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How Not to Fix America’s Employment Problem

Mark Krikorian and Stephen Camarota of the Center for Immigration Studies recently said something that got me thinking about the curious phenomenon of the capitalist welfare state. They pointed out that although low-skilled immigrants receive a disproportionate amount of government benefits, the recipients are, for the most part, employed. In effect, employers are getting the taxpayer to subsidize wages: instead of Megalo-Mart paying workers enough to put a roof over their heads, it pays less and lets the public make up the difference. The company gets the labor and profit it wants while externalizing part of the cost of wages.

This came to mind as I read Michael Strain’s argument for sustaining employment rates by tapping unemployment insurance (UI) to support furloughed workers: instead of a firm laying off 20 percent of its workforce—who would then claim unemployment benefits anyway—why not let the company tell all its workers they can stay home without pay on Fridays and have unemployment insurance make up (part of) their lost wages?

Something like this, “an option called work-sharing,” Strain writes, “is available in many places but remains little used” because employers don’t know about it. He calls for “expanding, supporting, and publicizing work-sharing UI programs.”

Strain’s proposal does have the merit of keeping workers employed, and thus skilled and employable in the future. But it also subsidizes pay cuts—after all, in the scenario Strain presents the company could just as easily lighten payroll by 20 percent at the outset by reducing wages instead of laying off one in five of its workers, regardless of whether unemployment insurance makes up any of the difference in pay. The company gets no benefit from work-sharing that it wouldn’t get from reducing hours on its own initiative. Or does it?

If a business really were about to lay off 20 percent of its workforce, Strain’s suggestion might be fine. But it’s not hard to imagine companies that aren’t looking to lay off workers but that would nonetheless like to shift part of their payroll burden onto the public, which Strain’s proposal would accomplish. Workers would have fewer hours but pay wouldn’t be reduced proportionately, thanks to the insurance benefits (which Strain believes would make up about half the lost wages), thus helping the company retain its workforce at a discount. Arguably a win all around—except that it exerts a downward pressure on wages and an upward pressure on taxpayer commitments.

In general, Strain’s proposals are well within Republican orthodoxy: they include reducing the minimum wage for key populations—young people, for example, though of course if reducing wages for one demographic increases employment, why not lower the minimum wage across the board?—and restricting labor union power by passing more laws against union shops. On the face of it, these measures should boost employment, but as with the unemployment insurance proposal, the question arises whether the more pronounced long-term effect isn’t to impoverish labor and boost inequality.

America’s employment problem isn’t limited to unemployment. Lack of employment security and the erosion of working-class and middle-class wages and opportunities for saving must also be taken into account. There may be a necessary trade-off: Europe provides plenty of examples of places where employment security is quite high, as are wages—and so are unemployment rates. But in addressing unemployment, it’s worth thinking beyond the usual wage-gutting remedies and trying to find a way to redress the fundamental imbalance between labor and capital in this country—an imbalance only exacerbated when the welfare state is used to undercut wages.

about the author

Daniel McCarthy is the editor of Modern Age: A Conservative Review, and Editor-at-Large of The American Conservative. His writing has appeared in the New York Times, USA Today, The Spectator, The National Interest, Reason, and many other publications. Outside of journalism he has worked as internet communications coordinator for the Ron Paul 2008 presidential campaign and as senior editor of ISI Books. He is a graduate of Washington University in St. Louis, where he studied classics. Follow him on Twitter.

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