August 23, 2009

There once was a time when my local newspaper printed over three full pages in the Sunday section of the classifieds, specifically devoted to employment opportunities, otherwise known as the "Help Wanteds."  This morning, following my cursory readings of the obits, the comics and the business and commentary sections, I perused over to the Help Wanteds and found less that three-fourths a page.

Guess what vocation is still in high demand - at least according to those which advertized?  Sales reps and telemarketers! At least that is on employment opportunity that will remain a main-stay in the Help Wanteds. But no everybody is born with the traits of being "a self-starter," "outgoing" and "energetic."

Politicians claim to be concerned about the growing number of unemployed Americans. The unemployment rate is expected to crest at over 10%, a level not seen since the early 1980's. The immediate cause of these lost jobs is the severe economic recession from which the country is just beginning to emerge. Over fifteen million Americans want a job but cannot find one. If the recovery from this recession follows a normal pattern, then the number of unemployed should be cut in half over the next several years. Let's hope this happens, while also recognizing that new government policies may make this goal more difficult to achieve.

Keep in mind that in the private economy a firm's workers must, in the long run, generate more value in goods and services than they take out as total compensation. If the price of employing the least productive worker is raised above the value of goods and services he is able to produce, that worker will ultimately be out of a job. This is especially true in the goods producing side of the economy, since goods can be imported from countries with lower labor costs. In the service sector, increasing the price of labor will likely cause consumers to forgo the use of additional services. I may prefer to have someone cut the grass, but if the price is too high I will do it myself.

It can be argued that all unemployment is voluntary. In a free labor market there is always a demand for labor at some wage. The wage may be too low to provide the basic necessities of life for the worker, but that is a separate problem. Unfortunately, we do not have this kind of free market for labor here in America, and the freedom for buyers and sellers of labor to negotiate a mutually acceptable level of compensation is about to diminish further.

Why do our elected officials think that it is the employer's responsibility to provide healthcare to every worker? Imagine that you run a small business. You now have to either pay for healthcare insurance for each employee or pay a penalty. The day healthcare reform legislation passes, your employees will not suddenly become more productive to offset your new costs. Your competitors in Mexico and China will not see their labor costs rise. If you compete with bigger companies that already provide healthcare, you will have a hard time raising prices for what you sell (this is likely why many big businesses support "healthcare reform"). Your choices are: see your profit margin shrink or maybe disappear, cut wages, layoff your least needed employees, or maybe replace workers with more automation. You are also going to be less inclined to expand your business by hiring new employees.

Why does small business matter? Because according to the U.S. Census Bureau, businesses with fewer than 500 workers employ about half of the labor force. These businesses create more new jobs than their larger competitors. Thus, private employment growth, especially among smaller firms that do not currently provide healthcare, will face some stiff headwinds when employer-provided healthcare is mandated. Big businesses will be less affected, since in many cases they already provide healthcare. In effect, the politicians are purporting to give the most vulnerable American workers healthcare, but these workers may not be able to find a job that offers it.

Politicians are also, once again, favoring big business by making it tougher for small businesses to compete. The political response to this problem has been to offer exemptions to small firms that fall below a certain level of payroll. However, if a company is exempted from the healthcare mandate by having a total payroll that is just below some arbitrary threshold, that company will be reluctant to hire the next employee if that results in losing the exemption. If a company is slightly over the threshold, it may have a huge incentive to shrink. It is hard to square the policy goals of mandating employer-provided healthcare and making sure that everyone who wants a job can have one.

Carbon cap and trade, which is essentially a carbon tax, is another job killer. Woe to you if your job emits too much carbon! The cost of buying carbon credits will now reduce the value of what you produce. If your job produces bad carbon, it is likely that your job can be shipped offshore. We don't see our Asian trading partners enacting similar legislation. American carbon workers will slowly sacrifice their jobs for the sake of the planet, accelerating the deindustrialization of the country. The promise that new green jobs will offset these losses seems unlikely. Yes, there will be new jobs in the alternative energy sector, but many green products, from wind turbines to solar panels, are already being produced overseas.

The likely outcome of these two major initiatives—carbon taxes and healthcare reform—is a higher level of unemployment. American workers with low value-added skills will find it harder to get a job as they are priced out of the global labor market. The U.S. labor market will become more rigid and look more like Europe's. Over the last ten years, countries that use the Euro have suffered unemployment that has averaged 8.4%, while U.S. unemployment has averaged 5.2%. While a 3.2% difference looks small, it equates to millions of lost jobs. The privileged, the powerful, the wealthy, and the educated can look forward to a cleaner environment and widely available healthcare.

Unfortunately, these new policies may also create a growing underclass of unemployable workers whose skills cannot produce enough value to offset the cost of their health insurance and carbon taxes.

We believe that the Constitution of the United States speaks for itself. There is no need to rewrite, change or reinterpret it to suit the fancies of special interest groups or protected classes.