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From Human Events…
Fundamental Questions
About Job Creation
There
are reasons we’re stuck with persistent high unemployment.
by John Hayward
01/04/2011
House Oversight and Government Reform Committee Chairman Darrell Issa
is planning to study the impact of government regulation on job
creation in his first hearing. In a memo outlining his agenda for
the first months of the new Congress, Issa said “we need to start by
asking a very fundamental question: why hasn’t the economy created the
private-sector jobs the president promised?”
That’s an excellent question. One part of the answer would be the
rising cost of labor, including the anticipation of dramatically higher
costs due to ObamaCare. Raising the cost of labor naturally and
inevitably increases unemployment, as predicted by the laws of supply
and demand. When a resource is made more expensive, less is
purchased.
Suppose the government passed a law mandating a minimum wage of $50,000
per year. Such a law would not even slightly alter the number of
employees who are actually worth fifty grand per year. Instead,
it would create pressure on business to hire fewer people whose true
value is less than that. Since most business expansions involve
hiring a lot of entry-level people, one way to reduce demand for
overpriced labor is to cancel expansion plans. There is very
little point in opening a pizza restaurant if all the cooks and waiters
must be paid fifty thousand dollar salaries.
A given employee tends to earn a higher salary by remaining with a
company for a long period of time. This makes management more
eager to retain experienced people when the cost of labor is
increased. Both of these principles are consistent with the
current employment picture, in which fewer new unemployment claims have
been filed recently, but new jobs are not being created. In fact,
data from the Bureau of Labor Statistics suggest a relatively small
pool of recently terminated employees land most of the new jobs, while
the long-term unemployed rot on the sidelines. Workers whose
value most clearly approaches the inflated cost of labor, thanks to
long and tasty resumes, are most likely to get hired.
The maze of regulations from a massive State automatically produces
uncertainty and retards job growth. The politicians and
bureaucrats who write those laws typically have very limited
private-sector experience. Their decisions are shaped by
influential special interests and big-money contributors. Unless
you happen to be one of those contributors, you have no reason to
expect the regulatory winds to fill your sails, instead of capsizing
your boat. On the contrary, you can expect the State to act
against business interests with increasing frequency as it grows in
size, because it becomes more concerned with its own growth… which
causes the private sector to shrink with increasing speed.
Big Government also becomes more invested in class warfare, which is
essential to maintaining political support in the face of its own
inevitable failure. Class warfare is poisonous to business
expansion. Like it or not, investment capital only comes from one
source: rich people who want to risk their money in the pursuit of
reward. Why should they take those risks when they might well be
stripped of the profits, and cursed as “greedy” if they resist?
How deep has the unemployment hole been dug? We would need to
create something like 400,000 jobs per month to return to pre-Obama
employment levels before he leaves office in 2012. That’s
essentially impossible, and even repairing the damage by the end of his
successor’s first term would require over 200,000 new jobs per
month. Nothing short of a fantastic economic boom could produce
that kind of job growth. Such a boom cannot be engineered while
simultaneously pleasing the Left and union interests with job-killing
regulations.
What do we need for massive job creation? The principles are
simple enough: give the people with capital and knowledge a reason to
create and expand businesses, while making labor available at a
reasonable price, and they’ll hire people. They want to hire
people. “Safe” investments don’t produce the same rate of return
as entrepreneurial risk. Nothing is more pernicious than the
liberal caricature of The Evil Rich hoarding gold and gems in
underground vaults, or blowing every penny on ridiculous
luxuries. Someone who behaves that way is a fool squandering an
inheritance, not a successful capitalist.
To put it bluntly, almost every regulation has a cost in jobs. By
definition, regulations restrict the actions available to businesses,
and they don’t need to hire people for things they can’t do. This
is not an argument against having any regulations… but we should
understand their cost in jobs before we construct a massive, intrusive
State, and then wonder why it presides over high unemployment rates.
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