Economics of Unemployment Benefits

It is a truism of economics that unemployment is caused by wages being too high. How can that be? Simple: government intervention. Unemployment benefits are only one form of government intervention that prop up wages. Government hiring for work projects is another. We are doing both of these now. Most attempts at regulation in that area distort the market for labor. Labor laws that make it difficult and costly to dismiss workers once hired is a disincentive for business to hire. Uneven labor laws often give business only the option to cave in to union demands or go out of business -- negotiating at the point of a gun as they say. These laws are enacted to support union workers but actually hurt them and other workers. Due to higher labor costs, the level of production is decreased. Therefore, not only are fewer union workers hired, but nonunion hiring is diminished due to lower overall production.

Adjustments of price is the mechanism that allows markets to clear. In order for markets for labor or anything to clear, prices must adjust downward until a buyer comes forward. Labor prices, i. e. wages, are notoriously sticky downward. This is because of reasons outlined above and because of similar government intervention policies.

These are simple and basic economics principles. Even socialist economist, for the most part, agree. The difference is that champions of the free market want market principles to prevail so that we can have sustainable economic functioning and growth. Socialists want to intervene to 'correct' the market. They also favor certain groups to enhance their political power so they can implement more intervention policies. The progressive believes that policies of more and more government intervention will lead to continuing improvement in people's lives. The actual outcome of their policies is increasingly depressed levels of employment and production. Progressives' only remedy is to increase government intervention. This has always led to still worsening conditions. There seems to be no limit to their interventionist economic ideas. They have all proved to be destructive. Ultimately complete or nearly complete loss of liberty can be the only outcome. We have Cuba and North Korea as leading examples.

Unemployment benefits lasting over two years are currently a major impediment to lower wages. (This is obvious, but to state the obvious, many will not want employment if they are paid benefits, which in addition to the value they put on their free time, exceed the amount being offered. Therefore, employers have to offer more to purchase labor.) Employment benefits should be limited and the amounts paid should gradually diminish. Now is the time for choosing freedom and prosperity, not slavery and impoverishment.