Rooted in Reason: Nurturing the Seeds of Liberty


Fact Check: Criticizing the “Texas Economic Miracle” by maliab
August 24, 2011, 5:58 pm
Filed under: Economy | Tags: , , , ,

There is an interesting game that goes on when the political conversation turns to unemployment.  Despite the rather depressing unemployment numbers, there are still plenty of arguments to be found about the kinds of jobs available.  Some of these criticisms are well-founded, as when it is pointed out that creating temporary government jobs via state-funded spending sprees is not a path to long-term economic recovery.  Others, such as the spats over the relative “quality” of new jobs available are a bit more complex.  As Dr. Steve Pejovich, a Professor Emeritus from Texas A&M University writing for the Institute for Policy Innovation, explains, there’s a lot more to economic recovery than the wage rate:

Challenging the supposed “Texas economic miracle” under Governor Rick Perry, CBS recently reported, “Critics also note that many of the jobs created on Perry’s watch are low-paying and lack benefits.” This statement is wrong at best and stupid at worst. Here is an economist’s explanation for non-economists.

The demand for labor, like the demand for all scarce goods, is a function of price. The lower the wage the more people are hired.

What’s known as the “market-clearing wage” (i.e., price) is the wage at which all people who want to work at that wage have jobs. At any wage above the market-clearing wage not all people who want to work at that wage have jobs.

Government can’t determine the market-clearing level, only markets can. But government can distort it by imposing regulations on business, minimum wage laws, and unions (think of the Boeing case), which force wage rates above the market–clearing level.

Perry’s critics are confusing the wage rate with income. The higher the wage rate (above the market-clearing level) the more who are unemployed. That is, high wage rates mean zero income for many. The market-clearing wage rate means positive income for all.

Governments can choose to make labor markets less or more competitive. Perry has chosen the latter for Texas. Yes, the average wage rate in Dallas might be lower than in Detroit, but more people are earning money from work in Dallas than in Detroit. This raises an important question upon which a free society depends: the freedom of choice.

Any person in a right–to-work environment can choose between zero income and the wage he or she could get in the labor market. No person in a union-controlled or government-regulated environment can choose between zero income and the wage at which he or she is willing to work.

No one has to work for a lower wage, but at least in Texas more people can choose that option over being unemployed.

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1 Comment so far
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Thanks, Malia – an excellent explanation! In reality, the left is running scared and they truly fear Perry. He can beat Obama with both hands tied behind his back while shooting a coyote during his morning run (he actually did that….shoot the coyote, that is.)

Comment by giliar




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