Job churn cost of market economy
Words do more than communicate factual information. Words also evoke attitudes, so we'd best be careful about the words we use.
An example is the phrase “unearned income.” Income from investments is labeled “unearned.” “Earned income” is reserved for earnings from labor. Yet, in fact, income from investments is no less earned than is income from labor. Each investor foregoes consumption today and exercises the judgment necessary to direct her savings into investments likely to yield income rather than result in losses. Like any worker, the investor makes a sacrifice to receive income. And this sacrifice creates wealth not only for herself, but also for others. Without savings and investment, there would be no resources to modernize factories or help young families purchase their first homes.
“Unearned income” is, without question, earned.
Another misleading phrase is “losers from trade.” Workers who lose jobs to imports are said to be trade's “losers.” This conclusion is erroneous. Here's why.
In a market economy, every job is at risk of being destroyed. Consider that soon after the polio vaccine's 1950s introduction, many Americans lost jobs making wheelchairs and crutches. These lost jobs had almost nothing to do with international trade, yet the individuals who lost these jobs were surely as distraught as are individuals who lose jobs to imports. There is, you see, nothing unique about jobs lost to international trade.
Indeed, in the U.S. today, roughly 1.7 million jobs are destroyed each month. Compare that to the total of U.S. jobs destroyed by increased trade with China between 1999 and 2011: 2.4 million. That's correct: In less than any ordinary two-month period in America, the total number of jobs destroyed is greater than the number of jobs destroyed by trade with China during the 21st century's entire first decade. If you wonder why we're not suffering massive unemployment, the reason is that, on average, slightly more than 1.7 million jobs are created each month.
Jobs are constantly being destroyed while others are created — a necessary feature of the market economy which generates our enormously high standard of living. Our widespread prosperity would be impossible without it.
Of course, those who lose jobs are unhappy. But they're not economic losers. Instead, they are simply paying the cost of being in a market economy. Each of us is free to avoid this cost by exiting the market. You could, for example, buy land in Texas and, growing your own food and making your own clothing, live without any economic connections to others. You'd never lose your job. You would, of course, also live the rest of your life in dire poverty. And so, by choosing to remain in the economy, each of us chooses to bear the risk of job loss.
I don't mean to minimize the difficulty of actual job loss. Yet it's important to understand that even those who lose jobs gain enormously from being part of a market economy. The cost of being part of this economy is sometimes steep — and it's a risk almost everyone bears — but on net, even those who suffer job losses remain winners.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.