Opinion: We should fight inflation by enacting labor supply reforms that would encourage work
SAN DIEGO, CA (Project union)—In the past few years, one million American retirees have picked up a pickleball racket. We would have less inflation if they had taken a hammer, wrench or pencil instead.
“Help Wanted” signs are everywhere, from cafes to pharmaceutical factories. Advanced economies could mitigate one of the main sources of inflation by encouraging more people to join the labor market, especially those at the opposite ends of the labor scale: the elderly and the young.
Due to the whirling printing press of central banks, excessive government spending, shipping disruptions and now Vladimir Putin, inflation has reached levels not seen since. Rocky II (1979). But with a supply-side labor policy, we can help fill the 11.3 million job vacancies in the United States, while the Federal Reserve and its counterparts elsewhere find ways to empty their bloated balance sheets.
“ At the same time, more than 20 million prime-age Americans (25-54) actually wake up every morning, smell the coffee, then scroll through cat videos on TikTok until lunchtime. ”
In the popular press, the US economy seems blessed with Energizer bunnies. Tom Brady is breaking touchdown records at 44, Clint Eastwood is making movies at 89 and William Shatner is daringly going into space at 90. The proportion of elderly people in the country has jumped from a third over the past 15 years.
At the same time, more than 20 millions Prime-age Americans (25-54) effectively wake up each morning, smell the coffee, then scroll through cat videos on TikTok until lunchtime. They tell Bureau of Labor Statistics investigators that they “don’t want a job now.” Couch gamers and crypto brethren could help Xbox MSFT,
and Coinbase COIN,
prosper, but low labor force participation is bad for the economy as a whole and bad for the country.
Three smart strategies
A supply-side smart workforce strategy has three components. It should get some of the “unemployed” back to work by fixing distortions in public pensions, tackling the epidemic of professional licenses and diplomas, and defending gig workers and the platform economy against regulation. authoritarian.
Seniors react to tax incentives just as they react to special dinners for early risers. Unfortunately, Social Security penalizes retirees who return to work by cutting their monthly allowances. A 62-year-old beneficiary loses $1 in benefits for every $2 she earns above $19,560. The Urban Institute calculated that while a 60-year-old at the median income faces an implicit tax on labor of around 15%, the rate jumps to over 30% at age 66. So why bother to work?
With the declining birth rate in the United States, every retiree now relies on a simple 2.7 active workersa dependency ratio that is expected to worsen to 2.3 active workers per retiree by 2035. Countries like France, Italy and Japan face an even more catastrophic calculation.
To manage this imbalance, taxes on senior citizens’ pensions should be abolished when they reach a certain number of years of activity. After age 45, for example, an individual would be “paid in full” and could continue to work without incurring penalties or payroll taxes. Too many energetic seniors are moving into “working” communities too soon, indulging in a rum punch when they might prefer to hit a scorecard.
Incentives for young people
The government should also create better incentives for young people. In Italy, before COVID hit, nearly 30% of young people aged 20-34 were classified as NEET (“not in education, employment or training”). The US labor force participation rate has fallen by 17% for 16-24 year olds since 2000. In 2000, more than half teenagers worked in the summer; now only about a third do.
Cooking hot dogs on the boardwalk might not add much to a resume, but it does build lifelong skills like self-discipline and time management. Additionally, according to a Northeastern University study, working low-income high school students are more likely to graduate.
With a smarter labor strategy on the supply side, 16-24 year olds contributing to government pension plans would be credited at double the current payout rate when they retire. A 20-year-old who earns $15,000 in 2022 and pays about $1,200 in Social Security taxes would be credited in retirement as if she had earned $30,000.
Another major problem is that workers of all ages who want to enter new fields must circumvent government barricades, including costly licensing requirements. Almost A quarter jobs in the EU and US require a license, down from less than 5% in the 1950s. While licensing makes sense for surgeons and pilots, one can only wonder why the state of Arizona requires hairstylists to take 1,600 hours of classes. A Phoenix policeman walks by 1,040 hours of training. Apparently, handling a hair dryer is far more dangerous than handling a .40 caliber Glock.
This licensing epidemic has driven up costs for workers and consumers. In a world of on-demand work and online learning, even college degree requirements seem outdated. According to the Indeed employment platform, 72% of employers think grads from coding boot camps “are just as prepared and likely to be high performers as applicants with a computer science degree.” Senior Executive at Google GOOG,
declared that academic grades are “worthless as a criterion for employment”.
No wonder then that IBM IBM,
announcement that half of its jobs in the United States are now open to anyone with the required skills, and Ernst & Young (UK) has opened its doors to non-university graduates. Excelling in a tech job requires keeping up with the latest industry innovations, which isn’t a specialty of tenured professors teaching classes from last year’s grades. Governments can take the lead in hiring the best people, not necessarily those with gold degrees.
Finally, governments should stop undermining the gig economy. Construction workers perform an inflation-fighting service when commissioning a spare apartment, parked car, or idle dump truck sitting at the side of a construction site. Reclassifying these workers as employees deprives them of flexibility and drives up prices. New York City has capped profits for food delivery companies, which only hurts city dwellers. Parliamentary committees in the European Union, Australia and Canada are also targeting companies like Airbnb ABNB,
and DoorDash DASH,
A smarter labor policy would create opportunities for those who want to work, while fighting inflation and helping to reopen some of the a third small businesses that have been shut down by the shutdowns. For healthy people, retirement and other noble endeavors like Xbox and pickleball can wait another day.
Todd G. Buchholz, former White House director of economic policy under President George H. W. Bush and managing director of hedge fund Tiger Management, is the author of “New ideas from dead economists» (Plume, 2021) and «The price of prosperity(Harper, 2016).
Michael Mindlin is an investment banker in Los Angeles.
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