Eric Raymond has a thoughtful and compassionate article at his blog about two people he knows who are down on their luck in the US economy. They are not uneducated bums, or lacking in motivation. But they are examples, he says, of how the rising costs of hiring and firing people has, when coupled to other factors, meant that many people will not enjoy the benefits of any subsequent economic recovery. Money quote:
“I now think the increasingly jobless recoveries from the last couple of downturns were leading indicators. The end of the post-New-Deal fantasy that we could increase the friction costs of capitalism without limit, regulating and redistributing our way to prosperity, is hurtling towards us like a dark sun. A and B are two of the luckless bastards who are spiraling down its gravity well. Multiply them by ten million to see what it’s like when the contradictions of socialism on the installment plan come home to roost.”
I tend to associate labour market rigidities with Western Europe – where high levels of unemployment have persisted alongside relatively high GDP growth (that’s assuming you believe government GDP figures, Ed). It is tragic that the same process is at work in the US, at least if Mr Raymond’s article is indicative of a broader trend.