Sun, Dec 20, 2009 page3

• INTERVIEW: Vedder speaks on Taiwan labor policy

  Vedder Distinguished Professor of Economics at Ohio University Richard Vedder recently came to Taiwan for a two-day seminar held by the Council of Labor Affairs (CLA) to discuss employment policy. Author of books such as ‘Out of Work: Unemployment and Government in Twentieth-Century America’ and hundreds of articles, Vedder has made an impact on US economic policies. He recently sat down with ‘Taipei Times’ reporter Shelley Huang for an exclusive interview about his views on labor policy, education and economic trends

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  Taipei Times: In your writing, you often argue against massive government intervention in many aspects of economics, including labor. What’s your take on policy-making during times when unemployment is running high and wages are slipping?

  Richard Vedder: There’s a tendency to try hard to outguess labor markets or capital markets in general. There’s a tendency to believe that if we just do this or that policy, we can improve on the market outcome that would normally occur.

  In the US right now and also in other countries — Japan has done this a lot in the last 10 years — where the government will start a lot of new spending, new road construction, special tax relief for people and other things to stimulate the economy. My experience over many years has been that they’re not terribly effective or worthwhile.

  

  Richard Vedder gestures during an interview in Taipei on Nov. 16.

  PHOTO: SHELLEY HUANG, TAIPEI TIMES

  What is effective in the long run is to get rid of obstacles that keep employers from hiring workers and provide incentive for workers to work. What you want to do is increase the willingness and desire for workers to work, and on the other hand you want to increase the incentives for ­employers to ­create jobs.

  One way you do this is to remove employers’ tax burden, regulation burden, insurance burden, whatever they may be. And you want to make incentives for workers to work more — give them a bigger paycheck after taxes by lowering the taxes would be one way.

  It’s nice if workers are educated. I’m not denying government of any role.

  Having a decent education system is important to having workers that are qualified. But I still think that the private market system is the most promising. Singapore is a good example. Hong Kong is a good example. The US is a good example of nations where, with very little government involved, things are booming!

  Now, the current recession, it is true that when you don’t have governments heavily involved in the economy protecting people, there can be downturns where you have temporary slight increases in unemployment. We have that going on right now. But if I came to Taipei in November of 2010 instead of 2009, we would at least be saying, “Oh, the number of jobs is growing again, and in America the unemployment rate has leveled off and started to fall …” I predict this, but I may be wrong, I have made mistakes before.

  TT: What about unemployment benefits? The Taiwanese government has recently been mulling extending unemployment benefits from the current six months to nine months, given certain economic indicators such as unemployment rates. What’s your take on unemployment benefits and their function during times of few jobs?

  Vedder: We’ve just done this in the States. We put strict limits in America on how long you can get benefits. Traditionally, it’s 26 weeks, or six months. We have been extending those limits during this downturn. We just added another 20 weeks. My prediction is that it will raise the unemployment rate.

  Now, that doesn’t mean it’s necessarily bad, but it does mean that it will have the unintended consequence of workers who will be a little more particular about what type of job they take. They won’t go take the first job at McDonald’s, just so they have an income. They will think, ‘I want to make as much as I was making before, or I want to make more because I’m more mature.’ And when money is ­coming in, there’s no incentive to really work very hard to get a job.

  So the trade-off is between income security on the one hand, and economic growth and a high level of workforce involvement on the other. So there is a trade-off. But there are no free lunches, and that is the trade-off that has to be made.

  It’s interesting that Taiwan is doing this now. If you look at the historical evolution of the US and you compare that with the historical evolution of Taiwan: Taiwan has had remarkable economic growth in the last 40 years. And it is in that period, once you get to a certain level of prosperity, you start to think about, well we want to do more than just make the income pie bigger, we want to talk a little more about how we slice the pie up. Taiwan is probably reaching the historical stage in its development where that factor is starting to loom larger.

  I would predict based on other experiences worldwide, that as this happens more and more there will be consistence on income ­protection. That would include government involvement and pension systems, unemployment provision, all of that stuff. It happened in Europe, it happened in the US, and in Canada, Australia, places like that, in Japan it’s kind of happening. But your unemployment rate will go up.

  You take for granted your low unemployment rate. Your unemployment rate is relatively low — right now at 6 percent it’s at an all-time high — but average over the years it’s 3 to 4 percent. It’s low precisely because there is every incentive for workers to work.

  If you don’t work in Taiwan, you don’t eat. If you don’t work in Europe, you don’t work! In Germany, there are people who are off work for three years getting 85 percent of their previous pay, so why bother going to work? In Sweden, if you have a baby, you get the first year off after the baby. The man gets a year off!

  The second half of this interview will appear in tomorrow’s ­edition of the Taipei Times.
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