Dear Friends,
It seems to me that the one thing that would improve the lives of every human would be to drive up demand for labor. This would have several positive effects, wages would increase reflecting the sliding demand/supply curve, more people would be sucked into the workplace as a result of the lowering unemployment rate, and the increase both in labor participation rates along with the increase in wages would allow people to invest and spend more, all having a net positive effect on the economy.
Rising demand always, at least in the short run, drives up costs, as supply struggles to catch up with new demand. Labor is no exception. Malthus claimed that the masses would reproduce themselves into poverty, thus his “swamp of humanity,” but we see his conjecture has not come to pass. Along with all the many other anti capitalist theories prognosticating the fall of the market system as a means of production. The fact is that the lot of the worker has improved every decade since the inception of the market system. Since the ejection of the Jews from Spain and their immigration into Denmark. So we can safely say that rising demand for labor, no matter the type demanded, increases the rate at which labor is paid.
The participation rate would increase due to the rising wages. As wages rise those that are only moderately comfortable in the dole will change their status from dependant to producer. This has many positive effects on an economy. As participation rates improve, the GDP per person improves. GDP per person is an important measure of the standard of living in a society. Higher GDP per person equates to better standard of living. Look at it this way, if a person is dependent on the welfare state, he or she lowers personal GDP as much as they get in dole. If that person becomes productive their wages are added to GDP instead of subtracted. So we can see a doubling of the effect on an economy of a person moving into the job market.
The new money that is created in an economy with a rising demand for labor drives up saving and spending. Investment improves the balance of trade of a country. Every Euro, Dollar, Ruble, Peso or Drachma saved goes into the aggregate supply of investment money in a society. If the demand for investment money in a country exceeds it’s native savings rate the investment capital comes from foreign sources. Those foreign monies subtract from the aggregate balance of trade. All demands for capital contribute to this, from a house loan to government deficit spending, they all effect the balance of trade.
Spending creates more demand for products, goods and services. Additional spending in a country drives up demand for everything which drives up demand for labor. Take our long suffering sofa salesman. The sofa he sells had to be made. It had to be packaged, the packaging had to be also made. The sofa had to be shipped to the store. Which requires trucks and men. The sofa has to be shipped to the buyer’s home. Then the packing material must be disposed of. The economic impact of a single purchase goes far deeper into an economy than most people think. So any increase in the purchasing power of the masses translates into a huge economic impact.
Of course all these goods are predicated on an increasing demand for labor. So we must honestly ask, “What gets in the way of increased demand for labor?” Regulation, corruption in the public service sector and too burdensome taxation are the biggies. Notice the first I mentioned was regulation? Regulation is corrosive to the creation of small business. The more rules that a potential small business owner faces the lower the likelihood he or she will take the risk. Every regulation raises the likelihood of a startup failing. Every regulation is a far greater burden for a small business to bear then a giant mega business and regulation drives up the cost of labor subtracting from any increase in wages. All in all regulation is a drag.
If the US government really wanted more jobs and a greater labor participation rate, it would rescind the Healthcare Law in it’s entirety, and to save the dwindling number of small banks, repeal Dodd Frank. These two actions would quadruple the demand for labor in the US overnight. But the Elite prefer to fight over how quickly which side will bankrupt the country. When the truth is, eventually, probably sooner rather than later, the US government will have an auction and no one will come. Then the demand for labor will drop… World wide.
