Like most intractable economic problems today, the problem of high and long-term unemployment is directly due to to state, local and federal government policies that destroy jobs, make it more expensive to hire, multiply regulations, burden employers who hire workers, make it risky to hire anyone due to constant risk and threats of litigation and penalties, impose higher overhead on employers, and generally make economic life miserable for everyone involved.
Richard Epstein explains why interventions such as minimum wage laws and government job training programs do little or no good and create a constant drag on the economy and on employment.
"One of the enduring faiths of modern progressive thought is that omniscient policy makers can cancel out the errors of one form of economic intervention by implementing a second. That lesson was brought home to me when I was a third year student at Yale Law School, whenever discussion turned to the perennial debate over the minimum wage. The charge against the minimum wage was that it had to introduce some measure of unemployment into labor markets by raising wages above the market-clearing price. “Not to worry,” came the confident reply. The way to handle that imperfection is to raise the level of welfare benefits in order to remove the dislocations created by the minimum wage. If one government program had its rough edges, a second government program could ride to the rescue. Implicit in this argument was the tantalizing, but fatal, assumption of economic abundance: The government has the power to tax, and with that power, has access to a cornucopia of public funds that never runs empty—at least until it does.
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. . . The minimum wage law introduces two immediate distortions into labor markets, which grow as the gap between the market-clearing wage and the minimum wage increases. First, it imposes huge administrative burdens on the Department of Labor and other state and federal agencies that have to enforce the law, and the private firms who have to be sure that they act in compliance with its commands. It is no easy thing to define an “hour” for the full range of jobs. There are no uniform answers for dealing with statutory exemptions, commuting time, work breaks, sick leave, or jobs away from home. Overtime pay is a world unto itself. The complex regulations needed to implement this one provision of the labor code require large investments from firms who need to avoid the heavy exposure to government sanctions and private lawsuits from noncompliance. None of these costs are eliminated by the adoption of any program of unemployment benefits or job creation, each of which imposes its own distinct, and costly, administrative overlay.
. . . . One of the serious mistakes of much labor market regulation, including the minimum wage law, is to assume that the only compensation given to employees is found in wages and benefits. But a sounder understanding of labor markets indicates that workers at all levels of the workforce also gain additional marketable skills from working on a steady job. For workers at the bottom of the ladder, those key skills could be as simple as knowing how to keep to a schedule, how to dress for work, how to take instruction, how to work in teams, and how to balance a ledger. For workers up and down the income distribution, idleness means a deterioration of work skills that reduces the potential for job advancement down the road.
Government job-training programs are a feeble substitute for real work experience. Labor markets are always dynamic while job-assistance programs are designed by agency bureaucrats who have all the flexibility of a Soviet bureaucracy. These agencies lack a profit motive, they are heavily budget-constrained, and they specialize in the use of outdated equipment for jobs that will have disappeared before the training program is completed. It has long been known that most graduates of these programs don’t get jobs. That trend continues today, especially in fields like energy.
If program participants do get jobs, they rarely lead to long-term employment. Another baleful consequence of the minimum wage is that it inhibits the job-training programs that employers give to their own prospective employees. It makes good economic sense for workers to accept a reduced wage, or even no wage, during a period in which they are in training for jobs that the employer will eventually offer. In these situations, the mismatch between training and placement is negligible relative to that of a government-training program, which necessarily lacks the tight connection between today’s training and tomorrow’s labor.
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. . . .. It costs very little to eliminate elaborate forms of regulation. A thorough-going program of deregulation will reduce the wealth that is directed into costly compliance and unwise transfer systems, and increase the total level of goods and services produced in the overall economy, which in turn should reduce the fiscal drain of government transfer programs.
. . . . The systematic deregulation of labor markets offers the best, last hope of tackling unemployment. . . . ."
Curing the Unemployment Blues by Richard Epstein
Policymakers in Washington -- especially in the White House -- are headed in exactly the wrong direction. Of course liberal Democrats want to raise minimum wages. Not only do they lack an understanding of economics (if they understood the laws of supply and demand, they would not be liberals), but every time they raise the minimum wage their labor union supporters are happy, since such laws increase the burdens on their free market competition (both employers and employees in non-unionized businesses).
If we want to solve the unemployment problems of the U.S. and other industrialized nations, dismantling laws that burden, penalize and micromanage employers is the way to begin.
The solution to the unemployment problem is readily within reach. At least some understanding of the laws of economics - and the willingness to be intellectually honest even when seemingly contrary to one's own personal economic interests -- go a long way.