Troubling Unemployment Numbers

The unemployment numbers for October are out, and they aren’t pretty. The unemployment rate hit 10.2% nationally and is likely to be higher in California.

I’m worried for two major reasons. Number 1, people are finding it harder to make a living. Number 2, the federal government will likely enact knee-jerk policies that won’t address the root of the problem and despite good intentions make the situation worse. This could turn into a cyclical nightmare.

The more government meddles with fiscal stimuli and unemployment benefits, the more it distorts the labor market. From the SF Chronicle:

“In Washington, President Obama signed a bill extending unemployment benefits up to 20 weeks for those who have already exhausted the 79-week maximum in California.”

The more unemployment is subsidized, the more unemployment there will be. The more the labor market is regulated and unionized, the harder it will be for people who don’t have jobs to find jobs. These factors strongly contribute to Europe’s consistent +10% unemployment rate.

What should we do as policy to combat unemployment?

• Cut the employee contribution to the payroll tax. This will make it more beneficial for firms to higher workers.
• Remove the minimum wage. Flexible wages allow for more labor mobility, and increase the amount of job opportunities to low skilled workers.
• Stop heavily subsidizing unemployment. This recommendation hurts the emotional side, but unemployment benefits induce people to become reliant on the government (read: other taxpayers).
• Deregulate and legalize entire industries. Introduce competition into government privileged monopolies. This major sweeping reform would increase the amount of voluntary transactions tenfold. Just imagine how much the marijuana industry would thrive in California.

We have unlimited wants and desires. There are not a fixed number of jobs, and people competing for said jobs. Let’s figure out how to liberate people to trade with each other, and remove the current obstacles to voluntary cooperation. Enacting these recommendations will bring that 10% down significantly.

In the way of implementing these policies is political suicide, which is a main reason politicians prefer to spend more money, rather than less. It’s easier to get elected taking from current and future taxpayers to alleviate short term ills than addressing the long term solution. I have little optimism that politicians in Washington and Sacramento can transcend their need to get re-elected.