The Apples and Oranges Tribunal

By Alex Tabarrok.

"Suppose that apples sell for more than oranges and Parliament in it’s wisdom decides that, at last, apples and oranges must be compared. Not by shoppers — shoppers are biased, they merely reveal what they are willing to pay — but by a tribunal, which will determine whether apples and oranges are of truly equal value and thus must sell at the same price.

What would the tribunal need to know?

Start with land. Orange groves sit on Florida real estate with one set of alternative uses; apple orchards occupy Washington hillsides with another. The opportunity cost of an orange includes the housing development, the solar farm, the tourist attraction not built on that grove. How is the tribunal to value what was never built? Perhaps you answer: look at land prices. Brilliant suggestion, I reply. Keep going.

Next, capital. Orchards take years to mature, so today’s fruit embodies investments made under yesterday’s expectations about today, financed at interest rates the tribunal must somehow incorporate. Then storage: apples keep, oranges rot, so an apple and an orange in April are different goods than the “same” fruits in October. Add transportation, refrigeration, frost, pests, crop insurance, the option to divert fruit into juice, cider, marmalade, or pie, substitution with every other item in the produce aisle, and the shifting preferences of millions of consumers, each of whom knows things about his own breakfast that he could not articulate to a tribunal. It all matters.

To determine the “just” price of apples and oranges, the tribunal would need the entire general-equilibrium system.

Market prices are necessary to compare alternative uses of resources, as Mises taught us in 1920. In 1945, Hayek added the knowledge problem: the relevant knowledge is dispersed, local, tacit, and fleeting. Free markets are the only institution that aggregates that knowledge, articulates it in prices and gives people a reason to listen and respond. A price is a signal wrapped up in an incentive. Apples and oranges can be compared but only by the incomparably complex operations of the price system. There is a reason we call it the super-market.

Britain is now running this experiment in the labor market–A retail worker equal to a warehouse worker? A canteen worker equal to a coal miner? A dinner lady equal to a gravedigger?

Under the Equality Act’s “equal value” provisions, tribunals compare jobs by scoring their intrinsic properties — effort, skill, responsibility, working conditions — the labor theory of value applied to labor. How is it going? The Tesco litigation began in 2018; the tribunal’s fact-finding hearing ran 36 days, its judgments run to more than 900 pages resting on some 19,000 pages of training manuals, and the independent experts have yet to begin the report that will actually say whether a shelf-stacker’s job equals a warehouse worker’s. Eight years, and the calculation has not started. Apples and oranges, adjudicated but not, as Orwell or Marx or Stafford Beer might have imagined, by a industrial bureaucracy or by an all-knowing artificial intelligence but by lawyers and commissions and tribunals. The worst of all worlds.

And having discovered that the tribunal cannot price two jobs in a decade, the government now proposes to add race and disability comparisons and an enforcement unit to publish official guidance on which reasons for a wage difference are permissible. A bureau of allowable scarcities.

Moreover, let us say that one day the tribunal reaches its conclusion and finds the truly just apple to orange price. At last, nirvana. The next day the public learns that vitamin C really does combat cancer–the demand for orange juice skyrockets. To encourage more orange juice production we need a higher price but wait…nothing about oranges or apples or the labor required to produce them has changed. We need to attract more labor to the orange juice industry but the effort, skill, responsibility and working conditions of orange juice workers has not changed. How can we justly pay them more than their apple juice brethren? Blank out.

The market compares apples and oranges every day. It is the only institution that can. But there is a deeper error here than computation. Suppose the tribunal succeeded. Suppose that after another decade it delivered the true and final score, shelf-stacker versus warehouseman. What would it have found? Not justice. A wage is not a grade on your character or a measure of your worth as a human being. A wage is a price — a report on how scarce your skills are relative to the desires of people you will never meet. Nurses are not morally less worthy than plumbers should they earn less than plumbers or vice-versa, and no one thinks otherwise except the tribunals.

Hayek nailed it in The Mirage of Social Justice: justice is about conduct — how one person treats another. An employer who defrauds his workers, an employee who steals from the till, a product sold under false pretenses — condemn them, take them to court. But the pattern of prices that emerges from millions of voluntary trades is nobody’s conduct. No one chose it, no one designed it, no one can be guilty of it. The constellation of prices is, in Ferguson’s phrase, the result of human action but not of human design. Demanding that prices be just is a category error, like suing the weather. Prices don’t grade our merit; they guide our actions. Ask them to do the first and they can no longer do the second.

Judge Anthony Kennedy said it well in the Ninth Circuit ruling that (mostly) killed comparable worth in the US: “neither law nor logic deems the free market system a suspect enterprise.”"

Fewer employers are screening job candidates for marijuana because it would make it tougher to find qualified candidates

See More U.S. Workers Are Testing Positive for Marijuana. Fewer Employers Are Concerned. As cannabis use grows, employers are rethinking pre-hire screens to avoid recruiting challenges by Celia Bernhardt of The WSJ. Excerpts:

"And fewer employers are screening job candidates for marijuana use at all, in part because it would make it tougher to find enough qualified candidates, said Todd Logsdon, a partner at employment law firm Fisher Phillips. 

“I’ve had other employers tell me, ‘If I test for that, I’m not gonna have any applicants,’” Logsdon said. “They’re being very choosy about which role they test for.”

In a 2024 survey of nearly 1,000 employers, the law firm found about half didn’t test for cannabis in the pre-hire process, often for that reason. Among those that did test, 44% said they faced recruiting challenges and nearly a quarter said they were considering loosening the policy.     

Citigroup and many of its Wall Street peers dropped the pre-hire test over the past decade. Retailers like AutoNation and Home Depot have done away with it for most positions as well. Amazon stopped testing for marijuana for most applicants in 2021." 

This article shows how competitive labor markets are. If employers had the power they could keep screening for marijuana use. 

Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers

From Cafe Hayek.

"Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers. Two slices:

Early economists, such as James Mill and David Ricardo, theorized that the physical labor exerted to create a good is the real measure of its value. Karl Marx took the concept to its extreme: If labor creates all value, then profit must require unpaid labor, making every employer an expropriator and every fortune a crime.

Then, beginning in 1871, economists countered the labor theory of value. Carl Menger, William Stanley Jevons and Léon Walras demonstrated independently that value resides not in hours of toil but in the judgments of consumers. Writing a 500-page novel takes the same amount of physical labor as typing out 500 pages of the word “banana” repeatedly. Only the novel commands a price. Value is created whenever someone rearranges the world into a shape that others want. It is measured by the buyer, not the worker.

Entrepreneurs are the arrangers. Economist Israel Kirzner argued that entrepreneurship is alertness — noticing an opportunity that nobody else has found. The entrepreneur sees that resources combined in a certain way and priced at a certain level can be recombined into something consumers will value even more. The gap between the two is profit. Nothing is taken from workers, who are paid the wage they agree to, or from customers, who buy the product only when the purchase leaves them better off.

…..

A movement that believes wealth is stolen will tax it, cap it and make everyone poorer. Ideas drive growth, and ideas come from people who can profit from them. A world that cherishes entrepreneurs will enjoy advanced chips and revolutionary cures. A world that punishes its innovators will at least enjoy plenty of slogans."

The Equal Pay Madness Just Got Madder

By Alex Tabarrok. 

"In my post Equality Act 2010 I discussed the UK’s absolutely insane wage policy:

In short, supply and demand have been replaced by judges and labor boards with the authority to deem which jobs are “equal” and therefore should be paid equally….No one is alleging that male and female warehouse workers were paid unequally or that male and female retail workers were paid unequally or that there was any direct or indirect discrimination. The only claim is that warehouse workers, who are less likely to be female than retail workers, earn more than retail workers. And since these jobs have been judged “equal,” the company has violated Equality Act 2010.

…The warehouse workers were almost 50% female (47.25%). So females were not barred from the higher paying jobs. The fact that 77.5% of the retail workers were female suggests that retail work has special appeal to females relative to males and thus that there are compensating differentials. Any of the three female plaintiffs could have taken jobs in the warehouse. If the jobs are equal and the warehouse jobs pay more this is, on the plaintiffs’ theory, “puzzling”. [Or, as Ayn Rand would say, blank out.]

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

Well, here is the update. The outgoing Keir Starmer government is trying to massively expand these laws. The “equal value” framework previously applied only to sex discrimination; under the proposed law, employees could also bring equal-value claims based on race and disability. Remember, these laws have nothing to do with discrimination—they are about demanding, at the point of a gun, that apples and oranges sell for the same price because they’re both fruit.

The new law would also establish an Equal Pay Regulation and Enforcement Unit. As I said, Orwellian.

See also my post, How Britain Become as Poor as Mississippi."

The Labor Share Fell. So What?

By Alex Tabarrok . 

"The share of Gross Domestic Income accruing to labor has been declining in recent decades while the share accruing to capital has been rising. In the graph below, I show labor compensation as a share of GDI (left axis). Labor share has indeed been trending down–some of this could be an artifact of the data, e.g. an increase in proprietor’s income (labor) mislabeled as capital income, more pass throughs and so forth—but for the purposes of this post I will accept that the labor share has declined. What does this mean?

 

The natural response is to think that because the share going to labor has fallen and the share going to capital has risen that there has been a transfer of income from labor to capital. That is possible but it is not the only interpretation and it does not follow mechanically from the share data.

I have also plotted total compensation to labor (in real terms) in the graph above and far from shrinking it is higher than ever and growing. Moreover the right axis is logged so you can also see that outside of recessions the growth rate of labor compensation looks quite steady (similar slope over time). (Labor compensation per member of the labor force is noisier but looks similar).

The recessions in 2008 and 2020 are worth noting because these are periods when the labor share was high and locally at a maximum! The reason, of course, is that GDI was shrinking in these periods more than labor compensation. In other words, capital takes a bigger hit than labor in a recession. This is a good reminder that a high share of GDI is not what workers most care about–a high absolute level of GDI is more important for the bottom line.

In short, the data are consistent—not proof of, but consistent with—a story in which capital has become more productive, raising output. More productive capital also raises the demand for labor, so while more of the new output goes to capital in the first instance, the pie is growing and labor’s absolute compensation has grown with it. Yes, if the shares had stayed constant and output had grown just as much, labor compensation would have been higher still. And if my grandmother had wheels, she would have been a bicycle."

Comment from Scott Sumner

"People often assume that if labor's share is falling then capital's share is rising. That is not always true, as GDI also includes depreciation and indirect business taxes, both of which have been rising as a share of GDI. So capital's share has risen by considerably less than labor's share has fallen.

Matt Rognlie showed that much of the rise in capital income has been the implicit rent on owner-occupied housing, which is not what most people think of when they hear "capital income". Another part of the rise is labor income being reclassified as capital income for tax purposes.

To the extent that inequality has increased, I suspect it's due more to a growing share of labor income going to the top 1% of earners."

American Idle: The Work Ethic Goes Out of Style

One in 3 working-age American men aren’t so much as looking for a job

By Jason Riley. Excerpts:

"1 in 3 men were neither working nor looking for a job in April. Among males 20 and older, the 66% labor-force participation rate is down from 73% in 2006"

"the work rate for men 20 and older fell by more than 13 percentage points between 1965 and 2015."

"the fraction of men without jobs of any sort in the broad twenty-to-sixty-four group went from 10 percent of the total to almost 22 percent"

"the percentage of wholly jobless prime-age men shot from 6 percent to nearly 16 percent"

"It results . . . from an unwillingness to search for work" 

"work rates and LFPRs for white men today are decidedly lower than they were for black men in 1965"

"labor participation rates of married black men twenty-five-to-fifty-four are higher than for never-married white men in the same age group"

"foreign-born males who come to the U.S. in search of work also tend to have higher work rates"

"Neither married men nor immigrants are stealing these jobs"

"The more likely culprit is a social safety net full of generous government benefits that allow men who won’t work to subsist"

"Welfare and disability programs . . . are easily gamed by design" 

ICE has not improved U.S. labor markets

From Tyler Cowen.

"We provide the first causal, national empirical analysis of the labor market impacts of heightened immigration enforcement during the second Trump administration. Enforcement increased everywhere, but, we take advantage of the fact that the increases have been uneven across geographic areas to classify areas as treated or control and then implement an event study and difference-in-differences design. Areas that experienced particularly large increases in the number of arrests also experienced a decrease in work among likely undocumented immigrants who remain in the U.S., compared to areas with smaller increases in arrests. We find no evidence of positive spillover effects to U.S.-born workers and U.S.-born workers who work in immigrant-heavy sectors are harmed.

That is from a new NBER working paper by Elizabeth Cox & Chloe N. East."

America Loses Its Will to Work

From the War on Poverty to ‘quiet quitting,’ we’ve stopped appreciating the value of honest labor

By Barton Swaim. Excerpts:

"Did the “war” bring victory? On the one hand, today’s poor live vastly more prosperous lives by any material measure than the poor of the 1960s. Talk of citizens living over or under a “poverty line” is meaningless, Mr. Eberstadt shows (Nicholas Eberstadt of the American Enterprise Institute), the de facto line having risen so dramatically upward—a fact that has little to do with government transfer payments and almost everything to do with rapid economic growth in the postwar period."

"Three decades after the War on Poverty began, congressional Republicans passed, and a Democratic president signed, the most sweeping reform yet made to America’s welfare state. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 conditioned the most important forms of direct welfare payments on employment or the search for employment. Opponents predicted disaster. New York Sen. Daniel Patrick Moynihan, formerly a critic of America’s welfare state, predicted that his colleagues who voted for the bill would “take this disgrace to their graves.” In fact, the reform succeeded. It moved millions off welfare rolls and into the labor market."

"The law mainly reformed Aid to Families With Dependent Children, which it renamed Temporary Assistance for Needy Families. But expansions and liberalizations of other safety-net programs in succeeding years have negated the gains made by the 1996 law."

"We’ve known for years about the slow flight of working-age men from gainful employment. Mr. Eberstadt’s “Men Without Work” (2016) documents in painful detail the moral and psychological costs of men leaving the labor force since the mid-1960s. New and frightening is the phenomenon of “disconnection” among the young, both male and female. About 1 in 7 Americans 18 to 24, according to a recent Rand study, are neither working nor looking for work. Many young people support a “universal basic income”—a government payment to every American, regardless of income or employment status." 

Rescind Davis Bacon

By Alex Tabarrok. 

"The Davis-Bacon Act requires that workers on federally funded construction projects be paid at least the “prevailing wage” for their trade in the local area.

Mike Schmidt, Director of the CHIPS Program Office, has an excellent piece on how Davis-Bacon impacted the CHIPS program. My initial understanding was that it simply required paying construction workers more—an unnecessary transfer from taxpayers to a politically favored group, but not one that would impede efficiency. I was wrong.

Start with the complexity. Davis-Bacon’s prevailing wage isn’t a simple minimum wage: plumbers are not electricians are not fitters, and the required rate varies by locale. The Department of Labor maintains a list of more than 130,000 (!) wage rates to implement it.

That’s complicated enough. But it gets worse. Some firms building fabs used their own employees rather than contractors—and Davis-Bacon applies regardless but it covers only the portion of time an employee spends on “construction” work:

[A]pplying Davis-Bacon to company employees rather than contractors proved to be a big hurdle. Davis-Bacon required tracking every hour each employee spent on covered construction activities — by trade classification, with a different prevailing wage applying to each — and paying a wage differential for that portion of their work as distinct from fab operations work or non-Davis-Bacon construction work. The company also relied heavily on profit-sharing (where a portion of employees’ pay was tied to the firm’s profits) and Davis-Bacon’s guaranteed wage floor was difficult to reconcile with a pay structure that was inherently variable. Moreover, Davis-Bacon has a statutory requirement to pay wages weekly, meaning the company would need to change its payroll systems for a portion of the pay for a portion of its workforce.

Thus, DB required that two salaried employee with equal salaries and profit-sharing plans be paid differentially depending on whether one of them did “construction” work. This created internal strife.

Davis-Bacon was passed in 1931, when a carpenter was a carpenter. How does it apply to building a semiconductor factory?

The construction tasks involved in building and modernizing semiconductor fabs don’t always map cleanly onto DOL’s Davis-Bacon classifications, so applicants must go through a construction plan line-by-line to determine which rate applies to which activity. In traditional Davis-Bacon contexts this is less burdensome because contractors know the system and have processes in place. But semiconductor construction was a novel application, and all of our applicants — and most of their contractors — were navigating Davis-Bacon for the first time.

For large recipients, the administrative cost of this work was real but manageable relative to project scale: they could hire consultants, procure software systems, and build internal compliance capacity….

Perhaps the biggest fiasco involved timing. The government wanted firms to move quickly and encouraged them to break ground before the Act’s rules were finalized. But when Davis-Bacon was added to the Act it required that the firms pay the prevailing wage *retroactively*:

The financial and operational implications of retroactive application were significant. A leading-edge project might have 10,000–12,000 construction workers on site at peak, with a rotating workforce totaling perhaps 30,000 individuals over the project’s life. Working through 300-plus subcontractors across multiple tiers, retroactive application could require identifying wages paid to 20,000 workers who had already cycled off the project, determining what each worker should have been paid under Davis-Bacon, and paying the difference — resulting in hundreds of millions of dollars in additional cost.

The retroactive pay exposes the law’s true nature. Firms and workers had already struck voluntary agreements; the work was done, the wages paid. No one can pretend this has anything to do with incentives. Workers received a pure windfall (“DB Christmas!”) for one reason only: “construction workers” are a politically favored class. Janitors and scientists got nothing extra.

Moreover, a large fraction of the cost wasn’t the higher wages at all—it was compliance. Firms likely spent as much reworking payroll systems and hunting down thousands of former workers in this Byzantine classification system as they spent on the wage premiums themselves. Every dollar transferred to workers may have cost firms—and ultimately taxpayers—two dollars or more. A very leaky bucket indeed.

If the Trump administration is serious about cutting regulatory costs and reviving industrial competitiveness, Davis-Bacon is an obvious target. It delivers little to workers, plenty to lawyers and consultants, and a bill to taxpayers for both. Rescind it."

Per-Task Minimum Pay for Gig Workers?

From Jeffrey Miron. 

"In 2024, Seattle tried to raise wages for app-based workers by requiring that they receive a per-task minimum pay.

By comparing earnings for Seattle workers before and after the law went into effect, a recent study finds that while the policy raised per-task wages,

the increases in base pay per task were partially offset by a substantial reduction in average tips, a major component of delivery pay.

Moreover,

drivers experienced more unpaid idle time and longer distances driven between tasks … [And,] the policy led to a reduction in the number of tasks completed by highly attached incumbent drivers, … completely offsetting increased pay per task and leading to zero effect on monthly earnings.

Yet again, over-zealous intervention backfires."

The Hidden Cost of Hard-to-Fire Labor Laws: Why European Firms Don’t Take Risks

By Alex Tabarrok.

"In our textbook, Modern Principles, Tyler and I write:

Imagine how difficult it would be to get a date if every date required marriage? In the same way, it’s more difficult to find a job when every job requires a long-term commitment from the employer.

In two new excellent pieces, Brian Albrecht and Pieter Garicano extend this partial equilibrium aphorism with some general equilibrium reasoning. Here’s Albrecht:

[I]magine there is a surge for Siemens products. Do you hire a ton of workers to fill that demand? No, you’re worried about having to fire them in the future but being stuck until they retire.

But it’s even worse than that…..[suppose Siemens does want to hire] where is Siemens getting those workers from?…Not only is it a problem for Siemens that they won’t be able to fire people down the road, the fact that BMW doesn’t fire anyone means you can’t hire people. 

Garicano has an excellent piece, Why Europe doesn’t have a Tesla, with lots of detail on European labor law:

Under the [German] Protection Against Dismissal Act, the Kündigungsschutzgesetz, redundancies over ten employees must pass a social selection test (Sozialauswahl). Employers cannot choose who leaves: they must rank employees by age, years of service, family maintenance obligations, and degree of disability, and then prioritize dismissing those with the weakest social claim to the job. If someone is dismissed for operational reasons but the company posts a similar job elsewhere, the dismissal is usually invalid.

Disabled employees can be dismissed only with the approval of the Integration Office (Integrationsamt), a public body. The office will weigh the employer’s reasons, whether they have taken sufficient steps to integrate the employee, and whether they could be redeployed elsewhere in the organization. Workers who also become caregivers cannot be dismissed at all for up to two full years after they tell their bosses they fulfill that role.

As a company becomes larger and tries to let more workers go at once these difficulties increase. In many European countries, companies with more than a certain number of workers – 50 in the Netherlands, 5 in Germany – are obliged to create a works council, which represents employees and, in some countries, must give its approval to decisions the employer wants to make regarding its employees, including layoffs or pay rises or cuts.

…Companies that are allowed to fire someone and can afford to pay the severance costs have to wait and pay additional fees. Collective dismissal procedures in Germany start after 30 departures within a month; once triggered they require further negotiations with the works council, a waiting period, and the creation of a ‘social plan’ with more compensation for departing workers. When Opel shut down its Bochum factory in Germany, it reached a deal with the works council to spend €552 million on severance for the 3,300 affected employees. This included individual payments of up to €250,000 and a €60 million plan to help workers find new jobs.

Now what is the effect of regulations like this? Well obviously the partial equilibrium effect is to reduce hiring but in addition Garicano notes that it changes what sorts of firms are created in the first place. If you are worried about being burdened by expensive dismissal procedures, build a regulated utility with captive government contracts, not a radical startup with a high probability of failure.

Rather than reduce hiring in response to more expensive firing, companies in Europe have shifted activity away from areas where layoffs are likely. European workers are for sure, solid work only. This works well in periods of little innovation, or when innovation is gradual. The continent, however, is poorly equipped for moments of great experimentation.

…Europe’s companies have immense, specialized knowledge [due to retained workforces, AT]. The problems happen when radical innovation is needed, as in the shift from gasoline to electric vehicles. The great makers of electric cars have either been new entrants, like Tesla and BYD, or old ones who have had their insides stripped, like MG.

..If Europe wants a Tesla, or whatever the Tesla of the next decade will turn out to be, it will need a new approach to hiring and firing."

Why Unemployment is Rising Among Young College Grads

Their skills, experience and ability to function are increasingly out of step with employers’ needs

By Allysia Finley. Excerpts:

"last . . . unemployment among college grads age 22 to 27 rose to 5.6% in December, roughly what it was in February 2009 during the financial panic." 

"Artificial intelligence isn’t taking their jobs. Young grads’ struggles started before AI went mainstream. Between 1990 and 2014, unemployment for young college grads was generally 1 to 3 percentage points lower than for all workers. The gap started to tighten around 2014 and reversed in late 2018. Unemployment for young college grads is now about 1.4 points higher than for all workers."

"Government subsidies and public schools have funneled too many young people to credential mills, which churn out grads who lack the skills that employers demand."

"More than half of high-school grads matriculate to college, even though only 35% of 12th graders score proficient in reading and 22% in math on the National Assessment of Educational Progress."

"U.S. colleges awarded 2.2 million bachelor’s degrees last year, about twice as many as in 1990. That’s also double the number of associate’s degrees. Another 860,000 Americans last year received a master’s degree, nearly triple the 1990 figure. Nearly 40% of Americans with a bachelor’s now have an advanced degree."

"Colleges have added graduate programs in fields like urban planning, sustainability and fine arts to rake in more federal dollars."

"market that is saturated with heavily credentialed workers."

"Many skated through college by relying on AI to do their work."

"Some also struggle with executive functioning because of disability accommodations in high school and college that allowed them extra time to complete tests and assignments. More than 20% of undergrads at Harvard and Brown and 38% at Stanford have registered disabilities."

"31% of small-business owners had job openings they couldn’t fill, compared with a historical average of 24%." 

Government Won’t Help the AI Job Transition

By Phil Gramm and Michael Solon. Excerpts:

"our ability to generate and sustain higher living standards, has come in part from developing new technology and benefiting from being the first to implement it, and in part from our ability to move labor and capital dislocated by the wave of creative destruction efficiently into higher and better uses."

"On average, every month since 2000 some 5.1 million American workers were separated from their jobs or were laid off and more than 5.2 million new jobs were created. In 2025, three times as many Americans changed jobs as did workers in the European Union."

"most industrial subsidies in China are used to sustain noncompetitive businesses."

 "The 1962 Trade Adjustment Assistance program, which provided training, job-search and income support to workers harmed by foreign trade, has provided benefits to more than five million people. Numerous public and private studies have highlighted TAA’s failure by comparing the transition of TAA beneficiaries with workers who lost their jobs during the same period but didn’t receive TAA."

"TAA is insufficient in supporting dislocated workers to re-enter the labor market. It didn’t improve earnings. Benefits were used mostly as income support, and nonparticipants were re-employed faster than those who participated in TAA."

"for every week of extra benefits [of unemployment insurance], the covered worker was unemployed for as much as an extra day."

"many workers find jobs in the weeks immediately before and after their benefits run out."

"on average the longer unemployment insurance is provided, the longer the worker will remain unemployed."

"as the annual federal welfare spending surged to more than $70,000 per poverty family, labor-force participation among able-bodied persons in the lowest income quintile collapsed to 36%, from 68% in 1967." 

We’re Planning for the Wrong AI Job Disruption

If artificial intelligence takes over some of your tasks, that doesn’t render you unemployable

By Stephen Lewarne. He is a professor of economics and finance at Franciscan University of Steubenville, Ohio. Excerpts:

"Task automation typically reorganizes work well before it destroys jobs, if it does the latter at all."

"Many politicians and commentators assume that if AI can perform some of a job’s tasks, the role will disappear."

"the distinction between task repricing—when technology can take over all or part of a task—and job destruction isn’t semantic, it is economic. When technology lowers the cost of performing specific tasks by lifting some of the load, firms reorganize production. Workers specialize differently. Demand expands in ways that task-based rankings don’t capture."

"software has automated large portions of bookkeeping and tax preparation without eliminating accountants, who have moved up the value chain toward advisory, forensic and judgment-intensive work."

"A job that scores as 40% “exposed” to AI in these rankings doesn’t have a 40% chance of vanishing. It is more likely to be reorganized."

"As technology accelerates tasks and reduces costs, companies also create roles that task-based rankings like those from Goldman Sachs and the OECD cannot see. Law firms increasingly rely on litigation-support managers and AI-review specialists who oversee automated document analysis rather than review the papers manually."

"Large-scale retraining programs have a mixed record, even when displacement is real. When displacement is overstated, such programs risk doing harm. They pull workers out of productive roles, subsidize credentials with little demonstrated labor-market value"  

Addressing a Few Common Arguments for the Work Opportunity Tax Credit (in practice, it costs taxpayers billions of dollars and doesn’t deliver the results it promises)

By Jack Salmon of Mercatus.

"At the end of last year, the Work Opportunity Tax Credit (WOTC) finally expired, having been renewed 13 times since 1996. Even so, business groups and policymakers have continued to press for its reauthorization, both before and after its expiration.

The WOTC was originally justified as a way to help disadvantaged workers gain a foothold in the labor market, but in practice, it costs taxpayers billions of dollars and doesn’t deliver the results it promises.

The groups of disadvantaged workers that the credit targets typically include recipients of state assistance, veterans, SNAP recipients, formerly incarcerated individuals and those experiencing long-term unemployment.

The program allows employers to claim a credit of up to $2,400 per worker for most targeted groups if the employee works at least 400 hours in the first year. For some groups, such as disabled veterans or the long-term unemployed, the credit can reach as high as $9,600 per hire.

It’s easy to see why, from a high level, some believe the WOTC has an important role to play in helping disadvantaged workers. In practice, it has become yet another narrow corporate tax break that costs taxpayers billions while delivering negligible results. Below I will respond to some of the most common claims about this credit, offering empirically grounded reasons why the credit has repeatedly failed and should not be revived a fourteenth time.

Claim 1: Before WOTC, disadvantaged workers struggled to find stable jobs, and the credit was created to fix that failure.

Even before the creation of the WOTC in 1996, there was a predecessor program with many of the same goals, the Targeted Jobs Tax Credit (TJTC).

Evaluations of TJTC consistently found that it failed for the same reason WOTC fails today. General Accounting Office (GAO) reports from the early 1990s found that the majority of employers using the credit “made no special effort to identify, hire, or retain TJTC-eligible workers. … If employers’ normal employment practices happen to result in the hiring of an eligible worker, they may claim the tax credit even though they have made no specific effort to recruit, hire, or retain workers targeted by the program.”

An audit report published by the Department of Labor in 1994 similarly found that “92 percent of those individuals for whom employers could have claimed a credit would have been hired regardless of the tax subsidy.” The audit report concluded that “the program largely subsidizes the wages of those who are hired irrespective of their eligibility and the availability of a tax credit.”

For these reasons, TJTC was allowed to expire in 1994, but in 1996 it was revived and rebranded as the WOTC. A new name didn’t get rid of the same problems that the TJTC had previously faced, however.

Claim 2: Without the WOTC, businesses won’t hire disadvantaged workers.

The Department of Labor undertook a case study in 1999 that included interviews with 16 firms that used WOTC across five states. The results included the finding that “the tax credits play little or no role in [the 16 employers’] recruitment policies,” suggesting that employers would have hired members of the target groups even if the programs were not available. The report’s authors concluded: “These observations do raise a question about the extent to which the tax credit is serving the purpose for which it is intended — to serve as an economic incentive to encourage employers to hire individuals from specified target groups whom they would not have hired in the absence of the credit.”

Economist Sarah Hamersma used a combination of Wisconsin administrative data and survey data in a 2008 paper that uses panel estimates to determine if WOTC creates incentives that improve employment outcomes for targeted workers. According to her analysis:

Firms do not appear to be using the opportunity to claim tax credits for disadvantaged workers to deliberately increase the hiring of disadvantaged workers. In general, they do not have information about individuals’ status as qualifying (or not) for the tax credits at the time of hire, and even after hiring decisions are made, information about employees who are claimed is kept confidential. As one firm related in the telephone survey: “The information is sent to our corporate office, a third party processes the forms, and the tax credits come back to us like a bonus.” In effect, the firms get “bonuses” for simply putting a form in their hiring packets and sending them off to be processed.

The Inspector General of the Department of Labor has published studies on the effectiveness of WOTC in hiring disadvantaged workers. Focused specifically on veterans with disabilities, a 2012 study implies that only about 13% of WOTC benefits actually lead to new employment, meaning about 87% of benefits accrue to hires that would have occurred in the absence of the credit.

This isn’t a unique finding for WOTC but tends to be a common feature among hiring tax credits broadly speaking. Economist Timothy Bartik reviewed the effect of Michigan’s MEGA tax credit program aimed at hiring or retaining workers, especially in the manufacturing sector. He found the tax credit incentive decisive in only 8% of cases, meaning 92% of credits subsidized jobs that would have existed regardless of whether the credit was offered. Bartik’s earlier work found even larger windfall rates, up to 96%.

The most recent and perhaps most comprehensive analysis of the windfall rate for WOTC comes from a 2025 NBER study. The meticulous analysis of 13 million workers over two decades suggests that the windfall rate is around 97.1%, and the authors could not rule out the statistical possibility that 100% of the hires would have occurred in the absence of the credit.

In sum, the claim that businesses won’t hire disadvantaged workers without the WOTC doesn’t hold up to the empirical evidence. Between 90% and 100% of WOTC claims are for job hires that would have occurred whether or not the credit existed.

Claim 3: The WOTC provides workers with stable jobs and good pay. Without the credit, workers would instead be more likely to rely on public assistance or turn to crime.

For at least two decades, economists have been exploring whether the WOTC improves long-term labor market outcomes for targeted workers. Using propensity score matching estimations, economist Sarah Hamersma of Syracuse University found that WOTC led to no measurable effect over the long term.

While Hamersma found small improvements in employment after two quarters, when she extended the analysis to four and six quarters, WOTC had no impact. She also found that less than 10% of eligible workers get certified for WOTC. When estimating the effect of WOTC on workers’ tenure in a given position, Hamersma found it to be near zero and statistically insignificant.

Using a similar approach, Hamersma and economist Carolyn Heinrich examined how temporary help agencies use WOTC. The authors do not find evidence that WOTC certification brings about improvements in worker job outcomes, earnings, or labor market attachment.

For worker tenure specifically, they find that workers are employed for just 26 weeks on average if hired by temporary help service firms and 40 weeks if hired by end-user firms. This finding is hardly a strong signal of a job subsidy that provides stable jobs and long-term labor market attachment.

Similarly, the 2025 NBER research paper compiled summary statistics from more than 426,000 WOTC certifications and found an average job tenure of about 10 months. Using administrative micro-data on all WOTC applications in Wisconsin between 2005 and 2020, the study found that certified WOTC hires had jobs lasting longer than 9 months only 23% of the time.

The average starting wage of WOTC-certified workers was just $9 an hour. Among successful certifications who were SNAP beneficiaries, the median quarterly earnings were about $1,800, or less than $140 a week.

The authors of this 2025 study also construct measures of social assistance and indicators of criminal activity to determine whether WOTC reduces welfare dependence or criminal conviction. WOTC is found to have null effects on both outcomes, suggesting that these wage subsidies are unlikely to generate any savings for the government.

Claim 4: Small businesses depend on WOTC and will struggle to hire workers without it.

Despite WOTC’s populist branding, the vast majority of benefits accrue to large corporations, not small businesses or mom-and-pop employers.

A report by the U.S. General Accounting Office analyzed data from agencies in California and Texas on the number of WOTC-certified employees hired by each employer. The report found that just 3% of participating firms accounted for 83% of all WOTC certifications, and that the top 5% of firms (measured by gross receipts) claimed two-thirds of all WOTC dollars.

Hiring credits like the WOTC are less about encouraging new employment and more about subsidizing companies that have the administrative savvy to claim the credits.

That pattern persists today: NBER research found that among WOTC certifications in Wisconsin, 52% were hired by temporary hiring staff agencies, 24% were hired by publicly traded firms with a median market cap of over $30 billion, and 16% were large fast-food franchises.

The same research found that half of all WOTC subsidies in Wisconsin went to just 48 firms, even though they only accounted for 9% of hires. The authors note: “Our results imply that hiring subsidies through WOTC operate as a pure transfer to firms” and “that these transfers are heavily concentrated.” What’s more, even when the program made it easier and more salient to claim the credit, there was no increase in hiring, employment or earnings.

The claim that small businesses will struggle to hire without the WOTC is inconsistent with the empirical findings that hiring does not respond to WOTC eligibility, expansions, or reductions in application costs. Firms hire the same workers regardless of the subsidy, and more than 90% of subsidized hires would have occurred anyway. The program functions as a transfer to a small set of large firms, not as hiring support for marginal employers.

Claim 5: WOTC is an important subsidy for hiring veterans.

Supporters often defend the Work Opportunity Tax Credit by invoking veterans. Senator Cassidy (R-La.), for example, argues that WOTC must be extended because “veterans and military spouses deserve every opportunity to build stable, rewarding careers.” That sentiment is laudable, but it does not describe what WOTC does.

First, veterans are a small share of certified WOTC workers. Even in recent years, veterans account for only 6-7% of WOTC certifications, compared with roughly 70% for SNAP recipients. In earlier years, the veteran share was closer to 1–2%. Whatever WOTC is, empirically, it is not primarily a veterans’ policy.

Second, and more importantly, the best evidence shows that WOTC does not meaningfully affect hiring outcomes at all, regardless of targeted group type. Employers hire the same workers with or without the credit, and most of the certified hires are for low-paid jobs with short tenures.

Even studies focused specifically on veterans find similar windfall rates: A 2012 Department of Labor Inspector General report concluded that roughly 87% of WOTC benefits subsidized veteran hires that would have occurred anyway.

The institutional reasons WOTC fails—lack of screening, legal risk concerns and siloed HR processes—apply equally to veterans.

Conclusion

Across every claim used to justify its renewal—hiring, job quality, small business support and veteran employment—the Work Opportunity Tax Credit consistently fails empirical scrutiny. Decades of evidence show that it does not change hiring behavior, does not improve worker outcomes and overwhelmingly subsidizes jobs that would have existed anyway. Reauthorizing WOTC yet again would not be a bold commitment to disadvantaged workers or veterans. It would be an admission that policymakers prefer symbolic tax credits to policies that actually work."

Why Ford Can’t Find Mechanics

Forget about reshoring manufacturing without more skilled workers

WSJ editorial. Excerpts:

"Government subsidies for college and graduate education have encouraged the young to go to college even though they might be better off learning a trade. This has created a skills mismatch in the labor market. Unemployment among young college grads is increasing, while employers struggle to hire skilled manufacturing workers, technicians and contractors.

Only 114,000 Americans in their 20s completed vocational programs during the first 10 months of last year, compared to 1.24 million who graduated from four-year colleges and 405,000 who received advanced degrees. Yet recent bachelor’s recipients in their 20s were 5.6 percentage points less likely to be employed than those who finished vocational programs."

"one third of small business owners reported jobs they couldn’t fill, and 49% reported few or no qualified applicants for positions they were trying to fill." 

Why Blaming Walmart and Amazon for Public Assistance Is Misguided

By Christopher Freiman.

"With SNAP funding in the news, we’re seeing a revival of a familiar complaint against big business. The reason millions of Americans need public benefits like SNAP, critics say, is that their employers don’t pay them enough.

As one columnist recently put it, corporations “have taken advantage of Medicaid, food stamps, and other safety net programs for years to get out of paying their workers a living wage by sticking the taxpayers with the expense.” These corporations are to blame for people’s need for public assistance, and they should pay their workers more so that they’ll rely less on safety net programs funded by taxpayers. 

But this complaint is morally confused. To see why, let’s start with a simple point: an employer is a buyer of labor. So when critics say that big corporations should raise their employees’ wages to the point where they don’t need public assistance, what they’re really saying is that corporations should pay more for what they buy. But we shouldn’t assume that merely buying something from someone obligates you to pay them so much that they never need public assistance, rather than simply paying them the mutually agreeable price. 

Here’s an analogy. Scarlett likes to buy scarves from Wes on eBay. Whenever Wes lists a scarf for auction, Scarlett makes the highest bid. In short, she’s his best customer. But times get tough for Wes. He begins to struggle to pay rent and buy groceries. Scarlett keeps winning the auctions for Wes’s scarves and sending payments his way, but it’s not enough to keep him off SNAP.

Politicians and commentators learn about Wes’s situation and place the blame squarely on one person: Scarlett.

If only she had paid more than the auction price for his scarves, they argue, Wes wouldn’t need SNAP benefits. According to one columnist, “Scarlett is taking advantage of the government’s safety net to get out of paying Wes enough to live on and sticking taxpayers with the expense.” 

The moral condemnation of Scarlett would be downright bizarre, and it’s not hard to see why. Remember, Scarlett is Wes’s best customer — she offers more for his scarves than anyone else. If anything, we should have the least complaint against her. She’s already given Wes thousands of dollars while other customers have given him less or nothing at all. Scarlett is doing more than anyone else to benefit Wes, so it’s strange to single her out for blame. 

Now turn back to big businesses like Walmart and Amazon. Just as Scarlett is Wes’s best customer, so too is Walmart its employees’ best customer — that is, it made them the best offer for their labor.

We know this because if Walmart hadn’t made them the best offer, those employees would be working somewhere else instead. Workers accept the best offer for their labor just as weavers accept the best offer for their scarves. So, as with Scarlett, we should have the least complaint against Walmart, not the most. Other employers either made Walmart workers worse offers or made them no offer at all. Since Walmart is doing more than anyone else to benefit Walmart workers, it’s strange to single it out for blame. 

You might reply that I’m overthinking things. The simple truth is that Walmart should pay its employees more because it can afford to pay them more. But this view assumes you’re obligated to pay more for something simply because you can afford to do so — and that’s a dubious assumption. 

Think back to Scarlett. Suppose that she could afford to pay Wes more for his scarf than what turned out to be the winning bid. While it might be generous of her to do so, that seems more like charity than fulfilling an obligation. When someone sells you a scarf, a cup of coffee, a gym membership, or an hour of labor, you don’t thereby incur a duty to pay them whatever it takes to fix their personal finances. You simply owe them the agreed-upon price. 

And that agreed-upon price isn’t arbitrary — it reflects supply and demand in the case of labor just as it does for anything else. A scarf sells at a price where someone is willing to buy it and someone else is willing to let it go. Labor is no different: wages settle where workers are willing to offer their time and employers are willing to buy it. If the wage is set too high, people will be less likely to hire workers; if it’s too low, people will be less likely to work.

Even if you insist that rich customers like Scarlett do have a moral obligation to pay Wes more for his scarves, it doesn’t follow that government officials should force her to do so. The mere fact that you should do something — be it paying more for a scarf, driving a good friend to the airport, or visiting your sick sibling in the hospital — doesn’t establish that it’s the government’s job to make you do it. Plus, forcing Wes to raise his prices would likely backfire: if the government required Scarlett and other customers to pay more for his scarves, they’d be less likely to buy them, leaving Wes even worse off than before. 

The parallel to employers is clear. Even if you think that buyers of labor should pay more if they can afford to do so, it doesn’t follow that the state should make them. And here again, the proposed policy would probably backfire: by making workers costlier to hire, it would discourage employers from buying their labor at all — leaving them not with higher wages, but with no job. At the bare minimum, we should ensure that any policy intended to benefit workers doesn’t harm the very people it aims to help."

Protection for Whom? The Origins of Protective Labor Laws for Women

States were more likely to pass labor laws purportedly meant to protect women when more voters stood to benefit economically from restricting women’s employment.

By Matthias Doepke, Hanno Foerster, Anne Hannusch, & Michèle Tertilt. Excerpts:

"These protective labor laws, enacted by almost all states, imposed work restrictions on women that did not apply to men. They included maximum working hours, bans on night work, seating requirements, weight-lifting limits, and minimum wage provisions. These were presented as measures to protect women’s health and well-being, but in practice, they often curtailed women’s access to employment and economic independence. Most remained in place until the civil rights era, when anti-discrimination legislation rendered gender-specific laws unconstitutional."

"the answer primarily lies not in social norms or gendered values but in economic incentives and shifting labor market dynamics. Particularly, these laws found support among specific segments of the population that benefited from reduced competition in the workforce."

"Protective labor legislation limited women’s employment, thereby increasing the income of households that depended primarily on male earnings."

"a crucial force behind the rise and fall of protective labor legislation was these changing concerns about labor market competition from women."

"we developed a model in which women and men (single or married) can participate in the labor market and vote on protective labor legislation. In this model, two household types are key: single lower-skilled men and married couples consisting of a lower-skilled husband and a stay-at-home wife. For these groups, household income depends entirely on the male earner, who benefits from the exclusion of women from competing jobs."

"households where women contribute to family income—single working women or dual-earner couples—and households with higher-skilled men are more likely to oppose protective labor laws. Higher-skilled men benefit when women enter the workforce because women often perform roles that support and enhance the productivity of higher-skilled jobs."

"the two household types favoring restrictions did constitute the majority of the voting population when protective labor laws were introduced. In contrast, when these laws were dismantled, the share of the population opposing them had regained the majority. Further analysis shows that states were more likely to pass restrictive labor laws when a larger share of their voting population consisted of households that would economically benefit from limiting women’s employment."

"states were more likely to support equal rights amendments when the proportion of households that stood to benefit from eliminating gender-based labor restrictions was larger."

"Our research does not find support for the claim that states where women gained the right to vote earlier were more likely to introduce protective legislation. This finding confirms that the primary reason protective labor laws were passed was not because women pushed for their own protection. Similarly, we found little support for the idea that organized labor played a decisive role in promoting these laws."

Matthias Doepke

London School of Economics, Northwestern University, and IZA—Institute of Labor Economics

Hanno Foerster

Boston College and IZA—Institute of Labor Economics

Anne Hannusch

University of Bonn and IZA—Institute of Labor Economics

Michèle Tertilt

University of Mannheim and IZA—Institute of Labor Economics

Red Tape Is the Biggest Crop on Some Farms

Bureaucrats made the H-2A guest worker visa program costly and onerous. Trump and Congress can fix it.

By Sierra Dawn McClain. Excerpts:

"The Biden administration added more than 3,000 pages of regulations to the H-2A program"

"The Labor Department recently suspended enforcement of a Biden-era rule that guaranteed labor organizers access to farms and gave union rights to foreign farmworkers. The rule dodged the National Labor Relations Act, which exempted farmworkers from certain labor activities because Congress didn’t want them to go on strike, leaving crops to rot during harvest."

"Under most circumstances, an H-2A worker must return to his home country for two months after 10 months of work in the U.S. This makes it difficult for farms that need year-round work"

"Many dairies hire illegal immigrants instead."

"To request guest workers, a farmer must fill out lengthy online and paper forms—often more than 100 pages per contract—with multiple agencies."

"For a single contract, a farmer often spends thousands of dollars in administrative costs"

"The farmer must fill out a separate application for each team he requests"

"farmers must pay the H-2A worker at what’s called the “adverse effect” wage rate to prevent H-2A workers from being employed at lower wages than U.S. workers. This wage rate varies by state and is generally higher than the minimum wage. It’s $19.82 an hour this year in Washington state. Farmers are also required to provide housing, transportation and benefits, totaling another $5 to $10 an hour." 

The reduction in the length of the workweek in American manufacturing before the Great Depression was primarily due to economic growth and the increased wages it brought

See Hours of Work in U.S. History by Robert Whaples of Wake Forest University. Excerpt:

"Historically employers and employees often agreed on very long workweeks because the economy was not very productive (by today’s standards) and people had to work long hours to earn enough money to feed, clothe and house their families. The long-term decline in the length of the workweek, in this view, has primarily been due to increased economic productivity, which has yielded higher wages for workers. Workers responded to this rise in potential income by “buying” more leisure time, as well as by buying more goods and services. In a recent survey, a sizeable majority of economic historians agreed with this view. Over eighty percent accepted the proposition that “the reduction in the length of the workweek in American manufacturing before the Great Depression was primarily due to economic growth and the increased wages it brought” (Whaples, 1995). Other broad forces probably played only a secondary role. For example, roughly two-thirds of economic historians surveyed rejected the proposition that the efforts of labor unions were the primary cause of the drop in work hours before the Great Depression."