California’s Governor Jerry Brown
signed a law last week threatening punishment for handymen who
advertise their services for jobs larger than $500, and giving
state enforcers free access to job sites to check on contractors’
licenses. As Steven Greenhut
noted for Reason, a big push for the law, which prescribes
criminal time for unlicensed work that previously drew
administrative penalties, came from the state’s contracting
industry. In a state that continuously ranks toward the bottom of
assessments of economic freedom, contractors seem dead-set on
penalizing competitors who flee into the shadow economy to escape
burdensome taxes and regulations. That’s a lot of competitors,
considering that one in six of the state’s construction workers
labors “informally.”
Just weeks ago, Economic Roundtable
released a report noting that “Informal employment in
Californian construction has increased by 400 percent since 1972.”
Formal employment—that is, work subject to the state’s growing web
of red tape and taxes—has increased too. But the biggest growth has
been in self-employment, “independent contractors” who aren’t, and
outright off-the-books work.
A new report by the Economic Roundtable, a public benefit
research organization, released on Labor Day, found that 143,900
construction workers in California fell into the informal economy
in 2011. This was comprised of 104,100 construction workers who
were not reported by their employers and 39,800 who were
misclassified as independent contractors. Construction is a $152
billion industry in the Golden State, employing 895,000
construction workers, of whom one out of six has sunk into the
informal economy. A quarter of employees in the specialty trades
(including drywall and flooring) were informal.
The report is full of hand-wringing over lost taxes and those
poor mistreated workers sweating through the day with low pay and
no benefits. Don’t knock yourself out looking for any
acknowledgment that many of the jobs might not exist at all if the
work was done by the rules.
In its 2014 rankings of best and worst states for business,
Chief Executive magazine
bluntly announced, “California is the worst state for business
for the tenth year in a row.” The state gets one star out of five
for taxes and regulation. One executive is quoted saying,
“California could hardly do more to discourage business if that was
the goal. The regulatory, tax and political environment are
crushing.”
Californians should probably be glad that they still have so
many informal jobs, even if that means regulators and tax
collectors get their feelings hurt. Travis H. Brown, author of
How
Money Walks, points to IRS figures indicating that
California was a net loser of $46.32 billion in adjusted gross
income from 1992-2011 that fled to other states.
But instead of lobbying for relief, the state contracting
industry successfully persuaded politicians to subject their
businesses to even more onerous rules and enforcement, just to
punish competitors who have the nerve to try to survive in an
inhospitable environment.
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