Read It and Weep
Why the American Jobs Act is a road to economic hell.
The simple truth lies elsewhere. No rational employer will invest much in new jobs on the basis of short-term tax cuts. Employment will take place only when the gains from hiring exceed the transaction costs and taxes on the deal. The statutory provisions of the AJA promote uncertainty because no one can know whether, or for how long, these temporary tax cuts will be extended in the future. These short-term fixes are just another version of government by waiver. What is needed is the exact opposite: a stable tax system that gives people the confidence to hire permanent workers.
Moving on, the most ghastly AJA innovation is its new-fangled antidiscrimination law that now makes it essentially illegal to discriminate against unemployed workers. The multiple objections to this provision have been ably summarized by Chicago-based columnist Steve Chapman. Yet they all boil down to one simple point. Hounding employers into hiring unemployed workers will do nothing to create jobs.
The bill’s antidiscrimination provision is intended to prevent employers and employment agencies from stating that all job applicants must be currently employed. Choking off that information is a disservice to just these workers. With countless applicants for each position, nimble employers can easily manufacture some individuated reason to turn down a given worker. So why send desperate workers on a wild goose chase? It is better to have greater job mobility, so that when one worker shifts jobs another place is opened.
There is obviously at least some loose correlation between the inability to get a job today and the ability to hold one tomorrow. It hardly helps the economy to require employers to place their entire businesses at risk by making them hire workers they deem unsuitable. To allow for this possibility, the basic statutory command is quickly attenuated with a giant exception that allows the employer to look at the individual’s employment history and qualifications in making hiring decisions, or by finding out how the applicant has fared in a similar or related job.
The president should have cut back on the discrimination laws now in place rather than creating new such laws. Our vast system of unemployment antidiscrimination laws is costly to enforce. These laws assume, erroneously, that remote administrators have better information as to what characteristics are job-related than the employers whose successful operations depend on making the right calls. Still, it is tempting for government officials to get involved in these employment decisions, especially when they see documented instances of sheer bigotry. The National Employment Law Project, for instance, found that 150 firms, out of literally millions in this country, posted job notices requiring all applicants be currently employed. The AJA’s response was, however, complete overkill.
Put in proper perspective, the jobs act is a classic instance of yet another road to hell paved with good intentions. The greatest protection for all workers is redundancy in the labor market, which only comes when the full range of job restrictions, including the antidiscrimination laws, are consigned to the scrap heap. Once that is done, a few firms may well choose to discriminate on what grounds that everyone, myself included, would regard invidious. But why worry when thousands of others might actually develop innovative hiring and promotion policies after they are freed from an endless set of government restrictions.
The AJA misfires because it starts from unsound economic premises. What a worker needs is a job. Accordingly that worker should worry about the number of opportunities available to him, not the number of closed doors. It is far better therefore to seek a job in a growing economy, in which a small fraction of employers wish to hire you, than in a stagnant economy, in which no one gets hired at all. Judged by these standards, the AJA is an economic nightmare waiting to happen.
Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law at New York University Law School, and a senior lecturer at the University of Chicago. His most recent books are The Case Against the Employee Free Choice Act and Supreme Neglect: How to Revive the Constitutional Protection for Private Property.