Market failure: How labor laws save middle-class pay for middle-class jobs

Market failure: How labor laws save middle-class pay for middle-class jobs

WASHINGTON, September 7, 2014 — A logistics and transportation industry experiment with eliminating minimum wage and the influence of other labor laws illustrates the dangers of the labor free market. Contrary to improving income prospects for the poor, the experiment has proven to result in a negative outcome for American workers. It is also damaging to the industry, consumers, and the overall U.S. economy.

Anyone who has experienced a long road trip knows driving hours on end is tedious, stressful, and tiring. For those employed as drivers, the lifestyle can be physically and psychologically damaging. Professional drivers, therefore, must be dedicated individuals who are willing to subject themselves to unpleasant conditions on a consistent basis.

Drivers must also posses enough skill to drive in a variety of road conditions while maintaining a strict schedule. This skill set positions them for a solid middle-class wage. However, this profession is threatened by cost cutting measures such as subcontracting that can be implemented for short-term gains of the firm at the long-term expense of drivers and clients.

Because shipping charges can easy be reduced by switching to a discount delivery company, businesses and individuals will look for ways to reduce this expense whenever possible. Logistics firms, like all businesses, seek to cut their costs by targeting large expenditures such as payroll, fuel, and vehicle maintenance. Big companies like UPS have to contend with unions as well. But until recently, other large firms like FedEx simply subcontracted to employees who used their own vehicles.

Independent contracting has become a boom for expanding local and regional delivery businesses. FedEx requires drivers to drive and maintain newer, more reliable vehicles, so it had to offer fairly reasonable compensation. Many other firms which lean heavily on independent contractors do not. Companies can abuse these laborers due to a lack of credible regulation and reasonable oversight as well as weak representation by independent contractors.

Meanwhile, fluctuating gas prices, skyrocketing vehicle costs, and dwindling cargo volume have only pressured delivery companies to simplify costs by displacing more of them onto drivers. Because independent contractors are not technically employees, they are not necessarily protected by labor laws, do not have to earn the minimum wage, must also pay their matching payroll taxes, and are unlikely to secure healthcare or other benefits from their companies.

In addition, the fact that independent contractors are considered one-person businesses often translates into a need for these individuals to negotiate their own compensation, a reality that forces down compensation as the contracting firm has far greater leverage.

Because logistics firms are service providers essentially immune to outsourcing, they constitute an important industry in terms of maintaining a high standard of living in America. The abuse of independent contractors can lower delivery costs, to be sure. But such discounts come at the expense of middle-class jobs as well as reliability of service. This dynamic also gives employers opportunities to reduce their workforce by pushing non-employees to do the work of many for far less pay. This, in turn, further drives demand for diminished wages.

These cost savings make these businesses far more competitive in a very unhealthy way. They also encourage worker abuse and lower compensation throughout the industry, with profits going more to the delivery firm instead of those doing the actual work.

Independent contracting is not always a terrible thing. But plenty of horror stories continue to surface due to this business phenomenon, especially in times of high unemployment like our current era.

The worst of those businesses involved leave independent contractors to absorb so many costs with so little pay that they must work twelve or more hours a day just to make a minimal living. If they have a family and are lucky, these overworked individuals might be able to rely on public assistance programs to survive.

Unfortunately, such reliance means the practice destroys middle-class wages and lifestyles while burdening taxpayers with a greater need for socialist programs instead of creating capitalist opportunities to expand our tax base and economy.

In terms of the logistics industry, an individual barely able to maintain his or her vehicle leads to unreliable service and greater hazards on the road. The business solution is to simply displace legal responsibility onto the independent contractors, whether or not such individuals can actually fulfill the contract when something does go wrong. Every time a business simply switches to a discount delivery company, i.e., one that offers the lowest bid, it encourages the use of independent contractors in a very negative way.

From the position of labor advocates and supportive businesses, the unhealthy use of independent contractors to deflate wages and displaces costs onto drivers is a devastating business practice.

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My name is Matthew Justin Geiger; I currently hold a BS in physics and psychology based politics from Allegheny College of Meadville, Pennsylvania. I am the creator/manager/editor of ​The Washington Outsider. I am a freelance writer, political analyst, commentator, and scientist presenting my views through news sites like The Washington Outsider, Communities Digital News (CDN) and I also host the shows "The Washington Outsider" and "FocusNC" on local news station startup NCTV45 in New Castle, PA. In addition, I have written a short story collection, “​Dreaming of​ Other Realities,” two novellas “​Alien Assimilation” and “​The Survivor,” and a poetry collection, “​A Candle Shrouded in Darkness” available on ​Amazon. My goals are to offer my opinions and skills to those who are in need of an honest, professional consultant or freelance writer.