Cottage industries come out of the closet

''There is a woman in Chicago who earned over $120,000 last year making light fixtures for doll houses on her dining-room table,'' says Coralee Smith Kern, an energetic grandmother and head of an advocacy group called the National Association for the Cottage Industry, ''and her next-door neighbor doesn't know she works.'' Mrs. Kern, who started a maid service in her home a dozen years ago , gives out a deep, joyful laugh. ''I love it!''

Mrs. Kerns is a member of a growing army of home-based business people. She puts it at 10 million, with another 15 million ''telecommuters'' (home-based word processors) due in the year 2000. Department of Labor officials say they simply ''don't know numbers.'' She is in the forefront of those who would see a legal return to cottage industries in this country.

''There is a 40-year-old law on the books that says women can't sew (for sale) in their homes,'' she says indignantly. ''That's a federal law, and we are asking the Labor Department to review it.

''Then there are countless local zonings prohibiting home businesses. Did you know that it's illegal to be a Mary Kay representative in Danville, Ill.? Some laws say things like you can only have a business on the ground floor, or everyone has to be related by blood, or you can have it between the hours of 10 and 2 - you know, just . . . dumb.''

''Dumb'' isn't the word used by the International Ladies Garment Union (ILGU). Iris Sunshine of their Washington office pointed out that the federal statue - put on the books in 1941 during the Roosevelt era - prohibited home-based businesses that took in ''piecework,'' where the employee was paid according to the number of pieces finished.

Because the work is done out of their homes, Ms. Sunshine says of such workers: ''There is no way minimum wage can be enforced. There may be poor working conditions and violations of health standards and child-labor-law standards. Do the kids take over while mom cooks dinner?''

She goes on: ''There's no job security and often no social security or medical benefits - and no overtime pay. The workers supply heat and electricity and sometimes their own tools, so the employer pays less. Also, he often pays in cash to avoid taxes, which makes for unfair competition with the employer who does comply with the law.''

In short, the ILGU - and the AFL-CIO - see home-based businesses as a return to the sweatshop - and are opposing it in court and at the Labor Department.

The bulk of those represented by Mrs. Kern, however, are not piecework employees, but self-employed individuals working out of their homes. ''And this is not a woman's issue,'' she points out repeatedly. ''This isn't housewives making potholders. I've had lots of letters from men - accountants, lawyers, dentists - who work at home saying, 'Thank you for letting me come out of the closet.' ''

Some see the rebirth of the cottage industry as an economic phenomenon tied in with high unemployment. But Ms. Kern says: ''It's a life-style-change decision. We get a lot of letters like the one we got from a guy who was fired from a big company. He didn't know it until the security guard came to ask him to clean up his desk and get out. Now he hates big companies and wants to go on his own.''

Deciding to go it alone is a decision that ''just makes sense,'' Mrs. Kern says. ''You can avoid the commute, continue to take care of your children, fit in with your community. Crime dropped in California in the areas where they encouraged cottage industries,'' she says.

William Renfro, the head of a legislative- and regulatory-forecasting firm in Washington, isn't sure how much sense it makes. He points out that the money you save on commuting goes right into heating and electricity for your home office. He also thinks home-based workers miss out on that possibly essential office function - ''schmoozing,'' a term used by author Studs Terkel to describe the ''sense of companionship and togetherness among workers as they chat about their lives and gripe about common problems.''

Says Mrs. Kern, ''I've been working at home for years, and I've never felt isolated or lonely.'' She recommends that home-based employers ''go out to lunch , join a professional association, go to see your printer.''

She also points out that ''not all folk are business folk'' and that many who think they want to work at home ''won't like it.'' But for those who do, she thinks it should be legalized.

Right now, for her, it's not. ''A few years ago, a local inspector came, knocked on my door, and asked, 'Mrs. Kern, are you running a business out of your home?' I told him: 'Yes, I am. Come on in, let's have coffee.' ''

She says he told her, after viewing her setup, that it was ''very well organized'' and that he would ''let it slip this time.'' She hasn't heard from him since.

Others don't have the same experience. ''They're closing home businesses down in Westchester County, N.Y.,'' says Mrs. Kern. ''And in 18 states it's illegal to do crafts in your home. It's crazy.''

But any effort to reduce those restrictions, says a spokesman from the AFL-CIO, which has asked the Department of Labor not to even review the 1941 statute, would mark ''an end to 40 years' worth of progress.''

''I expect a long, hard, bitter fight over this thing,'' says the enthusiastic Mrs. Kern. But she expects to win, because ''people are going to do it anyway.''