Feeling good, doing harm

When the Americans with Disabilities Act, which mandates that employers must take costly measures to accommodate employees with disabilities, was proposed, economists warned that employers would likely wind up not hiring the disabled. It's pretty hard to prove discrimination in a hiring process. If the disabled worker were better for the job if it cost x to accommodate the worker, but the ADA mandated costs of y>>x, then the disabled worker would likely be found not to be the best applicant for the position.

And sure enough, employment of the disabled dropped with the ADA. But the folks who lobbied for and passed it still get to feel good about how they're great people for caring so much about the rights of the disabled to equal treatment in employment conditional on being employed.

Karl du Fresne tears a strip off of the Kiwi equivalent. Back in '07, Labour mandated that disabled workers in sheltered workshops be paid the minimum wage. The marginal revenue product of many of these folks' labour was very low, but working provided a sense of worth and a constructive activity to fill the day. You don't have to be a rocket scientist to work out what happened. The bigger puzzle is why the IHC, who ran a lot of the workshops, supported the law change.

The answer, as I write in my Listener article, is that IHC has been captured by a rights-based ideology that politicised the treatment of the disabled. In the process, it has distanced itself (in fact alienated itself might be more accurate) from many parents with intellectually handicapped children – the very people who have traditionally been its most loyal and supportive members. The depth of feeling against the IHC that I encountered, both from parents and IHC caregivers (though the latter wouldn’t dare be identified for fear of repercussions), was striking. The impression I got was of an organisation out of touch with its grassroots. In fact a secondary thread in my article touches on the dangers that arise when former voluntary charities such as IHC morph into large, politicised bureaucracies that depend on the government for funding (as IHC does, receiving more than $200 million a year from the state).

As one parent pointed out to me, a conflict of interest occurs when the organisation charged with lobbying the government on behalf of the intellectually disabled is also beholden to the government for money. The pressure to fall into line with government policy – in fact, to effectively become a de facto arm of government – is obviously formidable.

His Listener article will ungate 31 July; I may have to pick up a copy.

The 2007 legislation provided for exemptions from the minimum wage under rather strict conditions:

Permits
The Bill provides that a Labour Inspector may issue a “minimum wage exemption permit” to a worker if the Inspector is satisfied that:

• “the worker is significantly and demonstrably impaired by a disability from carrying out the requirements of his or her work; and
• any reasonable accommodations that could have been made to facilitate carrying out the requirements of the work have been considered by the employer and the worker; and
• it is reasonable and appropriate to grant the permit”.

A permit remains in force for the period stated in the permit, and while the permit remains in force, the rate of wages stated in the permit is to be taken to be the minimum rate of wages prescribed under this Bill for that worker.
SOP No 93 proposes drafting amendments to this clause and, in particular proposes that a Labour Inspector be given the power to " ... revoke a permit at any time if the Inspector considers it is no longer reasonable and appropriate for the permit to remain in force" (Clause 13, New Section 8 of the Minimum Wage Act 1983, inserting new subsection(3A)).

Du Fresne reports this exemption process has been pretty costly for providers, but that the biggest source of workshop closures was IHC's decision that workshops weren't the best way forward under the new regime:

One result of the change was that a new layer of bureaucracy was imposed on the disability sector in the form of Labour Department inspectors who must now individually assess each disabled worker every year. Providers of disability services say the increased administrative burden has added greatly to their costs.

But a much more significant consequence was that IHC, which operated 70 percent of the country’s sheltered workshops, decided they were no longer compatible with its vision of a “fully inclusive” society and closed them all down. Chief executive Ralph Jones said IHC’s primary role was to support people with intellectual disabilities, not run business enterprises for them. Instead, IHC would concentrate on supporting its service users into “mainstream” employment.

It wasn’t a question of IHC’s sheltered workshops no longer being economically viable, because other providers of similar services, having obtained the necessary exemptions from the minimum wage, continue to operate.

The insensitivity with which aspects of the change were handled by IHC is extraordinary. In one town, intellectually handicapped people apprehensive about what the new regime might mean were assured that it would help them get jobs that paid much better money. This went down very well, I was told, until they asked what sort of jobs they would be getting. The list included “restaurant worker”, “library worker” and “pool attendant” – occupations that a caregiver described as “spectacularly inappropriate”.

So we have a nasty mix of policy failure and what appears to be ideological capture of an important charitable sector provider of sheltered workshops. It would be tough for a new charitable organisation to start up in the space that IHC used to occupy. The regulatory hurdles are costly; finding new donors would be tough too as most folks who want to donate for that sector would likely already have subscribed to IHC. Had the National government passed Sir Roger's minimum wage amendment, the government could have considered a less burdensome process for exempting workshops from minimum wage legislation. I'd expect that though to be a necessary rather than a sufficient condition for rebuilding the sector.

Unintended consequences: assisted reproductive technologies edition

Surprise surprise, if you ban trade in gametes, you create a shortage and you get a whole lot of folks lying to their physicians about the provenance of acquired materials.

At the same time as reproductive technologies stretch the notion of the family beyond the nuclear, and just as Canada bends to accommodate that evolution, a prevailing piece of federal legislation is being accused of inadvertently forcing a slew of prospective parents underground.

At the root of this underworld, some argue, is the 2004 Assisted Human Reproduction Act -- the Canadian government’s most comprehensive attempt to regulate reproductive technologies. Some onlookers fear that the legislation has created a secretive black market, where couples seek sperm and egg donors on Craigslist or in university libraries.

Where those couples quietly compensate donors for their gametes, despite the legislation that criminalizes doing so. Where lesbian couples lie to doctors about their sexual orientation to avoid paying to quarantine a friend’s sperm for six months. And where doctors and counsellors sometimes adopt the credo of “Don’t ask, Don’t tell.”

The act -- which is a result of the Royal Commission on New Reproductive Technologies in 1993 -- has triggered condemnation from the right and left, and was the focal point of an International Women’s Day conference in Toronto last week. There, at the Law Society of Upper Canada, panellists argued that some of the legislation does more to imperil and confuse prospective parents and their offspring than it does to protect them.

Legalizing trade would be a great first step. Next would be credible enforcement of whatever contracts vendor and customer want enforced: some or no access for vendor; completely anonymous or not; some or no potential for child support payments from the vendor. The latter one seems reasonably important in avoiding a lemons market where only those with no resources available for later forced transfer are willing to become vendors.

Unintended consequences: discriminatory housing edition

It's illegal in the US to advertise that your house is to rent only to particular groups: a "Canadians-only (they're so tidy!)" ad would be unlawful. However, such ads flourish on Craigslist. Rigel Oliveri's checked through the ads and finds that the vast majority of ads noting a discriminatory preference are from folks looking for roommates (rather than evil racist landlords); that the vast majority of those ads are from folks who didn't want roommates with children; and, that the majority of ads expressing a discriminatory race, ethnicity, or religious preference are from members of minorities looking for roommates of the same background.

If ads on Craigslist are representative of the kinds of preferences that are forbidden in other advertising venues, we have a problem. Where the intended effect of the Fair Housing Act is to reduce racial discrimination and protect minorities, the actual effect is to keep members of minority groups preferring to have same-group roommates from advertising same - and to make it harder for non-family friendly places to advertise as such - increasing search costs in housing for everyone involved.

HT: Max Stearns

All you need is a subsidy ...oops

It's always dangerous to mess with the price system. Even if there are proven positive or negative externalities from particular types of behaviour, and even if you're careful about how you specify the legislation giving form to the tax or subsidy, there often will be unintended consequences.

Case in point: tax credits for use of alternative fuels. US Congress passed legislation back in 2005 providing tax credits for fuels mixing biofuels with normally-taxed fuels. $0.50 per gallon for those fuels. What happens? Christopher Hayes at The Nation explains:

Enter the paper industry. Since the 1930s the overwhelming majority of paper mills have employed what's called the kraft process to produce paper. Here's how it works. Wood chips are cooked in a chemical solution to separate the cellulose fibers, which are used to make paper, from the other organic material in wood. The remaining liquid, a sludge containing lignin (the structural glue that binds plant cells together), is called black liquor. Because it's so rich in carbon, black liquor is a good fuel; the kraft process uses the black liquor to produce the heat and energy necessary to transform pulp into paper. It's a neat, efficient process that's cost-effective without any government subsidy.

So the paper industry was previously using a kind of biofuel for its heating, prior to the tax credit. Great!

By adding diesel fuel to the black liquor, paper companies produce a mixture that qualifies for the mixed-fuel tax credit, allowing them to burn "black liquor into gold," as a JPMorgan report put it. It's unclear who first came up with the idea--Wrobleski told me it was "outside consultants"--but at some point last fall IP and Verso, another paper company, formerly a part of IP, began adding diesel to its black liquor and applied to the IRS for the credit. (Verso nabbed $29.7 million at just one of its mills in the final quarter of 2008 for its use of mixed fuel.)

...

No one in Congress seems to have anticipated this creative maneuver. This past fall the Joint Committee on Taxation computed the cost of extending the tax credit for three months and projected it would cost a manageable $61 million. It now appears that the extension (which was passed as part of the TARP) could cost as much as $2 billion before the credits expire at the end of this calendar year.

In fact, the money to be gained from exploiting the tax credit so dwarfs the money to be made in making paper--IP lost $452 million in the fourth quarter of 2008 alone--that the ultimate result of the credit will likely be to push paper prices down as mills churn at full capacity in order to grab as much money from the IRS as it can.

It's kinda the point of the price system that nobody has to know all of the alternative uses to which resources can be put. When markets set prices, nobody in Congress has to know that the paper industry uses a byproduct biofuel which readily could be adulterated with taxable fuels to harvest a subsidy. When Congressmen instead set prices, there will always be consequences they hasn't thought of, no matter how well-intentioned or careful they've been.

Hayes draws the useful and depressing conclusion:

Whether or not Congress gets around to turning off the spigot, the episode is a useful reminder of the persistently ingenious ways the private sector can exploit even well-intentioned legislation. Considering that the success of the Treasury's recently announced plan to rescue the financial sector depends, in part, on the private sector not gaming the rules, the black liquor story seems particularly germane.