http://www.forbes.com/2010/04/11/jobs-unemployment-economy-opinions-columnists-john-tamny_2.htmlYears ago, when France was suffering yet another period of high unemployment, its legislators concocted a new idea to bring the rate down: shorter work weeks. The idea seemed logical for those who believe that one man's job is another's trip to the unemployment line: Just reduce the number of hours one can legally work so that more jobs are created.
Of course France was hardly unique in suggesting inefficiency as a way to create work. In the U.S., Oregon and New Jersey long ago made it illegal for individuals to pump their own gas. If self-service stations were abolished, then by definition lots of Oregonians and Jersey-ites could secure jobs at filling stations. And then long before anti-productivity measures were put in place in France and the U.S., the Luddites of the 19th century took to destroying mechanical looms as a way of preserving wages for textile artisans.
Now, with U.S. unemployment still abnormally high, liberal economist Dean Baker has teamed up with conservative economist Kevin Hassett to present the most modern of Luddite concepts to politicians, something called "work sharing." According to Baker and Hassett, "Under a work-sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%." It seems bad ideas never die, no matter basic history telling us that unemployment has nothing to do with how many or how few individuals are looking for employment.
The policies sought by the Luddites hundreds of years ago, and by Baker and Hassett now, confuse what drives job creation. At its core, job creation is a function of investment--where there's investment, jobs are plentiful. Unfortunately for those seeking work in what is a difficult job market, Baker and Hassett's proposal will ultimately make finding employment more, not less, difficult by scaring away investment while taxing successful companies and individuals to fund their utopian vision.
Job searches will become more difficult owing to the paradoxical truth that successful businesses, by virtue of being successful, tend to look for ways to destroy, as opposed to create, jobs. Since there is no investment without profit, the businesses able to do the most with the least amount of workers are the ones that catch the attention of investors.
Of course this desire among successful businesses to destroy jobs ultimately redounds to the economy and job creation. Indeed, upon arrival at IBM ( IBM - news - people ), former CEO Louis Gerstner quickly did away with 60,000 jobs, but by the end of his tenure there, 65,000 new ones were created. As evidenced by the impressive rise of IBM shares under Gerstner, layoffs early on attracted the kind of investment which allowed for more hiring as Big Blue righted itself.
Second, as is often the case, one company's redundant worker is another's treasure. Awful as it is to lose one's job, the positive trade-off to such a scenario for employer and prospective employee alike is that there exist a lot of skilled workers eager to find employment at lower pay than they're used to. One reason recessions are traditionally so short has to do with large companies laying off their marginally least productive workers, only for those same chastened individuals to be snapped up by smaller, more entrepreneurial companies.
Both parties ultimately gain. Smaller companies are able to hire quality individuals on the relative cheap, and newly hired workers are eager to either correct past mistakes that led to their being laid-off or are eager to prove a point to the firm that laid them off through success in the new job.
To support their work-sharing plan, Baker and Hassett propose that our federal government provide a tax credit to the firms that keep their least valuable workers employed. While perhaps compassionate at first glance, how does this help other companies that want to hire but don't have the funds to pay prevailing wages? The obvious answer is that the tax subsidy requested by Baker and Hassett will be the burden of expansion-minded firms whose growth visions will be thwarted by government policy meant to keep the cost of hiring workers abnormally high.
orse, for a government that by definition has no resources, for it to stimulate a work-sharing program through tax subsidies, it must as a rule depress other, more vibrant parts of the economy. For the federal government to essentially pay certain firms to keep workers on their payrolls, the money must come from somewhere, and those depressed in this scenario will be the most productive American firms not in need of a handout.
Adam Smith long ago wrote in the Wealth of Nations, "The most decisive mark of the prosperity of any country is the increase of the number of its inhabitants." What Smith meant was that workers were then, as they are now, capital. Where they go, particularly if they're productive, job-creating investment follows.
Baker and Hassett seem to be saying that work is a finite, zero-sum concept that needs to be subsidized by the industrious. Taking their thinking to a false extreme, the unemployment rate would be lower today if we had less able-bodied individuals within these 50 states. Or conversely, the U.S. economy would be better off--and jobs more plentiful--if some of our most productive workers left the states and the jobs they're doing to others.
The problem there is that, if the most productive individuals leave the U.S., investment will depart as well. There are no jobs without investment. And if companies are paid by the government to keep workers on their payrolls, the investment loss will grow exponentially for established firms not seeking to do the most with less and small firms missing out on potentially valuable hires secured at reduced wages.
If we ignore how generous jobless benefits are raising the cost of luring workers from the sidelines, unemployment today isn't presently high due to too many workers seeking jobs as much as investors are scared of an Obama administration with a grandiose sense of self and a grandiose vision of how it will transform the economy. Were those in power more humble, job creating investment would be more plentiful for the government essentially doing nothing.
No doubt Baker and Hassett will receive a great deal of praise from their establishment compatriots for fashioning a seemingly bipartisan "solution" to unemployment. Sadly for the many individuals seeking work, Baker and Hassett's vision will work against their efforts through the subsidization of inefficiency.
Not surprisingly, the Baker/Hassett proposal never once mentioned the weak dollar and how its decade-long weakness has driven limited investment away from the productive economy and into the dead-money sectors of housing, gold and art. Neither of them seem to realize that under Presidents Reagan and Clinton, the dollar was strong, and as a result, so was investment such that unemployment was quite low under both.
Simply put, there's a bipartisan solution that wouldn't cost the government a dime, requires no legislation, and has served Democrats and Republicans well every time it's been tried. The solution involves strengthening and stabilizing the dollar, but the still unanswered question concerns which political party will pick up on what's so obvious. It's the dollar, stupid!
Topic: JOBS AREN'T FINITE, BUT INVESTMENT IS (Read 799 times)