Viewpoint: Unemployment

Causes and cures


Of the 6.2 percent unemployment rate in July, only 2.5 percent was due to being laid off or fired. The rest of the unemployed had either quit their jobs (0.9 percent) or had not had a job before or at least not in some time (2.8 percent). This raises the question of whether concern about unemployment means trying to prevent employers from discharging people, to prevent employees from quitting, or to prevent housewives and teenagers from seeking occasional, often part-time, employment.

If we make it difficult or costly for employers to discharge incompetent or lazy people or to temporarily lay off some when bankruptcy is imminent, then we also make employers reluctant to hire those with anything but the best credentials and work records. This is not a promising way of helping young high-school dropouts.

If the idea is to minimize unemployment by making it hard to quit, we could adopt the Soviet Union's technique of making such voluntary unemployment a crime ("parasitism") punishable by a year of prison. That seems a bit harsh.

If we instead want to dampen the work aspirations of housewives and students, who added a couple of million to the ranks of job seekers last year, there are numerous tested devices that could do the job. One of the best is to throw the economy into a recession, which discourages people from even trying to find a job. Another is to draft teenagers and send them into battle—that gets them out of the civilian labor force and therefore out of the unemployment statistics. Again, the cure seems worse than the disease.

The point of all this is that we shouldn't make a fetish out of "the" unemployment measure. No single unemployment rate provides a very good measure of economic distress or opportunity. The fact that the economy has added nine million jobs in three years (almost all in the private sector) is more revealing. The fact that both "help wanted" advertising and the proportion of the population that is employed (58.6 percent) are at postwar peaks is better still.

Unemployment rates try to capture a moving picture with a still camera and thus hide the enormous flow of people in and out of jobs, job seeking, household work, and school. People in those demographic groups with the least job stability may experience several brief periods of unemployment in a single year. Teenage unemployment, for example, has been averaging 16-17 percent in any given month, but half of those teenage unemployed have been unemployed for less than a month. So the teenage unemployed in one month are a largely different group of people from those unemployed a month later.

People also differ in the intensity with which they seek work and on what terms they are willing to accept jobs. We have to look at the specific details of the demand for jobs and not just at the total supply of job offers. A Labor Department survey in May 1976 found that although two-thirds of the unemployed had little or no work experience, 45 percent were unwilling to consider employment at less than $3 an hour. Moreover, the unemployed spent an average of 17 hours a week looking for work, and 41 percent did not look farther than 10 miles from home.

A private survey, by Louis Bolce and Susan Gray of Fordham University, found that 37 percent of the sampled unemployed in New York City chose to remain out of work because they could not find a type of job that suited their skills and interest. That is a luxury provided by transfers of income from the working population. And there is considerable evidence that providing larger tax-free unemployment benefits to more people for longer periods of time has extended the duration of unemployment; it has also subsidized irregular employers at the (payroll-tax) expense of those who provide stable jobs.

While there are always many specific problems in getting jobs and people together, there is only one overall unemployment problem—namely, recession. The only way to avoid recession, however, is to avoid the sort of acceleration of inflation that shifts investment from productive purposes to speculation and hedging and creates the excessive and unbalanced inventory building that invariably ends in collapse. The fourth year of an expansion is no time to be seriously planning Treasury borrowing of at least $61 billion to cover federal budget and off-budget deficits. And the acceleration of money growth, from 5.7 percent in 1976 to 7.8 percent in 1977, was bound to do what it did—raise consumer inflation from 4.8 percent to 6.8 percent, with more to come.

So-called "expansionary" fiscal policy is death to a mature expansion. People take their savings out of mortgage-lending institutions and corporate stocks and bonds in order to buy the new flood of Treasury bills. Housing and business investment grind to a halt. If the Federal Reserve tries to "accommodate" competing public and private credit needs, we just get more inflation and a subsequent recession.

Public service jobs are equally inappropriate as a long-term program. One person's "right to a job" necessarily implies somebody else's obligation to pay his salary. Whether the government pays for public service jobs with taxes, borrowing, or printing money, the result is that private purchasing power and employment must shrink.

Federal grants to cities with high unemployment rates have several difficulties: local unemployment data are very inaccurate; scarcity of job opportunities maybe reflected in population loss rather than unemployment; and federal subsidies might delay action in correcting job-destroying local policies (steep taxes, restrictive building codes, etc.).

Protection against imports raises prices, thus reducing real incomes and the related employment. And it reduces the U.S. demand for foreign currencies, thus keeping the dollar artificially overvalued and hurting employment in our export industries.

All of this may sound rather negative, but avoiding error is probably the most constructive thing that could be done. The 1974-75 experience, for example, could have been avoided by fiscal and monetary restraint in 1972-73. There are, however, some additional positive steps that would expand job opportunities.

Many government and trade union policies create formidable barriers to job market entry or advancement. Occupational licensing is an often unduly restrictive barrier to opportunity, whether it is local (taxicabs) or national (trucking). National and state minimum wage laws also make it difficult for young people to gain work experience and on-the-job training.

A variety of taxes and regulations create a wedge between what employers pay for labor and what employees receive in take-home pay. An employee who gets $5 an hour, after taxes, costs the employer much more. That reduces both the employer's demand for labor and the employee's willingness to accept and keep a job. Shifting from one tax to another (payroll to income, employee to employer) would have little effect. The total burden needs to be cut to give employers more incentive to employ and workers more incentive to work.