Why jobless rate is high

By BILL KING

New York Times News Service

In the ramp-up to the 2012 campaign, both political parties have been hammering away that the policies of the other are to blame for the high unemployment rate. Both have harkened back to the golden days, respectively of Reagan or Clinton, as evidence that their policies will solve the unemployment problem.

But neither party acknowledges that unemployment generally has been getting worse in the U.S. for decades, through both Republican and Democratic administrations and congresses. Since 1950 the unemployment rate has ranged from 2.5 percent to more than 10 percent.

But there is an unmistakable trend upward. Since 1950, there have been 10 peaks and nine bottoms in the unemployment rate. With the exception of the period from about 1990 to 2005, every peak and bottom has been higher than the previous one.

For the mathematicians among you, the trend line for the unemployment rate from 1950 to today has a statistically positive slope. Unemployment on average has been getting worse by about .03 percent each year or by about 1 percent over each 30-year period.

So if unemployment has been getting worse for the last 60 years, including periods when both parties were in power, it would seem to raise the question whether there is a cause for it other than the ideological hogwash to which we are constantly subjected by both parties.

The answer is no mystery. Anyone who has been an employer for the last several decades, as I have been, can easily provide the answer. Our tax and regulatory policies have increasingly discouraged hiring more employees.

There are two decisions that any employer faces when considering whether or not to add an employee. The threshold question is whether the employer needs additional help. Notwithstanding that some liberals seem to feel employment is some kind of altruistic calling and that businesses have an obligation to hire people whether they need them or not, employers are simply not going to hire additional employees unless they need the extra help to create the goods and services demanded by their customers.

In this regard, Democrats are correct that employment, at least over the short term, is driven by demand. The ebb and flow of the demand for goods and services in the business cycles is what accounts for the significant short-term variations in the unemployment rate.

If you believe that government policy can stimulate demand, a proposition of which many are justifiably skeptical, the Democrats’ argument for more stimulus is at least logically consistent. But even if the Democrats are right that additional stimulus will reduce the unemployment rate, that is clearly a short-term phenomenon and cannot explain why unemployment has gotten consistently worse over the last 60 years.

The long-term cause, I believe, has to do with the second consideration most employers face when they need to add additional capacity. That question frequently is: Do I need an employee to do this job or can I automate it? And that question is normally going to turn on the relative costs of hiring an additional employee versus the cost of making an investment in equipment that can do the job or at least allow it to be done with less labor.

And let’s face it, automation has some built-in advantages. Machines do not get tired or sick. They don’t have family or substance-abuse problems. They don’t come to work in a bad mood or fight fellow machines. They are, for the most part, easier to manage.

But we have significantly added to this advantage by handicapping labor with a whole variety of tax and regulatory weights that make it even more attractive to business to invest in equipment instead of people. Any market as complex as the labor market has innumerable factors affecting it.

But the fact that we have made it increasingly less attractive to hire new employees for the last 60 years must be one of the most significant factors contributing to the long-term rise in unemployment.