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Government policy: The answer to the wealth gap?

By Kyle Wheeler
web posted December 9, 2019

Are government policies the answer to bridging the wealth gap? Does the US really have a dysfunctional labor market that requires government intervention? Angus Deaton, a 2015 Nobel Prize winning economist, argues that the government should institute government policies that include higher minimum wages, better health care, and worker protection to help bridge the wealth gap. Camilla Fratta affirms Deaton’s argument here and argues that, “Policies whose goals are to help the consumer and worker need to be implemented.” The intention behind these policies would be to protect workers’ job and give them better benefits. I would disagree with Camilla Fratta’s belief that policies need to be implemented to help the workers and consumers. Instead, I would argue that policies should not be implemented to help workers and consumers.

One of the issues that we face with implementing policies is the negative effects that it will have on the work force. While the intent of these policies would be meant to help workers, it would actually make it harder for these workers to find employment. At the golf course I work at, it is inherently more difficult to find employment there. California has policies that my manager is forced to abide by when hiring workers. One policy California has is that an employer needs a legitimate cause to fire someone. The intent behind this seems innocent, however, there needs to be evidence and documented reports to support an employer’s cause of firing someone. The fear is that an employer may simply fire people without cause and leave several people without secure jobs. With this in mind, it becomes a long process to actually let someone go. One example that comes to mind was one employee who worked beside me at the golf course, but he hardly ever did his job right. He was always on his phone, he was a slacker on the job, and he put no effort into his work. One may think my boss could just fire him for his poor work ethic. However, it took nearly two full months before he was finally fired. This policy that requires evidence and documented reports in order to fire someone makes my boss much less inclined to hire new workers, because if the new employee does not work out, he has to incur high costs before he can actually fire a bad worker.

These policies can cause large businesses to become much less inclined to hire new employees as well. Some larger businesses are required by government policy to give a notice in advance before firing people, or they have to provide a large severance package to the workers they let go. While this seems reasonable, it only benefits those who remain employed. The workers who are actually looking for work are going to have harder time finding a job. This is because employers are going to be less inclined to hire with the costs they will incur if they needed to fire someone. Timothy Taylor, an expert in modern economics, stated in one of his lectures, “There are rules that make layoffs difficult. If you’ve got a layoff where you say, firms are not allowed to lay people off without 90 days notice, or 120 days notice, or there’s some other rule about large severance benefits, firms are going to be reluctant to hire in the first place because, after all, they know that, if they need to fire someone, they’re going to incur high costs.” In other words, employers are going to be hesitant toward hiring new people because of the high costs they would have if they needed to fire someone. Policies like severance benefits or a notice before being laid off, while they may seem to be beneficial for workers, they can create negative effects for them.

Another point Camilla Fratta makes states, “Hurting and trampling on others for your own good is unfair.” Here, she argues that policies need to be implemented so that some people will not trample on others for their own benefit. One of the examples she uses involves health care and says, “Health insurance ultimately pays only for high salaries, not for medical research or investment.” One of the main reasons why doctors are paid high salaries is because they spend several years in medical school training to become a doctor. My older brother, because he is training to become a pediatric doctor, has to take an equivalent of five undergraduate years in college and then at least another four when he goes into medical school. The amount of training and skill required to become a doctor is enormous, so having a higher salary compensates for the many years put into college instead of going straight into the work force after higher school. Spending years in college as you gain experience and education on whatever profession you wish to go into is one of the ways to achieve a higher paying salary. It is not unfairness; it is simply the choice to spend more time studying something so that you may have higher income and consumption. When this choice is made, the economic concept saving occurs. These people are saving now so they can have greater consumption later. This concept is even introduced in our textbook. One passage states, “As a college student, you personally made such a choice. You decided to devote time to study that you could have spent earning income. With the higher income, you could enjoy greater consumption today. You made this choice because you expect to earn higher income in the future and thus to enjoy greater consumption in the future.” Having a higher salary does not mean that you are hurting people. Policies to protect workers should not be made if they are based on the idea that high paid employees are hurting other workers. If policies were implemented that did not allow doctors to have higher salaries, then those who are training to become a doctor may even lose the incentive to become one. Having a lower salary may affect their ability to pay off loans or debt they have from the many years of college and medical school.

As a whole, I believe that instituting policies to help workers and consumers would create negative effects on the economy rather than help it. It can create further complications for workers finding employment in both small and large businesses. Not only that, but it can create less incentive for people educating themselves for higher paying jobs. As Camilla Fratta stated, “If done properly, these policies will go to a great length in fixing a part of unfairness in the world, the wealth gap.” She argues that the polices, if done right, can go to great lengths in benefitting all workers. However, our government has not created policies that have yielded positive outcomes, so it is best to avoid creating any further policies altogether on the work force. While polices that are specifically made to help the worker and consumer seem useful, they produce contrary outcomes. ESR

Kyle Wheeler is an AP Macroeconomics student in high school. © 2019 Kyle Wheeler

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