Great Depression Online Archive Issue:

What's Wrong With the Jobs Market?

Great Depression Online
Long Beach, CA
December 03, 2010

Inside This Issue You Will Discover…

*** Much Worse than Advertised
*** Where Are the Jobs?
*** What’s Wrong With the Jobs Market?
*** And More

Much Worse than Advertised

If you’re out of work and can’t find a job, don’t take it personal…this economy stinks and a lot of other good people have lost their job too.  Most likely, by the time you read this the unemployment rate for November will have been published by the Bureau of Labor Statistics.

Here at the GDO we aren’t too optimistic the jobs market will have improved.  Plus even if the “official” unemployment rate drops from 9.6 percent to 9.4 percent, that really isn’t much to get excited about.

Certainly this is not as bad as the unemployment rate during the Great Depression, which peaked at nearly 25 percent in 1933.  But it may not be much better either.  In fact, the broader U-6 measure of unemployment, which accounts for people who have stopped looking for work or who can’t find full-time jobs, for October was 17 percent.

~~~~~~Food Crisis Survival~~~~~~

How to Survive the Coming Food Crisis

What would happen if a natural, civil or economic disaster prevented us from growing, transporting and importing food?

Food prices would rise and supermarket shelves would go empty.  Within three days there’d be no food left in most people’s homes.  Chaos and anarchy would break out.  Thousands (if not millions) would starve.

Are you prepared for such a situation? 

~~~~~~~~~~~~~~~~~~~~~~~~~

As you can see, the unemployment rate is much worse than the newspaper headlines advertise.

Where Are the Jobs?

Talk of economic recovery has been going on for some time now but little has come of it…except for a puffed up stock market.  When you get right down to it, without jobs growth the economy is dead in the water.  Moreover, without an increase in productive jobs the economy can’t grow.

So where are the jobs?

Even after all the government bailouts, stimulus gimmicks, cash for clunkers, first time homebuyer’s credit, quantitative easing, Obama, census counters, and more…the jobs are still missing.  What gives?

To answer this question, and many more, we bring you today’s guest essay by Lew Rockwell of LewRockwell.com.

Enjoy,

M.N. Gordon
Great Depression Online

---

What’s Wrong With the Jobs Market? 

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.

Sincerely,

Llewellyn H. Rockwell, Jr., Editor
LewRockwell.com

P.S.  Llewellyn H. Rockwell, Jr. lewrockwell@mac.com, former publications editor to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute http://www.mises.org/, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com.

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