Steve Chapman

Tomorrow, many Americans will be enjoying a respite from the incessant demands of their jobs. But many Americans will be wishing desperately they could trade the holiday for the incessant demands of a job. This year, given the state of the economy, Labor Day should be called Not Enough Labor Day.

The unemployment rate during the recent recession peaked at 10.1 percent last October, and in August, it was 9.6 percent -- an increase from July. Nearly 15 million people are looking for suitable work and not finding it.

Most of the loss of employment is the result of large events: the financial crisis, the housing bust and the general collapse of demand. Congress, the administration and the Federal Reserve are straining to stimulate hiring through fiscal and monetary policies aimed at reviving growth.

But that is not all the government does to affect employment. Alas, much of what it does offsets the good it is trying to accomplish.

A sad example is the payroll tax, which impedes job creation in two ways. First, it imposes an extra cost on employers for hiring workers -- a cost they don't incur if they decide to replace workers with machinery. Second, it reduces the take-home pay of those hired, making it less attractive for them to work.

Richard Rogerson, an economist at Arizona State University and author of the new book "The Impact of Labor Taxes on Labor Supply," says the negative effect of payroll taxes is especially large when the revenues go to programs like Social Security. Evidence from Europe, he says, suggests that "a 10-percentage-point increase in labor taxes used to fund transfer programs leads to a reduction in hours worked of between 10 and 15 percentage points."

Many liberals admire Europeans for their civilized habit of working less than Americans do. But they used to work more. The change came about because higher taxes on that side of the Atlantic have greatly reduced the gains from working.

Generous social welfare benefits were another factor in sapping the European work ethic. But the United States is moving in the same direction. President Obama recently signed a bill extending unemployment insurance benefits, allowing those out of work to collect for up to 99 weeks.

There is something to be said for providing extra help to people who lose their jobs during hard times. But there is an unintended side effect: longer spells of unemployment. In the past year, the average duration has increased from 25 weeks to 34 weeks -- far above the average peak duration of 21 weeks during previous recessions over the past 65 years.


Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.
 

 
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