Friday, March 25, 2011

Why Didn't I Think Of That?

So the geniuses (I love using that word sarcastically) at city government in San Francisco are about to implement what is described in an A.P. article as the "nation's toughest local hiring ordinance."  The law will impose strict local hire rules on contractors who work on city-funded projects, requiring them to hire 20 percent of their staff from San Francisco residents immediately upon implementation of the law.  That number will then escalate 5 percent per year until it reaches a 50 percent maximum.

Have none of these city officials thought beyond the rose-tinted fog of their good intentions (reducing unemployment) and considered the real incentives and consequences of their new law?  Despite a long history of similar, ill-considered statutes on city, state, and federal books I think the answer is clearly, no.  Like thousands of other pols before them they will go ahead and legislate based on political expediency and short-term, personal gain, without regard to the reality of their actions.

Let's examine a few of the basic economic rules and incentives that might give rise to outcomes that are different than what is planned.  If you reduce the quantity of a thing (labor, in this case), the increased competition for those now scarcer resources will drive the cost up.  So all San Franciscans will pay a premium on their city projects in order to achieve a goal which the city officials have determined is a good thing.  "Very well," many residents might say.  "We're prepared to pay a little more to put some people back to work."  But putting people back to work is only what is seen.  What is unseen is any alternative project or projects and any associated employment of city residents that could have been paid for by that same premium, that will not happen.  When you consider what is unseen as well as what is seen, is the law likely to provide a net benefit?, or a net loss?  Then there is the possibility that some projects, because of higher bid costs offered by contractors whose labor costs have risen, simply become unaffordable and so are not done at all.  The last time I looked, 20 percent of zero jobs is still zero jobs.

In this case, we don't even have to wait for the economic incentives to percolate through the system to discover whether the law will have any harmful effects that are not currently being considered.  According to the A.P. article, more than 60 percent of the approximately 15,000 construction workers currently employed in San Francisco live in surrounding counties where the cost of housing is lower.  Since it is entirely possible that there are many contractors who obtain their employees primarily from outside the city limits proper, some of those people who live in surrounding counties but who nevertheless work and spend money in the city every day, will lose their jobs.  Thanks, geniuses!

And finally, in what seems to be a predictable trend for legislation advanced by liberal lawmakers, the law already includes exemptions for two major projects--improvements to San Francisco International and to the city's water system.  If laws like this are supposed to make things better for everyone (like Obamacare), why, when they are implemented, are provisions always made for certain people to flout them.