In other words, when something doesn't sell, like televisions or labor, the reason is that either no one wants it at all or the price is too high. Since human wants have not suddenly vanished, and people want to work, the only reason is that the cost of employment is too high. When there is massive, chronic unemployment, it means that the cost of labor must fall in order to encourage businesses to hire. But why is the cost of labor so high? Can't someone just offer to work for a little less? In a statist economy, the short answer is no.
If you have one million television sets and you want to sell them but no one wants to buy them, what should you do? If you want to sell your home, but no one wants to buy it, what should you do? If you want to work, but no one will hire you, what should you do?
If you said: "LOWER THE ASKING PRICE!," then you would be likely to sell TVs, sell your home, and find a job.
First of all, by extending unemployment benefits, the government is paying people not to work. Therefore, people who are receiving benefits are not being encouraged to offer less for their labor. However, even if the government were not paying these benefits, and these people wanted to offer less, they could only do so up to a point. Why?
Say, for example, that the government decreed that the minimum wage shall be $1 million per hour. Progressives like Obama and Nancy Pelosi might jump for joy since they would believe that all workers would become millionaires by working for one hour. Of course, such a law would not make anyone a millionaire. It would simply put every business out of business (except maybe film making and professional basketball). Firms simply could not afford to hire anyone at this rate.
For a less extreme example, let's say that a business can afford to put $50 into labor given all other costs and revenue. At $5 per hour, a business can afford to hire 10 workers. If the minimum wage is raised to $10 per hour, then the business can only afford to hire 5 workers. This is why minimum wage laws cause unemployment. These laws make it impossible for workers and employers to contract for services below the statutory rate. To the extent that the prevailing wage for a given job is above the minimum wage rate, the law is not a factor, however, for jobs at the lowest end of the spectrum, these laws cause chronic and persistent unemployment, since no one will pay someone more than a job is worth.
It should also be pointed out that this sudden increase in unemployment, currently being experienced, is a side effect of the boom-bust cycle caused by the government's manipulation of the money supply. The inflationary boom period, caused by excessive credit and money creation, leads to misallocations of capital, that is, investments in unsound business ventures that appear to be profitable only because of the inflation (see the housing market). When the inflation stops, prices fall, and these unsound investments must be liquidated. As businesses and individuals raise their cash levels and pay down debt, spending slows, further exacerbating the slow down and causing widespread bankruptcies, which in turn, puts downward pressure on prices and wages. The recession or depression, depending on the severity, is the process of the economy recovering as equilbrium is restored. To the extent that wages and prices do not fall, by virtue of government policy, chronic unemployment and stagnation will result. This is exactly what happened in the Great Depression of the 1930's as the government "encouraged" employers not to reduce wages. The result was massive unemployment (see The Politically Incorrect Guide to the Great Depression, by Robert Murphy). The blame for this cycle, in the first place, must be squarely placed on government's policy of continual fiat currency inflation. Secondarily, minimum wage laws, in addition to other forms of legislation, and the Fed's monetary policy, restrict wages from falling, either by direct fiat, by propping up failing businesses, or through further inflation which hides and prolongs unsound investments. These government policies turn what would be a short, severe recession, followed by a return to prosperity, into a chronic depression with no end in sight.
While the wage "rate" is crucial, it is important to point out that it is not the only cost to employing persons, nor is it the only consideration when deciding whether to expand a business. In a recent post at TheEconomicCollapseBlog.com, titled No Jobs, the author notes:
[T]he question not enough people are asking is why so many jobs are being lost. Yes, the large global corporations have been sending millions of jobs overseas where labor is far, far cheaper. And yes, the U.S. government has accumulated so much debt that it is absolutely suffocating the U.S. economy. But there is another very important factor that has been largely overlooked. Traditionally, about 75 percent of all new jobs are created by small businesses. But today, hundreds of thousands of small businesses are being strangled out of existence by all of the oppressive taxes, fees, rules, regulations, paperwork and demands that government keeps imposing on them. In such a repressive environment, it is getting close to impossible for small businesses to thrive, and if our small businesses can't succeed, then we simply are not going to see a lot of jobs being created.[emphasis mine]
This tends to effect small businesses disproportionately since larger corporations can better deal with the red tape. He notes:
When it comes to hiring new employees, the federal government has made the process so complicated and so expensive for small businesses that it is hardly worth it anymore. Things have gotten so bad that more small businesses than ever are only hiring part-time workers or independent contractors.
So what we actually have now is a situation where small businesses have lots of incentives not to hire more workers, and if they really do need some extra help the rules make it much more profitable to do whatever you can to keep from bringing people on as full-time employees.
Besides strangling small business with endless costs and regulations, on a larger scale, the government is doing everything in its power to discourage business for firms both big and small. Bill Frezza notes:
The Obama Administration has taken to the hustings to promote its plan to create jobs by ratcheting up federal spending, paying people to stay out of work longer, dishing out billions in subsidies to refugees from the collapsing solar industry in Spain, and terrorizing companies that produce jobs by increasing regulatory uncertainty. Oh, and don't forget jacking up taxes.
Does this make sense to you?
All of this has caused corporate America to go on strike, sitting on an estimated two trillion dollars in cash. Businesses refuse to invest fearing they'll be trashed when Barney Frank has some inspired thought at 2am and sticks some devastating provision in the next abomination working its way through the Congressional sausage
In other words, when it is not clear what the law will be tomorrow, how much you will pay in taxes, how much you will be forced to pay for employee medical insurance, which pet project of which government agency will be funded, whether you will pay more or less for energy, what type of energy will be available, whether you will be sued under some newly discovered provision of a thousand page bill, whether you are in compliance with any of thousands of different regulations enforced by vicious bureaucrats from hundreds of different agencies, whether some new regulations will suddenly upend your industry or subject you to massive liability, whether governments will pay back their debts, whether they will pay back their debts by debasing the currency (printing money) leading to massive inflation, whether the state will offer bail outs to favored industries, etc., is it any surprise that companies are simply doing nothing?
Consider just this list of taxes set to take effect on January 1, 2011, compiled by Ryan Ellis in his article, Six Months to Go Before the Largest Tax Hikes in History, and ask how anyone could be optimistic about expanding a business in this anti-business milieu? Quoting No Jobs:
My small business-owning friends aren't creating one job. Not one. They are shedding jobs. They are learning to do more with fewer employees. They are creating high-tech businesses that don't need employees. And many business owners are making plans to leave the country. In a high-tech world where businesses can be run from anywhere, Obama has a problem. His one-trick pony -- raise taxes, raise taxes, raising taxes -- is chasing away the business owners he desperately needs to pay his bills.
The U.S. government has become like the 500 pound fat guy who jumps on a horse and then gets angry when it won't move.
Passing even more ridiculous regulations and raising taxes even higher is not going to fix business in America.
The government is at war with American business and businessmen are shrugging. So what is the solution? Is it more stifling regulations, more confiscatory taxes, more government spending and debt, more robbing Peter to pay Paul? Absolutely not.
The solution is economic freedom. The government should unshackle and unleash the American entrepreneur by acknowledging and restoring the preconditions to prosperity: the protection of individual rights, as understood by our Founding Fathers, and a system of laissez-faire capitalism. Rather than terrorizing and threatening businessmen, producers, and innovators, the government should be protecting and celebrating the individual's right to pursue his own profit and happiness. At a minimum, this would entail upholding the rule of law, including the sanctity of contracts and the protection of property rights. It would mean minimizing burdensome regulations, ending subsidies and government guarantees, reducing budget deficits by cutting spending, cutting taxes, and pursuing a course of sound money and low inflation.
Unemployment is not natural. In a free society, anyone wishing to work, produce, and innovate has infinite capacity to do so. Who would stop them - except a government?