Taking a closer look at the costs and consequences of regulating labor policies at the workplace

The Wall Street Journal examines state efforts to preempt local labor policies, things like paid sick leave and municipal minimum wage laws. While Washingtonians know these issues well, with SeaTac, Seattle and Tacoma all having local compensation laws, the issue continues to roil political waters across the nation. The WSJ reports,

Cities and counties are clashing with state legislators over attempts to bolster workers’ wages and benefits, the latest flashpoint in a national dispute over how to address inequality between the highest- and lowest-earning Americans.

So far this year, half a dozen Republican-dominated state legislatures—including in Alabama, Arizona and North Carolina—have passed so-called pre-emption bills that ban Democratic-leaning cities from raising wages and mandating benefits such as sick leave above state or federal minimums. A half-dozen similar measures are pending in statehouses nationwide with more expected later this year.

Business groups, the WSJ writes,

…say the measures are critical to unwinding a confusing thicket of rules that raise compliance costs and kill jobs.

We noted something similar in our foundation report.

In addition to the absolute costs of these measures, and the challenge they create in competing with other employers not subject to the same mandates, local governments’ wage and benefit regulations create compliance problems for employers operating in multiple jurisdictions. They also create difficulties as employers look to align their human resource policies among cities with different mandates. For example, the SeaTac and Seattle sick leave policies have differing provisions.

The Washington Research Council reports on several recent articles (including the WSJ article on preemption) and research on compensation policies. You’ll want to read the whole WRC post. Here’s a key takeaway:

As we wrote earlier this year, you have to consider the total employee compensation package. It is a mix of wages, benefits, and working conditions. It could very well be the case that many workers (at whatever compensation level) who do not get paid leave actually prefer to have wages make up a higher proportion of their compensation mix. People value the various pieces of compensation differently. 

Underscoring the challenges of mandated compensation policies is a Pew Research post on how wages vary across the country and how the cost of living factors into the equation. 

This issue seems likely to gain traction in the coming months of the election year and will likely extend through the 2017 legislative session. For a refresher on some myths and realities in compensation policy, we recommend this Research Council Special report from February 2016.

It is important to remember that employee compensation does not consist only of wages—benefits and working conditions are also important components. An employer may offer a mix of wages, health insurance, leave, scholarships, flexibility, etc. as compensation. In the absence of government intervention, that mix will reflect the preferences of both the employer and employee. Because the mix will differ from employer to employer, prospective employees can shop around for the mix that best suits them. But when the government mandates specific benefits or working conditions, the optimal mix for a given employee may no longer exist.

As we wrote yesterday regarding “predictive scheduling, “the unanticipated consequences of many regulations undermine the objectives they attempt to achieve.”