I am sure that most of you would recognize full employment as an admirable, but unachievable goal. But does the fact that full unemployment is probably unachievable make a policy goal of full employment any less desirable? According to the Obama administration, the answer is no. His policies are designed to save millions of unproductive, over-paid UAW jobs at Chrysler and GM, while attempting to create millions of "green" jobs, betting the future of the U.S. energy sector on the belief that biofuels, solar and wind energy are going to be economically feasible and efficient with the next few years. Regardless of the merit of saving/creating these jobs, if the Obama administration's goal is to create jobs and lower the unemployment level to something more akin to bullish economic times, then there are several other policies that it has proposed which have the exact opposite effect.
First, Obama has consistently supported and voted to raise the federal minimum wage. However, economists have all recognized that raising the minimum wage will raise unemployment. Generally, raising the minimum wage will cause a decrease in the number of entry-level and low-skill jobs available. By decreasing the number of entry-level jobs, the government prevents the poorest and most uneducated people from joining the workforce. Although the wages for these jobs are low, employers are forced to train these workers who have very few skills that make them attractive to employers. Instead of giving these working poor the chance to enter the work force and learn skills that could help make them more marketable to future employers with higher paying jobs, the minimum wage eliminates their chance to learn through experience. Instead, these people often rely on the crutch of welfare since now jobs for which they are qualified are unavailable. For a detailed U.S. House of Representatives report on the minimum wage and its effect on unemployment, see this link.
Similarly, Obama's strong support for labor unions also has the effect of decreasing employment opportunities. Inherently, labor unions operate to limit the number of possible applicants for a given job. The gains that a strong union achieves for its workers come primarily at the expense of other workers. This is inherent in the law of demand. By increasing the price associated with a given product (in this case labor), the demand for that product will decrease. A successful union will decrease the number of jobs available in which it controls. It can thereby increase the price of its labor force without fear of losing jobs. However, the results of this process are decreasing opportunities for employment in the unionized industry and flooding non-unionized industries with the excess labor, thereby lowering the price that could be charged by these laborers. The effect is that fewer laborers are hired than would have been employed in unionized industry absent the union, and the non-unionized labors have fewer opportunities to find employment and are only able to demand lower wages than they would absent the union.
In addition to supporting many measures that actually decrease employment levels, the Obama administration (as well as the Bush administration before that) continued policies that have the effect of lowering effective wages of all workers. By supporting a full employment policy through government spending financed through deficits, Obama is fueling inflation and chipping away at the spending power of the average worker. Government spending can be represented to the public as adding to employment, while taxes are represented as decreasing employment. Therefore there is a strong incentive for officials to spend in the guise of creating jobs, but not to increase taxes to finance the spending. However, the spending that is not financed through taxation must be paid for either through borrowing (either domestically or internationally) or through increasing the money supply. Excessive borrowing is also not politically expedient, however, there is little public outrage aimed at increasing the monetary supply. As a result, politicians have found it relatively easy to spend, spend, spend, and finance it all by printing more federal reserve notes. As I have repeatedly emphasized in previous posts, increasing the money supply faster than economic output will cause inflation. Although many wages will be forced up by this inflation, over the past half century the wages will not grow as fast as inflation. Below is a plot of real wages and nominal wages over that time period.
As you can see, although wages have increased with inflation, despite productivity growth real wages have remained relatively stagnant. One thing that should be considered is that the federal income tax rates do not change with inflation. So the government actually benefits as consumers are making more money (although the money is not worth as much) so they will move into higher tax brackets in our progressive tax system, even though they have no more spending power than before. It has the effects of a tax increase without having to pass a tax increase. Talk about taxation without representation! But no one ever questions how the federal government is the complete and only cause of inflation, and only they can cure it from occurring.
In conclusion, the Obama administration needs to be upfront about their employment goals. If its main goal is full employment, then it should be upfront with the American people about how its minimum wage and union policies counteract other efforts to achieve those goals. Additionally, it should take efforts to eliminate the deficit spending that is financed by the federal reserve. If not it should acknowledge is role in the inflationary boom and bust cycle, and let workers know the effects that this inflationary policies have on their wages and tax burden.
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