Art Carden on SOTU
Over at the “Division of Labor” blog, Art Carden has a great post on President Obama’s State of the Union address. (Unfortunately, clicking on the link takes you to the site but not necessarily to the specific post.)
Rather than repeating his insights, I want to point out that he understated one of his criticisms. His criticism #1 is as follows:
“One in ten Americans still can’t find work.” To this, I would respond that the President needs to watch the Hayek v. Keynes “Fear the Boom and Bust” video, Google “regime uncertainty” and read what Robert Higgs has written about the Great Depression, and then introduce legislation to repeal the minimum wage. Seriously.
I agree with all of this, but my criticism is that he takes as given Obama’s statement, “One in ten Americans still can’t find work.” I’m guessing that Obama is referring to the 10% unemployment rate. But of those 10%, a substantial portion can find work but chooses not to. This is not a statement that they are necessarily lazy; instead, it’s a statement that they’re rational.
Imagine you just got laid off from a job paying $30 an hour and you go out looking. The first week you look, you are offered a job for $16 an hour. Do you take it? Not necessarily. You think you can do better. And if you qualify for unemployment benefits, your “reservation wage,” the wage at which you will take a job, is higher than otherwise.
So it’s not correct to say that these 10% cannot find work. Indeed, of those in the 10% pool who really can’t find work, a large fraction is likely to be workers who would accept a job at less than the minimum wage but cannot be legally paid that amount.