[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                 CUTTING CORNERS AT WHD: EXAMINING THE
                   COST TO WORKERS, SMALL BUSINESSES,
                            AND THE ECONOMY

=======================================================================

                                HEARING

                               Before The

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                                 OF THE

                COMMITTEE ON EDUCATION AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________



             HEARING HELD IN WASHINGTON, DC, JULY 18, 2023

                               __________

                           Serial No. 118-18

                               __________

  Printed for the use of the Committee on Education and the Workforce
  
 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


        Available via: edworkforce.house.gov or www.govinfo.gov
        
                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
53-760 PDF                  WASHINGTON : 2024                    
          
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                COMMITTEE ON EDUCATION AND THE WORKFORCE

               VIRGINIA FOXX, North Carolina, Chairwoman

JOE WILSON, South Carolina           ROBERT C. ``BOBBY'' SCOTT, 
GLENN THOMPSON, Pennsylvania             Virginia,
TIM WALBERG, Michigan                  Ranking Member
GLENN GROTHMAN, Wisconsin            RAUL M. GRIJALVA, Arizona
ELISE M. STEFANIK, New York          JOE COURTNEY, Connecticut
RICK W. ALLEN, Georgia               GREGORIO KILILI CAMACHO SABLAN,
JIM BANKS, Indiana                     Northern Mariana Islands
JAMES COMER, Kentucky                FREDERICA S. WILSON, Florida
LLOYD SMUCKER, Pennsylvania          SUZANNE BONAMICI, Oregon
BURGESS OWENS, Utah                  MARK TAKANO, California
BOB GOOD, Virginia                   ALMA S. ADAMS, North Carolina
LISA McCLAIN, Michigan               MARK DeSAULNIER, California
MARY MILLER, Illinois                DONALD NORCROSS, New Jersey
MICHELLE STEEL, California           PRAMILA JAYAPAL, Washington
RON ESTES, Kansas                    SUSAN WILD, Pennsylvania
JULIA LETLOW, Louisiana              LUCY McBATH, Georgia
KEVIN KILEY, California              JAHANA HAYES, Connecticut
AARON BEAN, Florida                  ILHAN OMAR, Minnesota
ERIC BURLISON, Missouri              HALEY M. STEVENS, Michigan
NATHANIEL MORAN, Texas               TERESA LEGER FERNANDEZ, New Mexico
JOHN JAMES, Michigan                 KATHY E. MANNING, North Carolina
LORI CHAVEZ-DeREMER, Oregon          FRANK J. MRVAN, Indiana
BRANDON WILLIAMS, New York           JAMAAL BOWMAN, New York
ERIN HOUCHIN, Indiana
                       Cyrus Artz, Staff Director
              Veronique Pluviose, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                   KEVIN KILEY, California, Chairman

GLENN GROTHMAN, Wisconsin            ALMA ADAMS, North Carolina,
ELISE M. STEFANIK, New York            Ranking Member
JAMES COMER, Kentucky                ILHAN OMAR, Minnesota
MARY MILLER, Illinois                HALEY M. STEVENS, Michigan
ERIC BURLISON, Missouri              MARK TAKANO, California
                         
                         C  O  N  T  E  N  T  S

                              ----------                              
                                                                   Page

Hearing held on July 18, 2023....................................     1

                           OPENING STATEMENTS

    Kiley, Hon. Kevin, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     5
    Adams, Hon. Alma, Ranking Member, Subcommittee on Workforce 
      Protections................................................     9
        Prepared statement of....................................    11

                               WITNESSES

    Wolfson, Jonathan, Chief Legal Officer and Policy Director, 
      Cicero Institute...........................................    12
        Prepared statement of....................................    15
    Milito, Elizabeth, Executive Director, National Federation of 
      Independent Business (NFIB), Small Business Legal Center, 
      Washington, D.C............................................    21
        Prepared statement of....................................    23
    Sojourner, Aaron, Senior Economist, W.E. Upjohn Institute for 
      Employment Research, Kalamazoo, Michigan...................    29
        Prepared statement of....................................    31
    Greszler, Rachel, Senior Research Fellow, The Heritage 
      Foundation, Washington, D.C................................    39
        Prepared statement of....................................    41

                         ADDITIONAL SUBMISSIONS

    Chairman Kiley:
        Letter dated July 18, 2023 from the National Restaurant 
          Association............................................    79
        Letter dated July 18, 2023 from Flex.....................    81
    Ranking Member Adams:
        Letter dated July 18, 2023, from the Construction 
          Employers of America...................................    66
    Foxx, Hon. Virginia, a Representative in Congress from the 
      State of North Carolina:
        Memo dated April 21, 2023 from Tammy McCutchen...........    87
    Scott, Hon. Robert C. ``Bobby'', a Representative in Congress 
      from the State of Virginia:
        Wage Inequality and Labor Rights Violations dated 
          February 2021 from the NBER Working Paper Series.......    89
        Letter dated July 26, 2023 from Center for Progressive 
          Reform.................................................   138
        Letter dated July 27, 2023 from National Employment Law 
          Project................................................   143
        Article published on May 2, 2019 from The Quarterly 
          Journal of Economics...................................   145
        Letter dated June 6, 2023 from The Coalition for Sensible 
          Safeguards.............................................   195

 
                 CUTTING CORNERS AT WHD: EXAMINING THE
                   COST TO WORKERS, SMALL BUSINESSES,
                            AND THE ECONOMY

                              ----------                              


                         Tuesday, July 18, 2023

                  House of Representatives,
             Subcommittee on Workforce Protections,
                  Committee on Education and the Workforce,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:15 a.m., 
2175 Rayburn House Office Building, Washington, DC, Hon. Kevin 
Kiley [Chairman of the Subcommittee] presiding.
    Present: Representatives Kiley, Grothman, Burlison, Adams, 
Omar, Stevens, and Scott.
    Staff present: Cyrus Artz, Staff Director; Mindy Barry, 
General Counsel; Hans Bjontegard, Legislative Assistant; 
Michael Davis, Legislative Assistant; Isabel Foster, Press 
Assistant; Daniel Fuenzalida, Staff Assistant; Sheila Havenner, 
Director of Information Technology; Clair Houchin, Intern; Alex 
Knorr, Legislative Assistant; Trey Kovacs, Professional Staff 
Member; Andrew Kuzy, Press Assistant; Georgie Littlefair, 
Clerk; John Martin, Deputy Director of Workplace Policy/ 
Counsel; Hannah Matesic, Director of Member Services and 
Coalitions; Audra McGeorge, Communications Director; Kevin 
O'Keefe, Professional Staff; Mike Patterson, Oversight Counsel; 
Rebecca Powell, Staff Assistant; Kelly Tyroler, Professional 
Staff Member; Seth Waugh, Director of Workforce Policy; Joe 
Wheeler, Professional Staff Member; Jeanne Wilson, Retirement 
Counsel; Savoy Adams, Minority Intern; Brittany Alston, 
Minority Operations Assistant; Ilana Brunner, Minority General 
Counsel; Kristion Jackson, Minority Intern; Malak Kalasho, 
Minority Intern; Raiyana Malone, Minority Press Secretary; 
Kevin McDermott, Minority Director of Labor Policy; Veronique 
Pluviose, Minority Staff Director; Jessica Schieder, Minority 
Economic Policy Advisor; Bob Shull, Minority Senior Labor 
Policy Counsel; Banyon Vassar, Minority IT Administrator.
    Chairman Kiley. The Subcommittee on Workforce Protection 
will come to order. I note that a quorum is present. Without 
objection, the Chair is authorized to call a recess at any 
time. The Subcommittee is meeting today to hear testimony on 
the Department of Labor's Wage and Hour Division's rulemaking 
during the Biden Administration, including the division's 
failure to analyze the impact of its rules properly, and the 
costs and burdens imposed by regulation, by the regulations on 
workers and businesses, especially small businesses.
    Good morning, everyone, and welcome to today's hearing. 
There is broad agreement across all party lines that the 
American economy is on the wrong track. After two and a half 
years of unprecedented spending, and unconstrained regulation, 
90 percent of Americans remain worried about high prices, and 
88 percent are worried about the future of the economy.
    Fewer than 1 out of 3 Americans approves of President 
Biden's handling of the economy. Rather than correct course, 
this administration has decided to brand its record of failure 
with a new moniker, Bidenomics. The administration is engaged 
in an extensive public relations campaign asking Americans not 
to believe their eyes when they go to the grocery store or the 
gas pump, or their ears when they hear of small businesses 
closing, paychecks shrinking, young people dropping out of the 
workforce, supply chains in chaos and U.S. competitiveness on a 
steady decline.
    This exercise in delusion was captured in a recent tweet by 
the President which said that right now real wages for the 
average American worker is higher than it was before the 
pandemic with lower wage workers seeing the largest gains. That 
is Bidenomics, he said.
    Community notes commentators were quick to correct the 
record with a consensus stating real wages remain lower, not 
higher, than before the pandemic. In fact, workers have 
suffered a 3.16 percent decline in real earnings during the 
Biden Presidency. That is why 58 percent of Americans are 
living paycheck to paycheck, and 70 percent are stressed about 
their finances.
    The bottom 50 percent of households need to earn $5,000.00 
more this year just to have the same purchasing power as they 
did in 2019. In a recent study by the Federal Reserve, the 
share of adults who said they were worse off financially than a 
year ago rose to 35 percent, the highest level since the 
question was asked.
    Wealth and equality meanwhile is at one of its highest 
levels since the Fed began measuring it 34 years ago. The 
failure of Bidenomics is not just the result of misconceived 
economic ideas. The administration has also aggressively 
availed itself of any and all available tools to impose its 
agenda, whether lawful or not.
    Indeed, a disturbing habit of this administration has been 
to do by undemocratic means that which it cannot accomplish by 
Democratic means. For example, on student loan forgiveness, 
President Biden originally said I do not think I have the 
authority to do it, and then went ahead and did it anyway, by 
executive order.
    The Supreme Court, of course, recently struck that order 
down. With the new Congress declining to pass further harmful 
economic policies, the administration has increasingly relied 
on aggressive agency rulemaking. One of the rules to be 
discussed today concerning independent contracting was offered 
by the administration after Congress chose not to enact a 
functionally similar proposal contained in the Pro Act.
    Perhaps worst of all, President Biden has kept his nominee 
for Labor Secretary, Julie Su at the helm of the Labor 
Department as Labor Secretary, even as the Senate has declined 
to confirm her for nearly 5 months. Today, I am again calling 
on the President to withdraw the nomination of Ms. Su and 
nominate a Labor Secretary who will be on the side of American 
workers.
    These then are the key features of Bidenomics, policies 
that increase the size, scale and intrusiveness of the Federal 
bureaucracy, that are implemented without regard to lawful 
authority, that diminish opportunity to the detriment of 
workers, small businesses and consumers, and that are justified 
based on delusions and misrepresentations.
    Today's hearing focuses on an agency that epitomizes these 
key features of Bidenomics and is doing substantial damages all 
on its own; the Department of Labor's Wage and Hour Division. 
As an initial matter, it should be noted that the WHD's 
rulemaking process has departed substantially from the legal 
obligations imposed by Congress.
    Repeatedly, WHD has refused to comply with the Regulatory 
Flexibility Act. That law requires Federal agencies to submit a 
report, called an initial regulatory flexibility analysis, upon 
making rules which impose significant economic costs on small 
businesses. The analysis must be comprehensive, including 
descriptions of who and what are impacted by the law, and why 
and how the agency is acting.
    Biden and Julie Su's WHD acts as though this law does not 
exist. In at least four rulemaking cases, it has neglected to 
produce the required analysis before imposing economic costs on 
American small businesses. Each of those rules, by the way, was 
repudiated by the Small Business Administration Office of 
Advocacy.
    President Biden also signed an executive order in April to 
redefine what constitutes a significant regulatory action. The 
President doubled the threshold from 100 million to 200 million 
with the stroke of a pen. The effect of this is to exempt 
potentially dozens of regulations from a meaningful economic 
impact review.
    Our witnesses today will be discussing four specific WHD 
rules that are characteristic of Bidenomics and will have its 
characteristically damaging economic effects. The first is the 
previously mentioned independent contractor standard, which 
nationalizes and mirrors my home State of California disastrous 
AB5 law.
    In previous hearings we have heard testimony from 
California freelancers about all of the livelihoods that have 
been destroyed by that law. Turning AB5 into national policy 
would multiply these losses. The Chamber of Progress published 
an economic analysis which shows that an AB5 like Federal 
policy would cost the full-time or part-time jobs of between 
3.2 and 3.8 million independent contractors.
    WHD's delusional, legally deficient analysis fails to even 
consider these far-reaching horrors, even though the experience 
of California has already proven they will be the reality. The 
second WHD rule is an update to Davis-Bacon regulations that 
impermissibly expands coverage to new industries without the 
required analysis.
    The third rule regulates tipping, putting the burden on 
employers to determine when employees are doing tip producing 
work and when they are not, and then meticulously track their 
work minute by minute.
    The final rule increases to $15.00 the minimum wage for 
Federal contractors, or any business that contracts with the 
Federal Government, even, say, a small restaurant in a national 
park. Each of these regulations embodies the fundamental 
failings of Bidenomics.
    This Committee will continue to do everything in our power 
to mitigate the damage by providing robust oversight, insisting 
on adherence to the law, and advocating for a new economic 
direction, one that empowers workers, expands opportunity, 
supports small businesses, and unlocks the limitless potential 
of the American workforce.
    With that, I look forward to the hearing today and yield to 
the Ranking Member.
    [The prepared statement of Chairman Kiley follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Adams. Thank you, Chairman Kiley, and good morning. I 
do want to first of all thank our witnesses for their time. I 
look forward to your testimoneys this morning. Since President 
Biden took office, the administration and congressional 
Democrats have made great strides to grow our economy from the 
bottom up and the middle out.
    In January 2021, the unemployment rate stood at 6.3 
percent. As of last month, it is 3.6 percent. The unemployment 
rate has now been below 4 percent for the longest stretch in 50 
years. Between 2019 and 2022, some of our lowest wage workers 
experienced the fastest, real wage growth they had seen since 
1979.
    The share of working age Americans who have jobs is at the 
highest level in over 20 years. For women between the ages of 
25 and 54, the labor force participation rate has never been 
higher, reaching 77.8 percent in the latest jobs report. Black 
Americans are participating in the workforce at a higher rate 
than ever. In short, workers and families are experiencing 
historic wage growth, historically low unemployment rates, and 
a booming job market, 13.2 million jobs since President Biden 
took office, and counting.
    This historic economic growth is no accident. It is the 
result of congressional Democrats' and President Biden's smart 
policy choices to support both workers and businesses. My 
Republican colleagues do not want to hear this evidence of a 
strong economic recovery. Instead, they prefer to paint a bleak 
picture of the economy and argue that now is not the time for 
regulations to safeguard the economic security of working 
families.
    Our Republican colleagues may be quick to attack the 
Department of Labor's Wage and Hour Division, but the most 
dangerous proposals for our economy are the ones coming from 
extreme MAGA Republicans who want to turn back the clock and 
reinState failed Trump era policies.
    For instance, the prior administration gave unscrupulous 
employers a free pass to misclassify workers and deny them 
critical protections such as minimum wage, overtime, health and 
safety standards, unemployment workers' compensation, and the 
right to organize.
    It is time to face the facts. Without strong safeguards in 
place, workers will continue to be vulnerable to 
misclassification, to wage theft, and other violations of their 
rights that wind up costing working families and all taxpayers 
billions of dollars. We need a Wage and Hour Division that is 
stronger, not weaker, and has the resources it needs to fulfill 
its promise to working families and law-abiding businesses.
    Let us be clear, our Republican colleagues might not like 
the economic analysis being done by the Wage and Hour Division, 
but each of the rulemakings being discussed today were 
accompanied by pages of economic analysis, including impacts on 
small business. No corners were cut, period.
    If the Biden administration's rulemakings are so 
catastrophic for small business, then why have Americans filed 
record numbers of applications to start small business in 2021 
and 2022. If the sky was really falling, as some might suggest 
today, would there be a chilling effect on those rushing to 
start small businesses?
    Last week, the House Appropriations Committee advanced its 
Fiscal Year 2024 Labor H Appropriations bill that proposed 
slashing the Wage and Hour Division's budget by 75 million 
dollars. My Democratic colleagues and I strongly oppose this 
cut to the Wage and Hour's Division's budget, and anyone who is 
legitimately concerned about Wage and Hour's ability to conduct 
their vital mission should be as well.
    My Democratic colleagues and I believe that we do not have 
to choose between a robust economy and one that affords workers 
basic dignity and respect. This is why we will continue to put 
people over politics that support an economic recovery that 
grows from the bottom up and the middle out.
    I want to thank our witnesses again for their time. Mr. 
Chairman, I yield back.
    [The prepared statement of Ranking Member Adams follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]    

    Chairman Kiley. Pursuant to Committee Rule 8(c), all 
Committee members who wish to insert written statements into 
the record may do so by submitting them to the Committee Clerk 
electronically in Microsoft Word format by 5 p.m. after 14 days 
from the date of this hearing, which is August 1, 2023.
    Without objection, the hearing record will remain open for 
14 days after the date of this hearing to allow such statements 
and other extraneous material referenced during the hearing to 
be submitted to the official hearing record. I will now turn to 
the introduction of our distinguished witnesses.
    The first witness is Mr. Jonathan Wolfson, who is the Chief 
Legal Officer and Policy Director at the Cicero Institute, 
which is located in Austin, Texas. The second witness is Ms. 
Elizabeth Milito, who is the Executive Director of the National 
Federation of Independent Business Small Business Legal Center, 
which is located in Washington, DC.
    The third witness is Dr. Aaron Sojourner, who is a Senior 
Researcher at the W.E. Upjohn Institute for Employment 
Research, which is located in Kalamazoo, Michigan. The fourth 
witness is Ms. Rachel Greszler, who is a Senior Research Fellow 
at the Heritage Foundation, located here in Washington, DC.
    We thank all of the witnesses for being here today and look 
forward to your testimony. Pursuant to Committee rules, I would 
ask that you each limit your oral presentation to a 5-minute 
summary of your written statement. I would also like to remind 
the witnesses to be aware of their responsibility to provide 
accurate information to the Subcommittee. I will first 
recognize Mr. Wolfson.

  STATEMENT OF MR. JONATHAN WOLFSON, CHIEF LEGAL OFFICER AND 
               POLICY DIRECTOR, CICERO INSTITUTE

    Mr. Wolfson. Thank you, Chairman Kiley, Ranking Member 
Adams, and members of the Subcommittee. Good morning and thank 
you for letting me testify today. It is an honor to testify 
before this Subcommittee on agency responsibility to fairly 
analyze the costs and benefits of potential regulations and 
Congress' role in scrutinizing those analyses.
    My name is Jonathan Wolfson, I am the Chief Legal Officer 
and Policy Director at the Cicero Institute. Previously, I had 
the honor of serving as the head of the Office of the Assistant 
Director of Policy at the U.S. Department of Labor. I will 
focus my remarks on four key points.
    First, we need transparent, accountable, regulatory 
processes. Second, DOL's Wage and Hour Division is not fully 
evaluating the likely outcomes of its newest rules. Third, DOL 
is improperly using past guidance as evidence that the public 
is already on notice of its new regulations.
    Finally, Congress has an ongoing role to play to reign in 
DOL and other agencies to ensure proper constitutional balances 
of power. Regulatory agencies hold a unique role in our 
constitutional republic. They implement and enforce legislation 
passed by Congress and signed by the President.
    They play a quasi-legislator role filling in the blanks 
where statutes leave things unclear, but unlike legislators, 
regulators can only act under the authority Congress has given 
them, and they are not accountable to voters if they write bad 
regulations. In light of these challenges, past Congresses and 
Presidents have created a robust scheme of regulatory processes 
that must be followed.
    These processes encourage transparent rulemaking. 
Transparency means clearly articulating the need for a proposed 
or final rule, providing the legal basis for the rule, the pros 
and cons of the rulemaking, including the estimated cost and 
real benefits expecting to be incurred. This allows the public 
to review the proposed regulations, submit comments, and fully 
participate in the rulemaking process.
    Even when the agency opts to make law with guidance that 
circumvents the real purpose of the rulemaking process. When 
they dismiss criticism or misconstrue research to paint a more 
favorable picture of the process, the entire process will 
breakdown.
    The regulatory process protects the public from a system 
that would let unaccountable bureaucrats make laws, and 
Congress should do everything in its power to maintain these 
protections, even if those protections wind up slowing 
regulator changes that Members of Congress or their 
constituents might prefer.
    The Wage and Hour Division has issued multiple proposed 
rules over the last year and a half. Generally, they argue that 
the costs of these regulations are low, and that the benefits 
would far exceed the cost. Unfortunately, DOL is failing to 
fully evaluate the costs and benefits of these rules, which 
limits the opportunity for the public and Congress to decide 
whether and how to comment.
    For example, in the independent contractor proposed rule, 
DOL claims a benefit because some current independent 
contractors will be reclassified as employees but fails to 
acknowledge that many other independent contractors will have 
their contracts canceled, as exactly what happened when 
California passed AB5.
    In the Federal contractor minimum wage final rule, DOL 
rejected a comment from Chairwoman Foxx and Representative 
Keller about the disemployment effects from a higher Federal 
contractor minimum wage, even though the Department admits that 
the result of their proposal would depend on the size of the 
increase in the minimum wage.
    If you take the Department's own calculation into account, 
you will see a reduction of between 39,000 and 210,000 jobs 
among Federal contractor employees. In sum, the Department's 
analysis to highlight the benefits and ignore the costs makes 
it more difficult for citizens to evaluate regulations, and it 
also greatly hinders Congress' oversight responsibility.
    Finally, Congress far too often is in a situation where 
agencies use guidance documents instead of going through a full 
rulemaking, but uniquely the Department of Labor is now 
claiming that current guidance documents are actually the law, 
and therefore they do not have to evaluate the costs and 
benefits of an agency implementing and finalizing those 
guidance documents as if they are the law.
    What can be done? In light of these challenges, Congress 
can and should take three steps. First, Congress should pursue 
oversight to ensure that agencies stay within their authority 
and follow every required regulatory process. Congress must 
intervene if the executive branch tries to alter the process 
and make it easier for a regulator to ignore costs or 
exaggerate benefits.
    Second, Congress should write clearer and more detailed 
laws, and add greater detail to statutes to leave less room for 
agency interpretations that can have a dramatic effect on the 
economy. Finally, Congress may want to consider its own 
regulatory analysis body to evaluate significant regulations 
before they become legally binding.
    Complaining about overly burdensome regulation written by 
unelected bureaucrats is easy, but the American people need 
good regulations that are put in the most cost-effective manner 
possible. They need the opportunity to participate in the 
process and need legislators who will write clear laws and step 
in when agencies exceed their authority.
    Thank you so much for having me. I look forward to any 
questions you might have.
    [The prepared statement of Mr. Wolfson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]    

    Chairman Kiley. Thank you very much. I will next recognize 
Ms. Milito.

STATEMENT OF MS. ELIZABETH MILITO, EXECUTIVE DIRECTOR, NATIONAL 
FEDERATION OF INDEPENDENT BUSINESS (NFIB) SMALL BUSINESS LEGAL 
                    CENTER, WASHINGTON, D.C.

    Ms. Milito. Thank you. Good morning, Chairman Kiley, 
Ranking Member Adams, and members of the Committee. Thank you 
for inviting me to participate on behalf of the National 
Federation of Independent Business. NFIB represents nearly 
300,000 small and independent businesses nationwide.
    It goes without saying that regulations often impose 
heavier burdens on small organizations than on big ones. Small 
businesses struggle to decipher overlapping, and sometimes even 
conflicting Federal, State, and local employment and labor 
laws.
    Added to the stress of comprehending the laws is the cost 
of implementing the laws. Workplace regulatory compliance in 
particular costs small business much more per employee than it 
costs larger businesses. The Regulatory Flexibility Act, a 
bipartisan law passed in 1980 and signed by the President Jimmy 
Carter, recognizes that regulations need not be uniform to be 
effective, and it requires agencies when appropriate to tailor 
rules to the size and resources of those affected.
    The intent of the RFA is clear, when promulgating 
regulations, Federal agencies must consider and minimize the 
impact of rules on small businesses. However, in the 40 plus 
years since the RFA became law, agencies have found ways to 
disregard to bypass many of the RFA's requirements. In fact, 
NFIB's small business legal center recently analyzed the Small 
Business Administration Office of Advocacy's comments letters 
over a 2-year period to Federal agencies, and found significant 
non-compliance with the RFA.
    In these letters, the Office of Advocacy highlighted 28 
instances where agencies failed to adequately examine the 
economic costs of regulations, and disregarded RFA requirements 
to examine alternatives to regulation, or the indirect costs of 
regulations.
    The Department of Labor has been called out by Advocacy as 
a perpetual RFA violator, for improperly considering the 
economic impact its rules will have on small businesses. For 
instance, in proposing the employer independent contractor 
rule, which Mr. Wolfson also just referenced in 2022, advocacy 
observed that, ``DOL's initial regulatory flexibility analysis 
is deficient for this rule.
    DOL significantly underestimates the economic impacts of 
this proposed rule on small entities at less than $25.00 
annually per business. ``Small businesses told Advocacy that 
they are very confused on how to classify their workers and 
comply with DOL's regulations. DOL's proposed rule may be 
detrimental and disruptive to millions of small businesses that 
rely upon independent contractors as part of their workforce.''
    Congress should take steps to ensure that DOL considers 
small businesses more seriously during the regulatory process, 
as required by the RFA. In my written testimony, I outlined a 
handful of policy changes that NFIB believes would improve 
Federal rulemaking to better account for the needs of small 
businesses.
    While these recommendations will not fix all that is wrong 
with DOL's regulatory process, they are a good starting point, 
and will encourage regulators to at least pause and think about 
the real-world impact of their regulations.
    Small businesses are under incredible pressure to ensure 
that they provide safe and fair workplaces for their employees. 
They are competing with big businesses for the best workers out 
there. The small business owners who NFIB represents, work hard 
to do what is right, but their informal and unstructured nature 
and more limited financial resources means that they sometimes 
require greater flexibility in creating policies and solutions.
    Our members concerns are captured in five principles that 
NFIB frequently asks lawmakers and regulators to remember. One, 
small businesses are half of the U.S. economy. Two, one size 
rulemaking does not fit all. Three, small businesses largely do 
it yourself with compliance.
    Four, assistance with compliance is more valuable than 
punishment and enforcement. Finally, five, listen to small 
businesses before issuing commands. Adherence to requirements 
of the Regulatory Flexibility Act would go a long way to 
addressing NFIB's five principles, thereby allowing small 
business owners to expand, contribute to the national economy, 
provide fair faith, and fair workplaces, and remain employers 
of choice in their community.
    I appreciate your time and attention to these concerns. 
Thank you again for providing me the opportunity to testify on 
behalf of small businesses.
    [The prepared statement of Ms. Milito follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kiley. Thank you for your testimony. I will now 
recognize Dr. Sojourner.

STATEMENT OF DR. AARON SOJOURNER, SENIOR ECONOMIST, W.E. UPJOHN 
     INSTITUTE FOR EMPLOYMENT RESEARCH, KALAMAZOO, MICHIGAN

    Mr. Sojourner. Thank you, Chairman Kiley, Ranking Member 
Adams, and members of the subcommittee for the invitation. I am 
a senior economist at the Upjohn Institute for Employment 
Research and a former senior economist at the Council of 
Economic Advisors during the Trump and Obama administrations.
    Improving workers job quality enough to attract potential 
workers from out of the labor force is a key challenge and 
strategy for continuing to grow our economy. Vigorous, even-
handed enforcement of labor standards by the Wage and Hour 
Division can help.
    The US has enjoyed the strongest economic growth of any 
major G7 economy coming out of the pandemic recession with the 
fastest real GDP growth. Our core inflation rate is now lower 
than any other G7 economy's rate, so inflation is falling, even 
as we add jobs quickly.
    The employment rate of Americans in our prime working years 
is at its highest level in over two decades. Employment rates 
are now about the same, or higher, for every age group of 
Americans than before the pandemic, except for senior citizens. 
Adjusting for inflation, average hourly wages are higher than 
before the pandemic, and wages are growing faster than prices.
    Employers are seeing a lot of profitable production 
opportunities out there, and workers are seeing a lot of 
improved earnings opportunities. Well-functioning rules for the 
labor market will cement the improvements we have made and 
deprive law breaking employers of unfair competitive advantages 
they use to prosper at the expense of workers, law abiding 
employers, and all taxpayers.
    Violating wage and hour law currently pays, and employers 
do it because enforcement is too weak, narrow, and unreliable. 
Economist Anna Stansbury of MIT's Sloan School of Management 
analyzed the extent to which employers have an incentive to 
comply with wage and hour laws.
    She compared the extra profits they can make through 
noncompliance against the expected costs they face from 
potential sanctions. Given typical penalties, cheating would be 
profitable unless the probability of violation detection 
exceeds 78 percent.
    The expected probability is likely much, much lower than 
that because there are well over 100,000 workers for every 
enforcement staff for the Wage and Hour Division.
    Many firms avoid paying overtime wages by exploiting an 
exemption in Federal law for employees classified as 
executives, who have a salary above a prespecified threshold.
    Studying millions of job listings, a team of economists 
found that salaried positions with managerial titles increased 
almost fivefold when you crossed that threshold.
    An employer might call a front desk assistant a manager of 
first impressions, and then not pay them overtime for instance. 
On each strategic manager hired, employers are avoiding an 
average of 14 percent of their overtime expenses. Many 
employers, large and small, are doing this, and it is just one 
example of a larger pattern.
    Another example comes when employers misclassify employees 
as independent contractors. A firm can save 15 percent to 30 
percent of their labor costs by doing this. An analysis I did 
for the DC Attorney General's Office found that when 
construction employers misclassify their employees as 
independent contractors, they stop paying into the workers' 
comp system. That gives them a 5 percent cost advantage.
    They stop paying into the unemployment system that gives 
them another 5 percent cost advantage. They stop paying the 
employer's contribution to social security, to Medicare, to 
Medicaid systems. That is another 7 percent cost advantage. 
They stop paying overtime after 40 hours of work, another 
couple percentage points.
    They stop ensuring they pay an hourly wage above the 
minimum. That is a big deal for some employers. All those 
advantages add up, and to a big, unfair competitive advantage, 
the losses for workers, for increased financial burdens on 
other taxpayers who have to make up the difference.
    When law-abiding employers are squeezed out of business 
opportunities by competitors that illegally misclassify 
employees, they feel pressure to cut corners, and may start 
misclassifying themselves. It can spread from a few bad apples 
to the become a sector standard practice.
    Attempts to misclassify employees as contractors undermine 
the fundamental right of American workers. Congress granted 
these rights to employees. Denying employees that status 
attempts to push them outside the circle of labor standards, 
and DOL's current proposal to move back to the Supreme Court-
approved, six factor economic realities test that was used for 
decades to distinguish who is in business from who is an 
employee will strengthen the labor market and the economy.
    It will improve job quality and shared prosperity by 
reducing incentives to excluding workers from employment rights 
and engage in a race to the bottom. Thank you.
    [The prepared statement of Mr. Sojourner follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kiley. Thank you very much. Our final witness is 
Ms. Greszler.

 THE STATEMENT OF MS. RACHEL GRESZLER, SENIOR RESEARCH FELLOW, 
           THE HERITAGE FOUNDATION, WASHINGTON, D.C.

    Ms. Greszler. Good morning and thank you for the 
opportunity to testify today. I would like to discuss four 
rules of the Department of Labor's Wage and Hour Division, each 
of which relies on flawed economic analysis, and will likely 
impose significant consequences.
    My written testimony provides greater detail as these rules 
exceed over 300 pages in total. First, the Division's analysis 
of the tip to minimum wage rule appears oblivious to how small 
businesses operate, and it is unreasonably dismissive of 
stakeholder's legitimate concerns.
    The tipped rule requires employers to track a minutia of 
employee's actions, and to classify those into three indistinct 
buckets. For example, a server making a salad must be paid the 
regular minimum wage, while a server putting dressing on a 
salad can be paid a tipped wage. A server who wipes up a spill 
would be paid different rates depending on the timing and 
location of that spill.
    Short of employers purchasing sophisticated payroll systems 
to classify hundreds of different actions, and then installing 
AI monitoring system to track employees' actions, compliance is 
likely impossible. The second rule increase the minimum wage 
for Federal contractors to $16.20 per hour as of this year.
    In its analysis the Division acknowledged, and then it 
ignored something called spillover effects, claiming that it 
could not estimate such effects, yet the Division cited CBO 
analysis that provided an easy way for the Division to 
calculate those effects. Then the Division effectively refuted 
the purpose of a regulatory analysis, claiming that it did not 
need to include spillover effects because the rule did not 
mandate those to occur.
    The Division also failed to consider how its minimum wage 
rule will disproportionately hurt workers and employers and 
lower cost workers because $16.00 per hour in Mississippi is 
like $37.00 an hour minimum wage in D.C. Minimum wage increases 
also have consequences for workers that the Division failed to 
recognize, such as lost jobs, lost health insurance, fewer 
hours, and irregular scheduling.
    Third, is the rule regarding Davis-Bacon Act, or DBA wage 
rates. Both the GAO and the Inspector General have criticized 
the Division's calculation of DBA rates for relying on 
unscientific methods, and the proposed rule exacerbates those 
problems. For example, a scientifically sound sample size has 
at least 30 observations.
    The DBA's proposed rule would cut the minimum sample size 
down from only six today to a mere three observations. When 
assessing the costs, the Division estimated that just one 
component of the DBA rule would increase compensation by 
$7,300.00 for each affected worker, but then it claimed it 
could not extrapolate that figure. It could have.
    For example, if just 10 percent of construction workers 
were affected, employer costs would have increased by $876 
million. The DBA rule also fails to acknowledge how it will 
further exclude small businesses, and 83 percent of 
construction workers who are not unionized from participating 
in Federal construction projects.
    Moreover, the DBA rule would further drive-up taxpayer 
costs, add to inflation, and exacerbate labor shortages, none 
of which the Division acknowledged. Finally, in redefining how 
independent contractors and employees are classified, the 
Division's IC rule would create tremendous confusion and 
uncertainty for millions of businesses and upwards of 50 
million Americans who perform independent contract work.
    For example, while most employers currently consider just 
two factors when determining a worker's status, the rule 
requires that the consider at least six factors, and a number 
of possible combinations that can lead to a determination would 
jump from 18 today, to 256.
    That math is irreconcilable with the Division's claim that 
the IC rule provides more consistent and clear guidance. On 
costs, the Division estimated only $25.00 in costs for small 
businesses, and $5.00 in costs for workers to familiarize 
themselves with the 58-page proposed rule.
    It provided no consideration and no estimate of at least 
seven other significant costs that would almost certainly total 
billions of dollars. Consequently, the proposed IC rule will 
hurt workers, employers, and consumers. It will take away 
income opportunities from parents, caregivers, and individuals 
with disabilities who rely on independent contracting for the 
flexibility that it provides.
    It will hurt small businesses that rely on contractors to 
compete with bigger companies, and it will hurt lower income 
families who do not own cars, and rely on contractor-based apps 
for transportation, and for grocery and diaper delivery. To 
prevent the Division from enacting economically destructive 
rules based on their flawed regulatory analysis, Congress 
should consider passing legislation to further specify its 
intent under the Davis-Bacon Act, and the Fair Labor Standards 
Act. Thank you.
    [The prepared statement of Ms. Greszler follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kiley. I thank the witnesses for their testimony, 
and under Committee Rule 9, we will now question witnesses 
under the 5-minute rule. Mr. Grothman is recognized for 5 
minutes.
    Mr. Grothman. We will start out with Ms. Milito and the 
independent contractor changes. Could you give me some examples 
of ways in which people work as independent contractors right 
now, and will not be able to if this rule goes into effect?
    Ms. Milito. Yes. Thank you for that question. I am coming 
at it from the perspective first, if I can, with my hat on 
representing small businesses that use independent contractors, 
and rely very much on them for finite projects, like for 
instance, take a small law firm that uses an IT person coming 
in maybe once a month to maintain their website and use their 
IT.
    On the flip side, you have the IT person who has their own 
business, and who services maybe a lot of law firms and 
accounting firms in the town there, who under the DOL's 
proposed rule would now question whether or not they would be 
able to continue as an independent contractor.
    The confusion over the classification, I mean, it hits both 
sides. The business owners that rely very much on independent 
contractors, and just cannot afford to take on a full-time 
employee, another employee on their payroll, but at the same 
time you have the business owners, the small one shop person 
who wants to go out and continue to work and do their own 
thing, and be their own boss, and have their own business 
there. It cuts both ways and would be very challenging for 
small businesses.
    Mr. Grothman. Can you give me examples in which people who 
want to work more and make more money benefit from being 
independent contractors?
    Ms. Milito. Where they benefit from being independent 
contractors? Yes. When they can go out and work extra hours, 
work on weekends, take on added work, and some of them may 
start out as an employee at a firm, and then you know, they 
decide you know what, I do not want to just work for one law 
firm.
    I want to go out and work for a lot of different law firms. 
I can make more money. I can do more, I can be more creative. I 
can be my own boss. I do not have to--I can work the hours I 
want to work.
    Mr. Grothman. If my goal is to make $100,000.00 a year, I 
may benefit by the independent contractor designation. It may 
give me more freedom to achieve my economic goals. Is that 
right?
    Ms. Milito. That is correct, and you can do it on your own 
time with more flexibility too.
    Mr. Grothman. OK. Ms. Greszler, let us talk about minimum 
wage a little bit. If we raise the minimum wage to $15.00 an 
hour what type of person is going to be hurt? By that I mean 
which type of person will be less likely to be employed?
    Ms. Greszler. Minimum wage is not meant to be a career 
wage. The reason that we have minimum wages, or lower wages, is 
it is a steppingstone. Who do you hurt? You hurt the people who 
are just starting out in their careers. You hurt individuals 
who have disabilities, somebody who might have a criminal 
record, somebody who has come here and doesn't yet have strong 
English-speaking skills.
    The problem with the minimum wages is it hurts the workers 
at the bottom end of the career ladder who are trying to get 
that experience to climb up.
    Mr. Grothman. OK. In other words, if I had a criminal 
record, and in some states, including Wisconsin, it is against 
the law to discriminate on the basis of a criminal record, but 
people do. We know that. If I have a record and I want to get 
back in the workforce, it is important for me to find an 
employer who will take a chance on me.
    You are saying going to $15.00 on minimum wage will 
specifically harm the type of people with a spotty record?
    Ms. Greszler. That is one of the groups it will harm.
    Mr. Grothman. Right. How about older people? I always kind 
of wonder, you know, if you are 70 years old and want to get 
back in the workforce, a lot of people, they balk at hiring 
somebody who is 70 years old. Will raising the minimum wage to 
$15.00 an hour, do you think that will say specifically harm 
older people?
    Our seniors, kind of targeting them, making it more 
difficult for them to find jobs? When you are dealing with 
seniors, of course, you are dealing with people who already get 
social security, so they do not have to make 40 grand a year on 
the job.
    Ms. Greszler. Yes. I think it would harm them because there 
might be some discrimination in thinking they would not be as 
capable as a younger worker, and even more so the independent 
contractor role would hurt those older Americans who might not 
want to be participating in a 9 to 5 job anymore, and might not 
be able to, but are able to work if it is on their own terms, 
and if they can be their own bosses.
    Mr. Grothman. They are a little bit slower, right? Let us 
face it, if you are 72, 73 years old and want to work, you are 
a little bit slower.
    Ms. Greszler. They might be physically slower, but they 
might be sharper as well.
    Mr. Grothman. OK. OK. I will ask Ms. Milito one more time 
on the independent contractor thing. Can you give examples in 
businesses in which somebody by being an independent 
contractor, say in the sales area, financial services. Is that 
an area where people right now are independent contractors and 
enjoy the freedoms of that, and quite frankly are sometimes 
very financially successful? Would you comment on the 
independent contractor and the people in financial services?
    Ms. Milito. Yes. That is a great point. In some industries, 
like for instance, in the insurance industry where some 
insurance agents are independent contractors, so you know, they 
are affiliated with----
    Mr. Grothman. Some of them are making over--are making six 
figures. A lot of them are making six figures.
    Chairman Kiley. The gentleman's time has expired. The 
witness can answer.
    Ms. Milito. Yes, yes, very much.
    Mr. Grothman. They are going to lose that opportunity. 
Well, that is too bad. OK. Thank you.
    Chairman Kiley. The Ranking Member, Ms. Adams, is 
recognized for 5 minutes.
    Ms. Adams. Thank you, Mr. Chairman, and again thank you to 
the witnesses. You know, Republicans talk a lot about the 
market, but it is really important that we have healthy 
competition in the labor market. Mr. Sojourner, you published a 
paper recently that found higher labor market concentration led 
to lower wages.
    Why are competitive markets so crucial to ensure that 
workers are paid fairly for their labor? Can you respond?
    Mr. Sojourner. Yes. Thank you. That is a great question. 
Yes, competition between employers is crucial for a healthy 
labor market, and for workers to have strong earning 
opportunities. The labor market by its nature, a lot of things 
push it against competition because where you go, you have to 
work, in a physical place often.
    Labor markets can be very local, and you might have a lot 
of skill in a particular area, and there might not be a lot of 
employers who need that skill in that local area. We think 
about the labor market as one big market, but actually it is a 
lot of little markets. They can be quite thin and 
noncompetitive.
    More competition gives workers power to achieve 
improvements in their job quality either by negotiating 
improvements with a credible threat to take a better job 
outside, or by actually taking one of those better jobs 
outside, and leaving them.
    Ms. Adams. Let me move on. I have got a series of questions 
for you.
    Mr. Sojourner. Sure.
    Ms. Adams. It is really not enough to just have folks with 
bachelor's degrees doing well in the economy, but in the same 
paper you found that employees were posting job vacancies for 
higher skills, but lower wages in less competitive local job 
markets. Why do these employers in more concentrated labor 
markets think that they can get away with hiring higher skilled 
workers for less, and how do we make sure that all workers have 
access to good paying jobs?
    Mr. Sojourner. Thank you. Yes. Again, the employers in thin 
labor markets where there is not a lot of competition, where 
there are maybe a few big employers who are the only place you 
can work with those set of skills. There is not enough 
competition. There are not enough potential employers to 
counteroffer, and so those employers have some wage setting 
power. It is not a very competitive market, and they can 
underpay workers below what they produce, and we should try to 
get more competition in labor markets, and you know, restrict 
non-compete agreements, do more antitrust enforcement, 
encourage more entrepreneurship, all these things contribute.
    Ms. Adams. The competition would increase availability 
then. Let me ask you--before I do that, let me just say that an 
analysis of the construction industry revealed that 12.4 
percent, or 20.5 percent of the workforce on an average month 
of 2017 were misclassified as independent contractors, or 
working off the books, and putting law abiding employers at a 
disadvantage.
    Mr. Chairman, I would like to enter a letter from the 
Construction Employers of America supporting actions taken by 
the Wage and Hour Division to level the playing field if I may 
do that.
    Chairman Kiley. Without objection.
    [The information of Ms. Adams follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Adams. Thank you. Dr. Sojourner, you participated as a 
working group member for the job quality measurement initiative 
in which the Department of Labor solicited input from external 
partners. When you think of what it means to have a good job, 
what principles do you think are important, and how does that 
inform how you think of the health of today's labor market?
    Mr. Sojourner. We have to pay attention to what workers 
value, and measure it, monitor it, and try to make sure they 
are getting it. They care about wages. They also care about 
fringe benefits, health and safety at work, control over how 
they do their work, their schedule, their location, their pace.
    These things tend to move together, but they are not always 
the same, and these administrative actions can help promote 
fair competition that make sure workers get the things they 
value, and they are entitled to.
    Ms. Adams. Thank you, sir. What do you say about the 
implications of deregulation for our workers, and how does not 
enforcing the law impact workers' loss in pay? You have got 10 
seconds.
    Mr. Sojourner. When the rules do not get enforced and are 
ignored, competition gets rough and people get hurt, and it is 
not fair. Thank you.
    Ms. Adams. Thank you, Mr. Chairman. I yield back.
    Chairman Kiley. Ms. Stevens is recognized for 5 minutes.
    Ms. Stevens. Thank you, Mr. Chair. I find this hearing very 
interesting in part because we are on the heels of a pretty 
historic, sweeping set of legislative victories. One was the 
bipartisan Infrastructure Act, and Dr. Sojourner, is it true 
that the bipartisan Infrastructure Law that was signed in 2021 
has yielded dividends to our economy and created jobs? Would 
you agree with that, Dr. Sojourner?
    Mr. Sojourner. I would. Yes.
    Ms. Stevens. Yes.
    Mr. Sojourner. Yes.
    Ms. Stevens. We have prioritized unionized labor work at 
the Davis-Bacon wage, right?
    Mr. Sojourner. Yes.
    Ms. Stevens. Is it true that we are in a very tight labor 
market right now?
    Mr. Sojourner. Yes, that is true.
    Ms. Stevens. What do you suppose is the reason for that 
tight labor market?
    Mr. Sojourner. We have a lot of strong investment by the 
Federal Government in recent years that have said we are going 
to lower the cost of doing business by lowering transportation 
costs, making energy more affordable, and you know, subsidized 
investment in local manufacturing and American manufacturing.
    Ms. Stevens. Manufacturing is on the rise.
    Mr. Sojourner. It is.
    Ms. Stevens. In fact, we have more manufacturing job growth 
than any other time in a President's service, which is great to 
see. We know that 13.2 million jobs are being created, but for 
some reason we are having a hearing about cutting corners at 
the Department of Labor, and its costs to workers. I am just 
very confused about that as somebody who has regular townhalls, 
and I do this program called Manufacturing Monday.
    I regularly sit down with small businesses. I think I am 
one of the only Members of Congress that goes and visits the 
small businesses in my district. The No. 1 thing I hear, I do 
not hear anything about the Department of Labor, but I hear 
about the need for skilled job training. I hear the push for 
STEM education, and increasing our skilled trade workforce.
    The other thing I wanted to ask you about, Dr. Sojourner, 
is what do we know about the data that we have about the 
prevalence of worker misclassification? I know that data has 
been spotty over the years.
    Mr. Sojourner. Yes. It is difficult to measure. This is an 
illegal behavior, and so it is hidden. Unemployment insurance 
agencies in different states have done audits of random 
representative employers, which is kind of the best way to get 
a sense of the prevalence, so they invest in actually going 
carefully through and assessing it.
    You can find estimates of 20 percent in construction, and 
you know, things of that magnitude, but we do need better data.
    Ms. Stevens. How would more current and comprehensive 
national data help us combat employee misclassification, which 
we do know is contributing to wage theft?
    Mr. Sojourner. Yes. I think investing in systematic random 
audits, just to make sure that they do not have to be large, 
they can be quite small, and employers can be compensated for 
going through them to alleviate that burden, but that gives us 
a sense of how prevalent these things are, and in different 
parts of the economy.
    Ms. Stevens. Any other points that you can address about 
the consequences for workers when they are misclassified?
    Mr. Sojourner. I think a lot of workers do not appreciate 
the value of social insurances until they need them. Appreciate 
the value of workers' comp system. Young workers think they are 
invincible until you need it. Until you get laid off, you do 
not need unemployment insurance. People tend to undervalue 
insurances.
    Ms. Stevens. What role does the Wage and Hour Division play 
in helping workers by reducing instances of misclassification?
    Mr. Sojourner. They have inspectors who engage with 
employers and workers, and followup on complaints, when workers 
think their rights are being violated, who actively monitor the 
economy and look for evidence that the laws are being violated, 
and help get workers paid the wages that they earned.
    Ms. Stevens. We are helping workers get paid. Thank you.
    Mr. Sojourner. That is it, that is it.
    Ms. Stevens. Thank you, Dr. Sojourner. With that, Mr. 
Chair, I yield back.
    Mr. Sojourner. Thank you.
    Chairman Kiley. Chair Foxx is recognized for 5 minutes.
    Mrs. Foxx. Thank you, Mr. Chairman. I thank our witnesses 
for being here today. Ms. Milito, in March 2022, the Wage and 
Hour Division, WHD, published a proposed rule to update the 
Davis-Bacon and related acts regulations. The proposed rule is 
more than 100 pages long, contains more than 50 significant 
changes, and by DOL's own admission is one of the most sweeping 
overhauls to the Davis-Bacon program in decades.
    WHD, absurdly estimates that its proposed rule will cost 
businesses $78.97 to comply annually, including 1 hour to read 
the regulations, and one-half hour to implement the regulation. 
Do you think this estimate accurately captures the amount of 
time and resources necessary for a small business to comply 
with the sweeping overhaul of the Davis-Bacon regulations?
    If not, would you agree that DOL has an obligation to 
assess the cost of compliance accurately for small businesses 
before issuing a final rule?
    Ms. Milito. Thank you, Chair Fox, for that question, and I 
think in response it would be a yes and a yes, but I will go on 
a little bit. Absurd is a great way to characterize DOL's 
regulatory analysis of this, and I have got some numbers here 
too. The whole MPRM, including the appendixes, was actually 432 
pages, or 118,450 words. As you, I think said, they estimated 
regulatory familiarization would take 1 hour.
    I think if you are reading 118,000 plus words would 
probably take over 8 hours at most. The other thing too, with 
regards to Davis-Bacon, this is going to hit small businesses 
the most. 82 percent of all construction firms employ under 10 
employees. Construction companies that employ fewer than 100 
employees comprise 99 percent of construction firms in the U.S.
    I think DOL should withdraw the rule because their analysis 
was so flawed. Thank you.
    Mrs. Foxx. Well, thank you very much. Ms. Greszler, DOL's 
tipped minimum wage regulation imposes an extremely complicated 
and cumbersome timekeeping mandate on employers that requires 
them to track their workers tasks minute by minute.
    With such onerous requirements, is it feasible for a small 
business owner who runs a restaurant to comply with such 
unreasonable timekeeping requirements?
    Ms. Greszler. No. I do not think it is reasonable at all, 
and I think that the Division did not consider the stakeholders 
who were giving them examples. For all of us here today, you 
are members, you run offices. Consider what it would be like if 
each of your staffers had to be classified into the work that 
they are doing to be direct constituent services, constituent 
services supporting, and not related to constituent services 
down to every minute they are doing that.
    That is impossible for an employer to know what each 
individual is doing, and so the ways that they will respond 
will directly hurt workers. Just one of those could be to 
automate more jobs so that you do not have to deal with 
tracking actual people.
    Mrs. Foxx. Well, thank you again. Mr. Wolfson, numerous 
independent workers have raised concerns that the net effect of 
DOL's independent contractor proposed rule will be to 
jeopardize their ability to continue operating their own 
businesses. In contrast, DOL provides an extremely low estimate 
of the cost of regulatory compliance, and completely fails to 
provide an analysis of the economic impact of the proposed rule 
on the small businesses.
    Can you discuss some of the flaws in DOL's economic 
analysis of the independent contractor proposed rule?
    Mr. Wolfson. Thank you, Chairwoman Foxx, it is a great 
question. I think what is interesting is the Department of 
Labor tries to have it both ways. They try to say that 
misclassification is a huge problem, but there is not going to 
be a lot of change in people's status, so there really will not 
be a lot of cost. You cannot have it both ways. Either the data 
that Dr. Sojourner is citing is accurate and there are millions 
of workers who are misclassified, who under the new Department 
of Labor rule would suddenly either lose their opportunities to 
work in the job they're working, or would be reclassified as 
employees, which would have massive costs for the businesses.
    Whether those workers would keep their job becomes a big 
question. Most of these workers are properly classified and 
there is not a big change, in which case there would not be a 
big cost. If there would not be a big cost, then why do we need 
to go through a process of changing the regulation? I think you 
are exactly right.
    The Department of Labor needs to decide to admit that there 
are going to be significant costs. They are going to need to 
look at the data from California with AB5 where millions of 
workers were told--tens of thousands of workers were told by 
companies from all ends of the political spectrum, the New York 
Times told freelance photographers and writers in California 
that they were no longer going to work with them unless they 
left the State of California.
    That was not a bunch of far-right extremists who said we 
are not going to work with you. These were people who had very 
similar ideology to the people in California who were coming up 
with those rules, saying we cannot work with you because we are 
not willing to live under those rules.
    These are the things the Department of Labor should have 
considered when they put their rule together. Now the 
Department of Labor can evaluate this if they decide to try and 
finalize the rule, but they should have, and they had an 
obligation to provide this information in the proposed rule, 
and their failure to do that, as I mentioned in my written 
testimony, really breaks down the required transparent process 
that is supposed to exist, so everybody could evaluate whether 
it is a good or a bad proposed rule.
    Mrs. Foxx. Thank you very much. I yield back.
    Chairman Kiley. Mr. Scott is recognized for 5 minutes. 
Actually, we will go to Mr. Burlison first, then Mr. Scott.
    Mr. Burlison. Thank you, Mr. Chairman. Mr. Wolfson, I want 
to continue on that line of discussion about the transparency 
in that rulemaking process. In your testimony, you said that 
the Department of Labor evaded transparent rulemaking and 
public scrutiny for its regulatory actions. Can you elaborate 
how exactly did they evade that?
    Mr. Wolfson. Yes. There are two different ways that the 
Department of Labor, or any Federal agency can go about doing 
it. One, is to call something guidance that is actually a 
regulatory change. You claim that you are just putting out some 
assistance to companies on here is how you are supposed to 
comply with regulations that exist.
    If that guidance actually creates new obligations then that 
should go through the full notice and comment process. There 
was a big fight about this. President Trump signed an executive 
order that President Biden got rid of. The Department of Labor 
was required under that executive order to post all of its 
guidance documents online, the Wage and Hour Division hasn't 
posted a single document on that guidance portal in 2023.
    Mr. Burlison. For anybody that might be a nerd and watching 
C-Span, the distinction between a guidance document, and the 
rulemaking process is significant because of what has to be 
done to actually pass a rule or law, versus what is done in 
guidance. Correct?
    Mr. Wolfson. That is exactly right. A guidance document can 
be written literally in 5 minutes on an email sent out to the 
whole world. There is no obligation that that go through the 
Administrative Procedures Act process. To get that struck down 
by a court is really challenging.
    Mr. Burlison. The assumption is that these are harmless, 
that they are essentially creating best practices, but the 
actual outcome is you have State agencies who are charged with 
enforcing some of these guidance documents, and so it ends up 
becoming, in effect, law.
    Mr. Wolfson. Absolutely. Unfortunately, some of these 
guidance documents we found when we were evaluating the 
guidance documents at the Labor Department, existed in one 
place and one place only. They were in hard copy in the U.S. 
Department of Labor's library. That would mean that if you are 
a small business in Wisconsin or in Tennessee, you would have 
to send a lawyer to Washington, DC, read through hundreds of 
pages of paper documents to figure out whether you are, or are 
not in compliance with this kind of hidden set of laws.
    Mr. Burlison. Thank you, Mr. Wolfson. Ms. Greszler, is that 
right? In your testimony you explained in the proposed 
rulemaking for the Davis-Bacon Act, they significantly 
underestimated the costs to businesses, and it appears that it 
is because we now have new businesses that are being lumped 
into the Davis-Bacon Act, correct?
    These are suppliers, manufacturers, so if you are building 
a building, and the truss company, the company that makes 
trusses is supplying those, they suddenly have to now comply 
with the rules of the Davis-Bacon Act?
    Ms. Greszler. Correct. It is including anything associated 
with that construction into it, and so they are saying we know 
that this will drive up costs, maybe by as much as $7,300.00 
per worker, from one small component, maybe by a couple 
thousand for another of the 50 components, b ut we are not 
going to extrapolate that because we do not know how many 
workers it will affect. They do know that already it is 
affecting 1.2 million workers that are governed by these wage 
rates, so they could have at least provided analysis to say 
here is a range of how many it could affect, and they failed to 
do that.
    Mr. Burlison. The increased costs, who pays that increased 
cost?
    Ms. Greszler. Well, the Division does point out that a lot 
of these costs will just be passed on to the Federal 
Government.
    Mr. Burlison. To the taxpayer.
    Ms. Greszler. The taxpayers, who are behind this, but it 
also is going to result in reduced quality of service and 
quantity of service because you have more money that is having 
to be paid when Congress has allocated a certain amount of 
spending. A prior Heritage Foundation analysis is estimated 
that the DBA Act as it stands today, without these increased 
costs, is already driving up Federal construction costs by 10 
percent.
    Mr. Burlison. Sadly, it benefits some areas more than 
others. I come from a deeply red district, where labor union 
prevalence is very small, and yet if you talk to employers they 
sometimes will turn down contracts because it completely 
disrupts their normal business operations with their employees, 
throws them into situations where employees get paid 
dramatically more.
    Then what happens is those employees then take a few, a 
couple months off, right?
    Ms. Greszler. Yes. This is a deterrent. Over 80 percent of 
construction companies are not unionized. 83 percent of 
construction workers are not unionized. To have to comply with 
those laws. It is difficult, and then further----
    Mr. Burlison. Is it safe to say that the taxpayers get less 
for their money under Davis-Bacon?
    Ms. Greszler. Exactly, yes.
    Mr. Burlison. They get less schools, less post offices, 
less roads under this?
    Mrs. Greszler. Correct.
    Mr. Burlison. Thank you.
    Chairman Kiley. Mr. Scott is now recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. Dr. Sojourner, we have 
heard a lot of complaints about this economy and how bad it is. 
Do you know the No. 1 and No. 2 best job creating years in the 
history of the United States?
    Mr. Sojourner. I am going to go with 2021 and 2022 maybe?
    Mr. Scott. The first year of the Biden administration, and 
the second year of the Biden administration, No. 1, and No. 2, 
best job creating years in the history of the United States, 
and that the unemployment rate has not been under 4 percent as 
long as it has in about 50 years?
    Mr. Sojourner. That is correct.
    Mr. Scott. Um-hmm. Is that a bad economy?
    Mr. Sojourner. It is a very strong economy.
    Mr. Scott. Thank you. When we considered the minimum wage 
about 2 years ago, we found out that there is no county in the 
United States where a full-time minimum wage worker could 
afford a modest two-bedroom apartment. Ms. Greszler, you 
indicated people who would be hurt by an increase in the 
minimum wage. congressional Research Service had issued a 
report at that time that showed there would be no job loss. Do 
you have studies that show job losses as a result of the 
increase in the minimum wage?
    Ms. Greszler. Yes. The overwhelming economic literature 
suggests that increases in the minimum wage reduce the number 
of jobs. A recent CBO study in 2019 that looked at a $15.00 
minimum wage estimated that it would cost millions of jobs. 
That is just the direct impacts. There are also impacts for the 
workers.
    Mr. Scott. The most recent studies in that analysis showed 
no loss in wages. Is that right?
    Ms. Greszler. Some studies have shown that actually the 
people who do also receive a higher wage end up having less 
income. There was a study that looked at California and Texas 
and compared similar jobs.
    One experienced an increase in the minimum wage, and 
actually found that their net income for the year went down by 
almost 12 percent because employers reduced their hours so 
much, and also cut back on health insurance, retirement 
benefits, and led to more irregular schedules.
    Mr. Scott. Dr. Sojourner, are you familiar with the most 
recent studies on job loss and minimum wage?
    Mr. Sojourner. Generally. Yes. My sense of the literature 
is that there is evidence around zero effects on employment. 
There is strong evidence that on average low-wage workers gain 
income on net from increases. They are making more per hour. If 
they are losing hours. They are getting other things they can 
do in that time, but the disemployment effects are very small, 
if at all.
    Mr. Scott. Thank you. I think you implied, Dr. Sojourner, 
about the incentives for employers to misclassify employees. It 
is my understanding that employees are entitled to certain 
benefits, but independent contractors are not, like minimum 
wage, overtime, health and pension benefits provided by the 
employer, OSHA coverage, workers comp, and unemployment 
compensation. Is that right?
    Mr. Sojourner. That is exactly right. EEOC, 
antidiscrimination, there is a long list.
    Mr. Scott. Does the Wage and Hour Division have enough 
staff to track people down who are being misclassified, and 
employers saving money by misclassifying?
    Mr. Sojourner. They have for each, there is about 1,000 
Wage and Hour enforcement officers to cover the whole economy, 
which is about 156 million workers. It is well over 100,000 
workers per inspector. That is very heavy odds against finding 
all the violations, and in fact we have a lot of evidence they 
cannot find all the violations. There are a lot of violations 
that happen every day that cheat workers out of earned income.
    Mr. Scott. You also mentioned violations and wage theft?
    Mr. Sojourner. Yes. Exactly.
    Mr. Scott. We need more Wage and Hour inspectors, not 
fewer?
    Mr. Sojourner. That is for you, Congress, to decide, but it 
is very thin, yes. I would support that.
    Mr. Scott. Regrettably, the budget now is contemplating 
cuts in inspectors, so I think we are going in the wrong 
direction.
    Mr. Sojourner. Yes.
    Mr. Scott. Thank you, Mr. Chairman.
    Chairman Kiley. The testimony from the witnesses today has 
been very illuminating as to the real-world impact of these 
rules and regulations, and how the Department of Labor is 
defying the will of Congress and not properly accounting for 
the costs of the regulations in the rulemaking process.
    When I hear about what has been proposed, and what has 
already been implemented, for me coming from California, it is 
like deja vu because a lot of these very harmful policies 
already exist in our State. That raises the question how has 
California fared under this regime of labor law that the Biden 
administration appears intent on copying?
    The answer is not very well. California has the second 
highest unemployment rate of any State, has the lowest level of 
wage growth of any State, has the highest level of real poverty 
in the entire country, some of the highest levels of 
inequality.
    I really find it difficult to understand why that is the 
model for this administration. Another thing that we have 
learned in California is that the text of a statute or 
regulation is one thing, but then the identity of its enforcer 
is another still.
    As bad as AB5 was, as a matter of policy, it became even 
more devastating in the hands of a labor secretary who is 
intent on enforcing it as aggressively and ruthlessly as 
possible, even exploiting the COVID shutdowns to enforce it 
even more, put more independent contractors out of work, shut 
down more small businesses.
    Of course, I have not chosen that example at random, 
because right now we have a policy being proposed at the 
Department of Labor that copies that very law, AB5, and the 
individual that the Biden administration wants to enforce it, 
is the very same person who was the Labor Secretary in 
California, that of course being Julie Su.
    Mr. Wolfson, can you shed a little light on how the 
identity of the enforcer matters so much in these 
circumstances, and what the ultimate impact of these rules is 
going to be?
    Mr. Wolfson. That is a great question, Mr. Chairman. I 
think that if you look at an agency that, you know, to Dr. 
Sojourner's point, there are a number of enforcement agents, 
and every one of those agents is going to look at a situation 
slightly differently.
    The problem then becomes if you have regulations that are 
not clear, you have guidance that is making law, that is not 
just providing clarity so that businesses know what they can 
and cannot do.
    Then each individual enforcement agent is empowered to 
decide that they do or do not like particular behaviors. So 
that is not helpful when you go down to the lowest level of 
each individual enforcement agent.
    It goes all the way up to the top of a department or an 
agency because those people have sufficient flexibility to 
enforce or not enforce laws that they like or don not like, or 
enforce it in ways that they do or do not like, then that makes 
it even harder for businesses to know whether they are in 
compliance.
    As Ms. Milito said, the businesses really just want to know 
what the rules are. When I was at the Department of Labor, we 
did not hear various businesses say to us, ``hey, you know, 
this rule is impossible to comply with.'' That was not usually 
the concern.
    It was, ``we keep getting different stories from different 
enforcement agents when they walk in. Can you tell us what the 
standard is, and then we're happy to follow it,'' because they 
do not want to misclassify. They do not want to steal wages 
from their workers, they just do not necessarily know how to 
keep track of all the people who are tipped and deciding 
whether or not at salad dressing or making the salad.
    Chairman Kiley. That uncertainty is a really key point. Ms. 
Milito, you represent small businesses and can tell us how 
damaging uncertainty is. Right now, we have a potentially 
enormous cloud of uncertainty that is going to be cast over all 
of the rules and regulations coming out of the Department of 
Labor.
    As the Biden administration appears intent on keeping 
Acting Secretary Su in that role, perhaps indefinitely, even as 
the Senate has not confirmed her, and her nomination has been 
pending for nearly 5 months. Indeed, her top supporter in the 
Senate, Senator Bernie Sanders, recently said she should stay 
in that role whether she has the votes or not.
    Now we have a number of stakeholders who are watching this, 
and I believe are prepared to challenge the rules and 
regulations that are issued in that situation. Could you tell 
us a little bit about the effect that would have on small 
businesses having that cloud of uncertainty?
    Ms. Milito. Thank you, Chair, for that question. Yes. DOL 
seems intent on creating more rules under the misguided 
thinking that more rules are going to make everything better, 
and that is certainly in the workplaces, and that is certainly 
not the case. I mean we have had a lot of conversation today 
about how the unemployment rate now is under 4 percent.
    How small businesses are competing for workers. There is no 
benefit in treating your workers and your employees unfairly 
and not having a safe workplace. More rules, however, are a wet 
blanket on innovation and expansion, and they add costs and 
anxiety in a business. They only make it harder for small 
businesses to comply with existing, local, State, and Federal 
law.
    It does seem, unfortunately, that we are going to have 
California policies transferred here to D.C., and that is very 
unfortunately for small business owners.
    Chairman Kiley. Thank you very much. Without objection, I 
enter into the record letters from the National Restaurant 
Association, and the Flex Association.
    [The information Mr. Kiley follows:]
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    Chairman Kiley. I would now like to recognize the Ranking 
Member of the--oh, we have actually one more new arrival. 
Representative Omar, you are recognized for 5 minutes.
    Ms. Omar. Thank you so much. I am so proud to see a 
constituent testifying here today, who has dedicated his career 
to building a fairer, worker centered economy. It is also very 
refreshing to hear from the perspective of an economist with 
roots in the labor movement. Dr. Sojourner, thank you so much 
for joining us and sharing your important research.
    You recently conducted a study using enforcement data on 
workplace violations across OSHA, WHD, and NLRP that found 
workers with lower wages were more likely to experience labor 
rights violation. Why did you choose to look at workplace 
violations compared with wages, and what should policymakers 
take away from this research?
    Mr. Sojourner. Thank you, Representative. We looked at this 
because you know employers have power in the labor market, and 
sometimes they use that power to push down wages, and sometimes 
they use it to violate other kinds of rights, like health and 
safety violations, or violations of workers' rights to 
organize.
    What we see is that when wages rise within the labor 
market, violations tend to decrease. When workers have more 
bargaining power in the economy, they are able to push up 
wages, and push down rights violations. When employers have 
more bargaining power, they are able to extract more value from 
the relationship through lower wages and other kinds of changes 
that sometimes violate workers' rights.
    We just wanted to enrich our understanding of the economy. 
Too often we focus just on wages because they are easy to 
measure relatively, but other aspects of workers' experiences, 
like healthy and safe jobs, or you now, right to speak out 
freely about working conditions, are also important in their 
lives and in their work to try to improve their work.
    Ms. Omar. In that same study you also found that unions 
were found to decrease labor rights violations. Can you tell us 
how unions help in protecting workers in the workplace?
    Mr. Sojourner. Yes. Unions are a way for workers to have an 
independent voice where they do not fear retaliation because 
they are not alone when they are speaking up about issues that 
they are confronting in the workplace, and issues that they 
share with their coworkers often involving bad management 
decisions, or things like this.
    Instead of being alone, you have somebody standing beside 
you, and workers are more free, feel more empowered to speak 
up, to speak out publicly, to speak up to management, to speak 
up to enforcement agencies and they have less fear of 
retaliation.
    Yes, we can see that. If we compare companies that where in 
all the companies the workers wanted to unionize, but in some 
of them the union just lost the election compared to in other 
ones the union just won the election.
    There is nothing really that different. They all wanted to 
unionize. Some did successfully, and some failed. Years later, 
you can see that workers in those unionized work places are 
more likely to speak up and file complaints.
    Ms. Omar. I have worked in places where we had a union, and 
places where we did not. I could definitely see that. Dr. 
Sojourner, you also conducted an interesting study looking into 
the availability of early childhood education in Minnesota.
    Mr. Sojourner. Yes.
    Ms. Omar. You found that the average family in Minnesota 
lives in a location where there are nearly two children for 
every nearby slot of licensed capacity. Can you talk a little 
bit about what families had lower levels of access, and how 
this impacted them?
    Mr. Sojourner. Yes. Thank you. This is an important 
workforce issue too, in terms of especially equitable access to 
earnings opportunities for women and mothers and parents 
generally in the economy, having access to affordable, high-
quality care is a huge barrier to work and earning for a lot of 
them.
    In Minnesota, what we found was yes, Minnesotans living in 
low-income communities had less access, communities of color 
had less access, and you know, there are moves to try to 
address those inequities, yes.
    Ms. Omar. Yes. I am sure there is a policy recommendation 
for us to close that gap, so thank you so much for being here 
today and for your work.
    Mr. Sojourner. Thank you.
    Ms. Omar. I yield back, Chairman.
    Chairman Kiley. I now recognize Mr. Scott for a brief 
closing statement.
    Mr. Scott. Thank you, very much Mr. Chairman, and thank you 
again to our witnesses for joining us in this discussion. 
Today's hearing reaffirms the historic progress that 
congressional Democrats and President Biden have made to 
strengthen our economy. Complaints about the economy cannot 
diminish the historic job growth that we've experienced in the 
last 2 years.
    When we invest in our economy and workforce, we help ensure 
that businesses, and working families see a return on the work 
they do each day. Workers should be able to go home confident 
that they have a government that works for them, and helps them 
focus on their families, instead of worrying about whether they 
can put food on the table, and whether they will be cared for 
if they are injured on the job, which they are not cared for if 
they are injured on the job as an independent contractor, as 
opposed to an employee.
    Moreover, our discussion reminds us that we still have more 
work to do, so instead of weakening protections for working 
families, I hope my colleagues will join us in continuing to 
grow our economy from the bottom up and the middle out, and 
continue to build on our historic job growth. Thank you, Mr. 
Chairman. I yield back.
    Chairman Kiley. Thank you very much. We have heard a lot 
today about how the Biden administration has exceeded its 
authority and neglected its legal obligations at the Department 
of Labor. It is only fitting, in sort of a perverse sense, that 
they are now doing the very same thing with the leadership of 
the Department.
    We have a nominee whose nomination has been pending for 
nearly 5 months. There is opposition in the Senate across party 
lines, Democrat, Republican, and independent, and yet the 
administration seems intent now on keeping the Acting Secretary 
there indefinitely, and is now resuming the rulemaking process.
    Allies of Ms. Su have tried to claim that somehow there is 
legal authority for this, given the interplay of the Federal 
Reform Vacancy Act, and the statute that created the position 
of Deputy of Labor Secretary. However, neither statute 
contemplates a situation like this.
    They refer to a temporary appointment, not someone who is 
nominated and then keeps the job even though they are not 
confirmed. I am again today calling upon the President to 
withdraw the nomination of Ms. Su, and to appoint a new Labor 
Secretary who will be on the side of American workers, who will 
take us down the path that states with the good economic growth 
they have had, not down the path of California; who will listen 
very carefully to the analysis that we have received today 
about these proposed rules, will take it to heart, and will 
come up with different rules that actually fulfill the mission 
of the Department of Labor to protect the rights of workers, 
and to be a steward of economic prosperity.
    If we do that then we can hopefully turn things around. 
Americans will see their wages rise. We will see a turn in the 
record levels of dissatisfaction we have right now with the 
economy, and we can get things back on track. Without 
objection, there being no further business, the Subcommittee 
stands adjourned.
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    [Whereupon, at 11:35 a.m., the Subcommittee was adjourned 
at 11:35 a.m.]

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