, and – with the ongoing interest in Congress, state and local governments – it now threatens millions of jobs nationwide. Mandatory paid family leave programs are costly to firms, inefficient, and threaten to backfire on those they seek to help by incentivizing employers to avoid hiring individuals disproportionately likely to take paid leave. Predictive scheduling rules, on the other hand, which require managers to give employees ample notice of alterations to work schedules, increase the risk to reduce business profitability and undermine the scheduling flexibility that many hourly employees depend upon.

To make matters even worse, in 2015, the National Labor Relations Board overturned 30 years of precedent and broadened the definition of “joint employer” under its rules. As a result, a franchisor can now be dragged into a franchisee’s employment-based legal disputes. To avoid triggering the new joint employer standard and exposing themselves to costly litigation, franchisors have distanced themselves from their franchisees. Hundreds of thousands of small franchisees could see their operational costs rise and profits fall, endangering jobs.

After reviewing a plethora of economic studies and estimates of the cost impact of these regulations, this study provides independent measures of the impacts at state level, including lost economic output and jobs, resulting from the implementation of these labor regulations. In analyzing major labor regulations, the report’s findings are as follows:

  • Setting a $15 per hour minimum wage will lead to over 2 million unemployed workers, as well as reduce economic output by nearly $190 billion per year. Because higher wages will lead to higher consumer prices, we estimate that consumer welfare will fall by nearly $140 billion per year.
  • While predictive scheduling may be presented as fair for workers, its unintended consequences spell doom for some workers and their employers. Our analysis shows that, if implemented nationwide, predictive scheduling will result in nearly $44 billion in lost of economic output and a half million lost jobs.
  • Paid family leave mandates trigger serious negative consequences. An examination of such mandates in Seattle, San Francisco, and New York show that small businesses that operate with narrow profit margins are hardest hit, ultimately resulting in job losses and business closures. We conservatively estimate the expansion of paid family leave will result in nearly a $25 billion decrease in Gross Domestic Product and a loss of nearly 190,000 jobs.
  • Joint-employer standards, if implemented, would raise operating costs and shutter many franchise businesses. We conservatively estimate the impact will decrease total economic output by $74 billion dollars per year and losses in the range of 800,000 to 990,000 jobs.

In summary, these policies have shown to have threatening implications for the U.S. economy, making it harder for small businesses to thrive, discouraging hiring, and stifling market forces that have historically improved working conditions. This study estimates that these policies, if applied nationwide, would result in economic losses exceeding one-third of a trillion dollars and 4 million lost jobs, as well as decreasing consumer welfare by increasing the costs of goods and services. On a value-added basis, the total economic losses of these four labor regulations would be greater than the value-added output derived from restaurants, food and beverage stores, and general merchandise stores – combined.

Because these regulations could disproportionately affect small businesses and businesses that hire hourly workers, the economic impact would be unequivocally devastating to employers, and therefore workers and consumers. If the intent of these labor regulations is to benefit workers, these policies fail miserably.

In the sections to follow, this study will investigate these four regulations in detail: review the literature; discuss economic principles that explain how markets, workers, employers and consumers are affected; and provide empirical evidence of the impacts associated with these labor regulations.

The qualitative and quantitative analyses set forth in the study suggest an overarching simple, but profound conclusion – the job losses are avoidable. The key is avoiding these stifling labor regulations.

You can read the entire study here.