Government economic meddling doesn’t help. University of Chicago economist Casey Mulligan explains how government gets in the way:
Labor market distortions are a collection of factors that hold back employment, even when employees are creating a lot of value.
These distortions include difficulties in job search, income taxes, minimum-wage laws and incentives that are eroded by means-tested government benefits (determining whether someone should receive benefits based on things like the person’s income). These factors can be difficult to quantify individually, but we know from the poor employment results that at least some of them are important.
Labor market distortions have gotten progressively worse during this recession. The federal minimum wage, for example, was increased once shortly before the recession began, a second time in the summer of 2008, and yet again this summer. The housing collapse has also had multiple harmful effects, such as impeding families who might want to move out of some of the hardest-hit regions toward areas where the economy is doing better.
These types of factors can make a bad labor market much worse.
Some distortions may at least stabilize in coming months, but he adds:
Congress appears poised to further erode incentives to earn income as an accidental byproduct of its plans reforming health care. Nor do consumers seem to be spending in anticipation of a grand employment recovery.
Rather a helping hand we have the unhelpful foot of government, giving job-seekers an unpleasant kick in the rear.
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