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Thursday, July 16, 2009

The effect of a healthcare mandate is to increase the price of labor

And employers will employ fewer workers at a higher price than at a lower price.
requiring employers to provide health benefits to employees and potential employees will make the job situation today worse not better. It will intensify the current problem that people want to work more but are having a hard time getting employers to hire them.

The answer is the same in every recessionary environment. The price of labor must fall in order for the surplus of workers to be absorbed into the market. Raising the cost of hiring only further entrenches the problem and creates new forms of unemployment.

There is no real reason to prove these assertions empirically since they flow from the logic of economics. Nonetheless, Richard Vedder and Lowell Gallaway spent years accumulating evidence of the link between full employment and lower labor costs, on the one hand, and higher labor costs and unemployment on the other. What they found in their book Out of Work was that the entire problem (or nearly the entire problem) of unemployment can be explained through the issue of the costs of hiring and employing. In other words, there is no mystery here. Unemployment can be created or solved by the application of policies and laws.

In a free market, however, there is no unemployment that persists that isn't chosen by the workers themselves. That's because the price of labor is continually fluctuating based on supply and demand. Everyone who wants to work can work, simply because we live in a world in which there is always work to do. Only artificial interventions can generate the unemployment problem we have today.

Even so, and for reasons that are unknown and can only mystify the learned person, the Congress and the Obama administration keep trying to pretend as if reality doesn't exist. Here they are imagining that they can just order businesses to give everyone health care and then suddenly health care for all comes into being.

As with all programs, we have to ask: what is the cost? I don't mean what the cost adds up to in terms of government spending. I mean: what is the social cost of overpricing labor relative to what the market would bear? In this case, there is no way to know in advance, but we can know that fewer people will be hired than otherwise.

And then what happens? Business goes to government hoping for a subsidy or for fully socialized medicine as a way of sloughing off the costs on the whole of society instead of bearing them directly.

Sadly, there is no way that free health care can be granted to all living things with the stroke of a pen. Broadening availability will require that the entire sector be turned over to the private sector, so that it can be controlled through the price system like everything else.

As it is, the imposition of new penalties on business will make them less, not more, likely to hire people, which will thereby intensify the labor problem. It is like trying to cure a drug overdose with the injection of poison. New mandates on business are exactly what we do not need.

In other words, the whole idea is just plain dumb, not to mention incredibly ill-timed. The worst possible time to be imposing new mandates on business of any sort is during a downturn. Make the mandates labor specific and you have a recipe for causing the unemployment rate to land in the double digits and go up from there, higher and higher until the entire economy shuts down.

Presumably, not even Congress and the President would benefit from this result.
--from "Government Creates Human Suffering" by Llewellyn H. Rockwell, Jr.

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