A Non-Protectionist Free U.S. Labor Market Would Quickly Cut Unemployment in Half and Double Economic Growth

Let's address how to quickly solve the U.S. unemployment and lagging economic growth issues. First, let's look briefly at some background.

(1) We import many consumer products from China and other "low cost" countries.

(2) We import many consumer products from nearby "low cost" Mexico as well.

(3) We import lots of oil from the Middle East, Venezuela and other not-exactly-friendly sovereigns.

(4) There are numerous highly skilled foreign based workers who would welcome the opportunity to live and work in America.

(5) In the "good old days," many of our American factories became labor cost uncompetitive. As a result, America lost jobs. Now we have excess capacity in the U.S. with labor rates that are not globally competitive (Factory Jobs Gain, but Wages Retreat).

(6) But we're making progress, especially in manufacturing where highly skilled workers are needed. Please see In U.S., a Cheaper Labor Pool, which reveals that we compare favorably to our neighbor Canada with respect to labor costs.

In any case, we need more American based manufacturing and related jobs. To accomplish this not-so-easy feat, we must focus as a nation on achieving private sector growth and a renaissance in global competitiveness.

To do that, we need to have a globally competitive all-in cost structure. Due to high compensation costs, we must offset that global cost disadvantage with outsized productivity gains and make adjustments for transportation, warehousing and similar added expenses associated with offshore manufacturing.

The U.S. official published unemployment rate is now 8.5%. The real rate of unemployment is more than 15%.

The U.S. federal hourly minimum wage is $7.25. In low cost countries, labor rates are often a fraction of that amount. The higher our minimum wage, the higher our rate of unemployment. That's an inescapable fact.

Thus, one obvious way to reduce unemployment would be to suspend or eliminate the minimum wage, at least in certain jobs or industries.

In the above referenced "Factory Jobs Gain, but Wages Retreat," GE's Louisville operation now pays new hires much less than its established work force receives. Here's what the article says:

"The wages for the new hires, however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff — with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts are also showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment, according to Gordon Pavy, president of the Labor and Employment Relations Association and, until recently, the A.F.L.-C.I.O.’s director of collective bargaining.

“Some companies want to keep work here, or bring it back from Asia,” Mr. Pavy said, “but in order to do that they have to be competitive in the final prices of their products, and one way to be competitive is to lower the compensation of their American workers.”

The shrunken pay scale for newcomers — $12 to $19 an hour versus $21 to $32 an hour for longtime workers — threatens to undo the middle-class status of even the best-paid blue-collar jobs still left in manufacturing. A similar contract limits the wages of new hires at a nearby Ford Motor Company stamping plant, but neither G.E.’s 2,000 hourly workers nor Ford’s 2,900, nor their unions nor the mayor, Greg Fischer, have objected.

Quite the contrary, all argue that job creation must take precedence over holding the line on wages, given that the unemployment rate in this Ohio River city is above 9 percent and several thousand people apply for every unfilled, $13-an-hour factory job. “The trade-off is absolutely worth it,” Mayor Fischer said, arguing that while the city is actively subsidizing G.E.’s expansion here, mainly through tax rebates, that is not enough. “You must have a globally competitive wage to create jobs,” the mayor insisted.

The generational setback implicit in a “globally competitive wage” is evident at G.E.’s Appliance Park, the complex of factories where G.E. makes refrigerators, washing machines, dishwashers and other household appliances. Six years into the adoption of lower wages for new hires, half of the hourly workers are paid at the reduced scale."

The Louisville mayor correctly made the common sense observation that "You must have a globally competitive wage to create jobs." But what does a globally competitive wage really mean? To me it means a rate set by the labor market. But which labor market?

My answer--we need to focus on the entire global labor market. At least we need to consider it fully when deciding how to improve U.S. based employment and our overall economy.

Stated another way, why restrict pay reductions to plants like GE's? How about including jobs that would pay $10 per hour or even less? That's what we'd need to pay to replace much of the offshore work currently being performed.

If we took into account the full cost to America of having idle factories and unemployed workers, and if we then used an offsetting cost factor for the transportation and related costs involved with offshore manufacturing, we could return lots of production to the U.S. and be cost competitive by so doing.

Let's face it. We have plenty of individuals who don't possess added skills compared to those currently employed foreign workers who are paid much less than our U.S. based workers would be paid--IF they had a job.

But our workers don't have that job, and this is because for similar skills, U.S. pay rates often aren't anywhere close to worldwide pay scales.

While I'm not advocating that U.S. workers be forced to accept any work they don't want to accept, why not at least offer Americans the opportunity?

This outside-the-box- bring-it-back-to-the-U.S. idea would operate on a right of first refusal basis, meaning that jobs would be initially available to qualified Americans. In addition, perhaps those willing workers would maintain part or all of their current unemployment or other government mandated benefits as well.

In that vein, here's another screwball suggestion. Why not let Mexicans enter and work at labor rates that, while much higher than what they are now earning in Mexico, are lower than the U.S. minimum wage? But only if our many unemployed Americans, including youth, refused that work.

If we were to do those kinds of things on a voluntary basis, we would demonstrate that we're serious about attacking structural unemployment in America. We might also displace much of the outsourced work currently performed in China, Mexico and elsewhere.

There are many related issues to consider, of course, but my basic point is simple. Shouldn't a free country have at least a quasi-free labor market? And shouldn't the unions and politicians support such a common sense approach? And even if they don't, should we continue to listen to their insincere rhetoric about fighting on our behalf to create new jobs and economic growth?

Now let's switch gears and view this labor market issue from another angle. We'll move to the higher end of the skill set and compensation ladder.

Talent On the Move offers compelling reasons for the U.S. to embrace free labor markets:

"'As a tool for spreading wealth, open borders make foreign aid look like a child's lemonade stand," writes Robert Guest, business editor of the Economist, in "Borderless Economics," a rapid-fire case for the free movement of labor from one country to another."

The book's basic argument is this:

"Mr. Guest concludes with the argument that, thanks to America's immigrants, the U.S. is likely to remain for decades the richest and most powerful nation in the world. America has the largest foreign-born population by far—an astonishing 43 million people, 10 million more than the entire population of Canada. China, by contrast, has a foreign-born population of less than one million.

And yet the path to citizenship is still a daunting one for immigrants. In 2009, the Gallup organization reported that when people across the globe are asked where they would most like to live, the U.S. beat other desirable destinations 4 to 1. Getting permission to come legally to America, though, can be next to impossible: Chinese citizens frequently move to Australia and go through the entire citizenship process there first, an absurdly circuitous route that they hope will eventually win them legitimate status in the United States.

Mr. Guest notes that the U.S. annually awards only 85,000 H-1B visas for highly skilled workers; more than that number have been known to apply on the first day that applications can be submitted. America is strong because it has long been the nation richest in the resource that matters most: talent. Yet the U.S. government every year turns away tens of thousands of the most talented, motivated people in the world."

Summing Up

So that's the case for free labor markets for unskilled, semi-skilled, highly skilled, technical and professional workers, one and all. To the extent U.S. workers won't or can't perform as required, let people from other nations come to the U.S. and be given the opportunity to work at globally competitive or higher wages.

If America adopted a free and open labor market mindset and approach, it would materially increase the world's overall level of prosperity and individual living standards by deepening competitive labor markets. There is no better path to creating jobs and economic growth than competitive markets, and especially labor markets. Protectionism doesn't protect anybody over time.

And in competitive markets, American companies and qualified workers will have the advantage. It's in our cultural DNA.

Today in America we have underutilized factories. We also have a skilled, experienced and underutilized workforce. And if that's not enough, an abundant base of eager low cost Mexican labor is nearby, as well as highly skilled foreign workers who would welcome the chance to work here.

U.S. jobs, growth, balanced budgets, low inflation and a greatly improved level of national security would be the result if we supported free labor markets everywhere.

All that's lacking is the support of our smooth talking but insincere "protectionist" union leaders and politicians. Simply put, we need to stop pretending that the 1% fat cats and greedy bankers are our fundamental problems, because they're not.

If we became serious and addressed our many issues regarding jobs, skills, immigration, education and compensation, unemployment would decline quickly and dramatically, tax receipts would increase quickly and dramatically, and economic growth would resume quickly and dramatically as well.

Thanks. Bob.