New Jobs Numbers Suggest There’s More Work to Do on Free-Market Reform
As I said in my blog post on economic growth, the U.S. economy is benefitting from supply-side reforms but much remains to be done. Today’s jobs numbers are an indicator pointing in that direction. Job growth was modest, but the unemployment rate ticked down, and wage growth was slightly higher than expected.
At an unemployment rate of 3.9%, it should be expected that job growth will slow. Employers around the country are reporting that they are unable to fill vacancies. However, the labor force participation rate remains low, even if its decline has slowed recently. Further supply-side reform, such as loosening of occupational licensing requirements, is necessary. Minimum wage laws and other labor regulations need to be rethought. These discourage the hiring of unskilled labor and form a barrier to low-tech entrepreneurialism, as business owner Warren Meyer describes in Regulation magazine this summer.
As for wages, they are currently climbing at their fastest rate in ten years. Some commentators are puzzled that they are not rising faster given the tight labor market, but there does appear to be a simple explanation. As I outlined in my study Punching the Clock on a Smartphone App, workers are motivated by much more than wages these days. In order to hire and retain workers, businesses are therefore offering more benefits.
Many of these benefits, such as flexible working hours, cannot easily be quantified in monetary terms, especially in aggregate (as their value is subjective). There are, however, a very real benefit to the workers receiving them. Loosening of labor regulations that dictate the provisions of some benefits rather than others would therefore provide businesses much more flexibility to provide workers with the exact package of compensation and benefits they want. Yesterday’s announcement by the Department of Health and Human Services that it would allow the provision of more flexible short-term health insurance is one such reform.
There also remains uncertainty as to the effects of current trade policy. The U.S. trade deficit has actually increased this year as a strong economy allows for more imports (which are what we really want from trade). However, the threat of tariffs has led to some businesses losing jobs, with more losses expected. The real threat of a trade war, however, is not that more people will lose jobs than gain them, but that the jobs created are the wrong jobs, ones that allow for less innovation and future growth.
The prescription for a healthier economy, more people in the labor force, and people getting what they want from their work is the same as what led to strong growth and a tight labor market in the first place—more supply-side reforms. We may be reaching the limits of what the administration can do on its own, so it is time for Congress to pick up the baton and pass some real, lasting reforms.