The People Who Need and Deserve Our Help

One argument Jordan Peterson made stood out when I first heard of him.

Peterson discussed the challenges faced by individuals with an IQ below 83. He emphasized that people in this IQ range often struggle with tasks that require even moderate levels of cognitive ability, making traditional employment difficult.

Peterson argued that this segment of the population, constituting roughly 10% of people, is often unable to perform many jobs without supervision or make significant errors. This presents an important societal challenge, as these individuals need to be integrated into society (and the economy) without being marginalized.

Peterson pointed out that the U.S. military doesn’t accept recruits with an IQ below 83, as experience has shown they are more likely to become a liability than an asset.

This policy underscores the broader issue that many roles in modern society are too complex for those with lower cognitive abilities.

Peterson concluded these individuals require special consideration and tailored support to thrive.

Let’s expand that special consideration to unskilled laborers. The average IQ of an unskilled laborer typically falls around 90.

How many Americans have an IQ of 90 or less (which includes the sub-83 IQers Peterson talks about above)? (Skip the italics if you don’t want the math.)

The distribution of IQ scores in the population follows a normal distribution (bell curve), with an average IQ score set at 100 and a standard deviation of 15. This means that most people (about 68%) have an IQ score between 85 and 115.

Given the normal distribution of IQ scores:

• Approximately 50% of the population has an IQ score below 100.
• Roughly 16% of the population has an IQ score below 85.
• Approximately 2.5% of the population has an IQ score below 70.

To determine the percentage of the American population with an IQ of 90 or below, we look at the distribution:

An IQ of 90 is about two-thirds of a standard deviation below the mean (100 – 90 = 10, and 10/15 ≈ 0.67).

Using the cumulative distribution function (CDF) of a normal distribution, we find that the area under the curve to the left of 90 (or a z-score of -0.67) is approximately 25%.

Therefore, about 25% of Americans have an IQ of 90 or below.

Twenty-five percent. One-quarter of the population. My friend, that’s over 83 million Americans.

As Peterson mentioned in the link above, liberals think if you spread educational resources around, everyone will get educated to the same level. This simply isn’t true.

Conservatives think if people would just get up off their asses, they’d get a well-paying job. This is also untrue.

Though I’m a free trader, I can see the damage NAFTA and its successor free trade agreement have wrought on these Americans.

Unemployment isn’t just a statistical blip for unskilled workers; it’s a persistent and pervasive issue affecting Europe and North America.

The unemployment rate for those with only basic education is a staggering 9.3% in OECD countries. This isn’t a minor inconvenience; it’s a systemic issue that needs addressing.

Let’s examine why unskilled laborers and those with lower cognitive abilities are left out in the cold and, crucially, what we can do to fix it.

The Wage-Setting Trap

One common scapegoat for high unemployment among low-skilled workers is the minimum wage. The theory goes that setting a wage floor above the productivity level of low-skilled workers will price them out of the market. If an employer has to pay more than the worker’s output is worth, they simply won’t hire. But to my immense surprise, this theory doesn’t hold water when we look at real-world data.

In reality, the negative impact of minimum wages on employment isn’t as clear-cut.

In countries where firms have monopsony power (where they are the dominant employer and thus can set wages), a modest minimum wage increase can boost employment.

This is because it forces these firms to pay closer to the actual market value of labor, making jobs more attractive without reducing the number of positions available.

Moreover, in many OECD countries, collective bargaining agreements set wage floors for various sectors and occupations. These agreements don’t necessarily lead to higher unemployment.

Countries like the Scandinavian nations, which have high union density and coordinated wage bargaining, often see lower unemployment rates among low-skilled workers.

Employment Policy Failures

Generous unemployment benefits are often blamed for reducing the incentive to work. If people can live comfortably on unemployment checks, why would they rush to take a job? This logic seems sound, but it’s overly simplistic.

While generous benefits can reduce the intensity of job searches, they also allow for better job matching.

When people have time to find jobs that suit their skills and preferences, they are less likely to cycle back into unemployment.

However, the duration of these benefits is crucial. Long-term unemployment benefits can trap workers in joblessness, particularly the low-skilled, who already face significant barriers to re-entry into the workforce.

The solution here isn’t to slash benefits but to combine them with active labor market policies (ALMPs).

These include job search assistance, training programs, and hiring subsidies, which make the unemployed more attractive to employers and more efficient in their job search.

Globalization’s Double-Edged Sword

International trade and labor migration are often touted as boons for the economy but also present challenges for low-skilled workers.

As developed countries trade with emerging economies, the demand for unskilled labor in high-income countries diminishes. Jobs that require low levels of education and skill are outsourced to places where labor is cheaper.

Furthermore, increased immigration increases competition for low-skilled jobs. If immigrants are willing to work for less, wages and employment prospects for native low-skilled workers will decrease.

However, this issue is more complex than it seems. Immigrants also contribute to the demand for goods and services, potentially creating jobs.

The key is managing immigration to balance these effects, ensuring that the influx of workers doesn’t overwhelm the job market, something the President seems to have just learned.

Monetary Policy and Aggregate Demand

Monetary policy plays a significant role in determining employment levels. High real interest rates can stifle investment and consumption, increasing unemployment.

Low-skilled workers are especially vulnerable during economic downturns because they are often the first to be laid off and the last to be rehired.

The persistence of high unemployment among low-skilled workers during recessions leads to structural unemployment. Long-term joblessness erodes skills and makes workers less attractive to employers, creating a vicious cycle.

The key is keeping interest rates at a level that spurs employment.

The Role of Active Labor Market Policies

Active labor market policies (ALMPs) are critical in combating unemployment among low-skilled workers. These policies include:

1. Job Search Assistance: Helping workers find available jobs more efficiently.

2. Training Programs: Enhancing workers’ skills to make them more competitive.

3. Hiring Subsidies: Encouraging employers to hire workers who might otherwise be considered too risky.

Countries that invest heavily in ALMPs, like Denmark and the Netherlands, see significantly lower unemployment rates among low-skilled workers. These programs improve job matching and ensure that workers remain engaged in the labor market, preventing the erosion of skills.

Solutions to the Problem

So, what can address the high unemployment rates among low-skilled workers and those with lower cognitive abilities? Here are some practical solutions:

Reform Wage-Setting Mechanisms: Ensure minimum wages are set at levels that don’t price low-skilled workers out of the market. This can be achieved by tying minimum wage increases to productivity growth rather than arbitrary benchmarks.

Enhance Active Labor Market Policies: Governments need to increase investment in ALMPs. This includes better funding for job search assistance, vocational training programs, and hiring subsidies. These measures help bridge the gap between job seekers and available positions.

Manage Immigration Effectively: Implement immigration policies that balance the influx of low-skilled workers with the domestic labor market’s capacity to absorb them. This can include quotas or temporary work permits that adjust according to economic conditions.

Encourage Lifelong Learning: Promote continuous education and training programs for all workers, regardless of their current employment status. This ensures that the workforce remains adaptable and competitive in a rapidly changing job market.

Promote Inclusive Economic Policies: Governments should focus on policies that promote economic growth across all sectors, ensuring that the benefits of globalization and technological advancements are widely shared. This includes investing in infrastructure and supporting industries that create jobs for low-skilled workers.

Wrap Up

High unemployment rates among low-skilled workers and those with lower cognitive abilities aren’t an inevitable consequence of modern economies. They result from specific policy choices and economic conditions that can be changed.

By reforming wage-setting mechanisms, enhancing active labor market policies, effectively managing immigration, encouraging lifelong learning, and promoting inclusive economic policies, we can create a more equitable and prosperous labor market for all.

With the right mix of policies, we can ensure that everyone, regardless of their skill level or cognitive abilities, has the opportunity to contribute to and benefit from economic growth. The path to full employment for all workers is clear — we just need the will to follow it.