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Induced Unemployment



Certain government policies may induce unemployment. Minimum-wage laws, for example, can overprice the labor of unskilled and inexperienced workers and limit job opportunities. Laws requiring payments of "locally prevailing wages" by government contractors also hinder full employment. In the United States, for example, the Davis-Bacon Act (1931) requires payment of region-prevalent wages (usually union wage rates) on federal government contracts or contracts subsideized federally. This creates unemployment for workers who would be willing to work for less than union wages and, by increasing the cost of government contracts, reduces the employment that would be generated if more government contracts were let. Another way induced unemployment arises is that unemployment compensation provides incentives for people who sincerely desire work to turn down some job offers in hopes that they will find a much better position if they keep looking. Finally, child labor laws can result in involunary induced unemployment. For example, many young teenagers would liketo work for pay during their summer vacations, but child labor laws severely limit even very safe employment opportunities for them. Property crime (mugging or burglary, for example) or other illicit forms of employment (e.g., dealing crack or prostitution) are options to being truly unemployed. However, as Steven Leavitt and Stephen Dubner observe in Freakonomics, the rates of pay in these endeavors tends to be depressed because competition for off-the-books jobs tends to be vigorous. See also Sources of Unemployment.

 

 

 

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