The End of High Unemployment

Commentary, Workplace, Peter Holle

In 1989, scholar Francis Fukuyama wrote what was to become a famous essay, "The End of History". In it, he held that the collapse of the Soviet Union and its central planning model proved once and for all the superiority of the open market economy model.

That view continues to strengthen as the world observes the amazing performance of the U.S. economy. The American colossus is generating jobs at a sizzling pace: 213,000 per month on average during 1997. Its unemployment rate has just fallen below 5.0%, with many communities experiencing jobless rates under 3.0%. With unfilled jobs going begging in their cities, mayors have resorted to handing out their phone numbers on TV to attract workers. IBM now sends recruiters to Daytona Beach at spring break to rope in prospective employees.

Our southern neighbour’s job creation record is even more stunning when you consider that 64 American adults out of 100 are working today, compared with 55 in 1967, when unemployment stood at only 3.0%. With the rise of the two-income couple, more adults participate in the work force today than ever before. And contrary to popular myth, many of these jobs are high quality placements, not the hamburger-flipping variety scorned by the usual critics.

We have to ask ourselves why Canada’s official jobless rate hangs stubbornly around twice that in the U.S? Why don’t our politicians have to beg for workers to fill jobs in their areas?

Discussions about jobs are too often swamped by the muddy waters of ideology. The U.S. has a more flexible, less regulated labour market. It is a cold fact that highly controlled job markets create fewer openings. Witness Europe’s failure to generate jobs, the rising social tensions there, and that area’s relative stagnation compared to the U.S.

No surprise, then, that Canada, which often seeks the middle ground between the European "mixed economy" model and the more market-oriented U.S. model, has a jobless rate somewhere between those found in troubled "managed" economies like France’s and that of the U.S.

Closed-shop union laws, higher payroll taxes and more generous unemployment and welfare benefits explain some of the difference. Protecting organized minorities of workers means shutting out the unorganized – usually younger job-seekers. Subsidizing longer employment searches means more people looking for a longer time.

Another important difference is the diminished role government plays in the U.S. economy. No one in American political life seriously advocates government job-creation programs anymore. Accepted opinion decrees that government’s role is simply to maintain a healthy environment for private sector job creation. This means keeping inflation low through tough monetary policy, eliminating deficits and reducing taxation.

Gridlock between Democrats and Republicans constantly squares the House of Representatives, the Senate and the President against each other, stalemating any prospect for new government programs. These programs, as Canadians have seen, ultimately curtail job creation as they drain the private economy’s spending power through rising taxation.

There are other reasons for the booming U.S. economy. Military spending has fallen by about half over the last decade, freeing resources for more productive uses. The American lead in computer and software investment has led to huge productivity gains, particularly in the services sector. This means a much more competitive and dynamic economy and, of course, more jobs.

Canada is no slouch by international standards. Our country rated very highly in recent international competitiveness surveys. We are strong users of technology. We have an open economy. Our government deficits are falling fast. Our business sector is recognized for its strong management skills. But we do poorly in several key survey areas. Comparatively inflexible labour markets, oversized, low-performing governments and onerous tax burdens drag down Canada’s otherwise top class performance.

This suggests the way to a more competitive, prosperous and job-rich economy is smarter government, more open labour markets and lower taxes.

History will never end but it is capable of writing new, more prosperous chapters.