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<font color="#002864" size="1" face="Verdana">http://www.mises.org/fullstory.asp?control=1466</font>
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<font face="Verdana" size="2"><font color="#002864"><strong><font size="5">A Primer on Jobs and the Jobless</font></strong></font>
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<p class="MsoBodyText"><font size="4">by Walter Block</font>
<p class="MsoBodyText">[Posted March 9, 2004]
<p class="MsoBodyText"><img alt src="http://www.mises.org/images3/wantad.gif" align="right" border="0" width="236" height="184">With
the economics of employment and unemployment constantly discussed on the
business pages and political campaigns, let us root out turn our attention
toward fundamentals and root out some fallacies.
<p class="MsoBodyText">If the media tell us that"the opening of XYZ mill
has created 1,000 new Jobs," we give a cheer. When the ABC company closes
and 500 jobs are lost, we're sad. The politician who can provide a subsidy to
save ABC is almost assured of wide-spread public support for his work in
preserving jobs.
<p class="MsoBodyText">But jobs in and of themselves do not guarantee
well-being. Suppose that the employment is to dig huge holes and filll them up
again? What if the workers manufacture goods and services that no one wants to
purchase? In the Soviet Union, which boasted of giving every worker a job,
many jobs were just this unproductive. Production is everything, and jobs are
nothing but a means toward that end.
<p class="MsoBodyText">Imagine the Swiss Family Robinson marooned on a
deserted South Sea island. Do they need jobs? No, they need food, clothing,
shelter, and protection from wild animals. Every job created is a deduction
from the limited, precious labor available. Work must be rationed, not created,
so that the market can create the most product possible out of the limited
supply of labor, capital goods, and natural resources.
<p class="MsoBodyText">The same is true for our society. The supply of labor
is limited. We must not allow government to create jobs or we lose the goods
and services which otherwise would have come into being. We must reserve
precious labor for the important tasks still left undone.
<p class="MsoBodyText">Alternatively, imagine a world where radios, pizzas,
jogging shoes, and everything else we might want continuously rained down like
manna from heaven. Would we want jobs in such a Utopia? No, we could devote
ourselves to other tasks—studying, basking in the sun, etc.—that we would
undertake for their intrinsic pleasure.
<p class="MsoBodyText" align="center">
<p class="MsoBodyText">Instead of praising jobs for their own sake, we should
ask why employment is so important. The answer is, because we exist amidst
economic scarcity and must work to live and prosper. That's why we should be
of good cheer only when we learn that this employment will produce
things people actually value, i.e., are willing to buy with their own
hard-earned money. And this is something that can only be done in the free
market, not by bureaucrats and politicians.
<p class="MsoBodyText">But what about unemployment? What if people want to
work, but can't get a job? In almost every case, government programs are the
cause of joblessness.
<p class="MsoBodyText" align="center"><img alt src="http://www.mises.org/images3/unemployed.gif" border="0" width="433" height="215">
<p class="MsoBodyText">Minimum Wage. The minimum wage mandates
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 weak compared to others. For example, the porcupine is defenseless except
for its quills, the deer vulnerable except for its speed.
<p class="MsoBodyText">In economics there are also people who are relatively
weak. The disabled, the young, minorities, the untrained—all are weak
economic actors. But like the weak animals in biology, they have a
compensating advantage: the ability to work for lower wages. When the
government takes this ability away from them by forcing up pay scales, it is
as if the porcupine were shorn of its quills. The result is unemployment,
which creates desperate loneliness, isolation, and dependency.
<p class="MsoBodyText">Consider a young, uneducated, unskilled person, whose
productivity is $2.50 an hour in the marketplace. What if the legislature
passes a law requiring that he be paid $5 per hour? The employer hiring him
would lose $2.50 an hour.
<p class="MsoBodyText">Consider a man and a woman each with a productivity of
$10 per hour, and suppose, because of discrimination or whatever, that the man
is paid $10 per hour and the woman is paid $8 per hour. It is as if the woman
had a little sign on her forehead saying,"Hire me and earn an extra $2
an hour."
<p class="MsoBodyText">This makes her a desirable employee even for a sexist
boss. But when an equal-pay law stipulates that she must be paid the same as
the man, the employer can indulge his discriminatory tendencies and not hire
her at all, at no cost to himself.
<p class="MsoBodyText">Comparable Worth. What if government gets the
bright idea that nurses and truck drivers ought to be paid the same wage
because their occupations are of"intrinsically" equal value? It
orders that nurses' wages be raised to the same level, which creates
unemployment for women.
<p class="MsoBodyText">Working Conditions. Laws which force employers
to provide certain types of working conditions also create unemployment. For
example, migrant fruit and vegetables pickers must have hot and cold running
water and modern toilets in the temporary cabins provided for them. This is
economically equivalent to wage laws because, from the point of view of the
employer, working conditions are almost indistinguishable from money wages.
And if the government forces him to pay more, he will have to hire fewer
people.
<p class="MsoBodyText">Unions. When the government forces businesses to
hire only union workers, it discriminates against non-union workers, causing
them to be at a severe disadvantage or permanently unemployed. Unions exist
primarily to keep out competition. They are a state-protected cartel like any
other.
<p class="MsoBodyText">Employment Protection. Employment protection
laws, which mandate that no one can be fired without due process, are supposed
to protect employees. However, if the government tells the employer that he
must keep the employee no matter what, he will tend not to hire him in the
first place. This law, which appears to help workers, instead keeps them from
employment. And so do employment taxes and payroll taxes, which increase costs
to businesses and discourage them from hiring more workers.
<p class="MsoBodyText">Payroll Taxes. Payroll taxes like Social
Security impose heavy monetary and administrative costs on businesses,
drastically increasing the marginal cost of hiring new employees.
<p class="MsoBodyText">Unemployment Insurance. Government unemployment
insurance and welfare cause unemployment by subsidizing idleness. When a
certain behavior is subsidized—in this case not working—we get more of it.
<p class="MsoBodyText">Licensing. Regulations and licensing also cause
unemployment. Most people know that doctors and lawyers must have licenses.
But few know that ferret breeders, falconers, and strawberry growers must also
have them. In fact, government regulates over 1,000 occupations in all 50
states. A woman in Florida who ran a soup kitchen for the poor out of her home
was recently shut down as an unlicensed restaurant, and many poor people now
go hungry as a result.
<p class="MsoBodyText">When the government passes a law saying certain jobs
cannot be undertaken without a license, it erects a legal barrier to entry.
Why should it be illegal for anyone to try their hand at haircutting? The
market will supply all the information consumers need.
<p class="MsoBodyText">When the government bestows legal status on a
profession and passes a law against competitors, it creates unemployment. For
example, who lobbies for the laws which prevent just anyone from giving a
haircut? The haircutting industry—not to protect the consumer from bad
haircuts, but to protect themselves against competition.
<p class="MsoBodyText">Peddling. Laws against street peddlers prevent
people from selling food and products to people who want them. In cities like
New York and Washington, D.C., the most vociferous supporters of anti-peddling
laws are established restaurants and department stores.
<p class="MsoBodyText">Child Labor. There are many jobs that
require little training—such as mowing lawns—which are perfect for young
people who want to earn some money. In addition to the earnings, working also
teaches young people what a job is, how to handle money, and how to save and
maybe even invest. But in most places, the government discriminates against
teenagers and prevents them from participating in the free enterprise system.
Kids can't even have a street-corner lemonade stand.
<p class="MsoBodyText">The Federal Reserve. By bringing about the
business cycle, Federal Reserve money creation causes unemployment. Inflation
not only raises prices, it also misallocates labor. During the boom phase of
the trade cycle, businesses hire new workers, many of whom are pulled from
other lines of work by the higher wages. The Fed subsidy to these capital
industries lasts only until the bust. Workers are then laid off and displaced.
<p class="MsoBodyText">The Free Market. The free market, of course,
does not mean Utopia. We live in a world of differing intelligence and skills,
of changing market preferences, and of imperfect information, which can lead
to temporary, market-generated unemployment, which Mises called"catallactic."
And some people choose unemployment by holding out for a higher paying job.
<p class="MsoBodyText">But as a society, we can insure that everyone who wants
to work has a chance to do so by repealing minimum wage laws, comparable worth
rules, working condition laws, compulsory union membership, employment
protection, employment taxes, payroll taxes, government unemployment insurance,
welfare, regulations, licensing, anti-peddling laws, child-labor laws, and
government money creation. The path to jobs that matter is the free market.
<p class="MsoBodyText"><span class="448575713-09032004">_______________________________</span>
<p class="MsoBodyText"><font face="Verdana, Helvetica">Walter Block teaches
economics at Loyola University, New Orleans. wblock@loyno.edu.
See the Walter Block archive.
A version of this article appeared in the Free
Market. Discuss this article on the blog.</font>
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