Thursday, June 23, 2011

How To Create Jobs

How To Create Jobs
Who is best suited to find the intersection of opportunity and commitment?
by John Hayward

President Obama speaks often of his focus on creating jobs, and occasionally claims it’s the first thing he thinks about when he wakes up in the morning. Everyone running to replace him claims they can do it better. Obama has set a low bar for them to hurdle, as Reuters tells us “new claims for unemployment benefits rose more than expected last week.” Step One to superior job creation is firing all the analysts who described every single unemployment report for the past two years as “unexpected.”

Once he’s got his analysts sorted out, what can a President do to create some jobs? The most obvious solution is to instruct federal agencies to hire lots of people. Obama has been doing that at an unprecedented pace, but we’ve still got 16% real unemployment. Shifting workers from productive private-sector jobs into make-work government positions reduces our Gross Domestic Product, which in turn reduces Treasury income. Eventually the government runs out of money to hire people, and must begin using authority to conscript them instead. We don’t want to go there.

Obama hinted at another option available to central planners when he complained that automated teller machines kill jobs, because the machines replace human employees. That’s demonstrably untrue in the case of ATMs, incidentally, as bank teller employment has not declined during the rise of the machines, but let’s not quibble over this President’s obvious ignorance of the particulars. Instead, let’s focus on the principle.

The reverse of the “ATM Doctrine” would be that reduced productivity increases employment. Outlawing technology that increases productivity would be dicey, even for an Administration that views the Constitution as a minor inconvenience to its agenda. Among other things, it would destroy jobs among the companies that manufacture the banned technology.

Fortunately, there’s a much simpler way the government could artificially reduce productivity: mandate a four-day, 32-hour work week, with no reduction in pay for existing employees. More generous mandatory allowances for vacation and personal time could also be included in the bill. That would be nice and European, and should lead to a stampede of new hiring, to cover all the new shifts created!

The essential reason such a measure would fail to increase employment is that it would artificially and dramatically increase the cost of labor. No private-sector entity responds to increased cost by increasing consumption. Instead, they would find ways to make do with less labor, possibly going as far as reducing hours of operation, or shutting down business ventures entirely. Alternatively, businesses could increase prices to compensate for the huge new labor costs they have been forced to incur… and that would lead to higher unemployment, as many labor-intensive businesses were forced into bankruptcy by reduced consumer demand.

One of the keys to understanding Obama’s horrible unemployment rates is that many of his actions have increased the cost of labor. ObamaCare is the paramount example, but his Administration’s strenuous exertions on behalf of union allies are another. Like it or not, unionization increases labor cost, by definition. The entire point of a union is to obtain greater compensation through collective bargaining, after all.

Unions also derive power by restricting the supply of labor. They need laws that make it difficult for non-union workers to compete with them, and force businesses to bargain with them, no matter how heavy their demands grow. The National Labor Relations Board’s persecution of Boeing is the most infamous example of the latter. Restricting the supply of anything naturally increases its cost.

The other job-killing aspect of the Obama tenure has been its hostility to business formation and expansion. Industries have been bludgeoned with regulations, and murdered with moratoriums. Those who survive these crusades have every reason to fear they could be next.

A job – a good, long-term, well-compensated job – represents the intersection of opportunity and commitment. There must be a need for the employee’s labor, and a reason for the employer to begin what both parties hope will be a long relationship, which begins with a heavy investment in training. Who is better suited to find these opportunities, and negotiate the terms of a sustainable commitment: a small group of politically insulated central planners in Washington, or millions of private-sector employers scattered across the nation, each focused on exploiting the opportunities they have discovered?

If the next President wants to create jobs, he can make a good start by reversing the behavior of the Obama Administration. Encourage the development of opportunity, by removing obstacles to business formation and expansion, and making natural resources more readily available for development. Make the commitment of employment easier, by removing government-imposed mandates which increase the cost of labor, and restrict the supply.

The results will not be unexpected… and that very fact will lead to employment growth. The smart people who run successful businesses have been made extremely nervous by the past two years of consistently “unexpected” news. That’s one of the reasons they’re not hiring.

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