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What Needs to be Done to Create Jobs in the United States


What Not to Do

Fiscal stimulus and increased money supply, mainstays of the present approach to rescue the U.S. economy, have only a loose connection to the creation of jobs in the United States. The cash subsidies to banks have been used to pay bonuses to present bank employees and buy other banks as well as stimulate lending. Since receiving bailout money, such institutions have increased their request for H-1B visas to bring foreign workers into this country instead of hiring Americans. This trickle-down approach to job creation won’t work. The government can’t force people or banks to use money in a particular way.

Additionally, the existing measures that borrow money (in the trillions of dollars) for immediate job creation will put a strain on future taxpayers. The share of the federal budget devoted to interest payments (to the Chinese central bank and others) will increase. The federal government itself may have to pay a higher interest rate if its borrowing becomes excessive. Expanded money supply in relation to fixed or declining Gross Domestic Product will produce inflation.


What to Do

The federal government needs to target its regulatory activities to creation of jobs for U.S. citizens both to stabilize the economy and restore confidence among potential consumers. It needs to focus on the physical basis of jobs - in particular, labor. The first three proposals have to do with amending the Fair Labor Standards Act of 1938.

(1) To promote a four-day workweek, Congress and the Administration should amend the Fair Labor Standards Act (FLSA) with respect to the standard workweek. The 40-hour standard workweek should be replaced by a 32-hour standard workweek. In subsection (a)(1) of the law, strike out “forty” hours and insert in its place “thirty-two hours”. A similar change should take place in subsection (b)(3). This change will require overtime pay (time-and-one-half) to be paid after a covered employee works thirty-two hours in a week rather than forty.

(2) Remove the FLSA exemption with respect to managerial and professional employees. Delete the exemption to the overtime-payment rule in Section 13 (1) : “any employee employed in a bona fide executive, administrative or professional employee.” Exemptions might remain for self-employed workers, CEOs and others who can effectively set their own work schedules, and seasonal workers.

(3) Add a section to the Fair Labor Standards Act or to the tax code that would convert overtime pay from extra compensation for the employee to a tax due the federal government. The employer would still be required to pay the half-time premium for overtime work but the employee would not benefit from doing this work. The premium wage would be instead paid to the government.

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Should the federal government mandate a certain adjustment in the rate of pay while work hours change? No, let the free market work. At first glance, it would seem that workers currently employed would lose income by working fewer weekly hours at a fixed rate of pay. In the long run, however, pay rates are set by the law of supply and demand. Supply is defined in terms of worker-hours. This means the number of people employed by the average number of hours that they work in a given period of time. A legislated reduction in the average workweek would shrink labor supply. Reduced supply in combination with a fixed level of demand increases the price of the commodity, which in this case is human labor.

While the resulting increase in employment would tend to increase labor supply, this would take place more slowly. It would also result in increased consumer demand, again tending to increase the price of labor. Studies have shown a positive correlation between wages and reductions in work hours. (See Paul H. Douglas, Real Wages in the United States: 1890-1926.) This has sometimes been called the Simiand effect.

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However, the law of supply and demand only works within a closed system. If the labor supply is open-ended, the price of labor may not rise. Instead, employers will hire from a pool of workers outside the system. So, to restore confidence in U.S. employment, the federal government needs to close the system. This can be done in three ways:

(1) Crack down on illegal immigration. Impose tighter border security, improve techniques of documentation, and sanction employers hiring workers who have entered the United States illegally.

(2) End or sharply curtail the H-1B visa program that allows foreigners temporarily to enter the United States to take jobs. Surely, with the amount of money spent on education, the United States can or does produce enough people to fill the jobs that require special skills.

(3) End our uncritical commitment to free trade. We should instead develop a new model of trade focused on environmental protection and economic development. This means that national governments should be permitted to use tariffs to enforce certain regulatory objectives. NAFTA, the WTO, and other international trade agreements would need to be modified to permit such use of tariffs. The precondition is a new international consensus to replace “free trade” that would promote objectives such as these:

(a) Unemployment is a problem in all industrialized nations which is best addressed by shorter hours of work.

(b) National governments that allow unusually long work hours or low rates of pay relative to their stage of industrial development may fairly be sanctioned by the international community. Compensatory tariffs may be placed on products exported from them.

(c) Similar sanctions can be applied to businesses which produce goods in a way that despoils the natural environment. Whatever cost savings are achieved in this way would be offset by increased tariffs.

The U.S. Government cannot unilaterally change the world trading system although it would have much influence upon the process. The first step is, therefore, a broad set of discussions with governments and others around the world for the purpose of achieving a new consensus with respect to economic development. Domestically, national governments can use taxes to enforce regulation; internationally, they can use tariffs. Ultimately, the world trading system should not pit nation against nation but instead allow nations individually and collectively to regulate international business to the benefit of the world’s people and the natural environment. This can be done through a system of employer-specific tariffs.


Other considerations or techniques pertinent to job creation:

(1) If the present “time-and-one-half” pay provision does not create a sufficient incentive for employers to eliminate overtime work, the Fair Labor Standards Act can be amended in subsection (b) by striking “time-and-one-half” and substituting “two times” or some other number that would make it more costly to schedule overtime work.

(2) Health-care costs are a powerful disincentive to hiring new employees. We need to reduce the cost of health care, not merely increase insurance coverage. The problem with this industry is that government-sanctioned monopolies control the supply and insurance - i.e., someone else pays - is the primary mechanism for payment. However, replacement of this badly flawed system with another goes beyond the scope of this paper.

(3) The payroll or FICA tax is a close second to the income tax in raising money for the federal government. This is a tax on income earned from wages. We need to tax investment income more heavily and reduce the tax burden for working people and employers who engage their services.

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