The Entrepreneurial View #508                                                               

Candidates and the Workplace

by Raymond J. Keating

When it comes to government causing problems for small businesses, costs come not only in the form of taxes, but also in terms of regulations.

As a big chunk of the media focuses on which presidential candidate would be better for small business, what are Barack Obama and John McCain saying on workplace regulations?

Broadly, small businesses get hit harder by regulatory costs than do large businesses.  In a 2005 study for the Small Business Administration's Office of Advocacy, economist W. Mark Crain found that per employee regulatory costs registered $7,647 for firms with fewer than 20 employees, $5,411 for businesses with 20-499 employees, and $5,282 for firms with 500 or more workers.

When it comes to workplace regulatory costs, the breakdown on a per employee basis was $841 for businesses with 500 or more employees, versus $1,051 per worker for 20-499 employees and $920 per employee for businesses with less than 20 employees.

Bottom line - additional regulation means bad news for small businesses.

Let's take a look at a few of the proposals the candidates are offering on workplace-related regulation.

Senator Obama's workplace agenda largely focuses on measures that promise to raise costs for small businesses. For example, the Family and Medical Leave Act would be expanded to encompass more small businesses - from a 50 employee cut off to a 25 worker threshold - as well as expanding the purposes for using such leave.

In addition, Obama would dramatically alter labor union organizing rules by shifting from a private ballot vote on unionization in the workplace to a card check system. That would provide a dangerous opening for ugly labor union arm-twisting, hamper workforce productivity, and make businesses far less competitive.

Obama also would raise the minimum wage, and the index the wage to inflation. So, each year, the minimum wage would increase based on some measure of inflation or cost of living. That not only means higher labor costs for small businesses, but reduced economic opportunity as the number of jobs for young, inexperienced, low-skill workers is reduced.

These key measures from Obama would be anything but positive for small businesses, and therefore, the economy.

Meanwhile, McCain has been sketchier on workplace regulations. His campaign website highlights McCain's co-sponsorship of the Family Friendly Workplace Act, "which sought to allow employers to provide flexible work schedules to help employees." The focus is to be able to offer the choice of comp-time off as opposed to overtime pay. But the site also highlights that McCain voted for the original FMLA.

In addition, McCain has endorsed the idea of establishing a National Commission on Workplace Flexibility and Choice to explore how the nation needs to modernize labor laws and training programs. Would this turn out to be substantive, or just another government commission that punts the issue?

The key point to take from McCain's workplace agenda seems to be that he has not adopted the costly measures endorsed by Senator Obama.

Finally, the issue of immigration needs to be mentioned within the context of workplace regulation. Beyond the broader issues of border security, paths to legalization for undocumented workers, temporary workers, and high-tech visas, there are the matters of expanding the role of employers serving as immigration police, and mandating that employers use a government-run electronic verification system. When you look at the legislative record of each candidate, there actually is little difference between the two on immigration. While they have staked out some positive, pro-immigration ground, each also favors this imposition of immigration police work - and commensurate penalties - on the business community.

In the end, small business owners and their employees need to listen to what the candidates are saying and proposing on labor and workplace issues. Then, simply think about whether each proposal means higher or lower costs for small business. The higher the costs, the less we'll see in terms of business, employment and economic growth.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.