|A Cure for Unemployment|
|John B. O'Donnell|
Issue #22 (June 1983)
There have been many arguments presented addressing the problem of unemployment. These range from accepting the business cycle as a natural occurrence to proposals of government make-work programs as a corrective measure.
[quoteright]My contention is that unemployment is neither a natural occurrence nor correctable by government make-work programs. Rather, it is a result of abuse of monopoly power by government, management, or labor. It can be corrected only by correcting the cause.
To support this contention it is first necessary to define what is meant by monopoly power. Monopoly power is that discretion to set prices for goods or services held by an individual or group because of uniqueness of those goods or services or a compelling force preventing others from providing those goods or services. This definition sounds somewhat complex so a few examples are in order.
The first source of monopoly power is uniqueness. This type comes about by the particular talent of an individual or the singularity of a good. If you want Frank Sinatra to sing at your wedding, you will pay the price he demands or do without. If you want to possess the Brooklyn Bridge you will pay the price the owner demands or do without. If Frank Sinatra sets his price for singing at weddings too high, he will not be employed in the business of singing at weddings. If the owner of the Brooklyn Bridge sets the price too high, he will not be employed in the business of selling the Brooklyn Bridge.
These examples show a distinct relationship between monopoly power and unemployment, but, since no one is hurt, they can hardly be called abuse of that power.
The second source of monopoly power is use of compelling force to prevent others from providing particular goods or services. This source is more diverse, but the same relationship to unemployment holds. Some examples of this source are:
- The force of government used to protect the property rights of patent and copyright owners.
- Corporations setting prices for their goods high in order to extract monopoly profits.
- Unions setting the price of labor's services high in order to extract a monopoly advantage.
The first of these is limited in time and is generally considered a useful encouragement to the development of new inventions and arts. This does not fit the concept of abuse.
The other two examples may be a little more suspect. When management uses its monopoly power to set its prices too high, they sell fewer goods. When they sell fewer goods, they hire fewer people to make those goods. When unions set the price of labor too high, the price of goods made by labor must be set high to recover the excess cost of labor. When the price is set high, fewer of these goods are sold and fewer people are employed in making and selling and servicing these goods. When fewer people are employed the general economy becomes depressed. This depression can reasonably be called deleterious to the general welfare of the society and thereby an abuse of monopoly power.
In these United States of America, the Congress is empowered to enact laws promoting the general welfare. I therefore propose that Congress enact a law to correct these abuses of monopoly power. The law I propose is:
- If in any month employment of a large corporation is 500 or more persons below the level of employment in the same month of the prior year and
- if the profits of that company equals 5% of sales, the prices of that company's products shall be reduced by 1% or more; or
- if the profits of that company are less than 5% of sales, the wages of all employees of that company shall be reduced by 1% or more, and the prices of that company's products shall be reduced by the same percentage times the fraction of cost of labor divided by total costs of sales.
I believe this law, or one of a similar nature, would bring an end to the cyclical problem of boom and bust with the attendant problem of chronic unemployment. If you agree, tell the Congress; if you don't, don't.
© 1983 John B. O'Donnell
J. B. O'Donnell
Southern Californian John B. O'Donnell has retired from a career as a mechanical engineer to spend time writing on political economy and other socially useful subjects.