Unemployment: A Response to my Economics Class

I think this may have to become a daily occurrence because everyday I find something just wrong (substitute Keynesian) about what I'm taught in my Intermediate Economics Class. Today we dealt with Unemployment. I have no problem with the basic assumptions of what makes up the numbers and how such numbers are acquired, but I do have a problem with the "Policy Implications".

One implication was that in order for government to spur "job finding" they could force firms to pay most or even all of unemployment insurance. The absurdity of this statement made me almost gag in class. The theory is that if firms have to pay for unemployment insurance that they will be less likely to fire people. There is such a major flaw in this logic I cannot believe people actual think it plausible.

The goal of a firm is to make profits, not to employ people. Firms need people in order to produce or provide a good or service. Firms hire people based off their qualifications and if the marginal benefit (increased profits) provided by hiring them exceeds the marginal costs (their wage) a firm will hire additional workers. Part of this process involves firing workers whom a firm decides their marginal cost exceeds their marginal benefit. This keeps a firm competitive and thus keeps costs down, and ultimately establishes prices at their lowest possible levels. If a firm is unable to fire workers, or in this case has to pay an extreme price to do so, there is no way they can possibly find the most efficient workers and their costs will ultimately be higher in the long-run, which of course leads to higher prices.

What would logically happen is that firms would become extremely selective in their hiring process and I would assume less people would be hired. A firm would be extremely hesitant to take chances on prospective employees since the cost of firing them would be extreme. I do agree that firms may fire less people, but the amount of people they wouldn't hire would greatly offset such changes.

Such a policy would not spur "job finding" but rather would cause firms to hire less. However, most people (especially politicians) and even economists fail to see the huge logical flaws in such arguments, and in their desire to protect the worker in fact harm them even worse. Once again, the whole theory of "forcing" someone to do something, even in good intentions, never leads to the desired result. Freedom of choice is the only way for equality to become a constant in society.