How to Subdue Employment

Much is being written about the current US unemployment problem--and what can be done about it. Soon there will be an unemployment summit, to search for additional ways our government can alleviate this problem.

I would like to point out actions that can be taken to put pressure on employment--indeed make the situation worse. Sometimes it's helpful to look at the problem backwards, in order to think straight about helpful solutions.

I believe in each of the examples I'll cite, there are reasons for the policy. Indeed, that is the nature of economics: at its core is the law of supply and demand.

That is, sometimes when we want something bad enough, oh, let's say, a cleaner environment, it has a countervailing cost, which would be, for example, fewer jobs (on a net basis) and higher inflation (much greater energy costs are predicted--in some instances, a doubling).

So here are some ways, based on various compiled studies, that demonstrate how to subdue employment. So let's have a go at it!

Now you'll have a thoughtful tally sheet: to help you figure out if the proposals are really helpful solutions, or just political ideas coming out of Washington.


Increase the minimum wage. In previous blog articles I've provided data on how an untimely increase in the minimum wage this year has hurt, particularly our teens.

Snub trades deals. The US has been doing this lately, while China and Europe are "lapping" us at the trade negotiation table with other countries.

Take protectionist measures. These force retaliation. Do you recall the recent US measure to curb import of lower-end tires? That raises the cost of tires, especially falling hardest on the US citizens with limited incomes. Of course, China immediately launched an investigation into our supposed dumping of chickens into their country.

Impose mandates and increase taxes via health care reform. Nothing has been passed yet, but according to a recent study conducted by a major US accounting firm, I estimate the proposed health care legislation should present an incremental increase in my health insurance costs of about $20,000 over the next ten years, starting at about +$1K and getting to about +$4K in additional health insurance premiums by the end of this next decade.

Cause energy prices to rise as a result of climate control legislation. Example, one major utility president is in favor of Cap & Trade legislation, because he fears the more dire consequences of government-controlled EPA mandates. He says our costs for electricity will, however, double.

Increase the capital gains tax rate. This discourages capital investment in companies. That is scheduled to happen next year if Congress lets the current tax provisions expire, ie, not renew/extend them.

Keep current corporate tax rates at about 40%. A couple decades ago the US once had a competitive advantage through corporate taxation. But that has eroded as leading foreign nations have significantly reduced their tax rates. As a result:

• It makes the US less competitive,
• Encourages corporations to move operations elsewhere and
• Hurts our ability to raise capital--which leads to a building of plants and adding of jobs.

A study by Young Lee and Roger Gordon, as documented in the June, 2005 issue of the Journal of Public Economics, finds that if the US government were to lower the corporate tax rate to 30%, from its current 40% rate, US GDP could improve by 1.1% per year--which is a huge boost in prosperity for the US.