The Banishment of the Marginal Worker

Gary Gibson, Introduction…

“The number of people seeking unemployment benefits fell to the lowest point in almost four years last week,” says the Associated Press this morning, “the latest signal that the job market is steadily improving,”

An improving job market? We’re not so sure about that. We suppose it depends on whom you’re asking. And whom you’re not (or no longer) asking because they’ve been out of work too long…

We speak of course of the millions of unemployed who are regularly purged from the statistics because they’ve been out of work for an arbitrary length of time. (If that makes absolutely no sense to you, then you’ve just proven yourself unfit for government work.)

Then there is the unemployment story that really matters, but which doesn’t get as much play as it should: the unemployment rate among younger adults. Fellow Agora Financial editor Dave Gonigam dug this up and sent it along to us:

“A plurality of the American public believe that young adults are having the toughest time of any age group in today’s economy — and a lopsided majority says it’s more difficult for today’s young adults than it was for their parents’ generation to pay for college, find a job, buy a home or save for the future.

“A new Pew Research Center survey also finds that young adults (ages 18 to 34) say that the sluggish economy has had an impact on a wide array of coming-of-age decisions about career, marriage, parenthood and schooling.”


We did a little digging ourselves. Things aren’t looking so good for the young adults all throughout the Western world. The unemployment rates of those under 25 are not just disheartening but outright disturbing.

Only four Western nation-states have under-25 unemployment rates under 10% (five if you count Japan): Germany, the Netherlands, Austria and Norway. More than half the nations of Europe have a rate over 20%. Quite a few are much higher. Greece is nearly 50%, but Spain is the standout. The youth unemployment there recently surged to over 50% at the end of 2011.

There is an entire generation wasting away this vital period of early adulthood during which they should be developing entrepreneurial and work experience.

Generally things are far worse in Europe than the US. The under-25 unemployment rate here is “only” around 20%, but our zeitgeist still at least pays lip service to striving for material gain. There is still a desire to build wealth here that most Europeans we’ve met consider obscene.

(We thank the heavens for that desire and we love doing our part to help make those desires a reality. If Western civilization has any economic hope, it’s America, which may be due for a rebirth. Want to know more… and make sure you’re set to profit from it? Then just click here.)

And while the US government throws a good chunk of its stolen tax loot at military adventurism, Europe has specialized in building a cradle-to-grave welfare society. Neo-con imperialism isn’t exactly productive or moral, but welfare state dependence and the resulting interference with wealth-building is just as dangerous for the long term prospects of a nation.

That sort of coddling does works great for a time. But then you run out of other people’s money. And the money does tend to run out when politicians constantly punish and prevent the creation of the wealth they get used to redistributing. Their promises to their wards can no longer be paid for. The wards themselves tend to degenerate into a bunch of uncompetitive, depressed and potentially angry economic dead weights.

The lessons of history are there. Destroy incentives and your society will stagnate and eventually collapse back, falling closer to pre-industrial conditions. The more centralized communist states led the way in this because they were the most totalitarian and centralized. The milder versions of collectivism that reigned in Western Europe are naturally folding more slowly. But they’re still folding.

We can expect the US to last a little bit longer if only because the conditions to create wealth were fostered most heartily — though far from perfectly — here.

In today’s feature essay, however, Jeffrey Tucker shows us just how far from perfect the unemployment conditions have been in the US for the past century or so due to government policy. The young are inherently marginal workers and the unemployment laws have been stacking the deck against them.

But the initial rationale for those laws were more sinister than most imagine. Read on below…


The Banishment of the Marginal Worker

Do you know about Europe’s problem with the NEETs? This is the name being given to those mostly young workers who are not in school, not employed and not in training. [Not in Education, Employment or Training — ed.] The designation applies to one in five people aged 24 and younger.

Unemployment among this generation is frighteningly high all over the eurozone. These people are wandering and lost. They are slumming and rioting from Athens to London, and not one politician in power has a viable plan for what to do about it.

The United States is a step behind this curve but going the same way, with unemployment among this generation in the 18-19% range, according to official statistics (12 years ago, it was 6%). The trend line is still up. Looking at the broad measure of all people who gave up applying or who are working in low-wage part-time jobs and begging for more hours, we are now in the third year of a gigantic demographic shift in which young people are being shut out by the millions.

Step back from this a moment and you realize just how crazily inexcusable this situation is. The digital age is requiring all kinds of new skills from workers, and no group is more adaptable in this respect than young people. This entire generation is comfortable with digital media in a way that their parents are not. This should be a time when the marketability of young minds should be at its height.

What’s gone wrong? It’s not that there is no work to do. There is always plenty of work to do at some price. And earning some wage is better than earning nothing at all. And least you get your foot in the door. The list of barriers to entry is a long one. It includes mandated benefits that business can’t afford: the restrictions on moving people in and out of firms, fears of legal liability, mismatches between state-funded education and real-world workplace demands.

But let’s just deal with the no-brainer: the minimum wage. This policy is a human rights violation. It forbids workers from negotiating directly with an employer and coming to mutually agreed-upon terms of employment.

The minimum wage says to workers the police power of the state prohibits you from offering your services for less than $7.25 per hour. If you strike such a deal, heads will roll. You might want to work for less, and your employer might be hip to this too, but the law absolutely forbids it. If you are caught making such a deal, you will be thrown out on the street where you belong.

How does this help anyone? It helps existing workers, perhaps, by lessening competition for their jobs. But it also guarantees a certain level of unemployment. How much? Art Carden at Forbes cites research showing that among the youth population of minorities, the minimum wage increases of the last three years have caused more job loss and unemployment than the recession itself.

This sounds about right, but these kinds of issues are notoriously difficult to quantify. All we do know is that the high minimum wage shuts workers out of the market. We don’t know by how much precisely, and we don’t know how many people would be suddenly employable if it were repealed. All we know is that repeal would help fix a disastrous situation.

Frankly, I find it ridiculously hypocritical for any politician to whine about youth unemployment while not pushing to repeal laws that make employment illegal. If you make work illegal under a certain wage ceiling, guess what? You are going to see more unemployment than you otherwise would. This is not rocket science.

And how high is the minimum wage? It is nearly twice as high today as when it was first implemented in 1938. The first minimum wage was $0.25, which translates to about $4 today. Would that we had the New Deal back today! Millions would suddenly be back at work. Some politician should propose the FDR Memorial Labor Act that reduces the minimum wage to $4. That would be fun to watch.

But let me tell you about some amazing research that will change the way you look at these laws. The researcher here is Thomas C. Leonard. His remarkable paper “Retrospectives: Eugenics and Economics in the Progressive Era” was published in The Journal of Economic Perspectives in 1995 (here).

Leonard proves that the minimum wage is not a case of good intentions gone wrong. It is not as if people didn’t understand the fallout. Quite the reverse. It was originally conceived of as a means to toss people out of the workforce. To prove this, he returns to the economic writings of the Progressive Era to reveal some remarkable prehistory here.

Leonard summarizes: “Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it performed the eugenic service ridding the labor force of the ‘unemployable.'”

He offers massive proof in the words of the economists themselves, all written for respectable journals and books at the time.

“‘[O]f all ways of dealing with these unfortunate parasites,’ Sidney Webb (1912, Page 992) opined in the Journal of Political Economy, ‘the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.'”

Henry Rogers Seager: “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups, we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization.” The minimum wage was central to the isolation strategy.

Royal Meeker, Wilson’s labor czar, wrote: “It is much better to enact a minimum wage law, even if it deprives these unfortunates of work…Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”

Florence Kelley, whom Leonard says was “perhaps the most influential U.S. labor reformer of the day,” “endorsed the Australian minimum wage law as ‘redeeming the sweated trades’ by preventing the ‘unbridled competition’ of the unemployable, the ‘women, children and Chinese [who] were reducing all the employees to starvation.'”

Frank Taussig was even more brazen. In the context of wage floors, he said that they were a good way to deal with the criminal class and the tramps who “should simply be stamped out.” “We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums and prevented from
propagating their kind.”

This was about 100 years ago, when people were writing this kind of disgusting material as a defense of how the minimum wage would work. Well, in this sense, the minimum wage has worked. It has helped to shut out a generation from participating in the division of labor. Now they wander the streets in Europe and America, despairing for the future. They will grow older like the rest of us and some day be adults — without training, without work experience, without the learning and socialization that comes with productive employment.

Good intentions gone awry? Think again. There are certain people with influence over the shape of the law whose stated regrets about the current situation are just a bit implausible. Do they care about the rise of the NEETs? Do they care enough to repeal their stupid laws that created them?


Jeffrey Tucker


A Parting Shot:

A repeal of all the stupidity that created the NEETs? We wouldn’t hold our breath. A recent article from the economically benighted New York Times reports on the NEETs in the UK:

“Classified by statisticians as NEETs (not in education, employment or training), they number about 1.3 million, or one of every five 16-to-24-year-olds in the country.

“While youth unemployment has long been a chronic issue here, experts say the British government’s debt-reduction commitment to rein in social spending appears to be making the problem worse. Insufficient job training and apprenticeship programs, they argue, contribute to the large pool of permanently unemployed young people in Britain.

“‘It is patently wrong for young people to have such a poor start in life, when there is so much more we could be doing,’ said Hilary Steedman, an economist at the London School of Economics. ‘Just because they did not go to university does not mean they don’t want to work.'”

This is the logic that results in the problem. We suggest that government programs — including public schools — aren’t the ideal way to prepare young people to become creators of wealth. Spending on this stuff isn’t just useless. It’s outright destructive. The state spending actually turns those who otherwise would have become productive members of the work force into dead weight… with money from the private sector that could have otherwise generated useful endeavors that would have made those young people into far more useful, adaptive human beings.

Instead there are growing numbers of hopeless, depressed and potentially violent unemployed young people. The Occupy movement (Remember that?) was a mild taste of the results. The recent riots in England and the current riots in Greece were a bit more… intense… manifestation of this demographic’s frustration.

We suspect things will get worse, both “over there” and even over here at least for a spell. Though, as we said earlier, we’d still put our money on America to initiate a rebirth.

China may emerge as the dominant military force in the world over the next decade or so. Bully for them. America’s most productive days were the days when it focused on industry and creating wealth… instead of squandering its wealth on foreign military adventures.


Gary Gibson