If job creation is Olympia’s top priority, a recent U.S. Chamber of Commerce report should be required reading. The report gives Washington a dismal “poor” ranking in its 50-state review of the relationship between employment policies and economic growth.
It’s well-plowed ground. Begin with
these truisms: When prices go up, demand usually goes down. When gas prices rise, people drive less. When the cost of creating a job increases, fewer people are hired. Washington employers face substantial hiring costs. And these higher costs dampen our prospects in the jobs recovery.
The chamber analysis rests on solid data. It draws on research conducted for the chamber by legal experts who analyzed labor and employment policy in the 50 states. Navigant Economics used the research to create an Employment Regulations Index for each state. The index looks at 34 factors, including unemployment insurance, workers’ compensation, minimum wage, collective bargaining, wage and hour policies, and the litigation climate. Using the index, they calculated the economic impact of regulation.
Critics will be quick to point out a bias toward lighter regulation. Washington gets dinged for its high minimum wage, lack of right-to-work protections, labor and employment mandates that exceed federal standards, high unemployment insurance taxes, and high workers’ compensation benefits.
To the expected criticism, the researchers counter that a perfect score on the index “does not mean complete deregulation of labor and employment markets, or a lack of any enforcement, nor are we advocating for such outcomes.” Choosing to exceed federal regulations or jumping in aggressively where the feds are silent, however, has measurable consequences.
For Washington, the chamber reports that “excessive regulation” cost the state 17,487 jobs and 1,261 new businesses in 2009. Undoubtedly some believe the extra protection and higher wages for the employed justify the lost opportunities. And clearly policymakers here are not keen to relax many of the labor and employment law standards cited by the chamber. No one who’s been paying attention expects Washington to become a right-to-work state, roll back the nation’s highest minimum wage, or relax union-backed pay requirements for public contracts.
Unemployment insurance and workers’ compensation, though, are significant cost drivers that lawmakers have had opportunities to improve this year. And improvement is sorely needed.
In 2010, employers paid $491 in unemployment insurance taxes for the average full-time employee, nearly triple the U.S. average of $159. Similarly, the workers’ compensation benefit payouts per covered worker here are the second highest in the nation, premiums rise rapidly, and yet the trust funds approach insolvency.
Early this year, lawmakers spared employers an unnecessary unemployment insurance tax increase and managed to provide some permanent relief. Even so, Washington remains a national outlier in unemployment insurance costs. As the chamber notes, “Washington subjects a higher amount of an employee’s wages to unemployment insurance than any other state in the nation … (taxing) employers on an employee’s wages up to $35,700.” The federal government requires taxing only the first $7,000 of wages. While the relief provided is welcome, we’re still a high cost state.
Getting control of workers’ compensation premiums has been a much tougher struggle. With bipartisan support, sensible workers’ compensation reform passed the Senate last month. In the House, however, hardened opposition from organized labor has kept the bill from receiving a hearing. The stumbling block: a provision to allow injured workers voluntarily to take a lump-sum settlement rather than go on a long-term, often lifetime, disability pension. These pensions amount to half of all workers’ compensation costs. Washington has many more of them than most states. The state estimates the voluntary settlement option, similar to that currently offered in 44 states, would save $1.2 billion in the first two years alone.
In many instances, Washington’s higher regulatory standards reflect the considered policy preferences of most state voters. Our high-cost workers’ compensation system, however, approaches insolvency, representing a policy failure no one can endorse.
By refusing to allow a vote on the Senate bill, House Democratic leadership puts interest group politics ahead of necessary reform and job creation. That can’t be right, can it?
Richard S. Davis, president of the Washington Research Council, writes on public policy, economics and politics. His email address is rsdavis@simeonpartners.com.
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