Timothy Terrell teaches economics at Wofford College in Spartanburg, South Carolina.
In any period of economic distress there is a renewed search for political solutions to unemployment. It seems obvious that jobs must be saved, and the government must be the key to preserving those jobs. So we get another round of government intervention: economic stimulus packages, scapegoating, bailouts, and protectionism.
One of the problems with this effort to keep unemployment down is its underlying assumption that the basic economic problem is a lack of jobs. The assumption seems reasonable enough; after all, financial hardship usually accompanies a layoff. Yet jobs per se are not the ultimate goal of the economy. Jobs are a means to an end. Even though a few of us may enjoy our jobs enough to be willing to work for free, we generally work so that we can purchase things or give to others with the income the job provides. Most people, in fact, look forward to a time around age 65 when their financial situation allows them to quit their current jobs and pursue other worthwhile activities.
Jobs by themselves are useless unless they are productive. People can appear industrious without actually producing something of value—it’s what we call “busy work.” Having someone vigorously make mud pies is probably not going to contribute very much to our standard of living, because mud pies are not usually thought to have any value. The price system, which includes wages, is the surest guide to what consumers want.
Because of the difficulty of changing from one type of work to another, there is usually a brief period of unemployment involved. The computer whiz, finding that the dot-coms are not doing quite as well as they once were, and made painfully aware of the fact by the appearance of a pink slip in his box, may discover after several weeks that the most valuable work he can now do is not even related to computers. During those several weeks, he may say something like, “There just aren’t any jobs” or “No one is hiring.”
What the computer whiz means is, more precisely, “No one is willing to hire me in my normal line of work for the wages I am accustomed to receiving.” Expressing the problem as a lack of jobs is not as accurate as saying that (a) the apparent value people place on the services dot-coms provide has fallen, and thus (b) the dot-com owners place a lower value on the labor services of their employees.
The hardship of job loss often results in a search for someone to blame. Frequently, that is a competitor. It is true that competition does bring about job loss on the individual level. If my mousetrap firm is not as efficient as your mousetrap firm, my employees and I may lose our jobs, as consumers buy your lower-priced mousetraps. Yet that is quite a different problem from job loss in the aggregate, or unemployment. After all, while my firm is laying off workers, your firm is adding workers. The alternative to this “frictional” unemployment is to end all competition between firms—a “cure” that would be far worse than the disease.
If the mousetrap industry as a whole is laying off workers, one of the potential reasons is that the buying public has decided that it prefers fewer mousetraps and more of something else. In that case, the industry that makes “something else” is probably hiring. It is also possible that a reduction in employment within an industry can come from a change in the production process that requires less labor. Using robots to replace some workers may mean fewer jobs in that industry, but, again, robot-making firms are probably hiring.
In either case, the workers being laid off probably do not have the skills to move directly into another industry. When a textile mill closes because of foreign competition, the mill workers can be expected to have trouble adjusting to the jobs that are available in auto manufacturing. To many workers, political action to eliminate the competition seems preferable. To serve these interests, a para-industry of job-savers, made up of community activists, politicians, and the owners and employees of threatened businesses, can arise to carry out attacks against trouble-making competitors.
“Big box” stores are a favorite target for the job-savers. Stores like Wal-Mart or Home Depot can usually offer lower prices on popular retail items because of economies of scale. The building construction is cheaper per square foot than smaller downtown stores, and the labor requirements are lower—a store ten times the size doesn’t require ten times the managers. Owners of small local businesses recognize that many shoppers will leave the congested downtown for the big box on the bypass. Their livelihood is at risk, along with the jobs of their employees. Fearing the competition, they get the local government to reject rezoning proposals, set restrictions on maximum building size, or otherwise prevent the entry of the national chain.
Some variant of this process is at work in countless towns across the United States. In Clemson, South Carolina, a small but vocal group has used job-saving rhetoric, combined with political maneuvering, to prevent a local landowner from using his property for a Wal-Mart.* The “anti-sprawl” group cited a study showing that for every job Wal-Mart created, one-and-a-half jobs were lost in other local businesses. (Other studies have shown negligible effects on employment.) If the study is accurate, it essentially means that Wal-Mart manages to use fewer hours of labor to provide the items people want to purchase. The fact that Wal-Mart’s labor-conserving approach is more efficient is reflected in the store’s popularity among shoppers. Even if the Clemson economy were isolated from surrounding areas, the loss in income would be more than offset by the lower prices. In other words, fewer dollars might be earned, but those dollars would buy more. Because Clemson is in fact not isolated from neighboring economies, the Wal-Mart may actually increase local incomes, as people from nearby towns choose to spend their dollars in a shopper-friendly Clemson.
In the broader economy, more efficient competition can be shut out through trade barriers such as tariffs or quotas. Supposedly, tariffs can save jobs by protecting an industry that is being outperformed by foreign firms. Certainly, tariffs can preserve jobs and increase incomes in that industry. Yet the overall picture is not so favorable to trade barriers. When we impose tariffs on, say, steel, foreign steel sellers are unable to acquire dollars from us. The only way to buy Americans’ exports (say, wheat) is to have dollars to offer in trade. Thus, exports decline.
Dollars, after all, are only a medium of exchange. They allow a foreigner to buy wheat with steel, just as dollars allow me, as a college professor, to exchange economics lectures for housing. If steel producers succeed in obtaining a steel tariff, their jobs are saved—at the expense of jobs in industries that export to foreign countries. Because the United States may be a relatively low-cost wheat producer but a high-cost steel producer, the tariff misallocates labor by discouraging people from doing what they “ought” (in an efficiency sense) to be doing—moving from steel production to wheat production. The domestic economy that is really better at wheat production is producing steel, and foreign economies that are better at steel production are producing wheat. This implies that the net impact of the tariff is a lower standard of living worldwide. Wheat producers are still producing wheat, and steel producers are still producing steel, but the total amount of wheat and steel being produced is lower than it would be without tariffs.
Despite the clearly harmful effects of this sort of “job-saving,” politicians still bow to special-interest groups that are able to muster an important number of votes. It was particularly disappointing to see President Bush impose tariffs of up to 30 percent on imported steel last year, since he has historically sided with the anti-tariff wing of the Republican Party. Though Bush has more recently granted numerous exemptions on certain steel products, the effects are still likely to be seen in reduced exports, even without retaliatory trade barriers imposed by the European Union or Japan. Steel manufacturers in Ohio, Pennsylvania, and West Virginia win, while exporters of farm products, computers, automobiles, and other goods will lose. Because the effects of foreign competition will be muted, Americans will not be induced to move away from steel toward industries in which they are comparatively more productive. Protectionism in the steel industry could reduce overall incomes in the U.S. economy—an untimely blow, to say the least.
A change of focus is needed. Instead of concentrating on preserving jobs in this industry or that downtown area, we should pursue the satisfaction of human needs. Job-preservation, by itself, is a red herring. Too often the media and political figures can use the concept misleadingly, because the gains to the beneficiaries are highly visible, while the losses are largely concealed. The connection between foreign steel imports and jobs lost at a domestic steel mill is easy for most people to see, while the link between foreign steel imports and jobs gained in farm machinery manufacturing is almost invisible to the public. We will probably never see a bumper sticker saying, “Save American farmers; buy foreign goods.” But maybe we should.
*See my “Stopping Government Sprawl,” Ideas on Liberty, February 2001, pp. 17–19.