Blog
Wednesday, October 9, 2024
FTC, Break Up the Longshoreman
Background
The recent strike of the Longshoreman's union (ILA), according to news reports, centered around wages and automation. The wages issue has been tentatively resolved, but the automation issue is still alive. According to the union itself, "[We] just [want] to tighten the language that no automation means no automation." (Emphasis added)
A major complaint from the union was that there was an automated gate system at one port and possibly more. An automated gate system for trucks to pass through without needing a union representative to open and close it. This is akin to a union demanding elevator operators continue to open and close the doors for passengers like they did seventy years ago instead of it happening automatically.
Because of this union intransigence, US ports lag behind the rest of the world in terms of efficiency. The Port of New York and New Jersey has zero automation.
The FTC is charged with promoting competition in the US economy. On their logo, claim to be "protecting America's consumers." Every day, the FTC fights against anticompetitive business practices. It surely is their duty to make sure that the ports are competing with each other to provide the best services to consumers--both the ultimate American producers and consumers who benefit from the goods that are conveyed through the ports and the immediate ones like shipping companies.
Why This Case Demands Additional Attention
In a normally functioning, competitive port economy, ports would be competing with each other to provide the most efficient service to shipping companies and producers, which would include making improvements in automation at its facilities so it could move the maximum amount of goods, as fast as possible, all day every day. This competition would benefit American consumers because it would reduce the costs of shipping and allow for even more and better goods to be available.
If one port fell behind, then shippers would use other ports and encourage laggards to keep up. This is exactly how competition works in every other industry, and as long as the costs of switching, i.e. shipping items through North Carolina instead of South Carolina, or Jacksonville instead of Miami, are low, then competition can be really effective. In fact, we can be pretty confident this would happen because it is happening throughout the world. The US ports, particularly on the East coast, are falling behind because the rest of the world operates much more competitively.
US ports are falling behind because the rest of the world operates much more competitively.
The reason the East coast is falling behind is that competition is not allowed to take place because there is a monopoly. Not a conventional monopoly of firms or the ports, but of labor. Even though the ports are independent and compete with each other, one union's workers control more than 90% of East coast shipping.1 The unions are allowed to have a monopoly of employees which is being used to produce anti-competitive and anti-consumer outcomes.
One union controls more than 90% of East coast shipping.
Imagine if Amazon Web Services, which provides cloud data for companies, controlled 90% of the cloud market, meaning it hosted company websites and data, and it was the only one that did (instead of competing with Microsoft and Google among others). What if Amazon told its customers that they won't provide compression for data for any customer, so every customer has to store its data at full size and take up more space and pay Amazon more. Further, if any customer tries to go elsewhere or host their own site, Amazon will stop hosting their data altogether, badger them, conduct a national marketing campaign calling them "scab" companies and urging everyone to boycott them. Do you think the government would get involved?
Imagine if there was one cloud data provider and it told its customers that it refused to store compressed data, forcing customers to pay more, and there was nowhere else they could go.
Every union holds some level of monopoly. Some unions control labor at a single firm, and some unions hold large manufacturers such as car companies. However, the Longshoreman's union controls practically every port on the Eastern seaboard that provides international container shipping. Domestic automobile companies still compete with non-unionized foreign automobile companies, or plants in right-to-work states with no unions. This competition keeps pressure on the car companies to keep up with technology even if it hurts union members' job prospects. There is no such competitive pressure for the ports.
Because the anti-consumer, anti-competitive group is a union, the FTC doesn't do anything, but given their new approach, where they expand their areas of concern beyond just prices to effects on labor, perhaps they should also expand the focus beyond corporations to labor so they can break up this union that is holding American shipping back.
1Author's calculations based on data from Bureau of Transportation Statistics.
Monday, January 9, 2023
Bureaucrats Don't Know Best
On January 5th, the FTC announced that it will implement and enforce a rule that will prohibit non-compete clauses in labor contracts, nation-wide, retroactively, and proactively. This single action demonstrates several problems with the current state of democracy, the regulatory state, media coverage, and economic punditry. In summary, this proposed rule suffers from a lack of evidence, a lack of democracy, and a lack of consistency.
This proposed rule suffers from a lack of evidence, a lack of democracy, and a lack of consistency.
Lack of Evidence
In their announcement, the FTC claims that proscribing non-competes could increase wages by "nearly" $300 billion per year and expand career opportunities for 30 million Americans. I've discussed before how the evidence that is provided for regulations can be extremely challenging to parse, even for well educated people. In this case, FTC buries their calculations on page 162 of their background document.
The bottom of their range is determined by taking 3.3% of all private income summed across all professions throughout the United States. 3.3% was the bottom of the range from one of the papers (3.3% - 12%). The FTC doesn't seem to make any effort to account for states that do not enforce or have outlawed non-competes and exclude them from the calculation. The top of the range comes from a study that estimates a 1% increase in wages from banning non-competes. The 1% is applied to every state (despite many not enforcing non-competes), and uses the state of non-competes as recorded in 2009, despite many states passing legislation that changed their enforcability in the intervening years.
This rule should be countermanded for the obviously incorrect estimates alone.
One of the primary defenses of non-compete clauses is that they lead employers to invest in their employees through training. When the employer can be more confident that the employee will continue to contribute, they are more willing to invest their resources because they won't worry that their training investments will benefit their competitors. The FTC does acknowledge this issue and even cites some evidence that it is a tangible, determinable cost. However, they do not attempt to put an annual dollar figure on this loss to employees and so they do not compare it with their calculated benefits.
While the FTC does point to different estimates for different industries, their discussion of these differences is less than comprehensive, and they do not account for the differences in their calculations. They discuss, at different times, the effects on low wage workers, high tech workers, CEOs, and physicians. For the most part, they discuss how research has found different estimates of the effects of non-competes for different groups. For physicians, research has shown that non-competes actually increase salaries; they dismiss that evidence. The evidence they cite for these different professions is so scattershot, it is difficult to draw any larger conclusions. Not surprisingly, this doesn't stop them from doing so.
The FTC acknowledges that their estimates represent some transfer from employers to employees and potentially, consumers to employees if employers are forced to raise their prices to cover the increased salaries of employees, but does not provide a clear, concrete estimate as to how much is actually benefitting the economy versus how much will just be transferred from one group to another.
Lack of Democracy
An edict from the FTC, specifically, 3 members of a 5 member panel who were not elected to their posts, is not how significant changes to labor laws should occur. Non-competes have been used for centuries, and the FTC has existed since 1914. Voters should be highly skeptical when a long-standing practice is suddenly deemed illegal despite no change in the practice or the law. Citizens should have a strong disinclination to any such changes particularly when these practices can be addressed through acts of legislatures, and indeed have been. Many states have acted to restrict the use of non-competes in the past ten years, showing that this is an area where the democratic process is functional. Other states have opted not to restrict them. Should those states and their voters be over-ruled by 3 unelected FTC agents? Essentially, three commissioners of the FTC are attempting to expand California's non-compete policy to the rest of the country without a vote of the national legislature, any of the other states' legislatures, or the approval of voters. This despite there being a bill introduced in the Senate to accomplish this that was not passed. Should the FTC enact laws that majorities in the legislature didn't support?
Essentially, three commissioners of the FTC are attempting to expand California's non-compete policy to the rest of the country without a vote of the national legislature, any of the other states' legislatures, or the consideration of their voters.
If this were left up to the states, states could approach non-competes in many ways. They could ban non-competes nearly totally like California; for low wage workers like Oregon; for high-tech workers like Hawai'i did; something in between; not at all; or try any number of different policies. Some countries require employers to pay their employees if they are laid off, for example. A national FTC mandate will prevent any such custom policies. It should come as no surprise, and even the FTC admits, different professions have different reactions to non-competes. That the FTC understands that, yet still prefers a top-down, national, uniform proscription shows that smart policy is not their goal.
The other drawback from a uniform, national policy, is that it will be impossible to gather further evidence on what an optimal policy would be. Optimal policy is almost never a single, nationwide ban but is more likely to be restrictions of varying degrees by income, occupation, state, and any other number of circumstances. By implementing a single policy, much like other regulations in other industries, the opportunity to find a set of policies that work for the most people and improve the economy will also be proscribed.
Lack of Consistency
Many economics pundits complained about President Biden's expensive student loan forgiveness plan because it was decreed by the president and not initiated by Congress. They were right to do so. Whether an action is strictly legal or not, the executive branch's tendency for unilateral policy making needs to be criticized consistently and fully by voters, media, and legislatures. When President Trump tried to shift money to build his border wall, while the legality was questionable, nearly everyone criticized his decision as against the spirit of the law.
When the FTC made their announcement, many on the left, and the same economists who had criticized Biden's student loan announcement, praised the FTC's action because they agreed with the policy. While the policy may be a good one or even more likely, some movement toward that policy would be beneficial, everyone should agree that such a substantial policy should not be conducted by a 5-member panel of un-elected appointees as a substitute for Congress or preferably, individual states.