The terrible job market
has vexed an entire generation. It shows no hope of improving anytime soon.
Young people are shut out. College students are taking refuge in
matriculation without end. Thirty-somethings are zoning out in their parents'
basements and attics. Despair for the future has become a theme of American
public life.
The question we must ask
is: why is unemployment stuck at 10% in the narrowest measure and as high as
30% for some demographics?
The usual answer is that
the broad economy is not recovering. That's true but superficial; it explains
nothing. We have a problem of a specific kind with the jobs market. To
see it as just a symptom of slow growth is an excuse for politicians and
central banks to resort to reckless policies in the name of fixing the big
problem without addressing the reality on the ground.
Some new data reportedby
the Wall Street Journal helps get to the core of the problem in
greater detail. In the current environment, which the National Bureau of
Economic Research (NBER) laughably calls a recovery, business start-ups of
job-creating companies have not kept up with closings.
As compared with other recession aftermaths, new businesses are not hiring
as they once did. The number of companies with at least one employee
continues to fall at a rate we've not seen in 18 years. Everyone speaks of
this as a recovery, but the numbers don't add up. New jobs in new companies
are appearing a rate 15% less than the last recovery.
Let's try to understand what is going on here. In boom times, companies
tend to bloat up in every area, especially in their staffing. Unemployment is
always a feature of the bust because businesses shed jobs and expect more
efficiency and productivity out of the remaining staff. Many businesses close
and lose all employees.
Whereas workers once had no problem finding jobs and naming their price,
there is now a surplus of workers and a job shortage, at least at the wages
that the unemployed are demanding.
What usually fills the gap here are new businesses. In recovery times,
entrepreneurs initiate new projects and hire the unemployed workers to staff
them. The unemployed are usually willing to work for less and are willing to
learn new skills in a new business environment. These new businesses become a
major source for economic growth and rising living standards.
Without new businesses, there would be no net job growth at all. In
post-bust economies, it is these new businesses that are responsible for
soaking up the excess labor. That's because the older and larger businesses
are not willing to take on the risk of new employees and have already
adjusted to doing business with fewer.
Until these businesses come along, unemployment will likely persist. And
this is precisely what is happening right now. And so, now that we have a
better idea of the mechanics of the high unemployment rate, we have a better
idea of what question to ask and how to solve the problem.
Where are these new businesses and why are they not starting as we might
expect?
Let us count the ways.
New businesses need to depend on a stable legal environment and a bright
outlook for the future. These are both missing. The supposed recovery has
been phonied up in every conceivable way: nationalizations, bad debt swept
under the carpet, money creation by the Fed, make-work jobs paid for by the
taxpayer. No one really believes all the hokum. The question is not whether
the recovery is phony; it is: what is real and what is not real? No one knows
for sure.
Despite every attempt by the Fed to provide oceans of free credit, banks
are still extremely reluctant to lend when the payoff is not there and the
risks of lending are extremely high. This means that prospective new
businesses have to raise their own capital from a massively depleted capital
stock.
Looking at the risks, it makes far more sense to hire no employees beyond
temporary contract workers. Consider the payroll tax, the largest burden on
both employees and employers. It does not benefit either party at all. It is
sheer robbery that vastly increases the cost of hiring.
The problem of health-care mandates is very intense. Employees who expect
these benefits are mostly going to choose between obtaining them and getting
a job. But for certain firms and under some conditions, they are unavoidable
and unpayable.
Business taxes are all too high and probably going higher. Regulations on
all businesses in every sector of life have been intensifying for decades. No
industry is free of them. Even formerly frontier sectors like software are
becoming legal thickets of patents, protections, and scary mandates.
The minimum wage is way too high to encourage new job growth among new
businesses. And given all the legal mandates and potential lawsuits, everyone
knows that once you hire employees, you are pretty much stuck with them for
some period of time. You can test the waters. But you have to be sure. And no
one is sure.
Businesses thrive in an environment of freedom. But enterprise is no
longer free in any area. In boom times, the consequences are less obvious. In
the bust, the regulatory thicket, the taxes and mandates, and the legislative
threats all become decisive in a way they were not before.
None of these problems are intrinsic to the business cycle. They are all
imposed by government. The same problem afflicted the economy during the
Great Depression, but back then the central planning was newly imposed. Now
is different: the old central planning is killing us day by day, even without
dramatic new legislation.
It could all be changed. Congress and the president and the courts could
reverse it all tomorrow, restoring an environment of freedom and free
enterprise. Jobs would recover quickly. Hope would be back in a matter of
weeks and months. The economy would genuinely recover.
What is keeping that from happening? The lack of political will and the
insatiable desire of the State to keep eating away at our liberty and
property.
It isn't complicated. The State is living parasitically off our living
standards and hopes for the future. It must die, if we are to live well
again.
