07.31.2009 0

The Barstool Economist: Governments Negative Effect on the Labor Market

  • On: 08/26/2009 10:40:10
  • In: Economy

  • Government’s Negative Effect on the Labor Market

    By Justin Williams

    On the first Friday of every month, the Department of Labor through the Bureau of Labor Statistics releases the current number of unemployed workers in America. Often times as with both George W. Bush and Barack Obama, politicians expand federal employment to lower that number and create the false illusion of real job creation.

    As, pundits and economists debated on whether government spending would bring us out of the current “Great Recession,” one thing was for sure: the number of federal employees would increase. And even though government jobs were created and some people were no longer unemployed, new studies show that the real result of all this Potemkin Village-building is a long-term negative economic impact.

    Economists Matthew Higgins, Andrew Young, and Daniel Levy have found that, when looking at sample data in the United States from 1970 to 1998, there is a negative correlation between creating government jobs and real economic growth. And that includes all federal, state, local government offices.

    A large part of the problem, of course, is that public spending crowds out private spending. Or in other words: every dollar the government spends is one more dollar being bid away from private industry.

    And this goes for employment too. Every employee the government hires is one less person for the private sector to employ in productive jobs. Now, of course, if the government was just as efficient and productive as the private sector then this would not be a problem.

    But this study’s result show that productivity decreases, not increases, when more federal employees are put on the taxpayers tab. Due to lack of proper price and profit structure, government misallocates resources, produces an inferior product – and runs up the deficit all at the same time.

    Yet, as bad as that is, it gets even worse.

    Within every single category of government employee (federal, state, and local), government wages grew much faster than non-government wages. For example, in the chart below, the difference is over 30 percent in every case. The worse example is local government employee’s wages. Throughout the U.S., they increased at a rate of 70 percent higher than non-governmental wages.

    This type of wage gap makes it hard for the private sector to compete with the government for employees. Not to mention the other benefits that go along with a government job, including job security, more benefits, and the bureaucratic axiom that anything short of taking a nap is “close enough for government work.”

    In other words, every time a new future employee enters the labor market from college, high school, or anywhere else, there is more of an incentive for them to take a government job than a private sector job. And this, in turn, adds to the country’s burgeoning productivity loss – at astronomical prices.

    So finally, the only solution that can be offered here is to eliminate many of the unnecessary government jobs that already create an overwhelming amount of red tape and higher taxes.

    But sadly it seems that this administration’s policy will do more to expand government jobs than eliminate them. And with that, the Obama White House will cause an enormous amount of productivity losses for generations to come – all the while touting its bogus record for “job creation.”

    Justin Williams is the Senior Commentary Editor of ALG News Bureau and as always he takes questions and comments on the Barstool at [email protected]


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