The Supply of Labor
OCTOBER 01, 1984 by HANS SENNHOLZ
A man cannot speak without revealing himself. He draws his portrait by every word he utters. When he speaks of “labor” he reveals his political, social and economic views by the connotations he attaches. He may look upon the individual and his labor as physical and mental exertion of a practical nature as distinguished from exertion for the sake of recreation and pleasure, Or he may refer to workers collectively, the working class. Most contemporary economists speak of “labor force” or “working force,” and discourse upon “national manpower.”
Writers used to report about men and women or adults and children in the labor market; they speak of “manpower” now. People were working in commerce and industry; today they are serving in the sectors of national production, in the public sector or private sector. Economic analysis used to focus on the individual and his ability to perform any kind of labor; today it concentrates on public policies and priorities. Economists routinely analyzed man’s choice between labor and leisure, and debated the “disutility” of labor. Today they seek public policy information so that government may act upon the national economy.
Contemporary labor terminology is taken directly from the language of the military. Generals organize their forces in armies, corps and companies, and wage their battles in sectors of defense. Economists who echo the militarists apparently see themselves as the generals of economic production; they would like to command the national labor force, or at least serve as learned advisors to the economic commander.
The military terminology may be perfectly suitable in an economic command system, such as socialism, fascism, or communism. But it is utterly alien in a private property order that rests on individual preferences and decisions and functions without economic command and sector strategy. Economists who favor such an order speak of individual choice and participation, of labor and leisure, labor markets and mobility, hours of work and rates of pay. Holistic, militaristic terms are repugnant to them.
Labor or Leisure
Man must labor to sustain his life and improve his conditions. In a free society he is at liberty to choose between labor and leisure. His choice springs from many considerations and value judgments, which may be affected by cultural and environmental factors. It is circumscribed by his physical and mental capacity to work. As individuals differ from each other so do workers differ in intelligence, discipline, amount and quality of training, skill, capacity to direct their own work or the work of others and, above all, in disposition or attitude toward labor.
Man chooses labor over leisure whenever the fruits of his labor seem more important to him than the disutility of his labor. He labors when his unsatisfied wants are more important to him than the discomfort of his labor exertion; he stops working at the point at which his leisure becomes more important than the satisfaction of another want.
Values and Choices
Man’s disposition or attitude toward labor depends on many psychological, cultural and economic factors that affect individual values and choices. Material well-being is an important factor affecting his disposition. Improvements permit the satisfaction of less urgent wants, which in turn lower the value of the labor spent to satisfy those wants. The urgency of individual needs and wants, after all, determines the value of labor that is serving them. When the urgency declines for any reason, a worker may turn from labor to leisure and pursue other interests. Deterioration in well-being, on the other hand, may cause many individuals to return to the labor market and offer more labor.
The quantity and quality of the labor offered in exchange for money depends to some extent on cultural and ideological factors that pertain to socially transmitted behavior patterns, beliefs, institutions, work and thought characteristics of a community or country. If the people rejoice in their labor and the fruits of their productive efforts, if they have the will and courage to work, they meet the most important requisite of success. If they believe in work, hard work and long hours of work, they have the key to prosperity and full employment. But if they work grudgingly because they long for leisure, they are destined to be poverty stricken. If they hate their work because they feel like helpless victims of ruthless employers in an unfair social system, they are doomed to be miserable and poor.
Man’s attitude toward labor influences the amount of labor he offers on the market. It affects his subjective valuation of the disutility of labor and the price paid for his labor on the market. Where governments or labor unions interfere with this price, his attitude may assure or deny him employment. The Japanese automobile worker who labors for duty and honor may put his mind, heart and soul in his work. He may compete effectively with a member of the UAW in Detroit who, deluded by the slogans of union propaganda, hates his work, loathes the corporation that employs him, and ever in anger presses his numerous grievances.
Labor and Economics
Market economists not only reject holistic terminology but also repudiate erroneous popular notions about labor. In particular, they oppose the notion that economic knowledge is applicable to goods prices only, and that wage rates and labor conditions are circumscribed by history and morality. It is this very notion that provides the intellectual foundation for government intervention in the labor market, and supplies labor unions with the rationale for coercive practices.
Acting man actually makes no distinction between the pricing of goods and the pricing of labor. He ascribes value to both according to their contributions to his well-being; he does not exempt labor from value considerations. When he purchases an automobile he does not inquire into the number of labor hours it took to build the vehicle in order to adjust his bid accordingly. Instead, he is likely to inquire into the quality and quantity of transportation services it promises to render. As customers, the workers themselves apply considerations of scarcity and utility to their purchases; as sellers of labor, they make choices that reflect their value judgments.
Human nature slowly and inexorably works its way through economic principles. But man is also political; under the guiding influence of public opinion, he may call on government to interfere with the economic judgments and actions of other people. He may use the coercive powers of government to force his fellowmen to act in a way they would not freely choose. Therefore, economists draw a sharp distinction between the market rate of wages, which the free interplay of the demand for labor and the supply of labor would set, and the actual rate affected by government compulsion and labor union coercion.
In an unhampered labor market, wage rates tend to move toward the increment of value that is added by the employment of a man, which is the same as the value lost by the discharge of a man. Economists call this last value the marginal utility or marginal productivity of labor. It is largely dependent upon the amount of productive capital invested per worker. At this marginal rate, anyone searching for employment can find a job, and anyone looking for labor can find a worker. If wage rates are forcibly kept below the market rate they cause shortages of labor. If they are set above the market rate they create surpluses, called unemployment. It does not matter who dictates the rates, whether government or union, and what their stated reasons may be; the effects are the same.
In a rare combination of circumstances governments may lower wage rates below those the free market would set. In times of war and postwar inflation governments may depreciate their currencies and thereby lower real wages. All along they enforce rigid price and wage controls that prevent swift adjustments. The market may call for rising wages, but the police controls permit no correction, which in time creates a discrepancy that causes labor shortages. The chronic shortages of coal miners and skilled craftsmen in postwar Great Britain under the Labor Party are vivid examples in point.
Contemporary governments prefer to use their police powers to raise wage rates above those free markets would set. After all, to raise wages is more popular with more people than to lower them. Politicians seek to enhance their popularity with worker-constituents by promising to exact higher wages and fringe benefits from employers. Labor unions thrive on the notion that they can improve the economic conditions of working people. It has made outside intervention in the labor market one of the basic features of our age.
Government or union intervention that seeks to raise the cost of labor above the marginal productivity of labor, i.e., the increment of value added by the employment of a man, reduces the demand for labor and creates unemployment. It renders marginal workers submarginal, i.e., it raises their costs above their productive contributions and thereby inflicts losses on their employers. To safeguard operations and protect their own jobs and those of their workers, employers have no choice but to discharge the loss-inflicting employees.
Unemployment is a chronic phenomenon wherever labor law and labor union forcibly raise the cost of labor above the rates free markets would set. Changes in the supply of labor may precipitate changes in employment if government prevents the necessary readjustment. A number of supply combinations creating unemployment come to mind:
1. The population is growing but economic production is stagnating or expanding at a lesser rate so that the marginal productivity of labor declines. In free labor markets declining labor productivity causes wage rates to fall. Where government seeks to bolster wages by law or regulation and labor unions defend or even raise the rates by collective coercion, they create mass unemployment. Thomas Malthus who, in 1798, wrote his famous essay on growing misery through population growth, would deliberate on the causes of rising unemployment if he were to write today.
2. The population is stagnant but productive capital is consumed, destroyed or withdrawn so that the marginal productivity of labor declines. If government or labor unions forcibly seek to prevent this decline, they create unemployment.
3. When millions of immigrants legally or illegally join the labor market while the amount of productive capital remains unchanged, they cause the marginal productivity of labor to fall. If wagerates are prevented from adjusting downward, the most expensive, submarginal labor remains unemployed.
4. The participation rate, that is, the percentage of population participating in labor market activity, may rise while the amount of productive capital remains unchanged. As the marginal productivity of labor falls wage rates are bound to decline. If government, union, or both seek to prevent the decline, they create mass unemployment.
5. If government or union forcibly reduces the number of hours worked per day, week or year, insisting on compensation for hours not worked, they create mass unemployment.
6. Under the sway of antimarket propaganda the workers may reduce their personal labors. Convinced that their wages are the products of class struggle rather than goods production, they may delay or even sabotage the production process. If downward wage adjustments are not permitted, the reductions in output cause unemployment.
No matter how plausible economic arguments may appear to a rational individual, they run counter to prevailing opinion about unemployment. Much of contemporary literature is presenting horrid descriptions of labor conditions, past and present, attributed to the private property order. Sole credit for improvements is given to government and labor unions.
Most unemployment explanations are based either on the Malthusian theory of population or the Marxian exploitation doctrine, or both. Thomas Robert Malthus, in his Essay on the Principle of Population (1798), postulated a universal tendency for population to grow at a geometric progression and for the supply of food to grow only at an arithmetic rate. As population doubles and redoubles, food and subsistence are bound, sooner or later, to fall below the level necessary for life. Positive checks then act to increase the death rate: disease, famine and war. And preventive checks may affect birth rates through moral restraint, such as prudential postponement of early marriages.
Malthus unfortunately did not foresee some of the effects of the Industrial Revolution. Set free from ancient prohibitions and restraints, Western man was about to embark upon a long road of technological innovations that improved the working and living conditions for all people. With private property in the means of production, he could save and invest, forming productive capital at a rate faster than the population growth rate, which was to decline substantially. Consequently, employment multiplied and the standards of living in capitalistic countries rose to unprecedented levels.
Yet, in non-capitalistic countries the fears of Malthus are fully justified. In India, China, Mexico and a hundred other places the political order may proscribe economic expansion through individual effort and initiative. It may not suffer private property in the means of pro duction, nor tolerate individual freedom and initiative. While medical science and hygienic knowledge, imported from capitalistic countries, may drastically reduce death rates in low- income countries and cause population explosions, the social and economic order may prevent increases in economic productivity. All this points at the sober fact that in many countries the population is growing more rapidly than the means of subsistence. It cannot be surprising that the Malthusian explanations continue to be relevant for the poverty and unemployment problems in Asia, Africa, and Latin America.
The Marxian View
Karl Marx offered yet a different explanation of man’s unemployment, past and present. According to his central thesis, only labor gives value, and since workers do not get all the proceeds of the productive process, they are exploited. Profits are exploitation lucre that leads to capital formation and mass unemployment. Exploitation and unemployment are destined ultimately to culminate in violent revolution and overthrow of the private property order.
This is not the place to refute Marxian dogma. But it must be pointed out that actual trends have been in the opposite direction. The gainfully employed population is much greater in capitalistic countries than in underdeveloped areas that lack productive capital. Under- employment and unemployment are more severe by far in Mexico, Central America and the Caribbean Islands than in the U.S.A. Wage rates and working conditions are immeasurably better in the U.S., which is attracting millions of illegal aliens. In fact, it can be stated as a basic principle of population distribution that man tends to migrate from socialistic countries to capitalistic countries. Only barbed wire, high walls, and armed guards can prevent him from moving en masse.
There is work to be done every waking moment of man’s life. From the dawn of time until the modern age man toiled to sustain his precarious existence. His oldest form of specialization was a strict division of labor between the sexes. The woman cultivated the fields, processed the food grown on the land, and prepared the clothing. To the man fell everything connected with hunting, keeping of livestock, preparation of meat, dressing of leather, and working with metals. Both labored from early childhood to the last days of their lives. There was no “retirement” or withdrawal from work so as to live at leisure on one’s income, savings, or pension.
On the eve of the “Industrial Revolution” economic conditions were as dismal in Europe as they are today in many parts of Asia, Africa, and Latin America. They improved visibly with the dawn of the private property order, which permitted capital accumulation, technological improvements, and practical utilization of new inventions. The improvement of economic conditions, especially for working people, permitted them to think of leisure and retirement. Laborers gradually acquired the productivity and income that permitted them to reduce their work hours, take vacations, and excuse their women and children from participation in economic production. The new economic order that was built on individual freedom and private property in the means of production liberated working people.
The workers in their capacity as savers and investors did contribute a modest share to the improvements—as laborers they did not. They were the primary beneficiaries of the investments in tools and equipment that made their labors more productive and economic goods more accessible. Government officials and labor unions appeared on the scene much later, not only to claim credit for past improvements, but also to hurry workers along to ever more leisure. During the last half-century radical government intervention and labor union pressure have significantly reduced the supply of labor.
Withdrawal from the Workforce
Millions of older American males (65 years and older) have withdrawn from the labor market. When labor productivity rises, the income of all types of labor tends to increase, including that of aging workers. In their case, the rise may be partially or completely offset by a decline in personal productivity on account of illness or age limitations. But few individuals are prepared to suffer wage and salary reductions. Provided they can afford it, most individuals choose retirement rather than face demotions and pay cuts; they like to depart at the height of efficiency, productivity, and popularity. Moreover, they are encouraged to depart by social security, public assistance, and other benefits. All are transfer programs transmitting massive volumes of income and wealth to older people, reducing both the utility of labor and the cost of leisure. They permit rail-lions of elderly Americans to prefer leisure over labor.
The labor market participation of young people (ages 14-20) resembles that of old people. Both groups have withdrawn en masse. But while the elderly retreat into retirement from which few care to return, young people are flocking to schools and colleges. Their decline in labor market participation is matched almost precisely by school enrollment, which is viewed by many as an investment.
Many people want more education, but few are willing to pay for it. For most people the combination of income forgone during the time of schooling, and the direct cost, such as tuition, room and board, books and materials, transportation, and other expenses, is just too burdensome. Public institutions of higher learning seek to reduce the direct costs through allocations of tax funds. Federal, state and local taxpayers now cover all or most of the tuition of millions of young people attending community colleges and state universities. Federal and state grants further reduce the direct costs of education, which for favored minority students may be free of charge. They may not even forgo any income during the time of schooling. Institutional employment barriers may hold them in a grip of permanent unemployment. After all, there are minimum wages and mandated benefits that exceed by far their labor productivity, which bars their admission to gainful employment. Their only escape from a life of idleness and despair may be education that raises their productivity above the barrier level. When seen in this light, the rates of return on education are extremely high, which accounts for a continuously strong education demand by minority youth.
The Liberation of Women
Women usually face a three-way choice between leisure, labor market participation, and production at home. In most parts of the world they spend their lives in grueling household labor as homemakers for their families and mothers to their children. They labor from dawn to dusk in the care of home and household. In countries organized along lines of the private property order, however, most women have been liberated from the daily drudgery that had been their lot in life. They were liberated gradually in the same way as men were liberated from grueling chores, through greater specialization and division of labor, and above all, through the application of capital in the form of modern tools, appliances, and laborsaving devices.
Throughout the 19th century the economic liberation drew a growing number of women from the home to the labor market. Rising labor productivity and increasing wage rates together with declining goods prices made it advantageous to participate in the labor market. When it takes three hours of market labor to earn the purchase price of a dress, but three days of spinning, weaving and sewing to make it at home, it is advisable to seek employment and purchase the dress. If it takes a few minutes of market labor to earn the wage needed to buy a can of chicken soup, which would require many hours of kitchen labor to prepare in a way grandmother did, it becomes economical to earn a wage and buy the soup.
In recent years the private property order has granted new gratuities to countless millions of workers in the form of push-button machines that give men and women unprecedented ability, energy and strength. Surely few women would want to compete with husky males moving weights or swinging heavy hammers; but equipped with a robot that moves the weights or swings the hammers she can compete effectively. Thanks to the formation of capital and labor-saving technology, which are the exquisite products of the enterprise system, the American woman is free to join man in all parts and portions of the labor market. Many are taking advantage of the technological changes and are joining men at the assembly line.
During the 1970s and 80s, yet another cause began to contribute to the rising participation rates of American women. Increasing taxes and soaring inflation rates lowered the real income of most Americans. Millions fell into outright poverty as a result of chronic unemployment. It cannot be surprising, therefore, that many homemakers felt compelled to return to the labor market in order to supplement the shrinking family income. As the impoverishment continues on account of soaring deficits and rising taxation, ever more women can be expected to return to the labor market. In the strongholds of labor unions, which are also the centers of unemployment, the burden of family support is coming to rest primarily on the shoulders of women. In fact, it may be stated without exaggeration that, in centers of stagnation and decline, female participation and employment immediately adjust to the unemployment of men.
Hours of Work
The proportion of the population actually in the labor market is an important factor in the supply of labor, as are the number of hours worked per week or year, and the skill, quality, and intensity of the service rendered. There have been, and continue to be, wide divergencies within any one market, but common traits are visible in all. From some 3,500 hours a year, or 12 or more hours per day, the hours of work were reduced to some 2,000 hours a year, and 8 hours per day. The work week was shortened first through half a holiday on Saturdays and, in recent decades, by the five-day week. Paid vacations now extend to two, three, and four weeks.
Most media of communication and education are applauding organized labor and labor legislation for these improvements. Profit-seeking employers are said to favor ever longer hours, fewer holidays and shorter vacations. In the labor literature of today they stand condemned for having fought progress every step of the way. If these charges were remotely correct, the pain and suffering of the underdeveloped world could be alleviated immediately: courageous labor leaders and wise legislators could eradicate poverty through collective bargaining and labor legislation. American labor leaders could point the way to prosperity in India, Sri Lanka, and Bangladesh. In reality, economic improvement depends on the construction of plants and equipment, i.e., on capital formation, which is a fruit of individual freedom and the private property order. Labor unions and labor laws erect formidable obstacles to economic development.
As to employers, there is so much good in the worst of them, and so much bad in the best of them, that they are just like other people. It behooves us to be considerate of their choices and preferences. When they seek labor they must go to the labor market and bid for a given quantity and quality of labor. They must pay the going market rate as they do for materials and supplies, water, gas and electricity. As markets change continually, employers must forever readjust to new situations and rearrange their production. Price and cost calculations clearly reveal the changes and indicate what needs to be done. In the labor market they must adjust continually to workers’ preferences and choices, which, too, are visible in prices and costs. If most workers prefer a 12-hour day, employment costs per unit of output are lowest in a 12-hour arrangement. Employers who prefer less popular hours, for instance, 13 hours or more, or 11 hours or fewer, would have to pay a premium. If most workers choose eight hours per day, even the dullest employer may learn in time that it is profitable to pay heed to workers’ preferences for eight hours.
Labor time reductions were induced by several very different sets of circumstances. Obviously, labor productivity on account of rising per capita investment promoted a preference for shorter hours. Workers could afford reductions in hours without painful losses in earnings. When, at the dawn of the private property order, they were facing hunger and deprivation, they chose to labor every waking moment of the day. When conditions improved as a result of rising labor productivity, they preferred shorter hours, all the way from 18 to 8.
Spreading the Work
There are circumstances leading to labor time reductions that differ sharply from those cited above. In the depth of depression when the unemployment rate is soaring, many champions of labor legislation and union power are quick to advocate “spread-the-work” schemes that would have each man do less work, rather than have some men be without jobs. Labor time reductions are presented as the best palliative for unemployment.
It is obvious that such schemes make matters worse and, therefore, do not lead to labor time reductions unless government forces them on reluctant workers and employers. When a worker is laid off, or an operation is closed down, a branch discontinued, a company dissolved, it is always the least-productive, loss-inflicting unit that is idled first. Productive units that cover their costs or even earn profits need not fear shut-downs; they are fully employed through boom and bust.
Spreading the work by keeping the losers operating at reduced rates would only aggravate the losses and cause more unemployment. After all, even a loser has an optimum rate of operation at which the unit costs of production are lowest. To curtail production below this rate is to magnify his losses. Moreover, to limit the services of productive workers who are fully employed and replace them with the least productive workers who are unemployed, would cause even more business failures and more unemployment in the end. In this respect “spread-the-work” schemes are akin to union shops with “bumping schemes” that grant senior union members the right to bump younger workers regardless of ability, skill and diligence. In depressions, the union shops with bumping schemes are usually the first to go under.
During depressions unionized industries, such as automobile, steel and construction, may suffer unemployment rates of 50 percent or more. Spreading the work evenly would entail a work and income reduction of 50 percent or more for senior workers for the benefit of younger workers. It is illusory to believe that seniors would readily consent to such sharing. But even if they did, they would soon want to share in the work and income of other industries that suffer no unemployment. Of course, the sharing would have to proceed at union rates.
The mounting threat of unemployment, whether real or imagined, brings forth noisy demands for labor time reductions. They are loudest in the centers of unemployment where every fallacious explanation is gratefully accepted and every tasty panacea is warmly welcome. The responsibility for depression and unemployment may be laid on the doorsteps of a new technology called “automation,” on “sweat-shop foreign competition,” “hostile ad-minstrations,” or “greedy employers,” and other such amazing causes. But no matter what the explanation may be, the ready prescription for all is an immediate labor time reduction. The sovereign cure for unemployment is shorter hours and more leisure!
Workers who are convinced that labor time reductions provide a cure for chronic unemployment may also be led to believe that reductions in labor exertion will help to spread the work. “Slow down! Don’t work yourself out of a job,” may be their employment motto. Surely, if labor time reduction creates employment, it is easy to conclude that all types of reductions of labor effort and output are equally beneficial. Fortunately, nature is just toward man. It recompenses him for his labor, not for his leisure. It attaches the greatest rewards to the greatest efforts, not to most leisure. It grants employment to workers who are “productive,” that is, who produce more than they cost, and denies employment to anyone who costs more than he produces.
People vary greatly in ability, training, education, and application; they make different contributions to the well-being of other individuals and, therefore, earn different incomes. Some are highly productive in the rendition of services, earning million dollar incomes. Others render simple services that pay minimal wages. Some may not contribute anything at all to the production process and, for their existence, depend on individual charity and transfer payments.
Education ranks as an important element in the quality of labor. In its broadest sense it means all the preparation for life. It teaches not only how to make a living but also how to live. It may be highly productive of income wherever it produces mental improvement, teaches to obey rules and accept authority, provides knowledge and training, develops ability and skill, and motivates man to serve the needs of other people. It may be unproductive in the economic sense where it fails to make the educated person more useful in the service of his fellowmen.
American education is endowed with public interest, that is, it is manipulated, rigged and regulated by all levels of government. It is subjected to the feasts and famines of politics. During the 1950s and 1960s, when the federal government provided massive subsidies, student enrollment increased substantially, causing colleges and universities to expand in facilities and personnel. During the 1970s and 1980s, when Medicare, Medicaid and many other causes made exhausting demands on the Federal budget, the rate of increase fell dramatically, bringing stagnation and retrenchment to many institutions. As the costs to students were rising, enrollment declined, intensifying college competition for students. Many private colleges, chafing under government regulation and state college competition, are barely scraping along. Some may not survive the decade. According to the critics of private education, they are “too traditional” and “unresponsive to the educational needs of the students.” In the noise of controversy public discussion is returning to some root questions of higher education: What is the responsibility of government, especially the federal government? What kind of education should be provided? What is the appropriate institutional structure? And who should pay for it all?
The Role of Education
In a brief discussion of the supply of labor such crucial issues of higher education must remain unresolved. But it is appropriate to search for an answer to related questions such as: How does education affect the supply and employment of labor? How does employment or unemployment affect education? If education is “an investment in human capital,” as it is often called, what is its return in terms of employment and income?
Why is anyone attending a college or university? There are as many answers to the question as there are individual motives. But most of them probably can be grouped and arranged in the following order: First, many students expect higher education to improve their capacity to earn an income by augmenting the quality of their labors. Second, some students may derive immediate satisfaction from participation in college or university affairs, which makes their education a “di rect consumption service.” Many of these students prefer education in any form over idleness and unemployment, which may be their only alternative.
There is a minimum hurdle to all gainful employment, which is erected by minimum wages and fringe costs mandated by government. Currently, these costs together exceed $5 per hour. For most young Americans public education provides the training for exceeding the minimum. It makes them employable in the American labor market. But for many young people the minimum hurdle is higher than the productivity they bring to the market. Public education does not impart the training sufficient for employment; in this respect it is sadly deficient for millions of people, especially racial minorities.
A public education system that fails to impart sufficient knowledge and training for some twenty percent of white youth and fifty to seventy percent of minority youth, assumes an additional function: keeping youth occupied and off the streets. It is keeping peace among men, which would soon be jeopardized if all young people were set free to roam the streets in idleness and despair. In this respect American public education is highly effective and productive as an occupation and peace-keeping force. It may be more expensive than the public support of the elderly, but it also is infinitely more productive as a guardian of peace.
Public Education and Labor Laws
American compulsory education with its truancy legislation and an army of truant officers is perfectly complementary to labor legislation. One lends strength and support to the other; labor laws depend on truancy laws for preventing mass unemployment of youth, and truancy laws depend on labor laws for denying employment opportunities to youths and keeping them in school. With more than forty million pupils enrolled in full-time elementary and secondary day schools, several million would appear on the unemployment rolls if there were no compulsory education; and several million pupils would desert the compulsory school system if there were no employment barriers. The high unemployment rates of youth released from compulsory education and the high rates of youth truancy illustrate the point. If more youths would be set free, the unemployment rate would soar, to be surpassed only by the juvenile crime rate.
Compulsory education as a peace-keeping force is encompassed not only by limits of financial cost and economic sacrifice on the part of taxpayers, but also by the willingness of youth to be restrained and regulated. Upon release from school compulsion, which cannot last forever, many youths discover the futility and inadequacy of their education, which does not make them joyous and contented members of society. College graduates may ]earn that there are too many colleges granting too many degrees and that there is no room for all the graduates to work in their field of choice. As “surplus” they may not take kindly to the market system that forces them to render useful services according to consumer demand rather than allocates employment according to college degree. In frustration they may look toward government and the command system for employment according to license and degree.
Education as “an investment in human capital” is like capital as “a mere congealing of human labor”; both are garbled collections of empty terminology. An investment, in everyday terminology, means the creation or acquisition of means of production that promise safety of principal and a satisfactory return. Obviously, government expenditures on education do not promise safety of principal for government—unless the beneficiaries are deemed to be the property of government. Nor do they promise a satisfactory return—unless educated taxpayers are viewed as property of government. But even if they are, it is doubtful that the productivity gain of some people outweighs the losses suffered by others from restrictive labor laws and compulsory education. Are government expenditures on public education always more urgent and productive than the uses to which the funds would have been put if they had not been exacted from taxpayers? If productive funds are taken from corporations and put to busing uses in public education, is society rendered more productive?
To view public education as “an investment in human capital” is to confuse transfer spending with saving and investing. To spend means to expend and consume; to save and invest means the very opposite. Public education expenditures consume economic wealth, they do not create it. It is true they impart knowledge and skill to some people who may actually become more productive. But this increase in labor productivity, which is a nebulous quantity, must be weighed against the total cost of public education, which consists not only of direct expenditures but potentially also of the implicit costs of income forgone by student and family.
Moreover, public education expenditures benefit some people at the expense of others, which creates yet another factor of cost: social alienation and conflict. They divide society into two antagonistic classes: the beneficiaries who are entertained and instructed, and the victims who are forced to cover the expenses. While the former like to describe their take as “profitable in vestment,” the latter always view the exactions as regrettable and unavoidable losses in material well-being.
Markets and Mobility
It is difficult to ascertain whether education and training bring forth labor mobility or whether people with mobility seek more education and training. There is a causal connection that needs to be explored by psychologists and sociologists. But at this place it is significant that the supply of labor is adjusting continually to changes in the intensity and composition of the demand for labor. Labor is shifting into and out of the labor market, among employers, occupations, industries and geographic localities. It has mobility, which affects not only the allocation of labor among alternative uses but also labor productivity. It influences labor competition and, in a sociological sense, determines the ease or difficulty of occupational and social changes.
In the labor market individuals are buying or selling specific quantities and qualities of labor. Workers continually compete for available jobs, and employers are in continuous competition for labor. The result is perpetual movement and adjustment according to the choices and preferences of the participants. Labor mobility and wage determination are continuous, related processes. Wage differentials and other employment conditions may induce workers to move in search of better conditions. Some may continue to search and move about until the advantage of a move no longer warrants the necessary effort and cost. The end result is not perfection in the allocation of labor, but usually an improvement over previous conditions. After all, every worker seeks to reduce his disutility of labor and improve his conditions.
Workers enter upon many types of changes requiring employment mobility, interfirm mobility, occupational mobility, industrial mobility, or geographic mobility. One category does not exclude another; a single job change may represent a combination of two or more movements. An unemployed Detroit automobile worker may move to Dallas, Texas, and find employment as a doorman at a downtown hotel. A young steelworker from Pittsburgh may move to San Diego, California, to seek employment as a plumber in the construction industry. A pretty teacher with a brand new Pennsylvania state college diploma may move to South Carolina, find employment as an accounting clerk, and then move again to become assistant librarian in a community library. She has mobility and flexibility that are considerably greater than in most countries of the world.
According to some estimates, American labor mobility is surprisingly high with a proportion of job changes each year exceeding one-tenth of the total number of employees. Many workers change employers several times a year. But a substantial proportion of Americans also have strong job attachments as over one-third of all workers are known to be continuously associated with the same employer for at least ten years. In times of business depression the job attachment tends to rise significantly; during economic booms when business is bidding feverishly for labor, the proportion of voluntary separation and job shifting tends to rise.
Job changes that involve geographic movements are considerably less common than occupational and industrial changes. They entail leaving the home community with its circles of family and friends. There are expenses involved in moving and, above all, the fears of the unknown in a new environment. Nevertheless, throughout most of American history millions of settlers pushed west for opportunity and fortune, giving rise to a particular kind of individual, the pioneer or frontiersman. His psychology may still be with us today, long after the frontier disappeared late in the nineteenth century. His daring spirit may survive in his great-grandchildren who are seeking new horizons in other endeavors.
The ability to move about in the labor market is by no means evenly distributed among people. There is a direct relationship between youth and all types of mobility. Older workers are less likely to change in occupation and industry, or move across state lines. They may prefer the psychological comfort of routine and familiarity to higher productivity and income. But above all, countless regulations and restrictions designed to protect the elderly actually make it rather hazardous to venture on job changes.
Contrary to popular opinion, there is no inherent discrimination in hiring against older workers; after all, most business executives in charge of hiring are older people. But there are institutional conditions that make them more expensive than young people, and onerous restrictions that make it difficult to dismiss them and therefore risky to hire them. They may have “tenure” in their jobs, seniority in choice of jobs, shifts, vacations, pensions, and so on. No matter what their productivity may be, they may be senior members of their union local, last to be laid off, first to be recalled, and ever ready to “bump” younger workers out of their jobs. They are entitled to maximum unemploymentcompensation and generous union subsidies in exchange for minimal efforts for their employers. Naturally, employers seek to avoid them whenever they can.
Mobility rates also vary according to occupation and profession. They tend to decline as personal productivity rises. Professional people and business executives generally make fewer job changes than laborers. Their incidence of layoff and unemployment is practically none. After all, there is no minimum wage for corporate executives, no fringe mandates that raise their costs, no union rules that exact more pay for less work. Job changes by professional people generally are voluntary moves in search of a better life and brighter world. Because of their substantial investment in professional training they have strong attachment to their professions. When they move they are likely to move geographically, even across state lines, reflecting the broad scope of their national markets.
Freedom vs. Control
The vast majority of Americans never experience unemployment. They labor from early youth to old age without ever being told that they are not needed or wanted. They cultivate fields and cover the earth with their structures, they sail the oceans and cruise the stratosphere, laboring for comfort and plenty.
They do not fear unemployment, for there is work to be done, every waking moment of their lives.
And yet, millions of human beings linger in chronic unemployment and despair. They are outcasts of the body politic where politicians legislate higher wages and greater benefits and union agents demand more pay for less work. They are the primary victims of political superstition. 
The idea of a fair, just, or reasonable wage is very appealing. But what is fair, just, and reasonable under the conditions prevailing at a particular time? Since the dawn of history, buyers and sellers have had very different ideas regarding the concrete meaning of these words. How are such differences to be resolved? There is only one valid and objective criterion: the free market, which, under the consumer’s whiplash (and the consumer means everyone), forces both buyers and sellers of labor to conform to the basic reality of the situation, the current level of productivity.
The Guaranty Survey, July, 1956
1. Nels Anderson, Work and Leisure (New York: Free Press, 1961); Josef Pieper, Leisure: The Basis of Culture, (1948) (New York: Pantheon, 1960); David Riesman, Abundance for What and Other Essays (Garden City, N.Y.: Doubleday, 1964).
6. Cf. J. L. Hammond and Barbara Hammond, The Town Labourer, 1760-1832 (New York: Longman’s, Green and Co., 1932), p. V; also T. S. Ashton, Economic and Social Investigations in Manchester, 1833-1933 (London: P.S. King & Son, Ltd., 1934); W. Ashworth, An Economic History of England, 1870-1939 (London: Methuen Co., New York: Barnes & Noble, Inc., 1960), pp. 190-215; H. L. Beales, The Industrial Revolution, 1750-1850 (London: Frank Cass & Co., 1958), pp. 84-91; F. A. Hayek (ed.), Capitalism and the Historians (The University Of Chicago Press, 1954).
7. Alfred Marshall, Principles of Economics (1890), 9th ed., 1961 (New York and London: Macmillan), especially Book 1, Chapter 1; Book 6, Chapter 2; J. Zeisel, “The Work Week in American Industry, 1850-1956,” U.S. Bureau of Labor Statistics, Monthly Labor Review, 81: 23- 29; Herbert R. Northrup and Herbert R. Brinberg, Economics of the Work Week, Studies in Business Economics, No. 24 (New York: National Industrial Conference Board).
8. Richard A. Beaumont and Roy B. Helfgott, Management, Automation and People (New York: Industrial Relations Counselors, 1964); Charles C. Killingsworth, “Nation’s Manpower Revolution,” Testimony before the U.S. Congress, Senate, Committee on Labor and Public Welfare, 1963, Part 5, pages 1475-1479; U.S. Bureau of Labor Statistics, Implications of Automation and Other Technological Developments: A Selected Annotated Bibliography, 1962- 1964 (Washington: Government Printing Office).
9. Howard R. Bowen, The Costs of Higher Education (San Francisco: Jossey-Bass Publications, 1980); Gordon K. Douglas, “Economic Returns to Investment in Higher Education” in Investment in Learning, Howard R. Bowen, ed. (San Francisco: Jossey-Bass Publications, 1977); George Charles Roche III, Education in America (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, Inc., 1969); A. H. Burleigh, ed., Education in a Free Society (Indianapolis: Liberty Fund, Inc., 1973).
10. Gladys L. Palmer, “Contrasts in Labor Market Behavior in Northern Europe and the United States,” Industrial and Labor Relations Review, 1960, 13: 519-532; Seymour L. Wolf-bein, Employment and Unemployment in the United States: A Study of the American Labor Force (Chicago: Science Research Association, 1964).
Dr. Hans Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political and monetary affairs.