Government Destroys Jobs

taxpyrIf the media tells us that XYZ has created 1,000 new jobs we get excited; when QRS closes and jobs are lost, we’re sad and the politician who can provide a subsidy to save QRS is almost assured of wide-spread public support for his work in preserving jobs. But jobs in and of themselves do not guarantee well-being. Suppose that the job is to dig holes and fill them up again or manufacture goods or services no one wanted to purchase. In the Soviet Union, which boasted of giving every worker a job, many jobs were just this unproductive.

Production is everything – jobs are nothing but a means toward that end. Instead of praising jobs for their own sake, we should ask why employment is so important.  The answer is, of course, because we exist amidst economic scarcity and must work to live and prosper. But, what about unemployment, what if people want to work but can’t find a job? In almost every case, government programs are the cause of joblessness.

Minimum wage, is a concept that wages be set at a government determined level. To explain why this is harmful, we can use an analogy from biology: there are certain animals that are weaker than others such as the porcupine which is defenseless except for its quills, or the deer vulnerable except for its speed. There are people who are relatively weak such as the disabled, the young, minorities, the unskilled, which like the weak animals in biology, have a compensating advantage; the ability to work for lower wages. When the government takes this ability away by forcing up the pay scale, the result is unemployment.

Comparable worth, aka ‘sex equity’ or ‘pay equity,’ is the principle that men and women should be compensated equally for work requiring comparable skills, responsibilities, and effort. The concept of comparable worth was introduced in the 1970s by reformers seeking to correct inequities in pay for occupations traditionally held by men and women. This socialist idea interferes with the operation of a free market. The worth of any occupation is not an absolute and cannot be compared.

Laws which force employers to provide certain types of working conditions also creates unemployment because it is almost indistinguishable from money wages to employers. When the government forces the employer to pay more, he will hire fewer employees.

When the government forces businesses to hire union workers only, it discriminates against all other workers.  Unions are a state protected cartel that keeps out competition out and drives up costs. Anti-competitive project labor agreements (PLAs) are special interest schemes that end open, fair and competitive bidding on public works projects, driving up the cost of construction by reducing competition and effectively excluding merit shop contractors and their skilled employees from building projects paid for by their own tax dollars.

Employment protection laws which mandate that no one can be fired without due process are supposed to protect employees. However, when the government tells an employer that he must keep an employee no matter what, he tends not to hire him in the first place. And, being forced to keep an unproductive employee, drives up employment and payroll taxes discouraging employers from hiring more workers.

Payroll taxes like Social Security and unemployment insurance imposes heavy monetary and administrative costs on businesses, drastically increasing the marginal cost of hiring new employees.

Regulations and licensing are a direct cause of unemployment.   Government regulates over 1,000 occupations in all 50 states. When government bestows legal status on any profession and passes a law against competitors, it creates unemployment. Laws against street peddlers prevent people from selling food and products to people who want them. In cities like NY and DC, the most vociferous supports of these laws are established restaurants and department stores. In some localities children cannot even operate a lemonade stand without a license.

According to a 2012 Gallup poll, 22% of small business owners said that “complying with government regulations” was the most important problem facing them today, beating out weak consumer confidence and demand as a concern. Obama’s Small Business Administration (SBA) says that complying with federal regulations alone costs $1.7 trillion annually; nearly 12% of GDP. Moreover, the SBA says that federal regulations cost on average $10,000 per employee. And that is just federal regulations. State and local regulations often add dramatically to those costs.

The Federal Reserve’s money creation causes unemployment. Inflation not only raises prices, it also misallocates labor. During the boon phase of a trade cycle, businesses hire new workers, many of whom are pulled from other lines of work by the higher wages. The Feds subsidy to these capital industrires lasts only until the bust and then new workers are laid off and displaced.

The Free Market does not mean utopia.  We live in a world of differing intelligence and skills, of changing market preferences, and imperfect information, which can and does lead to temporary, market-generated unemployment. And, then, there are those people who just don’t feel the need to work, who would rather rely on handouts from the government. Let’s face it, government subsidies, whether in money or in kind, allow many people to receive greater benefits than they could earn by working at low-skilled jobs. In short, when people don’t have to earn incomes, they are less likely to earn incomes — or, at least, to earn incomes in legal and visible ways that could threaten their government benefits.

But, as a society, we should insure that everyone who wants to work has a chance to work and the first step toward that goal is to get government out the of nanny mode.  The path to jobs that matter is the free market.

Source:  The Free Market, a monthly publication of the Mises Institute 

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