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How To Fix High Unemployment

21 April 2010 7 Comments

Today, I present a reader submission into the latest writing contest here at 20smoney that aims to offer ideas on how to fix some of our biggest problems.  The contest asks readers to submit their input on the following major challenges facing the United States (and other countries):

1. High unemployment – How would you go about lowering unemployment? The current policies seem to issue debt or print money in order to prop up the economy and boost employment, but these have potential disastrous side effects.  Your solutions need to have minimal side effects, and should be mentioned in your solution.

2. Corrupt politics – Approval ratings for politicians on both parties are at record lows.  How would you suggest we get back to a sane situation where politicians are accountable to the people and get back to the Constitution?

3. Too Much Debt – We as a society have way too much debt, both at the individual level and the public level.  What would you implement in order to get American’s and America’s balance sheets back to a healthy state?

4. Education – Education in our country is getting worse and is getting more expensive.  What is the solution here?

You can submit your entry by picking one (or more) of the above topics and sending it to kevin (at) 20smoney (dot) com or through the contact formBloggers get a free backlink, and all entrants are eligible for the $250 prize!

Today’s author selected high unemployment as the topic…


In order to really figure out how to fix high unemployment, we have to look at why those people are unemployed in the first place.  A business will reduce their workforce for many reasons, but most likely are these two.  Costs have risen and the market will not bear any higher prices to compensate, or demand has deflated and costs must be reduced in order to compensate for the lowered need for production.  In either case, workforce reduction is the company’s likely answer.

So, one way to improve the unemployment problem would be to fix both of those problems.  But how?  In both cases, reducing costs is the easiest way to maintain (or increase) current employment levels.  But, again, how?  First, let’s establish the given that the actual cost of physical goods to manufacture a product is likely not to fluctuate drastically.  They will fluctuate, just not drastically enough to cause a sudden rise in unemployment.  What other costs does a business have that can/do rise drastically and could easily affect their bottom line such that they need to cut costs.

1.  Packing, Shipping, and Delivery.  The costs of packing materials are relatively steady, but the costs of shipping (especially through the USPS) have been steadily rising over the last several years.  Not enough to cause great unemployment, but one or two positions in a larger company isn’t unreasonable to assume.

2. Fringe Benefits.  401(k) matching, vacation pay, bonuses, stock purchase plans, health insurance, etc.  Many fringe benefits are fixed costs, meaning they are a set % of overall costs.  401(k) matching, for example, is usually a set match of what employees contribute.  Of the ones I’ve listed, only health insurance, cannot be easily reduced or cut.  And, of all of those listed, health insurance is likely the one that will rise uncontrollably.  With the new legislation, a company won’t be able to cut that benefit easily (or cheaply) and it could cause greater unemployment.

3. Taxes.  Taxes on payroll, equipment, products, and sales.  They don’t go away, and can easily become quite burdensome for many companies.

4. Payroll.  Payroll is usually the highest cost for a company.  Cutting workforce cuts payroll and makes a big dent in overall costs.  That’s why they do it.

How do we fix those problems?

1. Create greater efficiencies in shipping.  Make it slower, but much more efficient and charges for shipping might be reduced.  USPS needs an overhaul, it’s a rats nest.  Increased usage of UPS, FedEx, DHL, and their competitors could cause price wars.

2. Cutting fringe benefits isn’t usually a good idea if you want to keep your best employees.  Don’t.  Health insurance costs must be reduced. The legislation isn’t going to do it, so we need to repeal that legislation and work on finding a legitimate way to reduce costs for health insurance such that premiums will fall.

3. This one’s an easy one.  Cut taxes.  Corporate taxes aren’t all that bad overall, but cutting the taxes on payroll (SSI, Withholding, Medicare/Medicaid) would reduce the half that the corporation pays as well.  Cutting taxes overall should cause greater increases in spending.  Greater spending, means more product sold, which means more revenue and more capital to spend on employees.

4. There’s not much that you can do about this.  The market should equalize the salaries of most of the employees.  However, there are many professions where the market is unable to equalize the salaries.  All of them are due to the Unions.  Unions served a purpose years ago, but they have since outworn their welcome and should be gotten rid of.  When we can stop paying autoworkers $20+ hour to do something that anybody off the street could do (and for $8-10 less an hour) we should see salaries begin to equalize to a more responsible rate.

That should help fix the corporate side of things.  But, that’s only half the battle. We have to give the unemployed a reason to get back in the game.  Current unemployment benefits are much too good.  It’s much to easy for an unemployed person to half-heartedly attempt to gain employment and cherry pick jobs while collecting benefits for extended periods of time.  Unemployment benefits should only be good enough to keep a person from going completely under while unemployed.  They should only be good enough to encourage a person to take a job.  Many of the unemployed are merely waiting for the perfect job rather than taking a job that is available.

There is a reason that high unemployment is still a problem.  It’s not easily fixable. Even the fixes that I’ve outlined aren’t a fix all.  There will always be those who try and sidestep the rules and laws.  There will always be those who want to coddle the unemployed by giving them more unemployment benefits. However, reducing a company’s costs and encouraging the unemployed back into the workforce should go a long ways towards minimizing the number of unemployed to a much more managable number.

This article was submitted by the author of Beating Broke

7 Comments »

  • Beating Broke said:

    Thanks to Kevin for the opportunity to grace the fine pages of 20sMoney!

  • Dan said:

    I like this article. I do believe you had made some good points in the unemployment resolution. But I would also like to add my comments to the resolution as follows:

    Problems:

    1. Corporate tax is so high that it is not profitable for companies to stay in the U.S, if they move it offshore to China where there Corportae tax is cut in half, then surely the migration will take place.

    2. Labor cost in the U.S has become so high that the rate of labor has drammatically increased upto 10th fold compared with India, China, Mexico and other 2nd and 3rd world. If such then how do we compete?

  • danman2 said:

    3. Coporate greed and lack of ethics. Lower the standard of U.S regulation, business tends to cut corners, cut regulation and disregard consumers safety.

    4. Other country are stealing our propriety property. Take for example India, and China they pirated our: DVDs, CDs, ebooks, technology, software, hardware you name it, if they can get there hands on they would. Other country disregard U.S patents law, copyright laws, infringement laws and others. It is hard to play the fair game when others are cheating both ways.

    5. NAFTA has created a barrier for us to make a profit, since it is cheaper to move Manufacturing and Production to Mexico and South America, why not do it.

    6. Health care cost is a major draw back, too expensive and too costly to offer to U.S employee.

  • danman2 said:

    Resolution:

    1. Cut Corporate tax to promote domestic jobs, keep companies from shipping overseas. Lower the tax brackets for foreign corporation to join in our U.S investings. If only they would created manufacturing and production in the U.S. On the other hand, increase Corporate tax to companies that are shipping jobs overseas, thus making our domestic products more competive both internally and globally.

    2. Labor cost is direct influence of standard of living, our houses are too high, our domestic taxes are too high. If a bank fail let it fail, if a companies fail let it fail, if anything fails let it fail on its own. The rule of business is that when a business ttends to bankrupt, let it do it deed, "be it". So that things will reset itself back to the original equilibrium state. In long term lower wages will appear, and thus making our labor force less costly and more competitive. It is not that we do not have the skills, resources or the know how, it just that we need to be less costly to compete.

  • danman2 said:

    3. Restructure Corporate rules and regulations: Hold coporate officers responsible for their actions.. If a Corporate official is committing a crime, then prosecute him/her as you would with a normal person. Resgination does not relieve him/her from wrong doing.

    4. Protect proprietary property. Go after the big guy, don't yank the little guy. Teach about propriety property in school and university. But importantly, punish those who does not follow patent laws, copyright, infringement, and other related to proprietary rights. If a company in China is stealing our stuff or our technology then hold their government responsible for it. Step up and take actions. The righteous will always win.

  • danman2 said:

    5. Cut NAFTA off the chart. Prohibit companies from offshore their facilities to Mexico and South America. What is the point of tightening our borders for illegal immigrants when all of our jobs are going to Mexico, things does not make sense here.

    6. Hm, this is an interesting subject. To reduce the cost of health care and also the cost of medicine, we must all take actions, not just the government can do it all alone.
    Create free health care hospitals within each city. For any doctors, pharmacists, nurses, or any healthcare related students, promote free tuition classes and free scholarship. But in turns, offer them in exchange for their service to the free-cost hospitals. If the goverment paying for 1 year of their tuition, then they must serve in the free-cost hospital for one year as so on.

    That is it for right now, if you like to discuss more contact dantronics@yahoo.com

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