What Causes Unemployment

By Kevin J. Price

Daily we see news headlines of an unemployment situation that is only worsening. It is not unusual to see nearly a half a million signing up for unemployment benefits on a single week. People keep asking, “Why doesn’t the government do something about it?” It is a fair question. However, a better question is “What causes unemployment?” The failure to understand this is why the American people continue to stand on the sidelines of government’s policy battles as victims of plans that have gone awry. There are many factors to both job creation and job loss. This article will focus on some of the more obvious ones.

We all know that if there was no cost to hiring people, there would be no unemployment. But there are costs, some natural and some of them government created. In a world without government, the only cost would be the price that an employer would be willing to spend and employee would be willing to receive in exchange. If there were no wage limits set by the government, no payroll tax for employers in hiring, and no negative government intervention in other areas of market exchange, it is safe to assume we would generally have near full unemployment. Therefore, every time there is a cost to hiring outside of the voluntary relationship between employers and employees, there is a barrier to job creation.

Minimum wage is one of the more obvious job deterrents. Companies hire based on the value of the work to be done and not the person doing it. If it costs more to hire someone than the job is worth, the job will not exist. That is just reality. Interestingly, there has been a huge jump in unemployment every July for the last three years following an increase in the minimum wage. Ironically, those hit the hardest by minimum wage generated unemployment are the same ones who were suppose to benefit from such artificial increases – minorities and youth. Minimum wage is a serious job killer.

Taxes on corporations and businesses. The most frustrating aspect of these taxes is that they are a mere fixed cost of doing business. If the costs become too high, businesses move their companies – and the jobs they create – to other parts of the world. Eliminate this barrier to job creation, tax individuals directly through their purchases, and enjoy a more fiscally sound and accountable government.

Reform regulatory and licensure laws. These are both common barriers to job creation, particularly regulations. The Federal Register of Regulations is a source of nightmares for businesses of all sizes. Everyday business owners live in fear of violating the law, which puts pressures on them to have as few employees as humanly possible. The recent health care law of the Obama administration is a shining example of this. According to attorney Judith Sadler, a Price of Business Radio Show Contributor, among the perplex provisions in the legislation is a requirement that companies with fifty are more employees must have a designated room in their offices just for breastfeeding, regardless if there is a need for such. “Fifty employees” is often the threshold for many regulations. The vast majority of businesses (approximately 80 percent) have fewer than 50 employees; this is not only because of the virtues of small business, but the fear of being too successful in the eyes of the government.

These are just a few of the things that stand between Americans and jobs. Ronald Reagan once said that the best “social program is a job.” That type of “social program” provides revenue to the government in the form of taxation, rather than consumes money when people are on the dole. The government should get out of the way and let the job creating economic engine roar.

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Kevin Price
Host, Price of Business, M-F at 11 am on CBS Radio News
Frequently found on Strategy Room at FoxNews.com
Syndicated columnist whose articles appear on a variety of media outlets.
His http://BizPlusBlog.com/ is ranked in the top 1 percent of all blogs by Technorati.
Kevin Price's Profile: http://www.google.com/profiles/PriceofBusiness