LJ_Reloaded
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I warned you that this argument would come up. Didn't I. SEVERAL TIMES, no less.
http://www.philly.com/philly/opinion/102414359.html
Americans make too much
No one wants to say it, but employment would rise if wages were lower.
By Kevin Hassett
Some observations perfectly at home in economics textbooks are so beastly in practice that nobody mentions them.
Ignoring the facts, though, leads to bad policies, and with the U.S. unemployment rate at a stubborn 9.6 percent, we don't need more of those.
As Washington again turns to government spending as a cure for unemployment, some against-the-grain thinking is in order. So here comes the leap into ice-cold water: The biggest problem with the labor market right now is that wages are too high.
Economics teaches that full employment will be reached if wages adjust downward to a level that better reflects current circumstances. At lower wages, employers desire more workers. Labor markets generate persistent unemployment only if wages are sticky, failing to fall as demand declines.
Wages don't and won't drop for a number of reasons, beginning with federal and state minimum-wage laws.
Second, because union contracts generally cover multiple years, adjusting wages in response to economic circumstances would require a return to the bargaining table, which rarely happens.
Third, the natural reluctance of workers to accept lower pay is amplified by how their wages help define their identity. A $60,000-a-year worker might have a very hard time coming to terms with becoming a $40,000-a-year worker.
Finally, workers and jobs might be mismatched, either geographically or occupationally. Workers might be needed in places they don't want to move to or can't afford to live in.
There are many signs that these obstacles to lower wages are helping drive high unemployment today.
Democrats chose to lift the minimum wage at the worst possible time, just as wages should have been reduced. Since 2007, when the recession began, the federal minimum wage has risen from $5.15, to $7.25 an hour - an increase of 41 percent. Democrats in Congress proposed the three-stage increase, and President George W. Bush enacted it, as part of a spending measure that focused mainly on financing the war in Iraq.
Increasing labor costs via higher minimum wages at any time poses a risk of higher unemployment; doing so during a recessionary labor market is policy negligence. It would be nice, and perhaps fanciful, to think that if Democrats had seen the recession coming in 2007, they might have cut back on their minimum-wage blowout.
Teenage workers, who fill many minimum-wage jobs, have been hit disproportionately hard. The teen unemployment rate has increased from 16.9 percent in December 2007 to 26.3 percent.
In a similar vein, evidence shows that union workers are harmed, in terms of employment rates, by their generally higher wages.
That Americans in large numbers aren't pulling up their roots to follow jobs is made clear by the disparity in state unemployment rates. Nevada suffers the highest, at 14.3 percent, while North Dakota weighs in at a surprisingly low 3.6 percent.
So why isn't there a traffic jam of job-seekers trekking from Las Vegas to Fargo, and from other high-unemployment areas to high-employment ones?
One reason is unemployment insurance. State unemployment insurance programs usually limit benefits to 26 weeks. However, between various state and federal programs to extend benefits during the recession, unemployment benefits can continue up to a total of 99 weeks, giving people less incentive to pick up and move on when they lose their jobs.
Another complication is the American culture of homeownership. In today's market, lots of people couldn't sell their house and relocate even if they wanted to. So chalk one up for renting.
If, as we've seen, wage stickiness is driving unemployment higher, the challenge is to enact the public-policy equivalent of Goo Gone. A few ideas come to mind.
First, the minimum wage should be scaled back to $5.85, its level when the recession began. There were about 980,000 minimum-wage workers in 2009, half of them more than 24 years old. This change could have a big impact on aggregate employment.
Second, government policies should induce workers to take the plunge and accept lower wages. These could include carrots - tax credits that offset large wage declines, for example - and sticks, such as a reduction in the duration of unemployment insurance benefits.
Finally, unions should be willing to reopen collective-bargaining agreements and accept lower wages.
While painful, and perilous for a politician even to discuss, these measures would do a lot to move the economy back toward full employment.
http://www.philly.com/philly/opinion/102414359.html
Americans make too much
No one wants to say it, but employment would rise if wages were lower.
By Kevin Hassett
Some observations perfectly at home in economics textbooks are so beastly in practice that nobody mentions them.
Ignoring the facts, though, leads to bad policies, and with the U.S. unemployment rate at a stubborn 9.6 percent, we don't need more of those.
As Washington again turns to government spending as a cure for unemployment, some against-the-grain thinking is in order. So here comes the leap into ice-cold water: The biggest problem with the labor market right now is that wages are too high.
Economics teaches that full employment will be reached if wages adjust downward to a level that better reflects current circumstances. At lower wages, employers desire more workers. Labor markets generate persistent unemployment only if wages are sticky, failing to fall as demand declines.
Wages don't and won't drop for a number of reasons, beginning with federal and state minimum-wage laws.
Second, because union contracts generally cover multiple years, adjusting wages in response to economic circumstances would require a return to the bargaining table, which rarely happens.
Third, the natural reluctance of workers to accept lower pay is amplified by how their wages help define their identity. A $60,000-a-year worker might have a very hard time coming to terms with becoming a $40,000-a-year worker.
Finally, workers and jobs might be mismatched, either geographically or occupationally. Workers might be needed in places they don't want to move to or can't afford to live in.
There are many signs that these obstacles to lower wages are helping drive high unemployment today.
Democrats chose to lift the minimum wage at the worst possible time, just as wages should have been reduced. Since 2007, when the recession began, the federal minimum wage has risen from $5.15, to $7.25 an hour - an increase of 41 percent. Democrats in Congress proposed the three-stage increase, and President George W. Bush enacted it, as part of a spending measure that focused mainly on financing the war in Iraq.
Increasing labor costs via higher minimum wages at any time poses a risk of higher unemployment; doing so during a recessionary labor market is policy negligence. It would be nice, and perhaps fanciful, to think that if Democrats had seen the recession coming in 2007, they might have cut back on their minimum-wage blowout.
Teenage workers, who fill many minimum-wage jobs, have been hit disproportionately hard. The teen unemployment rate has increased from 16.9 percent in December 2007 to 26.3 percent.
In a similar vein, evidence shows that union workers are harmed, in terms of employment rates, by their generally higher wages.
That Americans in large numbers aren't pulling up their roots to follow jobs is made clear by the disparity in state unemployment rates. Nevada suffers the highest, at 14.3 percent, while North Dakota weighs in at a surprisingly low 3.6 percent.
So why isn't there a traffic jam of job-seekers trekking from Las Vegas to Fargo, and from other high-unemployment areas to high-employment ones?
One reason is unemployment insurance. State unemployment insurance programs usually limit benefits to 26 weeks. However, between various state and federal programs to extend benefits during the recession, unemployment benefits can continue up to a total of 99 weeks, giving people less incentive to pick up and move on when they lose their jobs.
Another complication is the American culture of homeownership. In today's market, lots of people couldn't sell their house and relocate even if they wanted to. So chalk one up for renting.
If, as we've seen, wage stickiness is driving unemployment higher, the challenge is to enact the public-policy equivalent of Goo Gone. A few ideas come to mind.
First, the minimum wage should be scaled back to $5.85, its level when the recession began. There were about 980,000 minimum-wage workers in 2009, half of them more than 24 years old. This change could have a big impact on aggregate employment.
Second, government policies should induce workers to take the plunge and accept lower wages. These could include carrots - tax credits that offset large wage declines, for example - and sticks, such as a reduction in the duration of unemployment insurance benefits.
Finally, unions should be willing to reopen collective-bargaining agreements and accept lower wages.
While painful, and perilous for a politician even to discuss, these measures would do a lot to move the economy back toward full employment.
