August 18, 2008

August 18, 2008 | Commentary on Economy, Taxes

Getting Government Out of the Way

It's time, as they say, for some good news and some bad news. First, to get it out of the way, is the bad news: The unemployment rate last month climbed to 5.7 percent, the highest it's been in four years.

The good news is that our economy remains in good shape. It's still growing, and there's much we can do to help it grow even faster. The main thing, of course, is to get the government to stop interfering with entrepreneurs who are trying to work, build businesses and create jobs.

One reason the unemployment rate is on the rise is because Congress raised the minimum wage. It was $5.15 an hour in 2007, has increased twice, and is set to reach $7.25 an hour next year.

Not surprisingly, teenagers suffered the most of any age group last month. Teen unemployment jumped 2.2 percentage points. The jobless rate for teenagers is now 20.3 percent. Meanwhile, the rate for workers over 20 has increased, but only slightly. And for women over 20, the unemployment rate actually declined.

This makes sense. If government orders employers to pay unskilled, inexperienced workers more, they'll simply hire fewer of those workers. And teenagers tend to be the people who fill minimum-wage jobs.

Of course, once hired, they don't stay in those low-paying jobs for long. Two-thirds of all minimum-wage workers earn a raise within a year of being hired -- but they must get hired first. Hence, a government policy aimed at helping low-paid workers ends up hurting those workers by thinning their ranks.

And the damage goes beyond the month-to-month unemployment figures. Since fewer teens are being hired, that means fewer are in the real world, developing the skills they'll need later in life, such as how to get along with their fellow employees and bosses. Studies show that an increase in today's minimum wage hurts teenagers for years to come.

The best thing to do would be to repeal the minimum wage and allow the market to work. Employers would pay what they thought a job was worth, and employees would decide how much -- or how little -- they'd be willing to work for. The market would set wages.

Barring that, lawmakers could at least return the minimum to $5.15 an hour, or at least eliminate the $0.70 per hour increase scheduled for next January. That would get more young people into the workforce and bring down the unemployment rate.

To further boost our economy, though, the U.S. has to get back to celebrating entrepreneurship. Business owners get a bad reputation, especially in an election year. There's always a politician ready to criticize companies for making money.

Recall that during the Democratic primaries, Hillary Clinton, angry about Exxon's earnings, wanted to "take those profits and put them into an alternative energy fund that will begin to fund alternative smart energy alternatives that will actually begin to move us toward the direction of independence." As if some government-run fund would do a better job developing new energy than a for-profit energy company does.

There are certainly unscrupulous business owners who'll do anything to make a sale -- just as there are unscrupulous doctors, who'll write any prescription if the price is right, and unscrupulous lawyers who'll misuse the courts. But such people are rare.

As Rick O'Donnell, president of the Texas-based Acton Foundation, puts it, virtually all entrepreneurs operate honestly. They're the people running shops in your hometown, starting businesses and creating jobs. They've driven this country's explosive growth for more than 200 years. And if government will stay out of their way, they'll keep on driving it for generations to come.

Free enterprise has built America into the most prosperous nation the world has ever known. We have always embraced new ideas. We have always relied on the ingenuity of individuals and free markets to solve problems.

Today's rising unemployment is one problem we'll solve, as long as we keep encouraging our entrepreneurs -- and keep government out of their way.

Ed Feulner is president of The Heritage Foundation.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

Related Issues: Economy, Taxes