From Un-employed to Government Employed?

There have been a lot of plans from different public officials trying to spurs debate over how to get our country back to work.  One recently caught my attention.  A representative from Ill. proposed a bill for the federal government to employ all 15 million of the countries un-employed at $40,000 per year.  According to the representative putting 15 million people back to work immediately would create new tax revenue and spur new spending in our economy. While there are a number of negatives economically to this proposal I would like to focus on what this could do to the labor markets?

If the government was able to employ that many people it would immediately reverse trends in the labor markets.  Currently the demand for labor is low but the supply is high.  This reversal in the labor market could have a number of negative effects. 
1.      Supply of available labor would be reduced drastically.
2.      Labor wages would be drive upward in most parts of the Country causing the private sector to retract even greater in efforts to remain competitive.
3.      Inflation while somewhat contained would enter the markets at a much more rapid pace.
4.      Those currently employed for less than the established $40,000 per year would all seek other opportunities within the government causing an exodus from the private sector into the public sector
This proposal while noble would rotate the labor market from one dilemma to another.  Public sector would grow exponentially and the private sector would be forced to retract causing our nation to fall even greater from its status as an economic power as more jobs would be moved overseas due to non-competitive markets and lack of qualified work force in the United States. While this proposal is a five year deal to many jobs would be moved overseas during that time period to create enough jobs to employ those individuals when the five years is up.  ARTICLE


Gunny said...

I completely agree. What a terrible idea by Rep. Jackson. This sounds like another way to get 15 million people on government welfare. This plan would only cause problems. The way to get people back to work is to incentivize people to become new entrepreneurs. Getting new places of employment will shrink the labor market and make it more competitive. The cycle is the same. Why can’t our nation’s leaders see that the way out is not to buy but to work? Create a program giving new startup businesses tax credits and or government subsidized loans. This will create actual jobs and companies, not just new government dependents.

Dr. Tufte said...

-3 on Gubler Family for multiple grammatical and spelling errors.

Wow. You guys have raw nerves about this proposal, eh?

Without approving of this policy in any way, let me point out that there is a Swiftian absurdity here that is useful to think through. Namely, that this policy would only cost $600B per year. That is far less than the size of the Obama stimulus package, or the amount spent on other social programs annually. So what we have is a Democrat/Progressive/Liberal decrying the inefficiency of programs otherwise pushed by people of his own party ... and frankly, I don't think he sees the irony.

I don't think this is a good proposal, but the logic in the post has a lot of flaws too. Supply, which is driven by preferences, wouldn't actually change. Quantity supplied would. I tend to think the the private sector would be hurt too, but what's to prevent them from just getting more work out of the people they employ? The link to inflation is not something that is established at all. And I think that # 4 repeats # 2. Lastly, I'm not sure how this connects to a qualified work force.

Um ... Gunny ... the 15 million people are already on welfare. How does this get them on something they're already on?

Also, I'm not knocking entrepreneurs, but what we really need is successful ones. Saying we want more entrepreneurs doesn't solve much at all.

And how would this reduce the labor market, and why would that be good thing?

Lastly, Gunny, you want the government to stop solving problems by buying things. But, you want them to subsidize entrepreneurs. Isn't that just buying something different? Further, won't those entrepreneurs go out and buy stuff, making subsidizing them just an indirect form of buying more stuff?

Jessica said...

This topic hits a particular nerve with me, since I was laid off this week. Having spent the past four years in what was an enormously successful manufacturing plant in 2008, and a subsequently struggling plant as the government has "stepped in to fix the economy," when all they seem to do is create more uncertainty and bureaucracy, all the increased assistance of our benevolent public servants has proffered is the opportunity for me to find another job.

Having spent 10 years in the Army, I have witnessed government inefficiency first-hand on innumerable occasions. Now I am faced with the uncomfortable decision of seeking employment in the public sector, merely because I need to provide for my family. I would much rather continue to contribute to the private sector, where I actually feel like I'm contributing to advancing our country and its economy. Unfortunately, there is very little opportunity in our area.

Dr. Tufte said...

Sorry for your misfortune, and good luck with the job search.

It's kind of outside of managerial economics, but you've raised two related issues: government interference in markets, and no jobs in the area.

Just about every politician thinks home ownership is a good thing. The problem with home ownership is that it is the single biggest reason that people don't move to wear the jobs are. There's evidence that areas with higher home-ownership rates tend to have slower recoveries in unemployment. I suspect this may be worse in Utah, given the discomfort many natives have with moving away from the the local culture.

Windwalker said...

Dr Tufte commented on some of other effects of home ownership. I have seen that first hand while working here in North Dakota. I have talked to many people back home who are out of work and supposedly "desparately looking" for gainful employment. I have told them of work available up here, and aside from the weather, the number one response has been something along the lines of, "well, this is home," or "what about the house I just bought or own"? True, but if they're not working, how long will they actually be able to afford it and stay in it. Sometimes the most prudent course of action is not the easiest course of action.

Dr. Tufte said...

There's a concept in public choice that is applicable here: the stationary bandit. A stationary bandit doesn't want to bleed you dry ... they want to take some of your stuff but allow you to continue to survive (and perhaps thrive) so they can steal from you again.

Olson's big picture was that government, and many other centralized institutions, are stationary bandits. Stationary bandits want you to stay put and not go where the jobs are.