Why We Have a Jobless Recovery


The law of unintended consequences is well known in economic policy analysis; but the outcome is not always a bad thing.  Partisans are angry or puzzled that businesses and corporations are enjoying renewed profits while unemployment remains at stubbornly high levels.

It is a normal dynamic for business to cut expenses when the economy or an industry tumbles, as it does with some degree of cyclical regularity.  During the rebound such a company will find itself more profitable at levels of volume far below the cyclical peak as the economy recovers.  It is not unusual to see business profits grow sharply during a recovery, often much before  employment recovers.

Unemployment, however, seems to recover more slowly with each successive cycle. One reason is an ever increasing minimum wage.  The impact of a higher minimum wage on unemployment may be muted during a boom but that does not mean that its effects do not appear later during a recovery, years after the damaging legislation was passed.

Added to the higher minimum wage is unemployment benefits that now run years instead of months.  The higher wage discourage employers from hiring and the longer unemployment benefits discourage workers from working.  Working is a habit that can easily be broken with a few years of unearned ‘benefits’.

The health care bill adds a particularly sharp disincentive to hire.  Not only is the actual and perceived cost to employers high, it is so uncertain that new employees become a liability that is hard to measure.  This has businesses avoiding new hires in favor of capital spending that will create new efficiencies with fewer people.

Read More at American Thinker by Henry Oliner, American Thinker


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