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 reported by 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.
Llewellyn H. Rockwell, Jr
LewRockwell.com
Llewellyn H. Rockwell, Jr. is founder and president
of the Ludwig
von Mises Institute in Auburn, Alabama,
editor of LewRockwell.com, and author of Speaking of Liberty.
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© 2010 by LewRockwell.com. By authorization from Lew Rockwell
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