Unemployment-The Libertarian View

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In economics there are different types of unemployment. The most common type is the voluntary unemployment of children and the elderly. This type of unemployment is a sign of prosperity not ill fortune. The type we are interested in is involuntary. Again there are more than one kind. Unemployment occurs naturally in any healthy economy as it changes and develops. The advent of the automobile meant a displacement of workers in the buggy industry. Changes in consumer tastes, improvement in production methods, more efficient competitors entering the market will all cause temporary labor displacement.

Chronic unemployment is only and can only be caused by one thing. That is the resistance of the unemployed worker to accept employment at a rate or in an area that reflects his current market value. Remember as long as any human desire remains unfilled there is work that can be done. This means there is always work. The problem generally speaking is that available work opportunities often require displaced workers to make major changes in their lifestyle, changes that may be painful both economically and emotionally. Add to this the problems caused by government interferences in the market that make it less than truly free. Wage and hour laws, mandated benefits that drive down what wages will be offered, various taxes, zoning rules, regulations and licenses all affect the ability of displaced workers to reenter the labor force. These interferences not only harm the prospects for potential employees, but hit hard those who would try to earn a living a self employed person.


Let’s look at a town called “Workington USA”. In Workington, a town of 20,000, a big industrial plant employs 1000 workers. Most of the towns other workers provide the public and private services that the community consumes. Without the plant’s generating of work economic dislocation would hit the Workington in ever widening circles. In 1999 the shoe drops General Industries, who own the big factory, announces the plant will be closed at year end and a new plant in Mexico will take its’ place. Workington stands to lose 1000 jobs that pay between forty and seventy thousand dollars per year. There are no jobs in the area for the unemployed to turn too. Seventy percent of the workers own area homes and will lose them in foreclosure action if their unemployment persists. For Workington the situation is bad. The unemployment insurance merely extends the period of relocation. It solves nothing.

The situation in Workington has been repeated in localities all across this country for years. American labor laws passed half a century ago have pushed the source of cheap labor that were once the backbone of industry outside of our borders. If we look at the situation of Workington only we don’t see the whole picture. First we must remember General Industries is better off. They made the decision to close a profitable plant in Workington, to open an even more profitable one in Mexico. The price of this is anger from the people of Workington, politicians, and many Americans who think with emotions rather than the cold logic demanded in economic inquiry. The stockholders of General Industries are better off. That includes thousands of ordinary Americans who own General Industries individually, through mutual funds, or through their pension plan.

American consumers are better off. General Industries is in a competitive business. Their advantage over their competitors gained by opening the Mexican plant won’t last forever. Ultimately, their profit advantage won’t be in selling the same volume of product at the old price, but with lower labor costs. It will come instead by selling far more products at far lower prices spreading the per unit profit gained by opening the Mexican plant over a greater volume of sales. This is an enormous gain to consumers.

Mexican workers gain. General Industries couldn’t hire a workforce in Mexico if the workers didn’t see it to their advantage to take the jobs offered. Mexico gains an increase in tax revenues and economic activities in the area around the new plant. Fewer Mexicans will feel the need to pack up and leave the home of their parents to head for greener pastures in the United States.

Many people in Workington will have to sell their homes or see them foreclosed. They stand to lose tens of thousands of dollars in equity. They may be forced to move with their families thousands of miles away to another job paying less money. They will have to squeeze their families into small apartments in urban areas. They will be angry at General Industries, angry at Mexico, and angry at the government for not bailing them out. What they won’t see is that they are still better off than 90% of the human race. They have a roof over their heads, food on the table, telephones, television, home computers, etc., etc. They have taken a step back to be sure, but countless others have taken a step forward with this change. Let’s not let our emotions focus on them and forget the big picture. Let’s not let government interfere with the natural process by which economies develop to ensure workers can always keep the same good paying jobs they have now.

In time adjustments are made in Workington, new types of low paying manufacturing and service jobs appear. As former General Industries employees leave a newer work force occupies their former homes. Many are renters, but some are able now to buy into the depressed Workington housing market. Many of these people are blacks, Hispanics, and Asians. The move to Workington is a positive one for them. They are just one other group of beneficiaries that should not be overlooked.

”’Tracy Ryan, chair of the Libertarian Party of Hawaii, can be reached by email at:”’ mailto:tracy.ahn.ryan@worldnet.att.net

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