Seven reasons to hate your parents: Reason #4

A two tier labour market

by Eugen von Böhm-Bawerk 

Ludwig von Mises allegedly said that 

“government interventions create unintended consequences that lead to calls for further intervention, and so on into a destructive spiral of more and more government control” 

We agree with von Mises as this is exactly what has happened in labour markets.

Our parents felt it was their right, given by God or Nature, to have a job. And it was not only that they felt other people owed them a job; they also felt they were entitled to these jobs for life. Any change in their professional life should be a decision made solely by themselves, and no one else. Never should the actual job provider have any say when it came to decisions regarding his own capital in its relation with labour.

So our parents went forth with revolutionary zeal to impose their will through political coercion. The reason for their eagerness was of course heightened job insecurity brought upon them by their insistence on overconsumption. In the process of increasing inflation and debt, capital consumption made it harder and harder for business to keep up and living standards were destined to fall.

In order to maintain profit margins, demand on labour became more onerous. To avoid such pains, our parents used the coercive power of the state to force business into compliance. They introduced all sorts of schemes to “spread the work around” under the fallacious belief that there are a fixed amount of work to be done. Obviously, there cannot be any shortage of work so long any human need goes unsatisfied, but rational thought were never a strength possessed by our parents. No one tells the story of the absurdities our unionized parents have been up to better than Henry Hazlitt;

“This error lies behind the minute subdivision of labor upon which unions insist. In the building trades in large cities the subdivision is notorious. Bricklayers are not allowed to use stones for a chimney, that is the special work of stonemasons. An electrician cannot rip-out a board to fix a connection and put it back in again, that is the special job, no matter how simple it may be of the carpenters…”

“Economics in One Lesson” page 45

In addition to such incongruous demands, they have lowered retirement ages, insisted on additional pay for “overtime”, made it fiendishly difficult to lay-off workers and even harder to shut down factories and so on. Every step toward our highly inflexible labour market has been rationalized in the name of solidarity with the proletariat in its fight against capital.

Business unsurprisingly moved from the “Western World” to more friendly jurisdictions, hence the current fight against globalization.

What is forgotten in all this is the two tier labour market that has developed outside our parent’s world of solidarity. Young people cannot get the same contractual terms as their parents on the job market. Business cannot afford more life-time employees with expensive defined-benefit pension plans. Instead, new employees are increasingly hired on temporary contracts irrespective of their qualifications. The cheaper kind that are easy to lay-off and comes with defined-contribution schemes that will at some point have to subsidise the underfunded defined benefit programs our parents enjoy. When the inevitable bust comes, it is always the young workers that will be fired first. The following charts show clearly how this has played out in two selected southern European countries and the US. For crisis-stricken countries such as Spain and Greece, with some of the most sclerotic labour markets in the world, we see a massive jump in youth unemployment compared to that for those of older age. In the US, the so-called labour market “recovery” has consisted solely of elderly workers getting re-hired.

Source: Eurostat, own calculations

Source: Bureau of Labor Statistics (BLS), own calculations

In order to protect themselves from their own folly, our parents refused to accept reality and now our generation sees job-opportunities dwindle. The few jobs that exist come at a far lower quality than that enjoyed by our previous generation.

Conclusion

After messing up the relatively healthy market economy they inherited, job security became a political problem, not an economic problem.