The Unfair Labor Training Act
By Bryan Caplan
John Bishop‘s “What We Know About Employer-Provided Training” alerted me to the existence of some obscure but plausibly very harmful labor regulations. Suppose your employer provides free job training every Saturday. Compared to regular schooling, this is a great deal. The firm gives you a “full scholarship”; you pay only the opportunity cost of your time. But this great deal is normally forbidden. Bishop:
Labor Department regulations implementing the Fair Labor Standards Act make it very difficult for firms to ask workers to contribute towards the cost of their training by taking training classes during unpaid time. They specify that:
Sec. 785.27 — Attendance at … training programs … need not be counted as working hours if the following four conditions are met:
a) Attendance is outside the employee’s regular working hours;
b) Attendance is in fact voluntary;
c) The course, lecture or meeting is not directly related to the employee’s job; and
d) The employee does not perform any productive work during such attendance….
Sec. 785.29 — The training is directly related to the employee’s job if it is designed to make the employee handle his job more effectively as distinguished from training him for another job, or to a new or additional skill.
Sec. 785.30–…if an employee on his own initiative attends an independent school, college or trade school after hours, the time is not hours worked for his employers even if the courses are related to his job. (Bureau of National Affairs, Wages and Hours, p. 97:3208).
The piece is from 1996, but as far as I can tell these regulations remain the law of the land. Bishop’s analysis:
These regulations present employers with the following dilemma: either (a) don’t provide training in general skills like reading or word processing that will improve a worker’s productivity in their current job or (b) provide such training and pay all of its costs-instructional costs and trainee time costs. Thus, no matter how general the skill nor how voluntary the decision to take training, if it raises productivity in one’s current job and is provided by the employer, the worker must be paid while engaged in training. Workers and employers are prohibited from cutting the following deal–the company will provide instructors, classrooms and certification, while the worker will commit uncompensated time to learning general skills that enhance productivity (Bureau of National Affairs 1993, 97:3208). Schools can offer such a deal, employers cannot.These regulations have three pernicious effects: they discourage employers from organizing formal training in general skills, they induce them to ration the training programs that they do offer and they force workers who seek such training to get it at a school. Since school based training of adults not paid for by their employer has no effect on wage rates, the regulations effectively push many workers into a type of training that does not appear to raise their wages. This constraint on how workers and employers share the costs of general training provided at the workplace is probably a very important source of market failure in the training market.
If Bishop’s right, this would of course be a prime case not of “market failure” but of government failure: Markets are perfectly able to train workers once government gets out of the way. But why can’t markets circumnavigate the law by hiring workers-in-search-of-training at lower hourly wages?
The other way workers can share the costs of general training is by accepting lower wage rates during the training period. Under current regulations this is not really possible for short intermittent spells of training voluntarily undertaken by individual workers. For new hires, however, flexibility is greater because wages customarily rise with tenure on the job. In some low wage jobs, however, the minimum wage constraint is binding. Young inexperienced workers are, in effect prevented from bidding for training opportunities by offering to work for a low wage.
The minimum wage aside, another snag that Bishop doesn’t consider is that most low-skilled workers are too short-sighted, impatient, or distrustful to accept lower pay in exchange for training. As a result, these regulations may, like a banana subsidy, do great harm that would be child’s play for thoroughly rational agents to avoid.