Friday, February 26, 2010

The Law of Unintended Consequences

During a period of economic downturn and increasing unemployment, it is important to consider the many obstacles to economic growth that have been created by well-meaning laws meant to address a whole host of societal problems.

While many laws have been passed that on the face of it serve a very high moral purpose, often they have an unintended consequences that can stifle economic growth and, ultimately, cause more of a problem than the evil they were meant to address.

Anyone who has managed a business over the past 20 years has witnessed how the landscape of employer/employee relations has changed to the point that the ability of a company to manage employees has become so fraught with potential litigation etc., that hiring decisions are influenced by the potential "litigation cost" of each employee. All it takes is for one grievance or lawsuit to be filed by an employee against an employer for that employer to allow future hiring decisions to be affected as result.

Because of the breadth and magnitude of well-meaning laws enacted to protect employees and various classes of individuals it is difficult, if not impossible, to run a company for any period of time without at some point being sued. Compounding this problem is that the bar is so low for an "aggrieved" employee to file a claim or initiate a lawsuit against a employer that many claims are filed and suits commenced that have little or no merit.

And while these claims may ultimately be decided in favor of the employer, the employer still incurs significant expenses to defend these actions. Almost every small business owner I know has had such an experience. Recently, an organization I support suggested supporting a law that would require employers to allow employees to take time off during the course of the day to attend parent teacher conferences at their children's school.

While I am sympathetic to this as an employer and would allow my own employees to take time off for such purposes, I objected quite strenuously to supporting a law which would mandate that employers grant such leave. I felt very strongly that inviting the government to micromanage how businesses function in this manner only ultimately acts as a disincentive to hiring and that the law should not be supported. In fact, rather than enacting new laws now that will stifle business and economic growth our politicians should focus eliminating existing laws that discourage hiring and are of marginal utility.

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