How Much Does Public Policy Contribute to Long-Term Unemployment?

We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it's not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can't pull enough weight to justify a paycheck; it's the marginal ones, the mediocre, and the mildly dysfunctional....




As a small business owner with a number of employees, I agree wholeheartedly with this. The expense of hiring and retaining a worker goes beyond wages and include training costs, employer-side payroll taxes, health insurance and many other items. Some of those (though not all) are direct functions of government regulation (payroll taxes and the minimum wage for low-wage jobs).
If a country really wants to reduce unemployment, the best solution would be to find ways of reducing the costs of employing workers. Eliminating employer-side payroll taxes would be a good start; the revenue can be made up through increased use of value added sales taxes. Swapping the minimum wage for a negative income tax would also increase employment and promote economic efficiency. The Second Welfare Theorem illustrates that altering the market price of a good (such as a price floor on labor) will necessarily lead to inefficiency. We can better achieve the outcome society wants through a straight wealth transfer, such as a negative income tax.