Work Study

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
--Billy Joel

While the big story this year has been the credit market bust, the focus in 2009 will likely turn towards the most visible economic consequence of the market meltdown: unemployment. Currently, the unemployment rate as measured by the government stands at 6.5%; we haven't seen rates this high since 1994. I wouldn't be at all surprised to see unemployment rates north of 10% next year.

Government will react in predictable ways. Programs will be initiated to 'create' jobs. Unemployment benefits will be increased. Policies will be enacted to 'protect' domestic jobs. Large firms such as General Motors (GM) or Chrysler may be nationalized.

After a huddle with his economic advisers on Friday, president-elect Obama indicated that he intends to pursue programs of this sort.

On top of the trillions of dollars already thrown at our economic problems, spending additional money that we don't have only sinks us deeper into squalor.

If bureaucrats truly wanted to improve the situation, then they would unwind regulations that have raised the unemployment rate. For example, a modest move in the correct direction would be eliminating minimum wage laws. Currently standing at $6.55/hr, minimum wage laws place a floor under labor prices, prohibiting buyers and sellers of labor from freely negotiating a mutually agreeable exchange. ECON 101 tells us that when price increases, demand decreases. Minimum wage laws increase unemployment by reducing demand for high priced labor.

Viewed from the worker's perspective, minimum wage regulations prevent those willing to work for less pay from finding employment.

A longer term consequence of minimum wage rules is that they reduce innovation. Higher cost of labor will deter some entrepreneurs from entering markets, thereby reducing potential for novel improvement and change. Longer run employment suffers as a result.

Other regulations inhibit employment as well, such as payroll taxes, licensing and certification requirements, and collective bargaining laws that reduce enterprise flexibility. Like most government intervention, labor regs tend to benefit special interest groups at the expense of everyone else.

Initiatives that free labor markets move society towards complete employment and better standard of living.

no positions