September 13 2011

The Free Markets--Not Government or Unions--Will Create the Jobs of Tomorrow

Carrie L. Lukas

Talk about jobs dominates our national conversation. How can we get our economy to generate employment opportunities again?

It's also worth considering the question of what kind of jobs we want our economy to be creating. After all, if the sole goal was just to create jobs, then economist Richard B. McKenzie already provided a simple, surefire answer: "Outlaw farm machinery." His point, of course, was that government could easily ensure Americans have plenty of work to do, but we'd be made a lot poorer in the process. We don't just want make-work jobs. We need jobs that provide actual economic value.

Unfortunately, that's a fundamental problem with government "job" initiatives. Programs in which bureaucrats dole out taxpayer (or, in our case, borrowed) money with the intention of creating jobs often fund projects that don't make economic sense. The folly of this path has been most visible in the Obama Administration's push to create "green" jobs. Giant subsidies are necessary to create a handful of positions, and even that often ends up not being enough.

Taxpayers aren't the only ones who lose in this equation. The workers in these temporary, unsustainable position also would have been better off gaining experience in companies that will last through next year (absent government subsidies), and in industries that will exist in the next decade.

Politicians sound charitable when they bail out a company to prevent layoffs or push policies to protect a favored industry. But such efforts only make the inevitable and necessary process known as "creative destruction," in which less productive companies and industries shutter to make way for other enterprises, more protracted and painful.

Unions also fight economic forces, with at best dubious results for workers. During the past half century, unions have managed to negotiate some very generous compensation packages for their members. Yet in the process, they've made those relationships unsustainable.

The greats of the U.S. auto industry were sunk by having employment costs far higher than their competition. The federal government has now poured money into these companies to prevent mass layoffs, allowing them to hobble along. But if the core problem of too-high labor costs remains unaddressed, the long-term prospects of these companies-and these jobs-remain gloomy. Some workers may enjoy a few more years of over-sized pay, but many would be better off making necessary career adjustments now.

While companies and industries prevented from adapting to changing market forces will eventually be winnowed out by competition, when it's government workers who are unionized, the effects are different, though in ways more devastating.

During the recent economic crisis, Americans became aware that the so-called "public servants" working for the government have been receiving compensation packages that far outpace their private sector peers. States and localities slammed with budget deficits simply cannot afford to bear the full costs of all the pension and health benefits that politicians have promised. Washington can once again temporarily bailout these local governments with an infusion of borrowed federal cash, but that's just delaying the inevitable. Slowly, some small adjustments are being made to address some of the greatest excesses in government employee compensation. That doesn't mean damage hasn't already been done. Super-sized state and local governments have leached money and talent from the private sector, which is one of the reasons we face a crisis today.

By protecting economically inefficient employment relationships, unions and governments are creating an economic environment that is fundamentally less dynamic and innovative than the American economy of old. It's worth noting that flexibility, so important to so many women, is also a casualty of this process. Sure, unions may negotiate for more days of vacation, but they make it harder, if not impossible, for individuals to negotiate the kind of unique employment relationships that so many women crave.

America doesn't just need jobs. We need a dynamic economy creating new enterprises that meet the needs of today's costumers so that they will grow and thrive in the years to come. Employment is the outcome of a vital economic environment. Policymakers shouldn't focus on "job creation," instead they need to embrace policies that will create a more active, entrepreneurial economy that will usher in the next generation of companies. Employment will surely follow.

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