Jobs-bill myth

In general, a jobs bill will not solve the country’s immediate unemployment problem. A jobs bill that creates government jobs for the unemployed will not have a major impact for six months to a year after the legislation is passed. It takes a long time for bureaucracies to create jobs. By the time the jobs are created, unemployment will be declining in the ordinary course as the economy improves. At that point, additional jobs created by the jobs bill will create an artificial shortage of labor and wage inflation. The alternative to a government jobs program is a jobs tax credit. A job tax credit is a very inefficient way to create jobs. This tax credit has two negative effects.

First, it is a very expensive way of creating additional jobs. Generally, a rational business will hire only employees it would have hired in any event. Therefore, a jobs tax credit would subsidize new employees who would have been hired in any event. For example, a restaurant would not hire an additional waiter just because the government pays 10-20 percent of his salary. The restaurant manager hires the new waiter because the restaurant has additional customers who need service.

Second, a jobs tax credit causes businesses to become inefficient and less competitive in the long run. A jobs tax credit encourages businesses to use more labor than they should because it is cheap from the tax credit subsidy. Once again, the restaurant manager may make the decision to hire three dishwashers because they are cheap, when he should buy an automatic dishwasher. When the subsidies end, this manager will find that he is at a competitive disadvantage compared to his competitor who invested in an automatic dishwasher.

The best way to create jobs in the private sector is to rely on long-term incentives that allow businesses to remain flexible enough to react to market forces and that create incentives to create new businesses and expand existing businesses. It is also important to remember that the downside to high productivity and prosperity is the creative destruction of a recession. It is necessary to weed out inefficient businesses and unnecessary jobs so that the economy can replace buggy-whip manufacturers with high-tech green transportation manufacturers.

Williams can be heard nightly on Sirius/XM Power 169 from 9 to 10 p.m.

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