JOB HUNTING IN CHINA/Photo: Michael Moffa

The recently promulgated American Jobs Act (the “AJA”) comes down hard on discrimination against the unemployed, and attempts to justify proposed prohibition of refusal to hire the unemployed solely on the grounds of their being unemployed.

Irrespective of whether you believe that such discrimination should or should not be allowed, it is important to determine whether the specific arguments the AJA presents for the purpose of barring such discrimination are cogent, i.e., sound.

Altogether, in what the AJA cites as the “Fair Employment Opportunity Act of 2011”, “ Sec/ 372: Findings and Purpose”, there are five such arguments presented:

“Congress finds that denial of employment opportunities to individuals because of their status as unemployed is discriminatory and burdens commerce by—


(1) reducing personal consumption and undermining economic stability and growth;

(2) squandering human capital essential to the Nation’s economic vibrancy and growth;

(3) increasing demands for Federal and State unemployment insurance benefits, reducing trust fund assets, and leading to higher payroll taxes for employers, cuts in benefits for jobless workers, or both;

(4) imposing additional burdens on publicly funded health and welfare programs; and

(5) depressing income, property, and other tax revenues that the Federal Government, States, and localities rely on to support operations and institutions essential to commerce.”

The multi-part analysis undertaken here, as Part I,  begins with the first argument, that refusal to hire the unemployed should be prohibited, because denial of employment opportunities to individuals solely in virtue of their status as unemployed burdens commerce by “reducing personal consumption and undermining economic stability and growth”:

Discrimination Will Undermine Economic Stability and Growth?

The first thing to note is that the five claims are presented only to demonstrate a burden imposed by an allegedly discriminatory refusal to hire the unemployed. Although it is claimed that the practice of refusal is discriminatory, no argument that the practice is indeed discriminatory is to be found among these. However, to the extent that any one of these claims, as compact arguments, is compelling, it will reinforce separate argumentation that such refusal should be proscribed on the discrimination grounds.

There are scenarios in which this claim of an alleged burden on commerce can be true, at least in part—as described below. But, there are also more commonsense scenarios in which it is not.  For example, imagine that everyone hired to fill a position is leaving a job in order to take the new one. There are only two possibilities: The job being left by the newly hired employee will be filled or won’t, e.g., will be eliminated. If it’s filled by another currently employed worker, the same logic will apply—either that worker will be replaced, or the job this second worker is vacating will vanish. If the job vanishes, it may be because of increased productivity of human resources or because of their replacement by machines. In neither case does this contribute to undermining stability and economic growth, since economic growth and stability are gauged by GDP, not by job numbers. On the other hand, if the job is filled, again, there is no automatic negative impact on economic stability and growth.

Of course, the job may vanish through micro-economic or macro-economic systemic contraction—for example, when business is not good enough to justify paying someone to do the now-vacated job. But in this instance, the negative impact on growth is not attributable to refusal to hire someone who is unemployed; it is the result of not hiring anyone at all. Hence, it is non-discriminatory equal-non-opportunity non-employment.

However, imagine an extreme scenario and suppose everyone in the country is unemployed and a new job is created. In that instance—and only that instance, refusal to hire anyone who is specifically unemployed will undermine economic growth, although not stability (since a stagnant economy with zero output is nonetheless stable).

Impact of Discrimination on Personal Consumption?

As for personal consumption, it will decline only if personal disposable income declines, or if personal savings or investment increase, i.e., “marginal propensity to save”—or to invest increases, or taxes increase. Aggregate personal income will decline only if there is a net loss in the number of people working, and/or if wages fall or taxes increase, and if there are no offsetting increases in income for those still employed or newly hired. But hiring a currently employed worker to replace one who has, for example, died, will replace the purchasing power of the deceased worker with that of the incoming one, assuming no cut in salary or increase in employee taxes. In turn, assuming the incoming worker’s previous position is also filled, there should be no net loss of purchasing power, given the same provisos just listed. Maintained—even if redistributed—purchasing  power means that decreases in consumption are not a predictable consequence of the refusal to hire an unemployed person.

Consider the scenario of an economy with underutilized productive capacity and available, unemployed labor, but with demand for products and services that is too weak to justify full employment. Imagine further that no one who is employed wants to change jobs, so that any hiring must be of the unemployed. In this instance, the only hiring that, on average, will be done will be net replacement hiring, not net expansion hiring. Refusing to hire the unemployed in this replacement scenario would jeopardize the employer’s economic self-interest, assuming that the job needs to be done to meet whatever demand there is for the company’s products or services.  In this case, such refusal would indeed “undermine growth” by contributing to a net decline in GDP.  However, in the absence of a clear definition of “stability”, it is not clear that every fluctuation in growth rates is tantamount to instability. Like a currency’s exchange rate, a growth rate can be deemed stable if it fluctuates within some specified narrow range, say, plus or minus 0.1%.

Recent Immigrants vs. the Unemployed

This AJA argument against refusal to hire the unemployed is analogous to an argument against refusal to hire legal, but recent immigrants. Suppose a recruiter or company insists that no recent immigrant shall be considered for a job, because of concerns corresponding to concerns about hiring the currently unemployed. That would mean “Recent immigrants need not apply” job postings. Irrespective of whatever good arguments there may be against such a policy, is the stated AJA claim that such refusal would undermine economic stability and growth any more cogent in this instance than in the case of refusal to hire anyone who is unemployed?

The cases are not identical. That’s because the recent immigrant may in fact be an employed recent immigrant looking for a job change—precisely the kind of applicant, viz., “currently employed”, who is displacing the unemployed in the advertising and recruiting of those few companies who are rejecting the unemployed solely on the basis of their being unemployed. Following the logic of the AJA,  and given that refusing to hire a currently employed recent immigrant means an increased likelihood of hiring an unemployed non-immigrant, discrimination against currently employed recent immigrants will, on the AJA premise, contribute to “economic stability and growth” or at least not undermine it, since such discrimination is equivalent in one of its effects to hiring some of the unemployed (but not the recent immigrant unemployed—just others who are jobless). Yet, imagine trying to pass a jobs bill that prohibits discrimination against the unemployed, but would allow discrimination against recent immigrants.

The implication is that the “undermining stability and growth” argument  (hereafter, the “UESG argument”) is not a necessary condition for a reasonable prohibition of hiring discrimination, if such discrimination against recent immigrants is to be disallowed. That’s because if discrimination against recent immigrants actually promotes economic stability and growth—as the AJA logic suggests (in virtue of increasing hiring among the non-immigrant unemployed), that UESG argument cannot be invoked as a basis for prohibiting discrimination against recent immigrants.

There must be some other argument to support the gut feeling that discrimination against recent immigrants should be opposed as strongly as discrimination against the unemployed, inasmuch as the AJA UESG argument clearly does not apply in the case of recent immigrants (even if it does have some force regarding refusal to hire the unemployed, in some limited scenarios).

Two Key Implications

Two key implications of the foregoing analysis are that

  1. The AJA’s UESG “burden” argument is not compelling in the case of discrimination against the unemployed, since it is cogent only in some extremely unlikely scenarios, but not  in other more commonsensical ones.
  2. The AJA’s UESG argument can be used to justify discrimination against recent immigrants, to the extent that refusal to hire them means an increased likelihood of hiring non-immigrant unemployed citizens, which, the argument suggests, is sufficient or necessary to prevent the undermining of economic stability and growth.  This means that the AJA UESG line of argumentation cannot support both a ban on discrimination against the unemployed and a ban on discrimination against recent immigrants, despite the extreme likelihood that the intent would be to ban both.

Worse, the AJA’s line of reasoning used to prohibit discrimination against the unemployed equally supports or allows discrimination against employed recent immigrants.

Hence, if discrimination against the unemployed is to be prohibited, some stronger argument(s) will be required—while not tacitly supporting other unacceptable forms of discrimination. Are the remaining four AJA arguments up to that task?

To decide, you will need to examine them with an open mind…

…and a lot of logic.

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