Back in the 1980s, the term “Trickle Down Economics” was coined to describe a theory that if we gave incentives to business owners, they will in turn invest and expand their operations, thereby creating new jobs and greater opportunity for all. Economists and politicians are still debating if the policies of the ’80s helped or hurt the country. We did see the end of a recession and the beginnings of one of the largest home building booms in our nation’s history. But at the same time, we saw a deliberate reduction in the enforcement of immigration and labor laws, both seen as impediments to business. This coupled with an immigration amnesty plan ignited a fundamental change in the economics of home building.
Labor unions that once supplied manpower for the majority of all construction, now faced with a cheaper supply of immigrant labor, saw their market share in housing dwindle to a faint shadow of its previous presence. Once the labor unions were removed from the equation, employers were free to negotiation terms more profitable to their businesses. Among these terms was the practice of classifying workers as “subcontractors” and avoiding profit-eating annoyances, such as workers compensation insurance, liability insurance and even their share of payroll taxes.
Life was good for the contractor. No more union representatives to come around bothering them about safety violations or employment grievances. Profits were up and there seemed to be an endless stream of new tract housing, whose price tag was increasing with each successive phase.
Now not all contractors who left the union skirted the law with such practices. I know of one in particular, Ralph Mathews of Riverside Plastering, that tried to compete against his non-union competition using legal business practices. He lasted about five years until he could no longer competitively bid against his “illegal” competition. I bumped into him a few years ago at a coffee shop where he told me, “The union provided us a level playing field to compete honestly, and the worst thing to ever happen to the market was for industry enforcement to be driven out.”
So we had this huge housing boom, which recently popped like a bubble. I wonder how many workers on these projects were actually able to buy a home. I wonder how many of them paid taxes or how much of their earnings were sent abroad, where it was put to use under third world living conditions. Wages in the housing industry virtually remained flat from 1990 to 2005, while profits for developers and contractors who skirted the rules soared.
Is this the type of trickle down policy we want to see happen again? The weight of economic stability is squarely placed on the shoulders of the middle class. I hope that any new economic policies will learn from the mistakes of the past and ensure that workers, whose labor is so necessary to this industry, benefit proportionally in the recovery.