Unemployment

Hazlitt brings a very different perspective to the concept of unemployment:

It would be far better, … —to have maximum production with part of the population supported in idleness by undisguised relief than to provide “full employment” by so many forms of disguised make-work that production is disorganized. The progress of civilization has meant the reduction of employment, not its increase.

As individuals, our economic objective is to improve our well-being. Employment is a means to that end; not the end in itself. Hazlitt goes on:

The real question is not whether there will be 50,000,000 or 60,000,000 jobs in America in 1950, but how much shall we produce, and what, in consequence, will be our standard of living? The problem of distribution, on which all the stress is being put today, is after all more easily solved the more there is to distribute.

The opposing side of the fetish of full employment is “compulsory unemployment :”

Compulsory unemployment is achieved through minimum wage laws. On the free market, everyone’s wage tends to be set at his discounted marginal value productivity [DMVP]. A minimum wage law means that those whose DMVP is below the legal minimum are prevented from working. The worker was willing to take the job, and the employer to hire him. But the decree of the State prevents this hiring from taking place. Compulsory unemployment thus removes the competition of marginal workers and raises the wage rates of the other workers remaining.

Menger goes on to discuss the nature of “Government unemployment benefits :”

Government unemployment benefits are an important means of subsidizing unemployment caused by unions or minimum wage laws. When restrictive wage rates lead to unemployment, the government steps in to prevent the unemployed workers from injuring solidarity and union-enforced wage rates.

With these two perspectives comes the question; what does a better job of increasing the well-being of the people, full employment policies or policies that promote economic growth and efficiency? Both Menger and Hazlitt suggest that the well-being of most people is served through greater productivity. Goods are manufactured and sold at lower costs. Higher prices are a regressive tax on the lowest income earners. Artificially increasing the productions costs through compulsory unemployment and artificially raised wages actually hurts those for whom such policies are intended.

The task of economists is to wade through the political aspects of policies and to advocate for policies that benefit all people, not merely the “special pleadings of selfish interests” as Hazlitt describes them. As professionals in the business community, many in the role of human resources manager, your task will be different. Your responsibility will be to assist management through policies and programs that promote efficient use of finite company resources. You will be faced with finding ways to comply with external policies driven by a political environment that often are at loggerheads with the goal of increased productivity. In addition you may be faced with the personal dilemma of enforcing policies with which you personally disagree.

Employment, the act of working for another in expectation of remuneration, is a fairly recent phenomenon in human history. Throughout history people have worked for others in some capacity, often as an apprentice to a trade; but the large scale employment brought about by the industrial age represented a change. Mankind went from individuals plying one trade or another and exchanging their produce for that of others, using the coin of the realm.

Today, most people set out to find a career that is essentially in the employ of others. There are still opportunities for people to have their own business, be their own boss; but by and large people seek jobs. This, more than any other thing is the reason for the great desire on the part of politicians to promote full employment policies. But are the politicians serving the interests of all people or merely their constituents? As future managers, you will be in position to influence those with whom you work. What types of policies will you support? Will you take the long term approach to educate those with whom you work on policies that benefit the greatest number or that benefit those you know best?

Thus far, the assignments have been primarily to read the assignment and respond to questions. Last week you were asked to use the knowledge you are obtaining to develop an incentive plan. For the next several weeks our focus will be on developing your knowledge and ability to apply it to particular circumstances. The Discussion Board is available for you to put your thoughts forward in an uncritical environment and receive constructive perspective. I do not grade discussion board forums; but I will respond to direct questions. The benefit of this is the ability to test thoughts before you incorporate them into your assignment. When you are in a position there are always resources with whom you can discuss your thoughts. Take advantage of that option here.

Assignment:
• You are a manager of human resources in a non-union privately owned company with 250 employees. Your company produces a generic type of product that is in competition with three other manufacturers. You produce a product that is under a Federal government contract. Your workforce is comprised of 25 administrative and executive staff at an average salary of $80k per year. The remaining 225 people are split into two categories, machine operators who are paid an average of $18 per hour and work an average of 45 hours per week. There are 85 machine operators. The remaining 140 employees are in various assembly capacities. They are paid between $8 and $9.50 per hour. By Executive Order the President has just announced that the minimum wage for Federal Government Contractors is $10.10. per hour starting January 1, 2015. This will add in excess of $465k in payroll and payroll taxes to the company. The company already spends in excess of $1.5 million on health care. Compliance with the Affordable Care Act will add another $375k (25%) to the cost. Two of your competitors are better capitalized publically traded companies with a unionized machinist staff and use very little unskilled labor; they are not going to be affected to nearly the same degree which means that there will not be pressure for increases in prices from the government. The third company is a foreign company that does the assembly in Mexico. Management has asked you for recommendation on how to accommodate the $840k increased costs for compliance with Federal regulations. The company has discussed sale of the company, closing the company and selling the assets, laying off the unskilled staff and outsourcing to another company and/or dropping healthcare benefits and paying the penalty. In all of these options the unskilled labor will suffer the greatest loss. You would like to lessen the impact on the lowest paid workers. Your task is to find an equitable plan that will comply with the Federal Regulations and minimize the loss of jobs (compulsory unemployment) among your unskilled laborers.

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Unemployment