article on the lack of optimism for the American job market.
It offered no analysis of why the market is bad, but it made it
clear that it is not likely to get better anytime soon.
focused on the job market since 2008. It included a chart on salaries
since 1980. It has three categories: college graduates, high school
dropouts, and total. The chart reveals that there has not been
much improvement for a decade. The flat-lining of salaries began
a decade ago, not in 2008.
things are a lot worse than the article reported.This flat-lining
is not simply a result of the recession of 2008-9. It is a long-term
of workers have not changed much. The number of laborers employed
has. There are six million fewer people employed today than in
It gets even
more curious. The largest number of job losses has been mainly
in the middle-range of salaries. The early recovery phase saw
increased employment for low-wage workers.
In a free
market, unemployed resources are a huge opportunity. They are
like dollar bills floating down a gutter. Why don't people scoop
up the bills? Are they blind?
do not remain blind to opportunities? They buy low and sell high.
The critics of capitalism complain about capitalists' greed. By
this, they mean "buy low, sell high through exploitation." But
letting a valuable resource float down the gutter is not exploitation.
It is either ignorance or else an awareness of hidden costs.
wages fall across the board? There are 13 million unemployed people
in the United States, plus an additional 8 million working part
time because they had lost their full-time jobs, plus 3 million
who had not searched for work in the previous four weeks, but
wanted work. This is a huge number of people who are unable to
get full-time jobs. For these people, this labor market is a disaster.
businesses hire them?
cost too much. They are not dollar bills floating down the gutter.
They are liabilities.
At some price,
the economist says, there will be buyers of scarce resources.
Of all resources, labor is the most flexible. A specialized machine
can be used for whatever it was designed to do or for scrap metal.
A human being can do a wide variety of tasks. With training, the
number of these tasks grows remarkably. So, of all resources,
labor is the least likely to remain unemployed in a free market.
clearly something fundamentally wrong with today's labor markets.
Unemployment is too high. This was what called classical economics
into question in the 1930s. It is again raising doubts.
economics could and did explain long-term unemployment: government
laws that prevented prices and wages from falling. The markets
did not clear. The Austrian School economists have continued to
point this out from the 1930s until today, but there were few
of them in 1930 and fewer in 1940.
defected: Lionel Robbins, Gottfried Haberler, and Fritz Machlup.
They retained their positions at the prestigious universities
that hired them. No Austrian School economist who blamed the government
for the Great Depression has ever taught in an economics faculty
at an Ivy League university or comparable high-prestige university.
Hayek was blackballed by the economics department of the University
of Chicago. He was hired to teach in an obscure department, the
Committee on Social Thought.
Great Depression (1963) returned to this theme. Rothbard
was unable to get a job in a college that had an economics department
until 1984: the University of Nevada at Las Vegas. The only major
historian to agree with him is Paul Johnson, whose Modern
Times (1983) relied on Rothbard's book. But Johnson had
no university position.
economists should ask: Why do wages not fall?
many reasons. Some are internal to the firm. Others are imposed
by the government
INSIDE THE BUSINESS
wages across the board lowers morale. When a company starts cutting
wages, word gets out fast that there is a crisis. The best employees
start looking for escape hatches. So, businesses do their best
to keep wages stable. They just stop giving raises.
cut some people's wage. But then envy takes root. The losers resent
the winners. They are tempted to sabotage the system. They find
ways of non-cooperation.
do not like to fire people. Fired people draw state-mandated unemployment
insurance. This can raise a company's monthly payments into the
fund. There are cases where fired people sue the employer, claiming
discrimination of some kind. That gets expensive: lawyer fees.
Firing people lowers morale among the still employed. Rumors fly
about the company's future prospects.
is the usual pain of firing old colleagues. Nobody wants the job.
There is a movie about this: Up
in the Air. Companies hire specialists who come in and
fire people. It's more impersonal this way. But it costs money
to hire the decapitator. Businesses do not like to waste money.
So, the tendency
of a business is to keep wages stable, keep the number of employees
stable, and let normal attrition take over. Some people leave.
They are not replaced. Others in the company are asked to take
over whatever the departed people did.
This is a
functional reduction of wages. The company demands more work for
the same wage. Under normal circumstances, this leads to more
attrition. But in a recession, it doesn't. Workers grin and bear
chart on salaries indicates that the attrition strategy began
around 2001. Businesses stopped giving raises, other than whatever
it took to keep up with price inflation. Workers grinned and bore
the labor force as a percentage of the U.S. population peaked.
It had grown steadily since 1970.
This is a
fundamental break in the recent history of the United States.
Something changed around 2000 that took people out of the labor
UP THE SLACK
businesses do not like to cut wages or fire people. This is why
they tend to get less competitive. This is a form of stagnation.
the businesses that hire people are small businesses. Small businesses
account for the bulk of all employment. This Wikipedia
summary is accurate.
are approximately 154.4 million employed individuals in the US.
Government is the largest employment sector with 22 million. Small
businesses are the largest employer in the country representing
53% of US workers. The second largest share of employment belongs
to large businesses that employ 38% of the US workforce. The private
sector employs 91% of Americans. Government accounts for 8% of
all US workers. Over 99% of all employing organizations in the
US are small businesses. The 30 million small businesses in the
USA account for 64% of newly created jobs (those created minus
those lost). Jobs in small businesses accounted for 70% of those
created in the last decade. The proportion of Americans employed
by small business versus large business has remained relatively
the same year by year as some small businesses become large businesses
and just over half of small businesses survive more than 5 years.
this is not enough. The category "small business" is too broad.
The crucial factor in the creation of new jobs is start-up businesses.
from the Corporation for Enterprise Development reveals the
the 27.5 million businesses in the United States, 99.9% are defined
as small businesses with fewer than 500employees.
self-employed individuals nearly two-thirds of all self-employed
people are operating business startups: unincorporated businesses
less than five years old that are still in their developing
stages and feature just one employee, the business owner himself.
business startups, there would be no net job growth in the U.S.
economy. Startups in their first year of existence create an
average of 3 million jobs per year. On average in a given year,
about one third of the annual job creation rate is a result
of startup businesses.
that businesses bulk up and create more jobs as they age is,
in the aggregate, not supported by data. Nearly all net job
creation since 1980 has occurred in small business startups
less than five years old.
So, the place
to begin looking for the change after 1999 is start-up businesses.
Something has kept them from entering the labor markets to hire
newcomers into the labor markets. They are not hiring people who
have lost their jobs.
AND CAPITAL MISALLOCATION
decade of the twenty-first century accelerated the federal deficit
to levels never seen before. It ratcheted up again after 2007.
This money did not go into businesses. It was absorbed by bureaucracy
and the beneficiaries of government largese.
of the federal government has extended the system into the economy.
The deficits have allocated capital away from the private sector.
The recent burden of Obamacare has increased uncertainty for those
of businesses to hire workers since 2007 is obvious. The recovery
is the slowest in post-World War II history. But the problem in
the labor markets is much deeper than the recession. It began
fear taxation, regulation, the business cycle, monetary policy,
and foreign competition, they will not be aggressive. They will
not start new projects. They fear all of these factors.
of 2001-7 led to capital allocation into real estate. That bubble
has burst, and nothing has taken its place.
this shift began in 2000. The recession of 2001 did not last long,
because the Federal Reserve pumped money into the economy. The
bubbles began. But the percentage of people in the labor force
We are seeing
the end of the Keynesian experiment. The first doubts came in
the 1970s. After the USA went off the last traces of the gold
Reserve inflation produce price inflation. Unemployment rose.
This was not supposed to happen, according to Keynesian theory.
It took tighter
money policies from late 1979 until early 1982 to reverse price
inflation. That caused two recessions. The FED reversed its policies
on the weekend that Mexico threatened default and the nationalization
of American banks in Mexico: August 13, 1982. A stock market boom
began and continued into March 2000. Then it popped. The S&P 500
today is lower than in 2000, and the dollar's purchasing power
is down by 30%. Something fundamental took place in 2000 that
ended both the stock market's prospects and labor's prospects.
economic theory cannot provide cogent explanations for this two-part
setback. The government grew. The monetary base grew. Regulation
grew. The textbook solutions to the problem in the labor markets
ceased to work.
are now reduced to invoking the traditional explanation of
policy-makers whose policies have failed: without them, it would
have been worse.
economy is just starting its jobs recovery, and it will take years
for the full impact of the current administration's policies to
manifest in the labor market in areas such as health care and
infrastructure, said Lawrence Katz, an economist at Harvard University.
While Republicans deride President Barack Obama's record, the
economy would be worse without federal stimulus, Katz contended.
have several million more jobs today than we would have had,"
Katz said. "Given the direction that things were going, I think
the administration's policies played an important role in preventing
something that looked like the Great Depression. No matter how
bad things are now it wasn't as bad as it could have been."
you hear that one, you can be sure that the old paradigm is under
assault. The time of questioning has begun.
It is clear
that younger college graduates in the social sciences and humanities
cannot get the kinds of jobs that were available as recently as
2007. Middle managers who lost their jobs are locked out of the
markets. The old entry points into productive employment are taking
the brunt of the wage competition.
no indication that any of this will change.
working. The annual deficits are at $1.3 trillion. There is no
sign of relief. The job market is in the pits. The Establishment
economists' explanations no longer explain the persistence of
the problems. The Keynesians call for more government. Europe
is moving into recession. Another war looms in the Middle East.
If oil goes to $150 or more after an attack on Iran, the world
economy will head back into recession.
got us into the mess. It is unable to get us out.
opportunities for rival explanations with rival solutions.
explanation is Adam Smith's: too much government. The solution
is laissez faire.
is convincing voters, half
of which are recipients of government payments.