by Richard A. Epstein
The latest government labor report indicates that job growth has slowed once again. It is now at a three-year low, with only an estimated 74,000 new jobs added this past month. To be sure, the nominal unemployment rate dropped to 6.7 percent, but as experts on both the left and the right have noted, the only reason for this “improvement” is the decline of labor force participation, which is at the lowest level since 1978, with little prospect of any short-term improvement.
The Economic Logic of Supply and Demand
One might think that these figures would be taken as evidence that a radical change in course is needed to boost labor market participation. The grounds for that revision rest on a straightforward application of the fundamental economic law of demand: As the cost of labor increases, the demand for labor will decrease. There are, of course, empirical disputes as to just how rapidly wage increases will reduce that demand for labor. [Read more...]