Hans F. Sennholz’s 1987 work is a compact political-economic essay on unemployment, written from a free-market perspective and aimed at overturning the common view that joblessness is a failure requiring more public intervention. Its scope is conceptual rather than statistical: it explains unemployment through the logic of labor pricing, production costs, productivity, and coercive institutions. The main thesis is stated with unusual bluntness: unemployment is not an inevitable social calamity but the political result of laws, regulations, and union power that prevent wages from adjusting to market conditions.
Unemployment is a political disease that springs from the primitive, but popular, notion that government can improve working conditions by legislation and regulation, and that labor unions can raise incomes through collective bargaining.
The essay’s central move is to treat labor like any other market factor whose price coordinates supply and demand. Sennholz rejects the idea that wages can be raised by decree without consequence. If political or union action pushes wage rates away from their market level, the imbalance appears as either scarcity or surplus. His analysis therefore converts the moral language of “jobs policy” into the price-theoretic language of market clearing.
If wage rates are forcibly kept below the market rate they cause shortages of labor.
The companion proposition is the heart of the argument. Unemployment, for Sennholz, is not mysterious “insufficient demand” but a labor surplus generated by wage rates held above the level at which all willing workers could be employed. This conceptual simplicity is also polemical: it allows him to accuse reformers of causing the very misery they claim to relieve.
If they are set above the market rate they create surpluses, called unemployment.
From this premise, the structure of the work appears as a progression from diagnosis to economic mechanism to political criticism. First, Sennholz identifies interventionist policy and collective bargaining as the institutional sources of unemployment. Second, he explains why employers cannot simply absorb higher wage costs indefinitely. Third, he connects sustainable wage growth to productivity rather than political pressure. Labor is treated not as an isolated moral claim but as a cost within production, constrained by the value workers add and by the competitive conditions under which firms operate.
In many processes of production, labor is the most important factor of production, inasmuch as its costs exceed all other costs.
This emphasis on labor costs underwrites Sennholz’s broader theory of real wages. Higher living standards do not arise from compulsory wage increases but from improved productivity, capital accumulation, and a more refined division of labor. The work thus links employment to the institutional conditions of productive cooperation. A society can bid wages upward only insofar as workers become more productive; when policy damages productive organization, wages and employment both suffer.
Improvements in the division of labor generally raise labor productivity and wage rates; deterioration reduces them.
The essay’s relevance lies in the way it frames unemployment as a conflict between economic law and political desire. Sennholz is not merely opposing one policy; he is attacking a political mentality that supposes coercion can substitute for market coordination. His critique of politicians, bureaucrats, and coercive labor institutions is therefore integral to the economic argument. The problem is not only mistaken theory but misplaced trust in administrative power.
Their undaunted faith in the wisdom and integrity of politicians and their bureaucratic appointees, and their unhesitating reliance on the brute force of police is overwhelming.
Sennholz’s core conceptual moves are consistent: he redefines unemployment as a politically manufactured surplus of labor; he distinguishes nominal wage gains from sustainable real wage growth; he grounds wages in productivity and the division of labor; and he treats intervention as coercive interference with voluntary exchange. The essay remains relevant because it offers a stark framework for debates over minimum wages, union bargaining, regulation, and employment policy: policies that make labor more expensive than its market value may protect some insiders, but they exclude marginal workers from employment. In Sennholz’s account, the humane policy is not political wage fixing but the removal of barriers that prevent labor markets from clearing and productive cooperation from expanding.
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