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The Curious Task

Posted By Russ Roberts On September 6, 2011 @ 5:13 pm In Curious Task,Work | Comments Disabled

Paul Osternman, who is in the Sloan School of Management at MIT writes in the New York Times [1] (HT: Real Clear Politics [2]):

On Thursday, President Obama will deliver a major speech on America’s employment crisis. But too often, what is lost in the call for job creation is a clear idea of what jobs we want to create.

What jobs we want to create? Who is “we?” What does “create” mean? A clear idea? No one has a clear idea of how the government can create good jobs.

The next paragraph:

I recently led a research team to the Rio Grande Valley in Texas, where Gov. Rick Perry, a contender for the Republican presidential nomination, has advertised his track record of creating jobs. From January 2000 to January 2010, employment in the Valley grew by a remarkable 42 percent, compared with our nation’s anemic 1 percent job growth.

But the median wage for adults in the Valley between 2005 and 2008 was a stunningly low $8.14 an hour (in 2008 dollars). One in four employed adults earned less than $6.19 an hour. The Federal Reserve Bank of Dallas reported that the per capita income in the two metropolitan statistical areas spanning the Valley ranked lowest and second lowest in the nation.

Leading a research team to the Rio Grande Valley strikes me a bit strange. But never mind. The implication is that sure Perry can create jobs. But he doesn’t know how to create good ones.

Who does, Professor Osterman?

Do you really think Governor Perry just had his JobCreationMeter on the wrong setting, the crummy low-wage setting instead of the high-tech high-wage information economy setting and that’s why the Rio Grande Valley isn’t doing so well? And you’re writing this piece to make sure the President gets the setting right?

The next six paragraphs are about the challenges of living on low wages in the Rio Grande Valley. I guess the goal of the research team was to discover how hard it is to be poor in Texas. I knew that already.

So what’s the solution? Here is the rest of his piece:

Must we choose between job quality and quantity? We have solid evidence that when employees are paid better and given more opportunities within a company, the gains outweigh the costs. For example, after a living wage ordinance took effect for employees at the San Francisco International Airport, in 1999, turnover fell and productivity rose.

Contrary to the antigovernment rhetoric, there is much that the public sector can do to improve the quality of jobs.

A recent analysis by the Economic Policy Institute reported that 20 percent of federal contract employees earned less than the poverty level for a family of four, as opposed to 8 percent of traditional federal workers. Many low-wage jobs in the private sector (notably, the health care industry) are financed by taxpayers. The government can set an example by setting and enforcing wage standards for contractors.

When states and localities use their zoning powers to approve commercial projects, or offer tax incentives to attract new employers, they can require that workers be paid living wages; research shows this will not hurt job growth.

Labor standards have to be upgraded and enforced, particularly for those employers, typically in low-wage industries, who engage in “wage theft,” by failing to pay required overtime wages or misclassifying workers as independent contractors so that they do not receive the benefits to which they are entitled.

Americans have long believed that there should be a floor below which job quality does not fall. Today, polls show widespread support for upgrading employment standards, including raising the minimum wage — which is lower, in inflation-adjusted terms, than it was in 1968. It’s time for the federal government to take the lead in creating not just more jobs, but more good jobs. The job-growth mirage of the Rio Grande Valley cannot be our model.

So government just needs to pay more than the market will bear and force private employers to do the same. You might think this would reduce employment, but don’t worry, “research shows this will not hurt job growth.” I am comforted by this waving of hands.

Here is something else research shows–wages are determined by your productivity. Your productivity is a function of your skills, your investments in knowledge, your work ethic, and the capital that you have to work with. Laws that mandate higher wages don’t affect any of these things. They just make low-skilled workers more expensive.

Remember your Hayek:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

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[1] writes in the New York Times: http://www.nytimes.com/2011/09/06/opinion/yes-we-need-jobs-but-what-kind.html?_r=2&ref=opinion

[2] Real Clear Politics: http://www.realclearpolitics.com/

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