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With
today's unexpected decline in December payrolls, the cry for
more job-related stimulus will grow even louder. But the
sad truth is that any new stimulus or jobs bills will
ultimately swell the ranks of the unemployed, thereby raising
calls for an even bigger federal effort. If we are not
careful, government regulations, subsidies, and spending, all
designed to fight unemployment, could push the labor
market into a death spiral.
Regulation acts like a tax on job creation. By subjecting
employers to all sorts of extra expenses when they hire
people, regulations increase the cost of employment far beyond
the wages employers actually pay their workers. In fact,
some regulations are specifically tied to the number of
workers employed. This provides some employers with a
strong incentive to stay small and not hire.
The minimum wage law, which is really just a very visible
workplace regulation, actually makes it illegal for employers
to hire certain individuals and destroys
entire categories of jobs. For instance, faced with
high labor costs, some restaurants will avoid hiring
dishwashers by switching to plastic utensils and paper plates.
On a larger scale, factories may decide to switch to robotic
assembly lines if human labor gets too expensive.
Other types of regulations, such as those that prohibit
discrimination, create incentives for employers not to hire
individuals that fall within the protected class. This is
the result of potential litigation costs that may result from
wrongful termination lawsuits. In other words, the more
expensive government makes it to fire workers, the less likely
they are to hire them in the first place.
Subsidies produce the opposite effect of regulation, but
sometimes the results can be just as harmful. Government
subsidies divert resources towards politically favored
activities, resulting in more jobs in areas such as
health care and education, but fewer jobs in other sectors
such as manufacturing. The net effect of this transfer is
to diminish the productive capacity and efficiency of the
economy, which lowers real economic growth and diminishes
employment opportunities.
Although not as visible as regulations and subsidies,
government spending also plays a large role in job
destruction. The more money government spends, the more
resources it drains from the private sector. The fiscal 2011
budget proposed by President Obama contains $3.8 trillion in
federal spending. Think of government as a cancer feeding
off the private sector. The larger it grows, the more
jobs it kills. Unfortunately, most politicians follow the
misguided advice of economist John Maynard Keynes, who
advocated government spending as a means of job creation. In
reality, government spending merely results in government jobs
replacing more efficient private sector jobs.
Some economists point to taxes as the primary
job killer, and argue that lower taxes will boost employment. While
I have sympathy for this view, it misses the larger issue that
the burden of government is not what it taxes but what it
spends. The proposed fiscal 2011 federal budget contains
"only" 2.4 trillion of taxes. The remaining 1.4
trillion of spending is borrowed (incredibly, for every dollar
the government collects in taxes, it now spends almost $1.60).
I would argue that a dollar borrowed kills more jobs than a
dollar taxed. Therefore, cutting taxes and borrowing the
shortfall kills more jobs then it creates. This is true
because jobs require capital and government borrowing more
directly crowds out private capital investment than taxes do.
In the end, I fully expect the government to directly provide
make-work jobs to the armies of the unemployed. This will
accelerate the pace of private sector job destruction and make
our economy even less productive than it is today. This means
that while the government may be able to provide people with
jobs, the wages they pay will provide little in the way of
purchasing power. In the end, we will become a nation of
government employees, with plenty of work but little to show
for it.
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