To Accelerate Economic Recovery, Delay These Laws

The worst possible time to demolish Virginia’s economy

by Chris Braunlich

Last week the Virginia Municipal League (VML), representing the Commonwealth’s city, town and county governments, urged Governor Ralph Northam to delay legislation imposing new costs and unfunded mandates on them. They argued that the economic recession and uncertainty created by the COVID-19 pandemic have made both prohibitive.

The VML is right. During the eight years I served on the Fairfax County School Board, my colleagues and I often stared slack-jawed at the willingness of both Republican and Democratic state leaders to impose new mandates and staffing requirements on localities while providing little or no funding. Our amazement and discontent was bipartisan.

But what needs to be done doesn’t stop at the VML’s recommendations alone, which were limited to items having an impact on local government functions. League Executive Director Michelle Gowdy correctly notes that local “revenue from commercial properties are at risk as small local businesses close down. Whether these companies can hang on until the Coronavirus runs its course is unknown.”

Those local businesses feed local governments with taxes and salaried employees who also pay taxes. If their cost to operate rises so high that they cannot continue, they die and take their local tax revenue with them.

Nor is the VML alone. This week, a coalition of small business-dominated trade associations, the Coalition for a Strong Virginia Economy, issued a similar letter to the Governor. They not only endorsed the VML position of delaying the minimum wage increase and collective, but outlined other new burdens that should be delayed so Virginia’s economy can get up and running.

A review of just three demonstrates what the impact will be just as Virginia and the nation are coming out of a recession worse than the one after 9/11.

  • Minimum Wage Increase: One of the issues raised by both groups, the bill on the Governor’s desk raises the minimum wage by 31% in just the first year, starting nine months from now. Raising the minimum also has the effect of pushing up other wages. The problem is that when you raise the cost of creating something, you get less of it. That includes creating and restoring jobs at precisely the time we need them most. Small and mid-sized businesses will have to decide between hiring back fewer people, reducing benefits, or just going out of business.
  • Collective Bargaining: VML and the Coalition were likely persuaded by econometric studies demonstrating the increased costs from collective bargaining would have amounted to $3.5 billion to $7.4 billion in 2014 alone. With 2.7 million Virginia taxpayers, the simple math shows an added cost to families of thousands of dollars.
  • Rising Construction Cost:   Two additional bills would raise the cost of public construction projects. Project Labor Agreements (PLAs) discourage nonunion contractors and subcontractors (98 percent of Virginia’s construction industry) from competing to build taxpayer-funded projects. A study comparing school construction projects demonstrates that PLAs raise school construction costs rise 18 percent. They particularly impact non-union minority contractors, which is why the National Black Chamber of Commerce opposes them.

Raising wages on public projects to non-market rates has been shown to raise costs in Michigan by $127 million per year, and by $158 million per year in Illinois. Part of getting out of the recession will include spending funds on necessary public projects, but when costs rise, fewer people are employed, and taxpayers spend more to get less for their money.

Other bills facing the Governor have similar impacts. For example, VML seeks a delay in expanding eligibility affecting their workers’ compensation costs. Other bills they did not mention would similarly expand workers’ compensation costs for private sector employers. And according to the State Corporation Commission, the Green Economy Act, for which the Coalition seeks a delay, will raise the average residential electric bill by $333 or more a year – an added cost on businesses and the consumers who buy from them.

All of these bills — and more — were passed by a General Assembly flush from electoral victory and the fiery glow of a roaring economy. The numbers used to examine their impact were built on a house of cards that has now collapsed.

Both groups urge the Governor to amend the bills and delay their enactment by a year. A more effective strategy might be to amend the bills to include a re-enactment clause, forcing reconsideration in 2021.

This would require them to be re-passed by the General Assembly with a full debate, informed this time by the knowledge that even a great economic power can be brought to its knees by a microscopic virus.

Chris Braunlich is president of the Thomas Jefferson Institute for Public Policy.

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14 responses to “To Accelerate Economic Recovery, Delay These Laws”

  1. LarrytheG Avatar

    Mr. Braunlich is doing his duty as a card-carrying Conservative but what he says has never been really true except in a theoretical sense – but not in the real economy.

    Higher priced labor just like anything else – like higher priced beef will
    result in higher costs – that’s true. But it is NOT true that there is a one-to-one relationship between higher costs and higher prices nor than people will, for instance, buy less burgers as a result.

    Higher prices also cause higher efficiencies , more compeitition between those who squeeze out waste and those who do not.

    If a business has too much labor – they will end up cutting it down anyhow especially if their prices are higher than competitors who are selling the same product.

    Some products, like burgers, the vast majority of people don’t even pay that much attention to but even if they do, companies like McDonalds will offer a lower-priced alternative for those that are price conscious.

    There are additional other ways that prices are moderated. Smaller quantities… or cheaper ingredients, etc…

    I’m NOT advocating any particular strategy, just pointing out that higher labor prices are really no different than higher electricity prices or higher prices for hamburger buns. It does not cause a reduction in labor necessarily and especially so if you need that labor to operate.

    But Conservative types keep on plugging away at these canards… it’s their duty but in the real world, it does not work that way.

    1. Steve Haner Avatar
      Steve Haner

      But Larry, you often argue (correctly) that higher energy prices reduce demand, drive conservation. You point to the states with high prices and lower demand. Why would higher labor prices not do that? You surely understand that raising the minimum wage has a ripple effect upwards. When the minimum goes to $9.50 the higher rungs on the ladder will (and should) adjust accordingly.

    2. djrippert Avatar

      Costs don’t drive prices and prices don’t impact demand. Wow. What next? A flat Earth theory? Really, Larry … your comment is beyond economically illiterate. You also picked a particularly odd example with burgers. First, do you doubt the cut throat competition that already exists in the fast food market? Do you believe that the slackers who run those companies have a lassiez-faire attitude towards costs today? You must. Otherwise there would not be abundant opportunities for efficiencies sitting in plain sight ready to be used to offset higher labor costs. Those obvious inefficiencies exist only inside the halcyon thought of liberals remembering the local diners of the 1950s. In today’s hyper-competitive fast food outlet every french fry is monitored, every process is timed and instrumented. Have you ever really watched the workers in a busy McDonald’s? Do you see a lot of people sitting around? But let’s suspend our disbelief and assume that the workers in a modern fast food outlet are lolly-gagging much of the time. Labor prices rise and management finally realized that profits could be enhanced through labor efficiency. The lolly-gagging ends and …. what happens next Larry? Some number of workers are fired because the remaining higher cost workers are now more efficient.

      More likely, the labor intensive french fry operation becomes automated because, at higher labor costs, it’s worth the additional cost of labor-saving automation.

      Wages should go up. At a time of high demand there may be inelasticity in the labor market. Normally one would think that sufficient to drive higher wages without government action. Obviously the Democrats in Virginia don’t feel that way. So, let’s talk timing Raising wages in a recession / depression is a formula for disaster. Some shops will open more slowly with fewer workers. Some will decide that they can’t reopen at all. Higher wages in a recession / depression only serve to elongate the recession / depression which is exactly the opposite of what will help working Virginians.

      1. LarrytheG Avatar

        I know it’s hard to accept but the economy does not run according to pure theory.

        cut-throat competition happens all the time not just when the minimum wage goes up.

        you speak of automation – yes… and automation provides jobs also.

        That kiosk in McDonalds is jobs also.

        When prices go up – we cut costs… and if we have too much labor – yes… that too but we do not cut labor when it is needed to produce a product. We might find other ways to change the price including identifying things that have higher profit margins and promote them.

        The real world does not work according to simplistic theories – it’s a complex system that has many moving parts – not a one-to-one relationship between cost and price.

  2. LarrytheG Avatar

    no quite Steve.

    Higher prices cause “conservation” of resources and reduction of waste.

    No.. there is no “ripple” effect of the minimum wage.. it’s a dyed-in-the-wool “belief” of those who think the economy works like a theory. It does not.

    When minimum wage goes up – it’s like anything else in business that goes up. It causes different strategies to mitigate the cost – not just labor.

    High gasoline prices (not now) – what happens? more efficient cars – not LESS cars… still need the car – still want burgers…

    And when/if burger go up in price, people still buy the burgers and buy less lottery tickets or desert, etc… it’s the same money – it just allocates differently.

    1. Steve Haner Avatar
      Steve Haner

      Larry, one of the regular stops on my shipyard tour was the Large Plate Bay, to show off the custom machine that allowed two workers to manipulate the massive 6″ steel plates used on a carrier flight deck, flattening out any bumpy spots, pressing the indentations for the airplane tie downs. We would explain that before the machine, it took a gang of ten to flip and move the plates using chains and a block and tackle system…..On one of my final tours, a current lefty legislator was clearly upset that we’d eliminated eight union jobs!!

      As labor costs rise, that’s what will happen. The better argument you could make is that it will be happening anyway, but no question the higher wages will make employers think harder, do I really need the same number on this job? Is there a new machine? The shipyard is constantly asking that question. The grants it is now getting tied to a new sub contract are all about some European-built machines that can do to a massive submarine hull segment what that other machine did to a single steel plate, saving tens of thousands of hours of labor. That’s the real world.

      1. LarrytheG Avatar

        Actually – what led to the development of the “custom machine”?

        As you say – it’s a continuous process. If steel goes up in price, what
        happens… lay off workers? build less ships? Nope.

        THAT’s the REAL WORLD guy. The economy is not a simple theory.

        When prices go up – whether it be labor or steel or electricity or gasoline – changes happen to mitigate those costs.

        It’s even dumber with minimum wage because the rest of us pay for the entitlements that are provided to those who do not make enough money.

        What kind of sense does that make? We see that right now… unemployed people who do not have health insurance so we do what? Pay for their health care?

        Come on guy, you gotta know there is more than simplistic ideology on this.

        1. CrazyJD Avatar

          >>When prices go up – whether it be labor or steel or electricity or gasoline – changes happen to mitigate those costs.

          Larry, I wish you would deal in some “on the ground” facts. You accuse others of dealing in theoretical terms. Cite some examples for the above statement.

          1. LarrytheG Avatar

            Crazy – how many times has the minimum wage gone up? Each one of those was a prime opportunity to “prove” it – right?

            In general Crazy- relying on a theory with one variable to predict an economic outcome is the stuff of simplistic beliefs.

            The economy is not one variable – it’s hundreds… or more… and so trying to predict what happens when wages go up a dollar is a fools game… but there are believers…

  3. TooManyTaxes Avatar

    Most people on this blog have come to some consensus that campaign contributions by public utilities can border on bribery. I’ve read similar arguments about contributions from mining companies. So why are contributions from teachers unions not the same thing?

    I suspect that, when the economy gets back to normal, a lot of minimum wage workers in NoVA will get increases that won’t cost them their jobs or hours. Some more marginal producers (employees) will lose time or even their jobs. The harm to gain ratio will be higher in other parts of the state where the economy isn’t as strong.

    Moreover, we are seeing movement in the wholesale/retail markets toward the use of robots. Higher wages without a comparable increase in productivity will result in machines replacing a lot of workers, except in government, where featherbedding thrives.

  4. johnrandolphofroanoke Avatar

    Mr. Braunlich points out some strong arguments to delay bills from the past General Assembly session. I don’t think any of this is going to happen. Ralph and the gang still have a full house. They will not fold now. That would be an admission that they were wrong.

  5. LarrytheG Avatar

    The Va GA – and the budget – it’s a double-edged sword.

    If you believe the Feds – literally no expense can be spared in the amount of “relief” they want to provide. Trillions of dollars…

    In Virginia – the budget does the same thing – it moves money from taxpayers to jobs – to teachers, to localities, etc…

    but that money comes from taxes on people – and money that the unemployed will not have and will not provide.

    So is the answer that Va should spend as much as they can receive in revenues – to keep that money in the economy – sort of like the Feds are saying?

    or something different?

  6. warrenhollowbooks Avatar

    “High gasoline prices (not now) – what happens? more efficient cars – not LESS cars… still need the car”


    . . . OR less driving, which is the result most frequently

    1. LarrytheG Avatar

      yep – less discretionary driving… and more carpooling and mass transit – which is in the bigger scheme of themes – more efficiency and less waste.

      but in the longer run – more efficient cars…. especially if a heavy commuter.

      airline fares higher when gas is expensive. people shift to less busy times for lower fares… companies order more fuel-efficient airliners…

      All of this happens – ongoing – the cost of labor is one aspect but by no means the only one.

      Airlines have strikes. agree to higher wages – does it suppress flying? Nope. For one day to the next, people have no idea what the fares will be. One day it’s $20 more , the next it’s $30 less… People still fly even on vacation – the airfare is only one component of the cost.

      If you put the THEORY on airfares – it will say that if it cost more they will sell less of it.

      Maybe, if that was the ONLY factor… but it’s never that way.

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