U.S. jobless claims have picked up since the election and the second wave of the CCP virus has slowed the economic recovery. Uncertainty about tax increases and changes in labor laws, including an increase in the minimum wage, add to the fear of new lockdowns as employers see the devastating effect of these lockdowns on European employment.
While the United States has been able to recover fast and reduce unemployment to 6.8 percent, the eurozone jobless rate rose to 8.3 percent, not considering the large number of furloughed jobs that remain idle. The second wave of the CCP virus in Europe has seen new government-imposed lockdowns, and the impact on the economy is already severe. Estimates for fourth-quarter gross domestic product assume a double-dip recession and another increase in unemployment.
Misguided lockdowns have created a deep and long-lasting impact on the economy and a dramatic social crisis, proving again that the response to the pandemic should have been similar to the one of Asian countries, which have successfully preserved health and the economy.
Employers all over the United States fear that a Joe Biden administration will impose lockdowns following the example of some European countries, and thus generate a new decline in the economy and a wave of bankruptcies and job losses.
Instead of providing simple and effective protocols for businesses to endure the crisis, some governments whose members are completely disconnected from the day-to-day problems of small businesses and employers, resort to the drastic and ineffective measure of lockdowns, because it gives more power to governments, and the large corporations don’t feel the impact as much as small enterprises.
Governments like the idea of lockdowns because it gives the impression of taking drastic measures to control the pandemic when, in reality, lockdowns simply destroy the business fabric and have proven to be extremely ineffective at reducing the mortality or hospitalization rate.
The concerns about a Biden-enforced nationwide lockdown aren’t exaggerated. Dr. Michael Osterholm, a CCP virus adviser to Joe Biden, said a nationwide lockdown of 4 to 6 weeks would help bring the virus under control in the United States and revive the economy. I’m sorry to say that experience has shown us that neither of those two things happen. Massive lockdowns didn’t help European countries control the virus, rather the opposite, and have destroyed the economy with long-lasting implications for jobs, bankruptcies, and wages.
Meanwhile, countries that haven’t implemented lockdowns and have provided simple and effective protocols have achieved better results in health and the economy.
Higher Taxes and Labor Market Rigidity
Many citizens in the United States ask themselves if the country will recover to its record level of employment and low unemployment rate of 3.5 percent seen in March, before the pandemic. Even if the United States avoids government-imposed lockdowns, which would delay the jobs recovery for at least another 18 months, there’s a grave concern about the likelihood of implementing more regulation, union control, and higher taxes that will make it more expensive to hire personnel and more burdensome both in terms of hiring as well as reducing payroll.
The United States has been an example of job creation during the growth period but, more importantly, an example of rapid job recovery in a complex crisis like COVID-19. Adding rigidity to the labor market and increasing taxes will prove disastrous for small and newly created businesses, which are the largest job creators in the United States.
It’s as simple as this. The United States can’t have the wage growth and low unemployment it deserves by copying the labor market legislation of Greece, Spain, or France, countries with extremely rigid job markets and high union intervention—and historically high unemployment.
The European Union used to have the same unemployment rate as the United States. Massive disincentives, a misguided excess of regulation, and heavy taxes have created a divergence by which unemployment in Europe stands at almost twice the rate as in the United States.
The fallacy of “protecting workers” with high taxes to employers and heavy intervention in the labor market only protects governments. Unemployment is higher, wage growth is weaker, and the loss of flexibility means lower opportunities for youth employment. Youth unemployment in the eurozone and European Union is simply unacceptably high even in growth periods, and it’s due to the barriers to employment created through aggressive intervention in the job market and government control. Incentives to hire are poor, while disincentives to work are high.
If anything has been proven by the past two decades it’s that more government, higher taxes, and union intervention don’t protect workers; they perpetuate unemployment and reduce wage growth and opportunities.
Lockdowns added to higher taxes and labor rigidity would likely prove very negative for the United States’ recovery. You can’t recover if you impose the burdens that some European countries have imposed. Labor market interventionism doesn’t protect workers; it empowers politicians.
Daniel Lacalle, Ph.D., is chief economist at hedge fund Tressis and author of “Freedom or Equality,” “Escape from the Central Bank Trap,” and “Life in the Financial Markets.”
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.