It is noteworthy that the same thing happened when the Obama administration bailed out General Motors. The non-unionized workers, even those in the most efficient plants, lost everything: jobs and retirement benefits. Unionized workers allied with the president kept both.
In the same State of the Union speech, the president did not just ask employers to raise wages. He also required them to pay a higher minimum wage if they had a federal contract. Hearing this, employers can only wonder what further wage controls will be proposed next.
If more federal wage controls do come, it is not even clear that lay-offs could be used as they were in the 1930’s to save businesses from closing. Economist Paul Krugman has proposed federal controls on the right to lay-off or fire workers. The president himself has proposed giving workers the right to sue if they apply for a job and are turned down.
The economy itself provides sufficent reason to be cautious about hiring. The Federal Reserve’s low interest rate policy and regulatory rules make it very difficult to persuade a bank to finance expansion. And Obamacare creates a strong disincentive to hire the 50th employee.
With all this in the background, why would any employer in 2014 hire a new worker if not absolutely necessary? This is especially true for small businesses, and small businesses have always been the chief source of new jobs.
This is all part of a larger picture. To thrive, an economy needs free prices. Free prices not only provide the truthful signals that producers and consumers need in order to make good decisions. They also provide the discipline that any economic system requires.
The Soviet Union’s collapse was an object lesson for the world. No system can survive in the long run without free prices, and wages are among the most important prices.
The Obama administration’s whole approach is to try to substitute government regulation for the private price system. As a result, we only have “engineered” prices left on Wall Street and in medicine, and both finance and medicine are in grave jeopardy as a direct result.
Fixing the economy is not all that difficult. All we have to do is let producers and consumers sort out prices together and the engine of job growth will start up. Meanwhile the present administration offers one initiative after another guaranteed to keep the middle class and especially the poor in a state of economic hopelessness.
Read more at Against Crony Capitalism.org