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Los Angeles a Center for "Non-Employment"

Here's an interesting news item from the Los Angeles Times. Evidently, the L.A. area is the nation's leader in what the Times calls "non-employment." According to the Times:

"California businesses have been hiring contract and temporary workers in construction, administrative and high-tech jobs for years, and the practice appears to be spreading to industries such as real estate brokerages, beauty salons and insurance agencies, [a recent Census report] said."

The Times calls this a means to avoid "the soaring cost of health insurance and other benefits," but unless the Times is using the word "benefits" very broadly here, I think it is missing a large part of the reason for the "non-employment" phenomenon. The use of independent contractors and temporary workers allows businesses to avoid some of the risk entailed in hiring an employee in today's legal environment, which sometimes makes it difficult to fire that employee even for good reason.

Years ago "at will" employment was the norm. In the absence of an agreement to the contrary, both the employer and the employee could terminate the employment relationship at any time for good reason, bad reason or no reason at all. Such a legal regime has its upside and its downside for employees. Some employees may be unfairly fired (although bear in mind that it is not in the interest of an employer to act cruelly or capriciously, so we would not expect them to regularly do so). On the other hand, since the employer can hire an employee with little risk, it isn't so hard to find another employer.

Over time, however, a large number of exceptions to the "at will" rule have developed--to the point where in some places (California included) it has become very difficult to terminate an employee--even a poorly performing one--without extensive documentation of the employee's inadequacy. And even with extensive documentation, a disgruntled, former employee can usually make his former employer miserable in court. Lots of employees can make a colorable claim that their termination was the result of some improper motivation even if they can't ultimately prove it.

The upside for employees under this system--job security--was no doubt on the minds of the policymakers who brought about this legal regime. The downside may have been less obvious: When a poorly performing employee must be kept on (or bought off), that means other employees have to take up the slack and productive employees are paid less than they are worth. It also means that high-risk employees, like the young, the unskilled, the ex-offender and the employee who was fired from a previous job often don't get job offers at all. Few employers are willing to undertake the risk. The result is chronic unemployment for some.

"Non-employment" is not a perfect solution to all this, but it's a solution. Those who favor strong "worker protection" measures are unhappy that these measures are being by-passed, but it strikes me as on the whole a good thing and in any event inevitable. The market for jobs is not as protected from foreign competition as it used to be. We might as well get used to it.



Rafael Mangual
Project Manager,
Legal Policy

Katherine Lazarski
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.