Why a “Jobless” Recovery?

03/04/2010 12:00 pm EST

Focus: MARKETS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of Forecasts & Strategies, says it isn't recession but anti-jobs policies from the minimum wage to mandated benefits that keep unemployment high.

What is the fundamental cause of this failure to create jobs?

The New York Times blames Wall Street (“institutional investors who crave swift profits… by cutting payrolls”), the decline in union power, and a penchant for business to replace workers with machines.

The latter, known as “automation,” allegedly has destroyed millions of jobs for more than 100 years. In reality, it’s been a major source of creating millions of new jobs, especially in technology.

According to the Times, three sectors (automobiles, home building, and banking) have led the way out of recession, but this time, all three are struggling to recover. Unfortunately, the Times has it all wrong.

The real culprit to dynamic job creation is the growing “Europeanization” of labor in America. The federal and state governments are making it more and more costly to hire workers, ergo, business hires fewer workers.

These deterrents to rehiring and new hiring include:

1. The huge rise in the federal minimum wage law to $7.25, effective July 2009. Not coincidentally, the unemployment rate for black male teenagers rose from 38% to 50.5% during the summer of 2009, right when the economy was supposed to be recovering.

2. More costly state and federal unemployment compensation. Many small businesses no longer can afford state-mandated unemployment insurance, and have stopped hiring. I know a small business owner here in New York who used to have 50 employees. Now, he has none because the cost of state unemployment insurance was too much. If he needs help, he hires part-time workers.

3. Both large and small businesses are reluctant to hire new workers if they are going to be saddled with new entitlement expenses, such as mandatory health insurance.

4. The growing difficulty in firing workers. Europe suffers from this malady, and the United States isn’t far behind. Every major corporation now has legal counsel to protect it from lawsuits when they have to let workers go. As a result, companies have a hard time getting rid of poor employees, and they are reluctant to hire new workers.

Meanwhile, government is picking up the slack in private employment. At the end of World War II, only one out of 40 adults worked for the government. Today, one out of eight work for the government. That’s because government officials have adopted the union label and the Keynesian business model of never firing anyone. Only private enterprise lays off workers any more.

Want to end the unemployment problem? Eliminate the minimum wage law, reduce unemployment compensation and other mandatory entitlements, curb public unions, and make the labor markets more flexible.

Most importantly, the federal government could do more for job creation with one simple change in the tax cut: cut corporate taxes from the current high rate of 35%, the highest among industrious countries.

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