How To Decrease Unemployment

Unemployment happens for many reasons, as we all know. Frictional, structural, "classical", etc. Right now we have unemployment because the economy has shrank and output has fallen. Naturally, jobs were lost. What is the solution? Well the stimulus has not done much. I know a bunch of DC economists whose reputations were wrapped up in the stimulus are coming out and praising the amount of jobs it has saved. Big surprise there. Look, I am not an ideologue. I am a pragmatist. Unemployment peaked at 10.1% in October of 2009 and is now around 9.7%. So we are yet to see any large benefits, however the stimulus could have prevented large increases in unemployment. That is unlikely as most of the areas where stimulus money went will take years and years to actually have an effect. Read on to see why.

Taking a look at the raw rate is not enough. Who exactly is suffering the most? Unemployment for people without a high school diploma and aged 25+ has almost doubled from its regular average to 15.2%. For those with only a high school diploma, almost doubled to 10.1%. People with some college or an associate's degree: more than doubled to 8.5%. Bachelor's degree or higher: about a 40% increase to a whopping 4.9% (about a 2% difference from the average rate from 2000-2007). The obvious trend here is that people with less education are experiencing far more unemployment than highly educated people. No surprise there. But it is surprising just how low the bachelor's or higher rate is. Keep in mind that these rates are for people aged 25+ so there is no "high school-er" effect going on here. The simple fact is that our labor force is split between skilled and unskilled labor. I am convinced that most of the "skilled" labor is not really skilled at all but is actually just protected by certification and licensing laws, which is why our unemployment figures are skewed. Of course licensing laws are always created in the interests of powerful industry lobbies, not consumers.
Skilled labor can compete with unskilled but not the other way around. Unskilled labor faces barriers to entry, creating income gaps and more unemployment in the unskilled sector. Furthermore, job mobility is significantly decreased by certification / licensing requirements in both sectors. Increasingly, we are seeing more and more specialization to the point where choosing a career precludes the possibility of ever changing careers. I know that specialization is good for the economy (division of labor and competitive advantage) but we cannot force specialization. For example, a math teacher could probably teach English, a surgeon could be a general practitioner, the discipline and rule oriented nature of a marine could well be applied to a programming or accounting environment, or even a legal environment, a mechanic could probably pick up electric wiring or plumbing, practically anyone can be an office worker, you get the idea. We can specialize but that does not mean that some skills are nontransferable. When I say we "force" specialization I mean that we make it straight up illegal to simply shift from one career into a different but tangential career without acquiring the appropriate licenses.

Quite frankly this results in unhappiness. We become stuck in jobs in which we are bored. It stifles our potential. About 1/5 of the economy is affected by occupational licensing. Of course it is argued that licensing protects consumers from fraud and because holding a license in a lot of professions means having insurance it gives consumers a safety net. First of all, fraudulent behavior is MORE lucrative because of licensing, which increases the wages of license holders by restricting the supply of labor. Furthermore, fraud is illegal with or without licensing. It is the number one job of government to find, prosecute, and deter crime. Fraud is a crime and when licensing makes a service or product cost more, then crime pays. The only way to prevent crime is to match it with punishment. Let the courts sort that out. Moreover, licensing boards are often the fraudulent ones! Studies have shown that CPA exams have magically gotten more difficult in times of high unemployment. They have also shown that licensing boards are less likely to punish their own members, which allows real fraud to persist within a seemingly legitimate environment. Don't take my word for it, read this article. One also has to wonder, if these licensing laws protect consumers, why weren't consumers the ones pressuring law makers for them, as was the case with the recent consumer protection laws involving credit card companies? Are we to believe that the same people who run an industry have our well-being at heart when they literally write laws? I'm not convinced. If we are to have consumer protection laws, they should at least come from an overwhelming desire for them within the general public, not interest groups --- I think that is the whole idea behind democracy...

Now it may or may not be true that licensing protects us from bad services or products. I am sure that for some people, getting that license made them better at what they do, but for others who are "naturals", it was just another hoop to jump through. Well we can have the best of both worlds. Keep the licensing infrastructure (provided that it is self-sufficient, dues cover costs, etc) but make it OPTIONAL. Then, make it an absolute law that FULL disclosure is MANDATORY. Businesses and people MUST tell consumers right when they meet them whether or not they are licensed, what licenses they hold, if they are insured etc. OK so now consumers know who is licensed and insured and can make an informed choice. If they want to roll the dice, so be it. They are doing so while being completely informed. Furthermore, fraud will DECREASE because the increased competition in traditional licensed professions will decrease the return to fraudulent activity. Unemployment will also DECREASE because unskilled and skilled workers alike will be able to shift into ANY sector of the economy if they so desire or even start their own company. A lot of unemployment happens because capital markets move at light speed. So the capital economy can shift in a new direction in the blink of an eye. Labor takes time to follow and in the meantime, jobs are lost, people get marginalized, things get bad. Speeding up labor will make unemployment spells shorter. It will make sure that willing and able people can find a new job in the most productive sectors of the economy, just as capital does. Overall, this should bring the economy closer to its maximum productive capacity. Speeding up labor will greatly enhance economic efficiency by allowing workers to shift with capital into any sector of the economy. Of course a bus driver will not become a surgeon as no one in their right mind would pay for a surgery from anyone except a qualified doctor. But bus drivers could become taxi drivers when they get off work (taxiing is illegal in New York without a license). The market will decide what a license really means.

So if someone is cheating consumers by offering teaser prices and then shorting the consumer on quality --- sounds like consumers should sue and/or a criminal investigation should take place. This happens everyday in our world and we have systems in place to deal with it. It wouldn't crowd the courts either because most people do their due diligence when buying a product/service with sites like Yelp or Google or Consumer Reports. Also, we can just increase the punishment for fraud until it deters it back to "normal" levels if need be. Most importantly, we would be a happier society because our options would be wide open. The heavy choices in our lives --- what we're going to do, who we are going to be --- will get a little lighter with the knowledge that we can always change ourselves; that we are only limited by our ability, determination, and integrity --- NOT by the pieces of paper on our wall.