The Jobs Problem
posted by Josiah Garber on July 16, 2009
in Economics, Politics
Mises Daily by Llewellyn H. Rockwell, Jr.
Just how bad is the current plague of economic fallacy?
Consider the front page of the New York Times today (July 15, 2009):
SEACHANGE IS SET IN A HEALTH PLAN — House Democratic leaders took a big step toward guaranteeing health insurance for most Americans on Tuesday as they unveiled a bill that detailed how they would expand coverage, slow the growth of Medicare, raise taxes on high-income people and penalize employers who do not provide health benefits to their workers.
A BLEAKER PATH FOR WORKERS TO SLOG — In California and a handful of other states, one out of every five people who would like to be working full time is not now doing so. It is a startling sign of the pain that the Great Recession is inflicting, and it is largely missed by the official, oft-repeated statistics on unemployment.
It’s sometimes said that economics is a difficult subject because it requires high-level, abstract thinking, and tracing of cause and effect through several logical steps. And yet, really, how hard can it be to see the contradiction in the above?
Here is the problem. Mandating benefits for employees imposes costs on employment. The would-be worker bears the cost. It makes the worker more expensive to hire. The employer has to pay not only a salary but also a benefit. If you make it more expensive to hire people, fewer people will be hired.
It is no different from eggs at the supermarket. If they are $2 each, you will purchase fewer of them — you will economize. This is nothing but the law of demand: consumers will demand less of a good at a higher price than of a good at a lower price. A salary plus benefits amounts to a price that the employer must pay to purchase the work of a laborer. At a higher price, less work will be purchased by the employer.
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