NCPA - National Center for Policy Analysis


August 5, 1998


Employment mandates such as personnel policies, terms of employment and insurance coverage require firms to provide goods and services for their workers, without direct cost to government. However, these labor mandates increase business costs and reduce economic efficiency, say economists. And they tend to increase income inequality by increasing unemployment among low-wage workers.

Although difficult to quantify, estimates of the employment loss from some of these labor regulations give an idea of their magnitude. For example,

  • Most studies show minimum wage laws have disemployment effects, with a 10 percent hike in the minimum wage reducing teen-age employment by 1 to 3 percent -- not including jobs not created by firms unable to pay the new minimum.
  • Researchers recently found a 1 percentage point increase in the employer's contribution rate for workers compensation lowers teen-agers' share of the workforce by 1.5 percentage points and young adults' share by up to 2 percentage points.
  • Researchers have found state mandates requiring that maternity benefits be treated no differently than other health insurance benefits have been associated with an increase in women's hours of work, and a decrease in their employment as full-time workers were substituted for part-timers.

Source: John T. Addison, "The Economics of Employment Mandates," Working Paper No. 169, July 1998, Center for the Study of American Business, Washington University Box 1027, One Brookings Drive, St. Louis, Mo. 63130, (314) 935-5630.


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