January 13, 2020 11:42AM

Labor Law: Feds Call Off Their War on Franchising and Subcontracting

The U.S. Department of Labor has announced a final rule (press release, fact sheet, FAQ) backing off one of the Obama administration’s most damaging initiatives, its attempt to redefine a wide range of franchise, subcontract, and supplier business models as “joint employment.” The effect of that move would have been to make many companies liable for breaches of labor and employment law committed by their franchisees or contractors. The final rule is set to take effect on March 16, 2020.

This is an important win for economic freedom, as well as for the legal reality that a supply or contractual relationship between two firms is by no means the same thing as a merger between them.

It is also a victory for regulatory modesty. The Obama rules had pushed hard at (and arguably overstepped) the bounds of the New Deal‐​era Fair Labor Standards Act so as to rope in as employment many relationships that Congress had never chosen to include as such. The push had been a multi‐​agency affair, extending to ostensibly independent federal bodies such as the National Labor Relations Board (NLRB) and others; and the retreat is likewise multi‐​agency, as can be seen in an NLRB case last month in which the board confirmed that McDonald’s does not, in fact, employ the employees of McDonald’s franchisees.

The new four‐​part balancing test announced by the Trump labor department assesses, to quote directly, whether the potential joint employer:

* hires or fires the employee;
* supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
* determines the employee’s rate and method of payment; and
* maintains the employee’s employment records.

Whatever else can be said about this framework, it at least seems likely to return the scope of the rules to the same general neighborhood they occupied for decades up to 2015.

Most of all, to quote our 2015 description, the new rule beats a retreat from the past administration’s aim “to force much more of the economy into the mold of large‐​payroll, unionized employers, a system for which the 1950s are often (wrongly) idealized.” That very same goal is at the root of California’s unfolding debacle with AB5, a law that tries to force many lines of freelancing into a direct‐​employment model and is already harming large numbers of workers it had purported to help.

If some progressives at the federal level continue to pursue this paradoxically backward‐​looking agenda, they will need to do so through the front door, by working in Congress to enact different standards into law.

January 13, 2020 11:39AM

New York’s Government Is Twice the Size of Florida’s

New Census data show that Americans are continuing to move from high‐​tax to low‐​tax states. One of the largest migration flows is from New York to Florida, as discussed in this Cato study.

The exodus from New York is sad, but the blame falls on the politicians who impose high‐​cost government on the state. New York’s high taxes are a side effect of excessive state and local spending.

The excess is clear when comparing New York to Florida.

The table below shows Census data for state and local spending in 2017. New York and Florida have similar populations of 20 million and 21 million, respectively. But governments in New York spent twice as much as governments in Florida, $348 billion compared to $177 billion.

On some activities, spending in the two states is broadly similar, such as on transportation, police, fire, parks, sewers, and solid waste. But in other budget areas, New York’s excess spending is striking.

New York spent $69 billion on K‑12 schools in 2017 compared to Florida’s $28 billion. Yet the states have about the same number of kids enrolled — 2.7 million in New York and 2.8 million in Florida.

New York spent $71 billion on public welfare compared to Florida’s $28 billion. Liberals say that governments provide needed resources to people truly in need. Conservatives say that generous handouts induce high demand whether people need it or not. Given that New York’s welfare costs are 2.5 times higher than Florida’s, the latter effect probably dominates.

New York spends vastly more on transit than Florida. Transit system revenues in New York are $6.8 billion per the Census, but that appears to leave about $14 billion a year in taxpayer costs. Because of its size and density, New York City does need an extensive transit system. But that does not mean that taxpayers should bear such high costs. Hong Kong is a huge and dense city with an extensive subway system that is run privately without taxpayer subsidies.

New York spends vastly more on employee retirement than Florida. Retirement systems are mainly funded by contributions and investment earnings, although most systems are underfunded. New York has a larger and more unionized public workforce than Florida. New York governments employed 1,196,632 workers in 2017 compared to Florida’s 889,950 (measured in FTEs). New York’s public workforce is 67 percent unionized compared to Florida’s at 27 percent.

New York spends $10 billion more a year on interest costs than Florida. That is a clear example of how profligacy imposes an unnecessary burden on New York taxpayers.

If New York wants to stem its chronic loss of residents, it needs to slash spending on welfare, transit, and worker payroll and benefits. It should privatize transit systems, pursue school choice, and repeal collective bargaining for government workers. It should fund services from current revenues, not borrowing.

Most New York residents do not benefit from bloat in government payrolls, inefficient transit, excessive welfare, and deficit spending. To them, the high taxes are disproportionate to the government services received. That is why they are moving to better‐​managed states with lower taxes.


January 13, 2020 9:53AM

Stop Treating Adopted Kids Differently Based on Race

The Indian Child Welfare Act strips basic constitutional rights from any child who is racially classified as “Indian.” ICWA was initially created to prevent seizure of Native American children from their intact families by state actors. Modern‐​day applications, however, hurt the administrative process of foster families’ adoption proceedings. Even in cases where the Native American parent(s), relatives, or affiliated tribe have no issue with the adoption, the process is still delayed by arbitrary administrative rules. In some cases, the child is even removed from stable adoptive parents to be placed in a neglectful, abusive situation. The U.S. Court of Appeals for the Fifth Circuit reversed a district court’s decision to deem ICWA as applied to adoption unconstitutional under principles of equal protection, the Tenth Amendment, the nondelegation doctrine, and the Administrative Procedure Act.

This Fifth Circuit ruling creates a dangerous new precedent that eliminates the distinction between racial and political classifications, upholding ICWA’s definition of a child’s political classification based solely on her race (as determined by a minute blood quantum). This logic ignores the cultural and political identification of the child while bolstering the use of race in government decision making. At the very least, biological eligibility for tribal membership is a form of national‐​origin classification, which is subject to the same strict scrutiny that applies to racial classifications in other contexts.

The court asserted that because many racially Indian children do not fall under ICWA’s definition of “Indian child,” this term is not a racial classification — which is incorrect, in that legal precedent dictates that a state classification does not become race‐​neutral simply because it is over or underinclusive. Another ICWA provision requires children to be placed with “Indian” adults, regardless of tribal affiliation. In other words, a Sioux child must be placed with Seminole parents instead of a potentially better situation with black, white, Asian, or Hispanic parents. This “generic Indian” concept is a blatantly arbitrary racial identification.

Finally, the Fifth Circuit’s ruling will, in fact, further harm the most at‐​risk minorities. Native American children are at greater risk of abuse, neglect, molestation, alcoholism, drug abuse, and suicide than any other demographic in the nation. Instead of providing these children with more legal protection, ICWA creates heavier evidentiary burdens, thus forcing children to remain in abusive homes longer.

Fortunately, the full Fifth Circuit decided to hear the case en banc. Together with the Goldwater Institute and Texas Public Policy Foundation, Cato has filed an amicus brief on behalf of parent plaintiffs frustrated in a wish to adopt children of Native descent. (We likewise did so before the Fifth Circuit panel and on the plaintiffs’ motion to rehear the case en banc.) We argue that under ICWA, “Indian child” is a genetics‐​based racial category and that ICWA does not constitutionally promote tribal sovereignty. The government may not treat American citizens differently, as it does here, based on whether their genetic ancestry would qualify them for tribal membership. For Congress to impose a racialized and non‐​neutral regime on parents and children is not only unwise and unfair, but unconstitutional.

January 11, 2020 1:29PM

Refugees in Texas

On Friday, Texas Governor Greg Abbott ® sent a letter to Secretary of State Pompeo stating that Texas would not accept any refugees going forward. Governor Abbott is the first governor to request that refugees not be settled in his state since President Trump announced that states and localities would now have to opt in to receive refugees. Texas was the first state to refuse refugees after 42 other states decided to continue to accept them.

Trump’s new executive order requires states and localities to opt in to accept refugees, which is a clear ploy to get them to refuse. There’s no good reason for that as Trump reduced the nationwide number unilaterally, a power given to the president by a Congress that has decided that it doesn’t want to make law anymore, from 84,994 settled in fiscal year 2016 to a cap of just 18,000 to be resettled in FY 2020.

Texas’ refusal to settle refugees won’t reduce the total number settled in the United States, it will just remove Texas from the list of locations where they can settle initially. And that’s significant, because 2,457 refugees were resettled in Texas last year, accounting for 8.1 percent of all refugees resettled in the United States. Of the 978,939 refugees resettled in the United States since 2002, about 9 percent, or 88,572 refugees, were resettled in Texas.

Of course, refugees can move to Texas after they get to the United States but they will have to give up certain public benefits. Since Texas has resettled so many refugees over the decades, many likely will move there to take advantage of the job opportunities and large populations of coethnics which, incidentally, seem to help integration and assimilation. Governor Abbott’s decision changes the initial distribution of refuges, with less impact on their final location.

Ultimately, Governor Abbott’s decision to block refugees in his state is shortsighted. At some point in the future, refugees will be legally resettled in Texas and that state’s Republican Party will pretend that a governor from their own party never blocked them in the first place.

There are a lot of problems with refugee resettlement in the United States, but blocking their resettlement is a cure worse than any mild ailment. Abbott’s decision does nothing to reduce the total number of refugees in the United States, but it certainly makes the Texas state government look bad.

January 10, 2020 4:04PM

Tax Migration New York to Florida

Yesterday, I looked at migration from high‐​tax to low‐​tax states. Today, the Wall Street Journal focuses on wealthy tax exiles from the Northeast in Florida: “President Donald Trump and Carl Icahn both announced in the fall that they’ll be making Florida their primary residence, joining other high‐​profile executives like financiers Barry Sternlicht, Eddie Lampert and Paul Tudor Jones.”

The Journal had accounting firm BDO run some numbers: “A New York couple filing jointly with $5 million in taxable income would save $394,931 in state income taxes by moving to Florida.”

I noted in this study that the wealthy often bring their businesses and philanthropy with them, so the greediness of high‐​tax states really boomerangs on them. As the Journal notes:

Multimillionaires aren’t just moving their families south, they are taking their businesses with them, says Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County. “We’ve brought in well over 70 financial‐​services firms” in the past few years, she says. “The higher the taxes, the more our phone rings.”

You may think it is unfair that states such as New York are losing their residents and businesses. But they’ve only got themselves to blame because the high taxes are caused by excessive spending. Indeed, the difference between total state and local government spending in New York and Florida is staggering.

The chart shows Census Bureau data for 2017. New York and Florida have similar populations, yet state and local governments in New York spent twice as much as governments in Florida, $348 billion vs. $177 billion.


January 10, 2020 3:03PM

Human Freedom Waning in Many Countries

With the rise of nationalism and hybrid forms of authoritarianism, the rights and freedoms of citizens are under assault in many corners of the globe. Unsurprisingly, among the countries with the most substantial deterioration in freedom in the last year are Angola, Venezuela and Tajikistan. The good news is that freedom has taken root in a diverse set of societies and it’s spreading in many of them.

We recently released the fifth annual Human Freedom Index, the most comprehensive measure of freedom ever created for a large number of countries across the globe. The index covers 162 countries and uses 76 distinct indicators of personal and economic freedom. With the index, my co‐​author Ian Vásquez and I aim to capture the degree to which people are free to enjoy fundamental rights such as freedom of speech, religion, association and assembly, and also measure freedom of movement, women’s freedoms, crime and violence and legal discrimination against same‐​sex relationships. The report is co‐​published by the Fraser Institute, the Cato Institute in the United States and the Liberales institut in Germany.

In this year’s index, we again rank New Zealand and Switzerland as the two freest countries in the world while we again rank Venezuela and Syria last. Canada ranks 4th on the index followed by Australia, Denmark and Luxembourg. Canada has consistently ranked among the top 10 jurisdictions since 2008, which is the earliest year we were able to gather sufficient data to create a composite scoring system to measure human freedom.

Selected countries rank as follows: Finland and Germany (tied in 8th place), Sweden (11), United Kingdom (14), Estonia and the United States (15), Taiwan (19), Japan (25), South Korea (27), Chile (28), France (33), Poland (40), South Africa (64), Argentina (77), Kenya (79), Mexico (92), India (94), Brazil (109), Russia (114), Turkey (122), Saudi Arabia (149), Iran (154) and Egypt (157).

This year’s index confirms that global freedom remains in retreat. At a country level, human freedom tumbles in more countries than not, with some 88 countries experiencing a decline in their freedom ratings compared to 70 countries increasing it freedom since last year.

During this same period, we recorded the most significant declines in human freedom in Angola, Seychelles, Venezuela, Brunei Darussalam and Israel. On the positive side, countries that saw improvement in their level of human freedom most were Belarus, Timor‐​Leste, Chad, Gabon and Suriname.

So again, freedom has not only taken root in a diverse set of societies, but it’s also spreading in numerous countries around the globe.

Regional levels of freedom vary widely. The highest average ratings were North America (Canada and the U.S.), Western Europe and East Asia. On the other hand, the lowest ratings were in South Asia, sub‐​Saharan Africa, the Middle East and North Africa.

This article originally appeared on the Fraser Forum on January 2, 2020.

January 10, 2020 1:35PM

The H‑2A Touchback Requirement Makes No Economic or Security Sense

By Tony Webster from Minneapolis, Minnesota, United States - Nipomo Farm Workers, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=61599196

California Farm Workers By Tony Webster from Minneapolis, Minnesota, United States — Nipomo Farm Workers

The House of Representatives passed the Farm Workforce Modernization Act (H.R. 5038) last month. The House bill made some improvements to the H‑2A program, which allows farmers to hire foreign guest workers, but it incorporated into the statute the current regulatory requirement in 8 C.F.R. § 214.2(h)(5)(viii)©) that an H‑2A worker may not live in the United States continuously for more than 3 years. The Senate should not copy this mistake.

This provision makes no sense from an economic or security perspective. It imposes costly, needless turnover on U.S. farmers, and by forcing out workers, it unnecessarily creates many more opportunities for visa violations. These arguments actually apply even more forcefully under the bill because it expands the H‑2A program to include year‐​round jobs, unlike the current seasonal jobs that by their nature have a defined end date.

H‑2A Touchbacks Waste Economic Resources

The economic argument against an arbitrary time requirement is simple: losing workers who are creating economic value imposes economic inefficiencies on employers. Turnover has costs associated with lost productivity when the position is unfilled, recruiting and hiring a replacement, training the new hire, and lost productivity from the employee learning the position.

Table 1 reviews the cost of job turnover in a variety of occupations and industries. Unfortunately, I found no study estimating the cost specifically in agriculture, but the consensus across a broad range of industries is that businesses end up paying about a quarter of the person’s salary to replace them.

Table 1: Costs of Turnover in Various Occupations

Turnover Cost Studies Industries Percent of Annual Wages Average Costs Hourly Wage
1 Seninger, et al (2002) Supported Living 24% $3,631 $7.56
2 Larson, et al (2004) Direct support professionals 17% $4,333 $12.45
3 Patterson, et al. (2010) Emergency medical 25% $7,926 $15.71
4 Hinkin & Tracey (2000) Hotels 29% $13,104 $15.95
5 Frank (2000) Grocery Stores 31% $10,848 $17.50
6 Dube, et al (2010) Various 12% $4,563 $18.55
7 Jones (1990) Nurses 37% $19,402 $25.94
8 Barnes, et al. (2007) Teachers 36% $13,446 $30.23
9 Appelbaum & Milkman (2006) Various 25% $16,461 $32.92
10 Wise (1990) Nurses 31% $22,557 $36.89
11 Milanowski & Odden (2007) Teachers 17% $13,969 $41.44
Median All Above 25% $13,104 $18.55

Sources: See Table Text

The average H‑2A worker’s annualized salary was about $25,000 in 2019. One quarter of that would be $6,500. For seasonal farms that plan to hire new crews every year, this requirement may be less of a burden, particularly since the regulations allow the workers to reenter after a 60‐​day departure, so seasonal workers can return home and reenter. But for year‐​round employers, this mandate will be much more expensive. In 2019, the State Department issued 204,000 new H‑2A visas to seasonal workers. If as many nonseasonal workers enter — which is reasonable, should Congress amend the program — simple math would indicate that the three‐​year restriction would cost them more than $1.3 billion annually after the 3rd year.

Of course, some might argue that this requirement forces H‑2A employers to retest again the labor market and so create jobs for U.S. workers. For seasonal employers, the employers have to test the job market every year because the jobs are inherently temporary, and the law requires the labor market test before rehiring. In any case, the Department of Labor reports that the H‑2A labor certification rarely produces any U.S. hires, and it’s worse than a neutral move because the turnover costs get passed on to consumers, which harms U.S. job creation and wages in related industries where U.S. workers are more common.

H‑2A Touchbacks Harm Security

The H‑2A touchback has no benefit for U.S. security either. Every time the law requires a legal temporary worker to return home, it creates the risk (and incentive) for a visa violation. The more required departures, the more visa overstays, and the more immigrants living illegally in the country. The touchback requirement imposes additional overstay risk in two ways: first, it forces out an existing worker, and second, it triggers the entry of a new worker who may or may not be as law‐​abiding as the one who exits.

The best evidence indicates that H‑2A overstays are a very small problem: less than 1 percent of the estimated overstay population had an expired H‑2A visa, according to an estimate by the Government Accountability Office (GAO) in 2012. Nonetheless, forcing legal workers out will create more overstays, and there is no reason to force out a qualified, law‐​abiding worker: just the opposite, there’s every reason to let them continue to work.

The original justification for the three‐​year regulatory requirement limit in 1987 was that a worker cannot qualify as a “nonimmigrant” (i.e. non‐​permanent resident) if the law didn’t require the worker to leave periodically. But this notion is antiquated given the developments in immigration law since then. There are numerous nonimmigrant designations for which there is no time‐​limit. Most relevantly, H‑1B visas provide for indefinite renewals if an employer sponsors them for a green card. Moreover, the workers’ status as nonimmigrants is grounded in the fact that their residence is conditional — permitted only so long as they perform agricultural labor or services in this country.

The economic, security, and legal arguments for the H‑2A touchback lack merit. The requirement actively undermines the economy and security of the country. It is not required by current law, and if Congress reforms the law, it should not require it, particularly for year‐​round employers. Indeed, it should remove the requirement entirely.