Ed Lazear's Excellent Piece on Jobs and Unemployment

Every paragraph in this article is great and I find myself mumbling "uh, yeah..." at the end of each. But I'll excerpt my two favorites.

One final fact is worth noting. Healthy labor markets are characterized not only by high levels of hiring, but also by high levels of separations. Although it is true that the importance of quits relative to layoffs rises during good times, even the number of layoffs was greater in the strong labor market of 2006-07 than it is now. No one would suggest that layoffs are good for workers, but what is good is a fluid labor market, where workers and firms constantly seek to produce better products and to find more efficient ways to produce them. High labor market churn is a characteristic of a strong economy. It generally means that workers are moving to better jobs in growing sectors that pay higher wages and away from declining sectors that pay lower wages.

Allowing maximum flexibility encourages fluidity and means that employers are willing to hire workers who lose their jobs elsewhere. Many European countries have restricted mobility by imposing severance pay penalties on employers that lay workers off. More than reducing layoffs, these rigidities make employers reluctant to hire because of the penalties that they will later incur if a layoff is necessary. Such restrictions are in large part responsible for the chronically high rates of unemployment that have been prevalent in many European countries.

The impact of the practice of making it difficult to lay people off on hiring cannot be understated. Businesses are already making a big commitment when they hire a person, and making it more difficult to let people go will raise the scrutiny given to applicants at the hiring end. Another instance of unintended consequences released by do-gooders and politicians who use attacks on business to score easy points with their base. And you're not going to solve the problem by scolding businesses for not hiring either.