Regulation and Deregulation of Industry

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    U.S. Moves to Bar Noncompete Agreements in Labor Contracts

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    A sweeping proposal by the Federal Trade Commission would block companies from limiting their employees’ ability to work for a rival.In a far-reaching move that could raise wages and increase competition among businesses, the Federal Trade Commission on Thursday unveiled a rule that would block companies from limiting their employees’ ability to work for a rival.The proposed rule would ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area. The agreements have applied to workers as varied as sandwich makers, hairstylists, doctors and software engineers.Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of U.S. workers in the private sector, hold down pay because job switching is one of the more reliable ways of securing a raise. Many economists believe they help explain why pay for middle-income workers has stagnated in recent decades.Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries. The arrangements may also harm productivity by making it hard for companies to hire workers who best fit their needs.The F.T.C. proposal is the latest in a series of aggressive and sometimes unorthodox moves to rein in the power of large companies under the agency’s chair, Lina Khan.President Biden hailed the proposal on Thursday, saying that noncompete clauses “are designed simply to lower people’s wages.”“These agreements block millions of retail workers, construction workers and other working folks from taking a better job, getting better pay and benefits, in the same field,” he said at a cabinet meeting.The public will be allowed to submit comments on the proposal for 60 days, at which point the agency will move to make it final. An F.T.C. document said the rule would take effect 180 days after the final version was published, but experts said it could face legal challenges.The agency estimated that the rule could increase wages by nearly $300 billion a year across the economy. Evan Starr, an economist at the University of Maryland who has studied noncompetes, said that was a plausible wage increase after their elimination.Dr. Starr said noncompetes appeared to lower wages both for workers directly covered by them and for other workers, partly by making the hiring process more costly for employers, who must spend time figuring out whom they can hire and whom they can’t.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.Retirees: About 3.5 million people are missing from the U.S. labor force. A large number of them, roughly two million, have simply retired.Switching Jobs: A hallmark of the pandemic era has been the surge in employee turnover. The wave of job-switching may be taking a toll on productivity.Delivery Workers: Food app services are warning that a proposed wage increase for New York City workers could mean higher delivery costs.A Self-Fulfilling Prophecy?: Employees seeking wage increases to cover their costs of living amid rising prices could set off a cycle in which fast inflation today begets fast inflation tomorrow.He pointed to research showing that wages tended to be higher in states that restrict noncompetes. One study found that wages for newly hired tech workers in Hawaii increased by about 4 percent after the state banned noncompetes for those workers. In Oregon, where new noncompetes became unenforceable for low-wage workers in 2008, the change appeared to raise the wages of hourly workers by 2 percent to 3 percent.Although noncompetes appear to be more common among more highly paid and more educated workers, many companies have used them for low-wage hourly workers and even interns.About half of states significantly constrain the use of noncompetes, and a small number have deemed them largely unenforceable, including California.But even in such states, companies often include noncompetes in employment contracts, and many workers in these states report turning down job offers partly as a result of the provisions, suggesting that these state regulations may have limited effects. Many workers in those states are not necessarily aware that the provisions are unenforceable, experts say.“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages — even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” Elizabeth Wilkins, the director of the F.T.C.’s office of policy planning, said in a statement.The commission’s proposal appears to address this issue by requiring employers to withdraw existing noncompetes and to inform workers that they no longer apply. The proposal would also make it illegal for an employer to enter into a noncompete with a worker or to try to do so, or to suggest that a worker is bound by a noncompete when he or she is not.The proposal covers not just employees but also independent contractors, interns, volunteers and other workers.Lina Khan, the F.T.C. chair, has tried to use the agency’s authority to limit the power and influence of corporate giants.Graeme Sloan, via Associated PressDefenders of noncompetes argue that employees are free to turn down a job if they want to preserve their ability to join another company, or that they can bargain for higher pay in return for accepting the restriction. Proponents also argue that noncompetes make employers more likely to invest in training and to share sensitive information with workers, which they might withhold if they feared that a worker might quickly leave.A ban “ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation,” Sean Heather, a senior vice president at the U.S. Chamber of Commerce, said in a statement.At least one study has found that greater enforcement of noncompetes leads to an increase in job creation by start-ups, though some of its conclusions are at odds with other research.Dr. Starr said that noncompetes did appear to encourage businesses to invest more in training, but that there was little evidence that most employees entered into them voluntarily or that they were able to bargain over them. One study found that only 10 percent of workers sought to bargain for concessions in return for signing a noncompete. About one-third became aware of the noncompete only after accepting a job offer.Michael R. Strain, an economist at the American Enterprise Institute, said that while there were good reasons to scale back noncompetes for lower-wage workers, the rationale was less clear for better-paid workers with specialized knowledge or skills.“If your job is to make minor tweaks to the formula for Coca-Cola and you’re one of 25 people on earth who knows the formula,” Dr. Strain said, speaking hypothetically, “it makes total sense that Coca-Cola might say, ‘We don’t want you to go work for Pepsi.’”He said that it might be possible to satisfy an employer’s concerns with a less blunt tool, like a nondisclosure agreement, but that the evidence for this was lacking.In a video call with reporters on Wednesday, Ms. Khan said she believed the F.T.C. had clear authority to issue the rule, noting that federal law empowers the agency to prohibit “unfair methods of competition.”But Kristen Limarzi, a partner at Gibson, Dunn & Crutcher who previously served as a senior official in the antitrust division of the Justice Department, said she believed such a rule could be vulnerable to a legal challenge. Opponents would probably argue that the relevant federal statute is too vague to guide the agency in putting forth a rule banning noncompetes, she said, and that the evidence the agency has on their effects is still too limited to support a rule.At the helm of the F.T.C. since last year, Ms. Khan has tried to use the agency’s authority in untested ways to rein in the power and influence of corporate giants. In doing so, she and her allies hope to reverse a turn in recent decades toward more conservative antitrust law — a shift that they say enabled runaway concentration, limited options for consumers and squeezed small businesses.Ms. Khan has brought lawsuits in recent months to block Meta, Facebook’s parent company, from buying a virtual reality start-up and Microsoft from buying the video game publisher Activision Blizzard. Both cases employ less common legal arguments that are likely to face heavy scrutiny from courts. But Ms. Khan has indicated she is willing to lose cases if the agency ends up taking more risks.Ms. Khan and her counterpart at the Justice Department’s antitrust division, Jonathan Kanter, have also said they want to increase the focus of the nation’s antitrust agencies on empowering workers. Last year, the Justice Department successfully blocked Penguin Random House from buying Simon & Schuster using the argument that the deal would lower compensation for authors.One question looming over the discussion of noncompetes is what effect banning them may have on prices during a period of high inflation, given that limiting noncompetes tends to raise wages.But the experience of the past two years, when rates of quitting and job-hopping have been unusually high, suggests that noncompetes may not currently be as big an obstacle to worker mobility as they have traditionally been. Partly as a result, banning them may not have much of a short-term effect on wages.Instead, some economists say, the more pronounced effect of a ban may come in the intermediate and long term, once the job market softens and workers no longer have as much leverage. At that point, noncompetes could begin to weigh more heavily on job switching and wages again.“Doing something like this is a way to help sustain the increase in worker power over the last couple of years,” said Heidi Shierholz, president of the liberal Economic Policy Institute, who was chief economist at the Labor Department during the Obama administration.David McCabe More

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    Michael Pertschuk, Antismoking and Auto Safety Crusader, Dies at 89

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    As an obscure but muscular congressional staffer and chairman of the Federal Trade Commission, he helped usher into law a raft of consumer protections.Few people outside Washington had ever heard of the consumer advocate Michael Pertschuk by the mid-1970s, but he was considered so influential in Congress that friends and foes alike anointed him “the 101st senator,” and the cigarette maker Philip Morris proclaimed him the company’s “number one enemy.”While he never held elective public office, Mr. Pertschuk occupied, as The Washington Post wrote in 1977, “the top stratum of an invisible network of staff power and influence in the Senate, with impact on the life of every citizen of the United States.”Probably more than any other individual, he was responsible for the government’s placing warning labels on cigarettes, banning tobacco advertising from television and radio, requiring seatbelts in cars and putting in place other consumer protections — all by helping to draft those measures into law as the chief counsel and staff director of the Senate Commerce Committee and later as the chairman of the Federal Trade Commission under President Jimmy Carter.“I spent a good part of my life making life miserable for the tobacco companies,” Mr. Pertschuk had said, “and I’m not sorry about that.”He died on Nov. 16 at his home in Santa Fe, N.M. He was 89. His wife, Anna Sofaer, said the cause was complications of pneumonia.Mr. Pertschuk, second from right in the foreground, and other appointees take the oath of office in a White House ceremony in April 1977. He was named F.T.C. chairman. His wife, Anna Sofaer, is at right. Justice William J. Brennan of the Supreme Court administered the oath, with President Jimmy Carter flanking him. Associated PressFor ordinary consumers who were vexed by the government’s lax oversight of the tobacco and auto industries beginning in the mid-1960s, Mr. Pertschuk was their unseen legal guardian.He helped draft the Natural Gas Pipeline Safety Act, the Recreational Boat Safety Act, the Federal Railroad Safety Act, the Consumer Product Safety Act, the Toxic Substances Act and the Safe Drinking Water Act. Decades later, he lifted the veil on government sausage-making in his book “When the Senate Worked for Us: The Invisible Role of Staffers in Countering Corporate Lobbies” (2017).“Few have done more to reduce tobacco use in the United States and to galvanize and empower the tobacco control movement than Mike Pertschuk,” Matthew L. Myers, the president of the Campaign for Tobacco-Free Kids, said in a statement.He added, “He arguably became the most aggressive Federal Trade Commission chair in history and pursued powerful preventive health measures, including a proposed ban on advertising targeted at children.”The consumer advocate Ralph Nader, with whom Mr. Pertschuk collaborated closely on auto safety and other issues, described him as “a brilliant strategist, organizer and human relations genius while he was reshaping the Commerce Committee into the ‘Grand Central Station’ of consumer protection.”“He also ignited the anti-tobacco industry movement on Capitol Hill and later traveled the world motivating other countries to do the same,” Mr. Nader said in a statement.Mr. Pertschuck in 1984. He remained an F.T.C. commissioner after Ronald Reagan became president. Stepping down, he said the administration’s “ideological blindness led to a new era of regulatory nihilism and just plain nuttiness.” George Tames/The New York TimesMichael Pertschuk was born on Jan. 12, 1933, in London to a Jewish family who had sold furs in Europe for generations but who fled in 1937 as Nazi Germany codified anti-Semitism and girded for war. His father, David, opened a fur store in Manhattan. His mother, Sarah (Baumgarten) Pertschuk, was a homemaker.He graduated from Woodmere Academy on Long Island, where he grew up, earned a bachelor’s degree in literature from Yale in 1954, served in an Army artillery unit from 1954 to 1956 and was discharged as a first lieutenant. He received his law degree from Yale Law School in 1959.After clerking for Chief Judge Gus J. Solomon of the U.S. District Court in Oregon, he was hired in Washington in 1964 as a legislative assistant to Senator Maurine B. Neuberger, an Oregon Democrat. About the same time, the United States surgeon general released his groundbreaking report linking smoking to cancer and probably heart disease, and a year later Mr. Nader published his book “Unsafe at Any Speed,” which labeled the compact Chevrolet Corvair, with its engine mounted in the rear, as a “One-Car Accident.” Emerging as the Senate’s leading staff expert on tobacco control legislation, Mr. Pertschuk was recruited by Senator Warren G. Magnuson, the Oregon Democrat who was chairman of the Commerce Committee. Mr. Pertschuk served as a counsel to the committee from 1964 to 1968 and as chief counsel and staff director from 1968 to 1977, when he was named chairman of the Federal Trade Commission.He relinquished the chairmanship after Ronald Reagan was elected president in 1980 but remained a commissioner until 1984. During his tenure he forced the funeral industry to itemize its charges, but as the climate for regulation cooled, he failed in his effort to ban TV commercials aimed at marketing sugary foods to children.On leaving office, Mr. Pertschuk blamed the Republican administration for fostering de-regulaton, he said, whose “extremism and ideological blindness led to a new era of regulatory nihilism and just plain nuttiness.”Mr. Pertschuk’s first marriage, in 1954, to Carleen Joyce Dooley, ended in divorce in 1976. He married Anna Phillips Sofaer in 1977.In addition to his wife, he is survived by two children from his first marriage, Amy and Mark Pertschuk; a stepson, Daniel Sofaer; and three grandchildren.He and his wife moved from Washington to Santa Fe in 2003.Asked what motivated Mr. Pertschuk to embark on his consumer crusade, Joan Claybrook, who headed another of his progenies, the National Highway Traffic Safety Administration, during the Carter administration, said in a phone interview: “The facts. The more he learned, the more adamant he became. The more he learned about tobacco, the more outraged he became and the more determined he was to do something about it. And he was in a position of enormous power to do something about it.”After leaving government, Mr. Pertschuk founded, with David Cohen, a former president of Common Cause, the Advocacy Institute, which trained social justice adherents in the United States and emerging democracies.Mr. Pertschuk explained why he hadn’t capitalized on his enormous congressional and commission experience by going to work for a law firm, or for corporate clients or for foreign governments.“There is a career to be made out of the craft of lobbying for things you believe in,” he told The New York Times in 1987. “You may lag behind your contemporaries in BMW’s, if not Cuisinarts, but it really is worth it.”“This is more fun,” he said. More

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    Gina Raimondo, a Rising Star in the Biden Administration, Faces a $100 Billion Test

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    WEST LAFAYETTE, Ind. — Gina Raimondo, the commerce secretary, was meeting with students at Purdue University in September when she spotted a familiar face. Ms. Raimondo beamed as she greeted the chief executive of SkyWater Technology, a chip company that had announced plans to build a $1.8 billion manufacturing facility next to the Purdue campus.“We’re super excited about the Indiana announcement,” she said. “Call me if you need anything.”These days, Ms. Raimondo, a former Rhode Island governor, is the most important phone call in Washington that many chief executives can make. As the United States embarks on its biggest foray into industrial policy since World War II, Ms. Raimondo has the responsibility of doling out a stunning amount of money to states, research institutions and companies like SkyWater.She is also at the epicenter of a growing Cold War with China as the Biden administration uses her agency’s expansive powers to try to make America’s semiconductor industry more competitive. At the same time, the administration is choking off Beijing’s access to advanced chips and other technology critical to China’s military and economic ambitions.China has responded angrily, with its leader, Xi Jinping, criticizing what he called “politicizing and weaponizing economic and trade ties” during a meeting with President Biden this month, according to the official Chinese summary of his comments.The Commerce Department, under Ms. Raimondo’s leadership, is now poised to begin distributing nearly $100 billion — roughly 10 times the department’s annual budget — to build up the U.S. chip industry and expand broadband access throughout the country.How Ms. Raimondo handles that task will have big implications for the United States economy going forward. Many view the effort as the best — and only — bet for the United States to position itself in industries of the future, like artificial intelligence and supercomputing, and ensure that the country has a secure supply of the chips necessary for national security.But the risks are similarly huge. Critics of the Biden administration’s plans have noted that the federal government may not be the best judge of which technologies to back. They have warned that if the administration gets it wrong, the United States may surrender its leadership in key technologies for good.“The essence of industrial policy is you’re gambling,” said William Reinsch, a trade expert at the Center for Strategic and International Studies, a think tank. “She’s going to be in a tough spot because there probably will be failures or disappointments along the way,” he said.The outcome could also have ramifications for Ms. Raimondo’s political ambitions. In less than two years in Washington, Ms. Raimondo, 51, has emerged as one of President Biden’s most trusted cabinet officials. Company executives describe her as a skillful and charismatic politician who is both engaged and accessible in an administration often known for its skepticism of big business.Ms. Raimondo’s work has earned her praise from Republicans and Democrats, along with labor unions and corporations. Her supporters say she could ascend to another cabinet position, run for the Senate or perhaps mount a presidential bid.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Battle Over Wage Rules for Tipped Workers Is Heating Up

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    A system counting tips toward the minimum wage is being fought in many places. Critics say it’s often abused. Defenders say workers benefit overall.With Americans resuming prepandemic habits of going out, eating out and traveling, leisure and hospitality businesses have scrambled to hire, sometimes offering pay increases that outpace inflation.But for many whose pay is linked to tips, like restaurant servers and bartenders, base wages remain low, and collecting what is owed under the law can be a struggle.In all but eight states, employers can legally choose to pay workers who receive tips a “subminimum” wage — in some places as low as $2.13 an hour — as long as tips bring their earnings to the equivalent of the minimum wage in a pay period. Economists estimate that at least 5.5 million workers are paid on that basis.The provision, known as the tip credit, is a unique industry subsidy that lets employers meet pay requirements more cheaply. And even in a tight labor market, it is often abused at the employees’ expense, according to workers, labor lawyers, many regulators and economists.“It’s baked into the model,” said David Weil, the administrator of the Wage and Hour Division of the Labor Department under President Barack Obama, referring to the frequency of violations. “And it’s very problematic.”Terrence Rice, a bartender from Cleveland who has worked in the bar and restaurant industry since 1999, chuckled at the notion that the law is consistently followed.“As long as I’ve been doing this, I have never, ever — not one time — met anyone that’s been compensated” for a below-minimum pay period, he said, adding that slow weeks with inadequate pay are viewed as the “feast or famine” norm in the industry. Busier seasons, weekends or shifts can bring a rush of a cash followed by slow weekdays, bad-weather weeks or economic turbulence.Now the yearslong arrangement is coming under increasing challenge.In the District of Columbia, a measure on the November ballot would ban the subminimum wage by 2027. A ballot proposal in Portland, Maine, would ban subminimum base pay and bring the regular minimum wage to $18 an hour over three years.Employers in Michigan are bracing for increased expenses in February, when the state tipped minimum of $3.75 an hour is set to be discontinued and the regular state minimum wage will rise to $12 from $9.87.Xander Gudejko, a district manager for Mainstreet Ventures Restaurant Group, which owns spots throughout Michigan, offered a common view in the local business community: “When I think of the potential positives for us, I can’t really think of anything.”Though tipped employees can include hotel housekeepers, bellhops, car washers and airport wheelchair escorts, most are in food and beverage service jobs. Perfect compliance may involve a complex dance of having workers clock in at the minimum-wage rate for setup work until opening, clock out, then clock back in at a tipped wage.Businesses using the two-tier system are prohibited from having tipped employees spend more than 20 percent of their shifts on side work like rolling silverware or cleaning. They also cannot include back-of-house employees, like kitchen workers, in tip pooling — the collection and redistribution of all gratuities at a certain rate, usually set by the employer.The last robust compliance investigation of full-service restaurants by the Labor Department is somewhat dated, having ended in 2012, but it found that 83.8 percent of the examined firms were in violation of labor law, with a large share of the infractions related to tips.The National Restaurant Association, which represents over 500,000 small and larger restaurants, argues that instances of illegal underpayment of tipped workers are overstated and that workers, customers and employers, in general, find the system workable.“There’s a reason people choose tipped restaurant jobs — they know the economics are in their favor,” said Sean Kennedy, the group’s executive vice president of public affairs. “For many servers, they’ve chosen restaurants as a career because their industry skills and knowledge mean high earning potential in a job that’s flexible to their needs.”Ryan Stygar, a labor lawyer and a managing partner at Centurion Trial Attorneys, whose practice mostly represents workers in wage-theft cases but also defends businesses accused of violations, called the network of laws surrounding tipped workers “so bizarre and obscure” that employers acting in good faith can still make legal mistakes.Even when the law is followed to the letter, Mr. Stygar said, the system is unfair to workers. “You are sacrificing your tips to meet the employers’ minimum-wage obligations,” he said.Employers are required to keep records of tips and usually do so through a mix of their own accounting, credit card receipts and self-reporting from staff members. Most involved in the system say the tracking works in murky ways.“In reality, who’s monitoring this complex two-tier system?” said Sylvia Allegretto, a former chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley.“The onus is on you, the worker, to possibly enrage, or at least annoy, your boss, who also, coincidentally, controls your schedule,” she said.Talia Cella, a training manager at Illegal Pete’s, a fast-casual burrito spot in Boulder, Colo. The restaurant offers starting pay of $15 plus tips as well as health care coverage.Andrew Miller for The New York TimesIn many civil disputes, employment attorneys have successfully argued before courts that managers implicitly wield opportunities to work more lucrative shifts as a carrot for not rocking the boat on workplace abuse and as a stick to prevent retaliation.Sylvia Gaston, a waitress at a restaurant in Astoria, Queens, said her base wage is $7.50 an hour — even though New York City’s legal subminimum is $10, which must come to at least $15 after tips. Ms. Gaston, 40, who is from Mexico, feels that undocumented workers like her have a harder time fighting back when they are shortchanged.“It doesn’t really matter if you have documents or not — I think folks are still getting underpaid in general,” she said. “However, when it comes to uplifting your voices and speaking about it, the folks who can get a little bit more harsh repercussions are people who are undocumented.”Subminimum base pay for some tipped workers in the state, such as car washers, hairdressers and nail salon employees, was abolished in 2019 under an executive order by Gov. Andrew M. Cuomo, but workers in the food and drinks industry were left out.Gov. Kathy Hochul, Mr. Cuomo’s successor, said while lieutenant governor in 2020 that she supported “a solid, full wage for restaurant workers.” And progressive legislators plan a bill in January that would eliminate the two-tier wage system by the end of 2025.When The New York Times asked if she would support such changes, Ms. Hochul’s office did not answer directly. “We are always exploring the best ways to provide support” to service workers, it said.Proponents of abandoning subminimum wages say there could be advantages for employers, including less turnover, better service and higher morale.David Cooper, the director of the economic analysis and research network at the Economic Policy Institute, a progressive think tank, contends that when wage laws are changed to a single-tier system, business owners can have the assurance that “every single person they compete with is making the same exact adjustment,” reducing the specter of a competitive disadvantage.Still, he acknowledged, there would downsides. Restaurants and bars with less popularity and lower productivity could lose out in a substantially higher-wage environment, leading to higher prices and potentially closings.“This is not costless,” Mr. Cooper said. “But for a long time, we haven’t been internalizing the costs of paying workers less than they can live on.”Some employers who could use the two-tier wage system are taking a different approach.Talia Cella, 33, is a training manager at Illegal Pete’s, a burrito spot founded in Boulder, Colo., with locations throughout Arizona and Colorado. Those states have a subminimum wage under $10 an hour for tipped workers, and a regular minimum under $13. Illegal Pete’s offers starting pay of $15 plus tips as well as health care coverage.Before rising to her current position, Ms. Cella was hired as a server and trained as a bartender in 2016. She was previously making base pay of $5 an hour elsewhere as a waitress and hostess, unable to afford a car and biking to the bus stop in snow to make winter shifts.Even at what her company is paying, Ms. Cella said, recruiting and hiring are “more challenging than ever” because of labor shortages. But she said the business, with the help of a recent 10 percent price increase, remained profitable and was able to expand despite soaring food costs.She attributes this, in part, to “out-vibing” the competition.“Having work be a stable part of your life — where it’s like you go there, you’re getting paid a living wage, you have health insurance, you know this place cares about you — then you’re more likely to show up to work and give your best,” Ms. Cella said. “If you want people to give you more of themselves, more of their time, more of their effort, then you have to be willing to invest more of your company into the individual people as well.” More

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    Biden Proposal Could Lead to Employee Status for Gig Workers

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    A proposed rule, long awaited by labor activists, would make it harder for companies to classify workers as independent contractors.The Labor Department on Tuesday unveiled a proposal that would make it more likely for millions of janitors, home-care and construction workers and gig drivers to be classified as employees rather than independent contractors.Companies are required to provide certain benefits and protections to employees but not to contractors, such as paying a minimum wage, overtime, a portion of a worker’s Social Security taxes and contributions to unemployment insurance.The proposed rule is essentially a test that the Labor Department will apply to determine whether workers are contractors or employees for companies. The test considers factors such as how much control workers have over how they do their jobs and how much opportunity they have to increase their earnings by doing things like offering new services. Workers who have little of either are often considered employees.The new version of the test lowers the bar for that employee classification from the current test, which the Trump administration’s Labor Department created.The proposal would apply only to laws that the department enforced, such as the federal minimum wage. States and other federal agencies, like the Internal Revenue Service, set their own criteria for employment status. But many employers and regulators in other jurisdictions are likely to consider the department’s interpretation when making decisions about worker classification, and many judges are likely to use it as a guide.As a result, the proposal is a potential blow to gig companies and other service providers that argue their workers are contractors, though it would not immediately affect the status of those workers.Uber and Lyft have said in federal filings that having to treat drivers as employees could force them to alter their business models, and some gig economy officials have estimated that their labor costs would rise 20 to 30 percent. The companies have repeatedly fought similar efforts by regulators and legislatures in states across the country.Share prices for both companies dropped more than 10 percent Tuesday.In a statement, Uber sounded optimistic that the proposal would not endanger the gig-economy model, at least if the administration heeded additional input.“Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially,” said CR Wooters, the company’s head of federal affairs. “In a time of deep economic uncertainty, it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours.”Read More About the Gig EconomyWaiting for Action: The Biden administration’s plans to strengthen labor protections have been slowed by Congress, the courts and a lobbying blitz. The delay has frustrated gig workers.A Thriving Sector: Conventional employment opportunities abound, but gig work continues to be a popular choice for people seeking flexibility and additional income.Para App: A former Uber employee created an app to help gig workers maximize their earnings. But the platforms that hire them are fighting back.Covid Risks: New York City’s gig workers risked their lives during the pandemic. A survey illustrates the hazards they faced.Lyft likewise noted that the proposal would restore the approach under President Barack Obama, when drivers were generally classified as contractors, and emphasized that it would not force the company to alter its business model. The company said the proposal was merely the beginning of a longer process.Companies, unions, workers and other members of the public will have a month and a half to formally comment on the proposal before the department incorporates feedback into a final rule. After that, the department will have considerable discretion over whether or not to enforce the rule at particular companies.“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors,” Labor Secretary Martin J. Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”David Weil, who oversaw the Obama Labor Department’s approach to classifying workers, cautioned that just because the department didn’t bring an enforcement action against Uber and Lyft didn’t mean it couldn’t have. He noted that the Obama rule had been adopted late in that administration.“I think it is true that there are lots of gray areas in the platform world, but with the caveats that you always have to go deep into the facts, Uber and Lyft do not strike me as that difficult,” Mr. Weil said in an interview, adding: “There is a lot about the relationship that looks like one of employees.”The proposal helps defuse growing pressure from activists supporting gig workers, who complained that the administration had been too slow to intervene to protect ride-hail drivers and other app-based workers.Lorena Gonzalez Fletcher, a former leader on workers’ issues in the California Assembly who is now head of the state’s labor federation, said in an interview that the action demonstrated the Biden administration’s strong pro-worker stance but that the effect of the new rule would come down to how aggressively the administration enforced it.“Companies just continue to break labor law,” Ms. Gonzalez Fletcher said. “They break it at the local level, the state level and federally, and there are no consequences. Everything is about enforcement.”The Biden Labor Department delayed and then scrapped the Trump rule on worker classification before a federal judge reinstated it. The new proposal would formally rescind and replace the Trump rule when made final in the coming months.Opponents could ask a federal judge to block the new rule temporarily or strike it down, but administration officials expressed confidence that it would withstand judicial scrutiny. They said they were merely returning to a standard that federal courts had repeatedly upheld over the decades.Uber and other gig companies say changes to how some of their workers are classified could force them to change their business models.Jim Wilson/The New York TimesUnder President Donald J. Trump, the department argued that two factors should predominate in determinations of whether a worker is an employee or a contractor, even if other factors are relevant: the degree of control a company has over the worker, and the extent to which a worker can increase his or her income by taking entrepreneurial initiative, like marketing his or her services.The Trump Labor Department suggested that gig workers like Uber drivers would probably be considered contractors under these criteria. Proponents argued that the Trump approach was necessary so enforcement didn’t snuff out new ways of doing business, such as the gig economy.But in an interview, Seema Nanda, the Biden Labor Department’s top lawyer, said the Trump rule “threatens to actually increase rather than decrease misclassification.”The proposal by the Biden Labor Department argues that several factors must be weighed when assessing whether a worker is a contractor or an employee, and that none of them are necessarily more important than the others. Among the additional factors are whether the work being performed is central to a company’s business, and what kind of investments workers make to do their jobs, such as buying equipment.Administration officials cautioned that determining whether or not gig workers like Uber drivers are employees would hinge on applying the test laid out in the proposal to individual cases and that they were not prejudging the outcome of any one of them. They also emphasized that the proposal did not target a particular industry.“We make a determination based on the specific facts in any case that we look at,” Ms. Nanda said. “Misclassification harms workers across a wide range of industries.”Gig companies like Uber and Lyft have sought for years to influence laws and regulations on worker classification. After the California Legislature passed a bill proposed by Ms. Gonzalez Fletcher that effectively classified gig drivers as employees in 2019, gig companies spent roughly $200 million helping to pass a ballot measure that would exempt their workers from employee status while granting them limited benefits.A state judge later ruled that the measure was unconstitutional. The decision is being appealed.Gig companies have tried and failed to enact similar measures in other liberal states, like New York and Massachusetts, but did help pass a contractor measure in Washington State.Uber and Lyft have often argued that drivers prefer the flexibility that independent contractor status affords them, such as the ability to work when, where and however long they choose to. They have cited polling data that appears to affirm this.Legal scholars point out that there is nothing inherent about employment status that would forbid companies to grant workers similar flexibility.Mr. Walsh, the labor secretary, has sometimes appeared open to the idea that gig workers could be classified as independent contractors.But when asked in an interview this summer whether he thought drivers would prefer to be independent contractors or employees if the trade-offs were made clear, he argued that “95 percent of people would say yes” to being classified as employees. More

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    As Warehouses Multiply, Some California Cities Say: Enough

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    From the front yard of her ranch-style home, Pam Lemos peered out on the vast valley of her childhood.She can still picture the way it looked back in the 1980s — citrus groves blanketing hillsides, dairy farms stretching for acres and horses grazing under a bright blue sky. These days, when she looks toward the horizon, she mainly sees the metal roofs of hulking warehouses.“Now it’s all industrial,” said Ms. Lemos, 55, who has lived in Colton, 60 miles east of Los Angeles, her entire life. “We are working to change that and starting with these warehouses.”Ms. Lemos is part of a growing coalition of residents and leaders in Colton and neighboring cities — a logistical hub for the nation — who are increasingly frustrated with the proliferation of warehouses in the region, as well as the side effects of the rapid expansion.As warehouse construction has ballooned nationwide, residents in communities both rural and urban have pushed back. Neighborhood apps like Nextdoor and Facebook groups have been flooded with complaints over construction. In California, the anger has turned to widespread action.Several cities in this slice of Southern California, known as the Inland Empire, have passed ordinances in recent months halting new warehouse projects so officials can study the effects of pollution and congestion on residents like Ms. Lemos. Similar local moratoriums have cropped up in New York and New Jersey in recent years, but on a much smaller scale.Labor groups and business coalitions have entered the fray, warning that the new ordinances — along with a push in the state Legislature to widen the restrictions — will cost the region tax revenue and needed jobs and could further disrupt a shaky national supply chain.The Inland Empire, where the population has quadrupled to 4.6 million in the last 50 years as people were priced out of places closer to Los Angeles, is a critical storage-and-sorting point because of its proximity to rail lines that are a short jaunt from the ports of Los Angeles and Long Beach, global hubs that handle 40 percent of the nation’s seaborne imports.In the early 1990s, there were about 650 warehouses in the region, according to a data tool from Pitzer College in Claremont, Calif. By last year, there were nearly 4,000.Pam Lemos has lived in Colton her entire life. “Now it’s all industrial,” she said. “We are working to change that.”Amazon is a major presence, with more than a dozen warehouses in the Inland Empire. Although it is slowing its warehouse expansion nationally and has closed or mothballed some buildings, it is constructing a five-story, four-million-square-foot facility in the city of Ontario. The warehouse, which is scheduled to be completed in 2024 and expected to be one of the company’s largest in the nation, will provide jobs for roughly 1,500 people.Susan Phillips, a professor of environmental analysis at Pitzer who has studied the growth of warehouses in the Inland Empire, says the only way to regulate construction is through the municipal planning process.“Warehouse growth is totally demand-driven,” Ms. Phillips said. “Developers and many municipalities do not want any regulation on this, and at this point warehouses are growing at many times the rate of population growth.”Since 2020, elected officials in a half-dozen Inland Empire cities, including Riverside, its most populous, have imposed moratoriums on warehouse construction. The timeouts are meant to assess, among other things, the effects of pollution, the appropriate distances between homes and warehouses, and the impact of heavy truck traffic on streets.Tucked in the shadow of the San Bernardino Mountains, Colton has long been known as “Hub City” because it is a crossing of two railroads — BNSF and Union Pacific — that shuttle cargo to and from the ports. Today, the city of 54,000 is home to 58 licensed warehouses.Isaac Suchil, a councilman in Colton, was a sponsor of his city’s moratorium, which was recently extended through May 2023. While he stresses that he is not “anti-warehouse,” Mr. Suchil said he would like to see buffer zones requiring that new facilities be at least 300 feet from schools and residential areas. The current requirements vary and are applied differently from project to project, he said.“The moratorium gives us time to address future projects,” he said.Residents have grown increasingly frustrated with the proliferation of warehouses in the region.Isaac Suchil, a councilman in Colton and a sponsor of the city’s moratorium on warehouses.Colton, a city of 54,000, is home to 58 licensed warehouses.Assemblywoman Eloise Gómez Reyes, who represents several Inland Empire cities, including Colton, has taken the fight to Sacramento, the state capital. She sponsored a bill this year that would require new logistics projects in Riverside and San Bernardino Counties that are 100,000 square feet or larger to be at least 1,000 feet from homes, schools and health care centers.“The warehouses bring with them trucks producing diesel particulate matter,” Ms. Gómez Reyes said, noting an American Lung Association report this year that found that those counties were among the worst for annual particulate pollution.Ms. Gómez Reyes, who withdrew her bill from consideration after struggling to find votes, even among fellow Democrats who dominate the Legislature, said she planned to reintroduce the measure next year.The efforts to suspend and regulate warehouse construction have faced staunch opposition from groups including the Laborers’ International Union of North America, which represents construction workers in the United States, and the California Chamber of Commerce.Jennifer Barrera, chief executive of the California Chamber of Commerce, said a measure like the one put forth by Ms. Gómez Reyes would hurt job growth and apply a one-size-fits-all approach that would strip local jurisdictions of necessary freedom around land-use decisions.In the first half of 2022, there were roughly 135,400 warehouse jobs in the Inland Empire, according to the Inland Empire Economic Partnership, a group that works with business and government leaders. In 2010, there were roughly 19,900 warehouse jobs in the region.“A warehouse ban would only exacerbate the goods movement and logistics backlogs California consumers are facing,” Ms. Barrera said. “With more people ordering goods online and wanting quick delivery, the need for storage space is growing.”But some local residents are tired of feeling that their region is losing out on more than it is gaining.This summer, a deal was reached to relocate an elementary school in Bloomington, Calif., to make space for a warehouse, and earlier this year, the City Council in Ontario approved the construction of a warehouse on the site of an area that was once home to a dairy farm. In both instances, residents voiced their frustration on social media and at public meetings.“For too long it’s been build, build, build, with no repercussions,” said Alicia Aguayo, a member of the People’s Collective for Environmental Justice, a group that has pushed for some of the moratoriums.Ms. Aguayo, a lifelong resident of the Inland Empire, says that in recent years she has met more and more people in her community who have asthma and cancer. She would like to see more resources dedicated to studying the health impacts of pollution in the region.“It’s environmental racism and hitting mostly Latino communities,” Ms. Aguayo said.Last year, Southern California officials adopted rules for warehouses that aim to cut truck pollution and reduce health risks.Morris Donald has witnessed the warehouse boom from his backyard in San Bernardino, Calif.The regulations from the South Coast Air Quality Management District require large warehouses to curb or offset emissions from their operations or pay fees that go toward air-quality improvements.In San Bernardino, where a proposed effort last year fell one council vote shy of establishing a 45-day moratorium on the construction of new warehouses, Morris Donald has witnessed the warehouse boom from his backyard.For 11 years, he has rented a three-bedroom home in a neighborhood now surrounded by four warehouses. In recent years, he said, most of the neighbors he knew have moved away and several landlords have sold to developers.“It’s taken away the neighborhood feel,” Mr. Donald said. “Kids don’t play outside. No one is in their yards.”But he sees the benefits as well — he works as a forklift mechanic at a Quiksilver warehouse, his wife is a manager at another and his son works as a security guard at a third facility.“If you want jobs,” Mr. Donald said, “they’re out here in the warehouses, and that’s a fact.”In Colton, Ms. Lemos spends some of her free time volunteering for groups that work closely with the People’s Collective for Environmental Justice. The moratorium, she said, could not have come soon enough.“How did this get so out of control?” Ms. Lemos said, noting that in the months before the moratorium was enacted, the city approved a pair of warehouses with a combined square footage of 1.8 million.On a recent afternoon, Ms. Lemos twisted her Jeep Wrangler along a winding two-lane road, which was pockmarked with potholes left behind, she said, from the semi trucks that shuttle goods from warehouses. The air was thick, and a line of smog hovered along the horizon. A horn from an incoming train pierced the air.“There is always something going on here — trucks, trains, construction from warehouses,” she said. “It’s like we’re living in this logistical bubble while trying to raise our families.” More

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    Biden Administration Clamps Down on China’s Access to Chip Technology

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    The White House issued sweeping restrictions on selling semiconductors and chip-making equipment to China, an attempt to curb the country’s access to critical technologies.WASHINGTON — The Biden administration on Friday announced sweeping new limits on the sale of semiconductor technology to China, a step aimed at crippling Beijing’s access to critical technologies that are needed for everything from supercomputing to guiding weapons.The moves are the clearest sign yet that a dangerous standoff between the world’s two major superpowers is increasingly playing out in the technological sphere, with the United States trying to establish a stranglehold on advanced computing and semiconductor technology that is essential to China’s military and economic ambitions.The package of restrictions, which was released by the Commerce Department, is designed in large part to slow the progress of Chinese military programs, which use supercomputing to model nuclear blasts, guide hypersonic weapons and establish advanced networks for surveilling dissidents and minorities, among other activities.Alan Estevez, the under secretary of commerce for industry and security, said his bureau was working to prevent China’s military, intelligence and security services from acquiring sensitive technologies with military applications.“The threat environment is always changing, and we are updating our policies today to make sure we’re addressing the challenges posed by the P.R.C. while we continue our outreach and coordination with allies and partners,” he said, referring to the People’s Republic of China.Technology experts said the rules appeared to impose the broadest export controls issued in a decade. While similar to the Trump administration’s crackdown on the telecom giant Huawei, the new rules are far wider in scope, affecting dozens of Chinese firms. And unlike the Trump administration’s approach — which was viewed as aggressive but scattershot — the rules appear to establish a more comprehensive policy that will stop cutting-edge exports to a range of Chinese technology companies and cut off China’s nascent ability to produce advanced chips itself.“It is an aggressive approach by the U.S. government to start to really impair the capability of China to indigenously develop certain of these critical technologies,” said Emily Kilcrease, a senior fellow at Center for a New American Security, a think tank.Companies will no longer be allowed to supply advanced computing chips, chip-making equipment and other products to China unless they receive a special license. Most of those licenses will be denied, though certain shipments to facilities operated by U.S. companies or allied countries will be evaluated case by case, a senior administration official said in a briefing Thursday.It remains to be seen whether the Chinese government will take action in response. Samm Sacks, a senior fellow at Yale Law School who studies technology policy in China, said the new rules could push Beijing to impose restrictions on American companies or firms from other countries that comply with U.S. rules but still want to maintain operations in China.“The question is: Would this new package cross a red line to trigger a response that we haven’t seen before?” she said. “A lot of people are anticipating it will. I think we’ll have to wait and see.”More on the Relations Between Asia and the U.S.Taiwan: American officials are intensifying efforts to build a giant stockpile of weapons in Taiwan in case China blockades the island as a prelude to an attempted invasion, according to current and former officials.North Korea: Pyongyang fired an intermediate range ballistic missile over Japan for the first time since 2017, when Kim Jong-un seemed intent on escalating conflict with Washington. But the international landscape has changed considerably since then.A Broad Partnership: The United States and 14 Pacific Island nations signed an agreement at a summit in Washington, putting climate change, economic growth and stronger security ties at the center of an American push to counter Chinese influence.South Korea: President Yoon Suk Yeol has aligned his country more closely with the United States, but there are limits to how far he can go without angering China or provoking North Korea.The measures come at a particularly sensitive moment for Beijing. Chinese leaders will hold a major political meeting beginning Oct. 16, where leader Xi Jinping is expected to secure a third leadership term, becoming the country’s longest-ruling leader since Mao Zedong.Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said the United States was trying “to use its technological prowess as an advantage to hobble and suppress the development of emerging markets and developing countries.”“The U.S. probably hopes that China and the rest of the developing world will forever stay at the lower end of the industrial chain,” he added.The Chinese government has invested heavily in building up its semiconductor industry, but it still lags behind the United States, Taiwan and South Korea in its ability to produce the most advanced chips. In other fields, like artificial intelligence, China is no longer significantly behind the United States, but those technologies mostly rely on advanced chips that are designed or fabricated by non-Chinese firms.Jack Dongarra, a computer scientist at the University of Tennessee, said some of China’s most advanced supercomputers depended on chips made by California-based Intel or Taiwan Semiconductor Manufacturing Company, which uses U.S. technology in its production process and so would be subject to the new rules.The restrictions limit U.S. exports of high-tech chips called graphic processing units, which are used to power artificial intelligence applications, and place broad limits on chips destined for supercomputers in China. The rules also bar U.S.-based companies that make the equipment used to manufacture advanced logic and memory chips from selling that machinery to China without a license.Perhaps most significant, the Biden administration also imposed broad international restrictions that will prohibit companies anywhere in the world from selling chips used in artificial intelligence and supercomputing in China if they are made with U.S. technology, software or machinery. The restrictions used what is known as the foreign direct product rule, which was last deployed by former President Donald J. Trump to cripple Huawei.Another foreign direct product rule bans a broader range of products made outside the United States with American technology from being sent to 28 Chinese companies that have been placed on an “entity list” over national security concerns.Those companies include Beijing Sensetime Technology Development, a unit of a major Chinese artificial intelligence company, SenseTime. Also included are Dahua Technology, Higon, iFLYTEK, Megvii Technology, Sugon, Tianjian Phytium Information Technology, Sunway Microelectronics and Yitu Technologies, as well as a variety of labs and research institutions linked to universities and the Chinese government.In a briefing with reporters, senior administration officials said the measures would be limited to the most advanced chips and not have a broad commercial impact on private Chinese businesses. But they conceded that the limits could become more restrictive over time, given that technology will begin to outpace the advanced technological standards spelled out in the rules.Industry executives say many Chinese industries that rely on artificial intelligence and advanced algorithms power those abilities with American graphic processing units, which will now be restricted. Those include companies working with technologies like autonomous driving and gene sequencing, as well as the artificial intelligence company SenseTime and ByteDance, the Chinese internet company that owns TikTok.New limits on sales of chip-making equipment are also expected to clamp down on the operations of China’s homegrown chip makers, including Semiconductor Manufacturing International, Yangtze Memory Technologies and ChangXin Memory Technologies.The actual impact of the restrictions will hinge on how the policy is carried out. For most of the measures, the Commerce Department has the discretion to grant companies special licenses to continue selling the restricted products to China, though it said most would be denied.Some Republican lawmakers and China hawks have criticized the department for being too willing to issue such licenses, allowing U.S. companies to continue selling sensitive technology to China even when national security may be at stake.“If you want to stop it, you can just stop it,” said Derek Scissors, a senior fellow at the American Enterprise Institute. “When you create a licensing requirement, you are announcing to the world: We don’t want to stop it. We are just pretending.”With its vast ecosystem of factories, China continues to be a huge and lucrative market for U.S. chip exports. The tiny technologies are crucial to the smartphones, laptops, coffee makers, cars and other goods that Chinese factories pump out for domestic consumption and export to the world.Many American companies have long argued that their sales to China are an important source of revenue that allows them to reinvest in research and development and retain a competitive edge.But doing business with China has become much more fraught in the last few years, as the tensions between the United States and China have morphed into a cold war competition. The Chinese government has sought to blur the line between its defense sector and private industry, drawing on Chinese firms that specialize in fields including artificial intelligence, big data, aerospace technologies and quantum computing to fuel the country’s military modernization.Chinese military drills aimed at intimidating Taiwan, and China’s alignment with Moscow after the Russian invasion of Ukraine, have strengthened the case for technology regulation.Still, industry executives and some analysts argue that cutting China off from foreign chips will accelerate Beijing’s push to develop them itself and cause U.S. companies to lose out to foreign competitors, unless other countries also impose similar restrictions.The Semiconductor Industry Association said Friday that it was assessing the impact of the export controls on the industry and working with companies to ensure compliance.“We understand the goal of ensuring national security and urge the U.S. government to implement the rules in a targeted way — and in collaboration with international partners — to help level the playing field and mitigate unintended harm to U.S. innovation,” it said in a statement.In remarks last month, the Biden administration signaled that it would get tougher on technology regulation. Jake Sullivan, the national security adviser, said the U.S. government’s previous approach, of trying to stay a few generations ahead of competitors, was no longer sufficient.“Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible,” he said.Kevin Wolf, a partner at Akin Gump who led export control efforts during the Obama administration, said the move was “a fundamental shift in the use of export controls” to address broader national security objectives. Since the Cold War, most countries had used export controls more narrowly, focusing on regulating specific items that were necessary to produce or deploy weapons.Mr. Wolf said the new measures were likely to be highly effective in the short and medium term. “How effective they will be over the long term will be a function of whether allies ultimately agree to impose similar controls,” he added.Edward Wong More

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    Economists Nervously Eye the Bank of England’s Market Rescue

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    The Bank of England stepped in to save a critical market this week. Economists say it was necessary but also worry about the precedent.When the Bank of England announced last week that it would buy bonds in unlimited quantities in an effort to stabilize the market for U.K. government debt, economists agreed it was probably a necessary move to prevent a cataclysmic financial crisis.They also worried it could set a dangerous precedent.Central banks defend the financial stability of the nations in which they operate. In an era of highly leveraged and deeply interconnected markets, that means that they sometimes have to buy bonds or backstop lending to prevent a problem in one area from spiraling into a crisis that threatens the entire financial system.But that backstop role also means that if a government does something to generate a major shock, politicians can be fairly confident that the local central bank will step in to stem the fallout.Some economists say that is essentially what happened in the United Kingdom. Liz Truss, the new prime minister, proposed a huge package of tax cuts and spending during a period of already high inflation, when standard economic theory suggests governments should do the opposite. Markets reacted forcefully: Yields on long-term government debt shot up, and the value of the British pound fell sharply relative to the dollar and other major currencies.The Bank of England announced that it would buy long-term government debt “on whatever scale is necessary” to prevent a full-blown financial crisis. The move was particularly striking because the bank had been poised to begin selling its bond holdings — a plan that is now postponed — and has been raising interest rates in a bid to bring down inflation.Economists broadly agreed that the bank’s decision was the right one. The rapid rise in interest rates sent shock waves through financial markets and upended a typically sleepy corner of the pension fund industry, which, left unaddressed, could have carried severe consequences for millions of workers and retirees, destabilizing the country’s entire financial system.“You saw very substantial market dislocation,” said Lawrence H. Summers, a former U.S. Treasury Secretary who is now at Harvard. “It’s a recognized role of central banks to respond to that.”To some economists, that was exactly the problem: By shielding the U.K. government from the full consequences of its actions — both preventing citizens from feeling the painful aftereffects and keeping government borrowing costs from shooting higher — the policy demonstrated that central bankers stand ready to clean up messy fallout. That could make it easier for elected leaders around the world to take similar risks in the future.Those concerns eased somewhat on Monday when Ms. Truss partly backed down, reversing plans to abolish the top income tax rate of 45 percent on high earners.But she appears poised to go forward with the rest of her proposed tax cuts and spending programs, putting the Bank of England in a delicate spot.Rising Inflation in BritainInflation Slows Slightly: Consumer prices are still rising at about the fastest pace in 40 years, despite a small drop to 9.9 percent in August.Interest Rates: On Sept. 22, the Bank of England raised its key rate by another half a percentage point, to 2.25 percent, as it tries to keep high inflation from becoming embedded in the nation’s economy.Mortgage Market: The uptick in interest rates roiled Britain’s mortgage market, leaving many homeowners calculating their potential future mortgage payments with alarm.Investor Worries: The financial markets have been grumbling with unease about Britain’s economic outlook. The government plan to freeze energy bills and cut taxes is not easing concerns.The “partial U-turn” from Ms. Truss “still leaves the Bank of England with a set of near-impossible choices,” analysts at Evercore ISI wrote in a note to clients. “The only way to alleviate this is for the government to take much bigger steps to restore credibility — but there is little sign this is imminent.”There’s a reason that the interplay between monetary policy and politics in the United Kingdom is garnering so much attention. Central banks have for decades closely guarded their independence from politics. They set their policies to either stoke the economy or to slow it down based on what was necessary to achieve their goals — in most cases, low and stable inflation — free from the control of elected officials.The logic behind that insulation is simple. If central bankers had to listen to politicians, they might let price increases get out of control in exchange for faster short-term growth that would help the party in power.Now, that independence is being tested, and not just in the United Kingdom. Central banks around the world are raising interest rates to try to fight inflation, resulting in slower growth and making it harder for governments to borrow and spend. That is likely to lead to tension — if not outright conflict — between central bankers and elected leaders.It is already beginning. A United Nations agency on Monday warned that the Federal Reserve risked a global recession and significant harm in developing countries, for instance. But the United Kingdom’s example is stark because the elected government is carrying out policy that works against what the nation’s central bank is trying to achieve.“One always worries that actions like these can affect incentives going forward,” said Karen Dynan, a Harvard economist who served as a top official in the Treasury Department under President Obama. “It’s basic economics: People respond to incentives, and fiscal policymakers are people.”Part of the issue is that it is hard for central bankers to single-mindedly focus on controlling inflation in an era when financial markets are fragile and susceptible to disruption — including disruptions caused by elected governments.Before 2008, the Fed had never used mass long-term bond purchases to calm markets in its modern era. It has now used them twice in the span of 12 years. In addition to last week’s moves, the Bank of England also turned to mass bond purchases to calm markets in 2020.Bank of England officials have stressed that the policies they announced last week are a temporary response to an immediate crisis. The bank plans to buy long-dated bonds for less than two weeks and says it will not hold them longer than necessary. The Treasury, not the bank, will be responsible for any financial losses. The bank said it remained committed to fighting inflation, and some economists have speculated that it could raise rates even more aggressively in light of the government’s growth-stoking policies.If the bank is able to hold to that plan, it could mitigate economists’ concerns about the longer-run risks of the program. If interest rates rise again and it gets more expensive for the government to borrow, Ms. Truss will still need to grapple with the costs of her proposed programs, just without facing an imminent financial crisis.But some economists warn that the Bank of England may find the situation harder to extricate itself from than it hopes. It may turn out that the bank needs to keep buying bonds longer than expected, or that it cannot sell them without threatening another crisis. That could have the unintentional side effect of giving the British government a helping hand — and it could demonstrate that it is hard for a big central bank to remove support from its economy when the elected government wants to do the opposite.Liz Truss, Britain’s prime minister, will still need to grapple with the costs of her proposed programs, but she won’t be facing an imminent financial crisis because of the Bank of England’s actions.Alberto Pezzali/Associated PressMs. Truss’s policies — particularly before her partial reversal on Monday — would work directly against the bank’s efforts to cool growth, stoking demand through lower taxes and increased spending. The rapid rise in bond yields last week suggested that investors expected inflation to rise even further.Under ordinary circumstances, these conditions would lead the Bank of England to do even more to bring down the inflation it had already been fighting, raising interest rates more quickly or selling more of its bond holdings. Some analysts early last week expected the bank to announce an emergency rate increase. Instead, the brewing financial crisis forced the bank to do, in effect, the opposite, lowering borrowing costs by buying bonds.While lowering rates and stoking the economy was not the point — just a side effect — some economists warn that those actions risk setting a dangerous precedent in which central banks can only tighten policy to control inflation if their national governments cooperate and do not roil markets in a way that threatens financial stability. That situation puts politicians more in the driver’s seat when it comes to making economic policy.Guillaume Plantin, a French economist who has studied the interplay between central banks and governments, likened the dynamic to a game of chicken: To avoid a financial crisis, either Ms. Truss had to abandon her tax-cut plans, or the Bank of England had to set aside, at least temporarily, its efforts to raise borrowing costs. The result: “The Bank of England had to chicken out,” he said.Policymakers have known for decades that when the government steps in to rescue private companies or individuals, it can encourage them to repeat the same risky behavior in the future, a situation known as “moral hazard.” But in the private sector, there are steps governments can take to offset those risks — regulating banks to reduce the risk of collapse, for example, or wiping out shareholders if the government does need to step in to help.It is less clear what monetary policymakers can do to prevent the government itself from taking advantage of the safety net a central bank provides.“There is a moral hazard here: You are protecting some people from the full consequences of their actions,” said Donald Kohn, a former Fed vice chair and a former member of the Bank of England’s Financial Policy Committee, who agreed that it is necessary to intervene to prevent market dysfunction. “If you think about the entities that benefited from this, one was the chancellor of the Exchequer, the government.”Some forecasters have warned that other central banks might have to pull back on their own efforts to fight inflation to avoid destabilizing financial markets. Some investors are speculating that the Fed will have to end its policy of shrinking government bond holdings early or risk stirring market turmoil, for instance.Not all of those scenarios would necessarily raise the same concerns. In the United States, the Biden administration and the Fed are both focused on fighting inflation, so any reversal by the central bank would probably not look like bowing to pressure from the elected government.Still, the common thread is that financial stability issues could become a hurdle in the fight against inflation — especially where governments do not decide to go along with the push to rein in prices. And how worrying the British precedent proves will depend on whether the Bank of England is capable of backing away from bond buying quickly.“Is this just an exigent moment that they needed to respond to, or does it give the fiscal authority room to be irresponsible?” said Paul McCulley, an economist and the former managing director at the investment firm PIMCO. “The question is who blinks.”Joe Rennison More