The most important feature of President Obama’s “jobs speech” to Congress last week is this: For the first time in his presidency Barack Obama actually sounded like he really and truly believes that economic incentives matter in the labor market.
Forget the details of the proposals for a moment. They may or may not stand up to scrutiny. Underlying all of the president’s new ideas is a common theme: to encourage employers to hire more workers, we need policies that reduce the cost of labor. It’s the basic law of demand all students learn in Econ 101. If something is less costly, people (in this case, employers) will buy more of it.
Why is this principle so important? Because the first two and one half years of the Obama presidency has been nothing less than all-out war on job creation of any sort. Virtually every major domestic program this president has endorsed will make hiring new workers more expensive, and therefore less likely.
Take ObamaCare. Beginning in 2014 most employers will be required to provide very expensive health insurance coverage for their employees or pay a fine if they fail to do so. The Congressional Budget Office estimates that the required family coverage will cost close to $15,000. That’s equal to almost half the annual wages of a $15-an-hour employee — the equivalent of a $6-an-hour health care minimum wage!
Employers may be tempted to avoid that cost by shelving the health insurance and paying a $2,000-per-worker fine. But if a lot of them do that, does anybody seriously think the fine is going to remain that low? The $2,000 penalty is just the opening bid, needed to get the original ObamaCare law passed by Congress. The history of employer penalties suggests that they don’t tend to diminish over time.
By way of contrast, consider the temporary payroll tax reduction, enacted last year to encourage hiring. President Obama wants to extend it going forward, and that’s probably a good idea. But for a $15-an-hour worker, that tax relief equals about 30 cents an hour. When you combine the 30 cent payroll-tax-cut carrot with the $6 mandated-health-insurance stick the employer incentive is overwhelmingly against hiring more workers.
The new health reform law is just one example of the anti-job, anti-labor agenda of the Obama administration. From environmental law to regulatory policy to tax and labor law, virtually every domestic policy the White House favors will make hiring someone more expensive and less attractive than it otherwise would have been.
Take the new tax on medical devices, passed as part of health reform. A study by labor economists Harold and Diana Furchtgott-Roth predicts that 43,000 American jobs will be lost to foreign countries because of the new levy. And these are good jobs, by the way. They pay well above the average wage and they are in a high tech sector — precisely the type of job opportunities we shouldn’t want to go overseas.
The administration’s policies toward labor unions are another example of its war on job creation. The so-called “card check” proposal is an administration plan to allow unions to be created without a secret ballot vote by employees. National Labor Relations Board (NLRB) proposed regulations will also change the rules in a way that makes it easier to unionize more employers.
But what is a labor union? From the days of the medieval guilds to the current era the goal has always been the same: form a monopoly and try to secure above-market wages. Yet that strategy only works so long as workers not in the union (the scabs) can be kept away from the job site. In a free labor market, scabs have just as much right to sell their services to potential employers as anyone else. To prevent that from happening, unions all too often resort to physical force to keep their competition away. This is why the history of the union movement has been such a violent one. Even in the absence of violence, the only purpose of a picket line is to intimidate. In a very real sense there’s no such thing as a peaceful picket line.
Then there is the administration’s approach to tax policy, which can be summarized in two words: tax capital. As every economics textbook teaches, capital is what makes labor more productive. The more capital there is, the more labor can produce and the higher the wage rate. If you want wages to be as high as possible, remove all taxes on capital. It’s just that simple.
Obama tax policy is the opposite of that approach. Every time the president talks about the need for higher taxes, he is talking about higher rates for dividends, interest and capital gains. Of course, he doesn’t usually word it that way. More often than not, he says he wants to tax rich people, like Warren Buffett. But under the president’s proposals Warren Buffett wouldn’t be harmed at all. He wouldn’t miss a single meal. But capital that Buffett might have provided to build factories, create new machinery and make better tools so that workers can produce more and earn more will instead be used by the federal government to fund more entitlement spending.
Barack Obama has a symbiotic relationship with union officials, who live off of union member dues. In some ways, they are cut from the same cloth. But he is no friend of the millions of people who are out of work and he is no friend of the millions of workers who have a job, but are in danger of losing it.
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