Wednesday, November 03, 2010

Unemployment: it's structural (built into the system) at this point

I know this isn't my typical topic -- and I don't plan on becoming an economics-and-politics blog. But there comes a time when everyone in a democracy has a responsibility to speak out, and to speak plainly. Christians in particular should step forward to make sure peoples' needs are met. And one of the most pressing needs in our day is employment -- or resolving the unemployment crisis.

One reason I don't get very excited about elections is that the two major parties are, at the moment, both unwilling to do what it would take to fix the most serious problems facing our country.

Once upon a time, not too long ago, there weren't that many modernized and industrialized nations with stable societies, lots of natural resources, a reasonably well-educated workforce, and plenty of hard-working people. The U.S.A. was positioned better than many other nations. We became a modern major industrial superpower. And for a long time, we were the best game in town for prosperity and productivity. Our current laws and society grew up during that time. But since those laws and practices were put in place, the game has changed. And in our laws and society -- now set as part of what we see as normal -- we have built in some things that are making our current problems worse, and are likely to keep our current problems going strong.

This is not either a pro-union or anti-union rant, but I do need to mention unions because they have an important part to play in the history of our labor market.

Unions have kept an eye on company profits and have tried to make sure that labor got its perceived fair share. For those who preferred not to unionize, the government basically did it for them: it enacted mandatory minimum wage laws, and (in social security and medicare) minimum benefits laws. This has the basic effect of making every U.S. worker a member of a labor union, where the U.S. federal government negotiates the rates and benefits with U.S. employers.

Most people know how unions work, but I'm going somewhere with this so it bears a quick mention. Unions work by organizing all the workers in a certain labor market. When a union negotiates a contract, it has some muscle behind it: if the negotiations cannot be concluded successfully, the workers can strike. In order for a strike to work, it must mean that none of the workers will work. There can't be people sneaking around to offer their labor at a lower rate, or the whole negotiation will fail. So unions are most effective in this kind of tactic when the whole market is unionized -- when nobody will break a strike. Union workers consider it lower than low to break a strike. Union members have gained a reputation for meeting strike-breakers with fierce harassment or even violence because strikes only work -- unions only work -- when they have a monopoly on the labor market. If there's another equally capable set of employees available who are not unionized, the union becomes powerless. If there is no monopoly on labor, the only thing the union will accomplish is to put its own members out of work by pricing them out of the labor market.

The thing is, the game has changed since the U.S.A. set its habits and laws. In earlier decades, some jobs moved from unionized parts of the country to non-unionized parts of the country to seek out lower labor costs. These days, millions of jobs have left the U.S.A. entirely. These are millions of jobs that we are sorely missing in our struggling labor market. Remember that this is not just about traditional unions with formal leaders and collective bargaining; the federal minimum wage law makes every last citizen here a de facto member of a union -- asking higher wages than the worldwide market will support. The U.S.A. does not have a monopoly on a stable economy and an educated, motivated workforce. The U.S. workers do not have the kind of monopoly on the world labor market that is required in order for such a union scheme to successfully negotiate those wages. And so, in the worldwide market, the demand for relatively high wages will simply be ignored. Employers will do what makes economic sense: they will go where they can find the best price for labor, just like you and I would go where we find the best price for groceries, if the quality is comparable. The employers have been doing this, are now doing this, and will continue to do this: they are taking their jobs elsewhere. They will continue to do this as long as it makes economic sense for them to take their jobs elsewhere.

As citizens of the U.S.A., we are -- willingly or not -- members of a union where we are required to work for a certain minimum wage, where it is illegal for us to work for a lower wage, the while the worldwide labor market routinely works for less. We are, increasingly, left out in the cold. That will continue to cause many jobs to leave the U.S.A. until our labor prices again become competitive.

Here's another thing that it's unpopular to mention because it's so politically sensitive: the minimum wage laws are part of the illegal immigration problem. There are a whole slew of factors that go into illegal immigration; the biggest factors are that Mexico is a mess and America has more opportunity than that. So the problem of illegal immigration does not at all simplify to minimum wage. But here is one way that those two things interact: the reason people hire illegal workers is so that they can pay them illegal wages. It is sheer fantasy to imagine that, if the illegal workers suddenly became legal, that they would as a whole suddenly be making better money than they are now making. Oh, it's possible sometimes that might happen, somewhere, to some few workers. But in general, if someone was hiring an illegal worker under the false belief that they were legal, then they were already paying them legal wages because they believed them to be in the country legally. On the other hand, if someone was hiring an illegal worker knowingly, they probably did it precisely so that they could pay them illegal wages. If the person became a legal worker requiring legal wages, there is a real chance they would become unemployed, and the employer would go to find a new illegal worker in order to keep its costs down. If the employer's original intent was to hire an illegal worker precisely because of the price difference, then it's a real possibility that the employer would just move on to a new set of illegal workers and create a new wave of illegal immigrants. If the employer were willing to pay full legal wages, they could have already hired one of the millions who are currently unemployed. (Though we also have our unemployment system structured badly so that it contributes to the problem; that's a matter for another day ... )

Am I proposing something here? "Proposing" isn't quite what I have in mind; I see it more as "observing." I'm observing that the unemployment problem is built into our system. Because of that, it is unlikely to get better unless we are willing to re-align our pay scales with our competition. This would, no doubt, cause or require price adjustments across the board to bring us more into line with the rest of the world.

But haven't we had previous recessions that were resolved without dropping our labor prices? Not on this scale, not since other nations have gotten so competitive in the world labor market. Not since the labor market truly became a global labor market. The game has changed. The unemployed in this country aren't going to be employed again until new jobs are created. When employers try to decide where to hire people, is there solid reason for them to pick the U.S.A. over the competition?

I will probably continue this as a short series. Why? Because I think, when we expect politicians to solve our problems, it isn't entirely realistic. And part of free speech is that we're supposed to be putting in our two cents' worth.

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