Why There Are Jobless

April 20, 1959

On April 7 the government triumphantly announced that employment rose 1,106,000 and unemployment dropped 387,000 between mid-February and mid-March to 4,362,000. The drop for the two months was the largest in any year since 1950. But though there is cause for some gratification in this, it is not the basic answer to the barrage of propaganda from the labor-union bosses and the left-wing Democrats seeking to pin the blame for unemployment on the Administration. The basic answer is that existing unemployment is mainly the result of the very policies that the labor-union bosses have followed and that the left-wing Democrats want to carry still further.

Unemployment is caused mainly by wage rates that have become excessive in relation to productivity or demand. The price of labor services is like the price of anything else. If it is too high in relation to demand, part of the supply will go unsold. The cure for a commodity is to reduce the price to the point where the entire supply can be sold. The cure in the case of labor is to reduce wage rates, in the lines where they are unworkable, to the levels where full employment can be resumed.

ESCALATING WAGES

The policy of the union leaders has been the exact opposite of this. They are constantly pushing wage demands beyond the point of productivity. It is significant that precisely where the unions have been most powerful and most successful—in the automobile and steel industries, for example—recent unemployment has tended to be highest. This is partly because these unions have succeeded in getting automatic escalator clauses in their contracts under which their wage rates rise automatically with increases in the cost of living and also at set periods, regardless of what happens to productivity. Hence even their favorite cure for unemployment—more inflation, a further rise in prices—is now largely ineffective, because automatically escalating wage rates rise even faster than prices and prevent return to workable relationships. Hence we have what the baffled left-wingers call the “paradox” of unemployment with inflation.

The unions keep blaming unemployment on the wrong things, such as “automation.” This is not a cause of net unemployment, but itself partly a consequence of excessive labor costs.

If we look at the remedies for unemployment that the union leaders and left-wingers propose we find that they all consist in various inflationary devices, most of which would intensify the very evil they are supposed to cure. Increased and prolonged unemployment compensation tends to increase and prolong unemployment. It relieves the pressure on the less conscientious workers to look for or take a new job as soon as possible. It relieves the pressure on the union to readjust wage rates to a level that would permit full employment. It takes the burden of providing for a union’s unemployed off the particular unions whose policies have caused it, and throws it on the general taxpayer.

AN ‘EXTRA BILLION’

This subsidizes the aristocrats of the automobile industry earning an average of $2.65 an hour, or of the steel industry averaging $3.03 an hour, compared with the average in all manufacturing industry of $2.19 an hour or of $1.74 in retail trade.

The belief that the cure for unemployment is a still further increase in wage rates rests on a nebulous “purchasing power” theory. Thus the United Steelworkers of America are running ads implying that a still further wage increase for the steelworkers would somehow bring an “extra billion dollars” into existence. It is not explained where this extra billion dollars would come from—unless an equivalent extra amount of steel were produced. Otherwise whatever added amount the workers got would have to come from the steel companies, and reduce their purchasing power for inventories or reinvestment in plant. The most probable result of a further increase in steel wage rates would be to increase steel prices and reduce markets, employment, and “purchasing power.”

The Reuthers and McDonalds who most loudly complain about present unemployment are the very people who have done most to bring it about.