Who Are the Unemployed?

Unemployment was no problem on Robinson Crusoe’s island. Nor does it plague the people of primi­tive agrarian societies where each serves as jack-of-all-trades to wrest his bare living from nature. The American Indians, for in­stance, failed to utilize a number of natural resources, but all the people were fully employed—at a subsistence level.

In a sense, it seems that unem­ployment comes with capitalism and industrialization—a conse­quence of savings and automation and division of labor and trade—a problem that follows economic progress. But this says only that employment must come first. Be­fore A can offer a job opportunity attractive to B, A must possess capital in the form of creative ideas, raw materials, tools, scarce resources that will enable B to work more effectively than he could on his own. There is nothing to be gained in doing each other’s laundry. The reason why individu­als exchange labor, or work for one another, is that each gains something by the trade, or thinks he does. Some are more skilled at one task, some at another. Some men are able to save more and ac­cumulate capital faster than others. Some have extraordinary managerial abilities. Some are su­perior salesmen. And so they trade, to their mutual advantage, offering employment opportunities to one another.

Employment opportunities must have been developed in a society before there can be such a thing as unemployment. But is there anything inherent in the indus­trialization process or in the mar­ket economy that necessarily causes unemployment? That a man can earn a better living for him­self by working under another’s supervision for wages explains why he might be so employed. It fails to explain why he might stop working altogether or be unem­ployed. Why, then, does the prob­lem of unemployment seem to develop as men begin to specialize and trade and seek economic prog­ress through industrialization?

Look to the Intervention

There is abundant evidence that unemployment occurs in the most prosperous industrialized econo­mies in the world. There also is ample evidence of unemployment in poverty-stricken nations such as Red China where industrializa­tion is attempted through coercion and men are forced from tradi­tional subsistence farming into the tax-supported heavy industries planned and promoted by the rulers. When shortages of raw ma­terials or tools disrupt “The Plan” in Red China, the coolies who have been drawn into factories find themselves unemployed and starv­ing.

Evidently, it is not the stage or the degree of industrialization that accounts for the severity or persistence of unemployment. Serious unemployment can occur in a United States of chronic sur­pluses as well as in a Red China or Russia of chronic shortages. Perhaps the surpluses and short­ages afford a clue. These are signs of a malfunction of the market, of supply in excess of demand, or vice versa. There is a surplus of wheat in the United States because some­one has been using the force of the government to regulate the price of wheat, holding it up by law instead of leaving it free to rise or fall to that point which would tend to balance supply and demand and clear the wheat mar­ket. And the shortage of food grains in Red China likewise is the result of government tamper­ing with the price signal, holding the prices down by law to a point too low to stimulate the produc­tion consumers want and other­wise would pay for.

It should be clear that a surplus or a shortage of any commodity is not an inevitable consequence of industrialization or of trade in an unrigged market. The surplus or shortage arises because of price control—because the market is not allowed to perform its natural function of bringing supply and demand toward equilibrium—be­cause people are not permitted to buy and sell what they please at prices acceptable to everyone con­cerned. When a surplus or a short­age of any commodity occurs, you may rest assured that the force of government has displaced individ­ual choice.

The effect of price control for services—that is, control of the level of wages—is the same as the effect of government price control of commodities. In other words, unemployment in reality is a sur­plus of labor. And a surplus of labor can occur in any society only if someone is using the force of government to hold wage rates above the level that would clear the labor market. If willing work­ers are unable to find willing em­ployers at a given wage rate, this means that the wage rate is being held at too high a level. On the other hand, if wages are set by government at lower than a free market level, then willing em­ployers will be unable to hire as many willing workers as they’d like; the resultant shortage of labor is sometimes referred to as “over-full-employment.”

Unemployment is not a neces­sary condition of industrialization or free market exchange; it is caused by control of wage rates—by the government directly, or by some person or group having usurped and exercised govern­mental powers of coercion. This explains why there can be unem­ployment in a prosperous wealthy nation as well as in Red China: wage rates are being held higher than the supply-demand situation warrants.

Unemployed by Definition

The government-assembled sta­tistics of the United States show that unemployment has averaged over the past two years about 5.5per cent of all experienced wage and salary workers, and that about 80 per cent of those classed as un­employed were eligible for gov­ernment “unemployment compen­sation.” Certainly, that is one answer to the question: “Who are the unemployed?” They are the ones the government recognizes as unemployed.1

It may be argued, of course, that the government bases its count on faulty information, that many of those presumed to be un­employed are simply waiting out the normal interval between jobs, or that some of them have never really looked for job opportunities and wouldn’t work if offered the chance. And of the four out of five actually being paid not to work, a high proportion must consider that arrangement the most satis­factory of all ways to “earn” a liv­ing. At least, it should come as no surprise to anyone that 5.5 per cent of the labor force are unem­ployed when the coercive power of government is used to uphold a high level of wages and when a government subsidy is made avail­able to those who can’t find work or won’t accept it at prevailing wage rates and conditions of em­ployment. From that point of view, it might appear that the government’s count overstates the seriousness of the unemployment situation.

Working for Nothing

There is another side of the picture, however. Does the gov­ernment’s count include the thou­sands of farmers who are being paid not to produce wheat, cotton, tobacco, and other “basic com­modities”? Are not these farmers as effectively unemployed as the laborers collecting “unemploy­ment compensation” for not pro­ducing coal or cars or steel or whatever? And can it be said that they were fully and effectively em­ployed who grew the wheat and cotton and other “surplus” com­modities now deteriorating in gov­ernment storage?

Are shipyard workers fully and effectively employed while build­ing subsidized vessels for a sub­sidized merchant marine? What of those workers in “depressed areas” who are engaged in sub­sidized highway construction, or subsidized urban renewal; are they fully and effectively em­ployed? Above all, what of the jobs “saved” in shady and ques­tionable private enterprises by the government’s deliberate policy of deficit-financed inflation designed to conceal business bankruptcies and thus keep working those union members who otherwise would have priced themselves out of the market into the ranks of the unemployed?2

Without further extending the list of government projects and policies designed primarily to make work for the otherwise un­employed, it seems reasonably clear that the government’s unem­ployment count has grossly under­stated rather than overstated the seriousness of the problem. When governments at various levels in the United States are spending more than a third of the total earnings of all individuals, there can be little doubt that far more of us are effectively unemployed than government statistics reveal. The beneficiaries of this govern­ment intervention and spending are not really earning their own living because they are not work­ing at jobs for which anyone would voluntarily employ them.

Furthermore, these workers are worse than idle; for the purely make-work projects that employ them to no useful economic pur­pose also draw from the market all kinds of raw materials and tools and power and light and heat and other scarce and valu­able resources, in effect wasting them and increasing the prices of supplies remaining for the creative and constructive purposes of those willing to risk their own time and savings.

The harsh fact is that govern­ment intervention—in the form of special powers and privileges to labor unions plus a vast tax-and deficit-financed matrix of “de­pressed area” work projects de­signed to shelter and hide those who have arbitrarily priced their services out of the market—has resulted in a surplus of labor, a rate of unemployment and malem­ployment that not even the wealth­iest nation in the world can long endure. The government statistics do not even begin to show the ex­tent of the unemployment prob­lem. The corrective is to repeal those grants of power and privi­lege, stop the foolish government spending, and let prices and wages find their own level in a free mar­ket.

—FOOTNOTES—

¹ See “What Is ‘Employment’?” by Oscar W. Cooley. The Freeman, Novem­ber, 1963.

² See “The Economics and Politics of My Job” by Ludwig von Mises. The Freeman, May, 1958.

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Job Security?

A common desire among humanitarians is steady employ­ment for the workingman.

The demand is sometimes made at conventions of up-lifters that the worker shall be guaranteed employment.

No one can quarrel with the sentiment back of such ex­pressions, but there are certain ugly facts that must be faced before approval can be given.

The Bureau of Census at Washington maintains an index of all manufacturing establishments. The “turnover” is high. Many enter consolidations, but the majority die.

Here is an indication of the risk and uncertainty of capi­tal, and the real reason why it is so difficult to guarantee anything to the worker.

Steady and permanent employment is a desirable goal, but to say that labor should be as secure as capital is amusing. Capital employed in manufacturing and distribu­tion is never secure. Even gilt-edged bonds around which every conceivable protection is thrown have to be watched with hawklike eyes, as every capitalist will testify.

If there is no such thing as an absolutely safe invest­ment, as some experts have stated, there can be no such thing as an absolutely permanent job.

WILLIAM FEATHER, The William Feather Magazine, December, ¹963