Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Should We Help the Unemployed?

Written by johnleemk on 7:26:58 pm Jan 31, 2008.

In the opinion pages of the New York Times a few days ago, a prominent economist argued that we should not help people disadvantaged by the results of free trade. His argument was thus: we do not help people who suffer because of the ordinary workings of the market — an American who loses his job to another American is not helped any more specially because of his situation. Why then provide special aid for those who lose their jobs to Indians or Chinese or Ecuadoreans?

This argument certainly makes sense. If we accept the workings of the market domestically, why should we reject it internationally? Are we saying that the things other people make are somehow inherently inferior to us, that something is worth less if it is made by a foreigner instead of someone from the same country?

The problem with this argument, as I see it, is that it is probably knocking down some sort of strawman. If you ask me, ideally the disadvantaged workers who suffer from either domestic or international trade should receive the same kind of assistance in obtaining a new job.

The simplistic argument that we can ignore the plight of this people forgets that there are a lot of costs associated with shifting from one sector to another. If you are a fresh graduate, you have far more freedom in the job market than someone who has spent four decades welding steel.

You may argue that this disparity in opportunity is a natural result of the unseen forces at work in the market and society, but the handicapped and disabled are no less a result. Who would say that the government should not support these people, who by some sad stroke of luck, cannot fare for themselves?

In the case of those who lose their jobs to the free market, the case for assistance is even stronger. These are people who we know are capable of supporting themselves. Why would we not want to help them find their niche in the reoriented marketplace?

It stands to reason that if a German loses his job in farming barley to an Estonian, he has a new comparative advantage somewhere else in the market. The theorem of comparative advantage affirms that. The longer the German stays unemployed because he cannot find his niche, the more society suffers.

This fact is hardly altered if that German lost his job to another German. The reoriented market has a space for everyone — again, the theory of comparative advantage applies — and the fact is that the government should subsidise in some way the costs of retraining people to fit in this market.

One could very well argue that the theory of comparative advantage actually indicates no retraining is necessary — the individual automatically has a niche that he, if he knows himself well enough, will automatically gravitate to. The problem now is that people have different income needs; a fresh graduate can support herself on less than the breadwinner for a family of four.

There are also very good utilitarian arguments against this supposition that government intervention in this economic sphere is desirable. The law of unintended consequences practically guarantees that some welfare policies will have very bad results, and the government does not have the best of track records in accomplishing its goals.

But the way I see it, equality of opportunity is crucial. If a newly unemployed 50-year-old cannot find a job because he or she could not imagine that thirty years after he or she graduated, consumer electronics or investment banking would be all the rage, how far is it right to blame him or her? Should he or she have the opportunity to try to start over, and have the chance to work in a new field?

It is of course true that we should not discriminate against trade by implementing special policies for those affected by free trade, while ignoring those affected by the free market in general. But this is not an argument for less attempts to help the unemployed; it is an argument for greater expansion of equality of opportunity.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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