Proposed Spending Cuts

by Chris Edwards

June 2011

The Department of Labor’s budget is dominated by unemployment insurance (UI) costs, which have soared in recent years. The UI system should be reformed because it raises hiring costs, encourages unemployment, and reduces incentives to save. One reform option would be to switch to a UI system based on personal savings accounts, as the nation of Chile has done. Another option would be for the federal government to fully devolve UI to the states.

Aside from UI, the largest spending area in the department is employment and training services for unemployed workers. Taxpayers have been funding these activities since the 1960s, yet the Government Accountability Office says that “little is known about the effectiveness” of the programs. The reality is that federal employment and training programs don’t fill any critical need that private markets don’t already fill in the modern economy. Congress should terminate these programs, including Trade Adjustment Assistance, Job Corps, and other programs under the Workforce Investment Act.

Congress should downsize the Department of Labor’s regulatory activities. The Occupational Safety and Health Administration, the Wage and Hour Division, and other agencies impose a thick web of rules on America’s employers. The main issue is not the federal budget costs of these agencies, but the damage to the economy caused by unneeded regulations such as the federal minimum wage.

Congress should also reform federal labor union laws. The 1932 Norris-LaGuardia Act and the 1935 National Labor Relations Act empower unions with unwarranted privileges such as “collective bargaining,” which is a euphemism for monopoly unionism. These laws are premised on the misguided idea that businesses and workers are enemies with opposite interests. They are also inconsistent with individual rights to freedom of association. Another misguided labor law is the 1931 Davis-Bacon Act, which pushes up the costs of federal construction projects. None of these union laws make sense in today’s economy, and they should be repealed.

The following table shows that devolving unemployment insurance to the states and terminating employment and training programs would reduce federal spending by $143 billion annually. In addition, Congress should cut Department of Labor regulatory activities, but savings from regulatory reforms are not estimated here.