By: Richard K. Vedder
Investors Business Daily
January 17, 2014
While 50 years ago the federal government declared war on poverty, I would submit that in recent years it has led an undeclared but real new war: a War on Work. The government increasingly is using its coercive powers to punish people who want to work, creating a vast class of able-bodied Americans dependent on the government — and politicians — for their daily bread.
The statistics are startling. A smaller proportion of working-age Americans works today than when the recession officially ended 4-1/2 years ago (June 2009).
But this trend is not just a failure of policies to encourage economic recovery, such as the stimulus package and the ineffective, highly expansionary Federal Reserve monetary policy. The decline in work has been going on since at least 2000, under both Republican and Democratic administrations.
Suppose today we had the same proportion of Americans working that we did in 2000 — the end of the Clinton administration. We would have 14.6 million more workers in America — 4 million more than the number of unemployed.
Making reasonable assumptions about the productivity of these lost workers, the annual national output today would be over $2,500 per person higher — over $10,000 for a family of four. The actual recent recorded decline in real median income per household almost certainly would not have occurred. Much of the 21st-century growth dearth — the fall in growth rates from above 3% to only 2% a year — would have been averted.
While a vast number of government policies cause a decline in work, let me mention just six:
• Extended unemployment benefits.
• Expansion of food stamps.
• Higher taxes on workers, especially the most productive ones.
• Increases in Social Security disability payments.
• Increases in Pell Grants and other forms of federal higher education aid.
• Increases in minimum wage laws at local, state and federal levels.
Extended Unemployment Benefits
For almost eight decades, the federal-state unemployment insurance system provided 26 weeks of benefits for unemployed workers, with occasionally a modest short-term extension of those benefits (to typically 39 weeks) during recessions. In 2013, those benefits were given for 73 weeks — four years after the recession ended.
You pay people not to work — and many respond accordingly. In the month with the highest unemployment (10.8%) since the Great Depression, December 1982, the average duration of unemployment was 18.0 weeks; in December 2013, it was 37.1 weeks.
The 73-week benefit provision ended recently, but President Obama and the Senate want it extended — preventing the creation of many jobs.
If the government subsidizes the purchase of life’s most critical essential — food — it reduces the need to work. In 2000, 17.1 million Americans received food stamps; in October 2013, 47.6 million did.
Higher Taxes on Workers
A decade ago, in 2004, the top marginal federal income tax rate was 35%; today, it is about 43%, counting ObamaCare-related taxes. There is overwhelming empirical evidence that high income taxes impede economic growth. There has been a vast migration of Americans, for example, from the 41 states with state income taxes to the nine states that do not tax work income.
Social Security Disability
In 1990, about 4 million Americans and their dependents received Social Security disability payments — today 11 million do. At a time when health care is improving, and more Americans work in relatively less-risky nonindustrial settings, there has been an explosion in the number of people paid not to work because of alleged inability to do so.
Federal Student Financial Aid
In 2000, fewer than 4 million Americans received Pell Grants to attend college; by 2012, nearly 9 million did. From 2002 to 2012, total federal aid more than doubled, going from $83 billion to $170 billion. Yet large portions of those recipients never graduate, and many that do are truly underemployed — we increasingly have college-educated taxi drivers, janitors, bartenders and retail sales clerks.
Seven years ago today, the federal minimum wage was $5.15. By the end of this year, if Obama gets his way, it will be $9.25. Many cities and states have enacted huge minimum wage increases, at a time when the unemployment rate of black teenagers exceeds 35%.
Future Nobel laureate George Stigler noted in 1946 that minimum wage laws caused unemployment, and subsequent empirical evidence overwhelmingly shows that they kill jobs for the most vulnerable unskilled workers.
No nation ever achieved greatness when vast portions of its productive workforce were idle. America will not regain its economic vitality until it ends this war on work.
• Vedder is a senior fellow at the Independent Institute, professor of economics at Ohio University and co-author of “Out of Work: Unemployment and Government in America.”
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