“There Just Aren’t Enough Jobs”
As long as the amount of ends is greater than the amount of means with which we (human beings) can achieve them, there will always be ends to allocate those means toward. In other words, in an economy, as long as the wants we have exceed the resources we can use to satisfy those wants, we will always have wants to allocate those resources toward.
If this is too abstract for you, take a hypothetical example. Imagine a world where people only have 100 total wants. They have 20 resources (which include land, labor, and capital), and with these 20 resources, they can only achieve 60 of their wants, meaning 40 remain unsatisfied. Now suppose that one resource, due to technological reasons or whatever, displaces another resource. Now 19 resources can achieve 60 wants, where 20 (resources) were needed before. What will the displaced resource now be used for? Clearly, it can now be geared toward one of the remaining 40 unsatisfied wants.
(A reader might quickly object, but what if the resource isn’t applicable to any of the 40 remaining wants!? The answer is that it might not be used at all, but in this post, we are examining labor in particular. Labor is the most nonspecific resource: it can be applied to a huge variety of different wants. Thus, this objection is not very relevant to this discussion.)
Is this example applicable to the real world? Certainly, and in greater force. In the real world, we essentially have an infinite amount of wants. If I could have the Starship Enterprise, I’d love someone to build it for me. If I could have
100 lam 100,000 1 million lamborghinis, well sure, why not? Resources, meanwhile, are finite. There is only a certain amount of land and natural resources, capital, and labor in existence at any time.
Since labor is a scarce resource, it seems, then, that there is no reason to assume that it could never be allocated toward some end. There should always be a job available if a person is willing to work. So why the mass unemployment?
The real reason is intervention with the price system – but before explaining that, let me introduce two types of unemployment:
1) Voluntary unemployment – this occurs when an individual chooses on his own not to work. He can be an elderly person who has saved enough money to retire. Or he can be a person on a job search who simply hasn’t found a wage worth working for yet. In this latter case, the individual would rather continue searching than accept some low wage. This is because he has enough funds saved to keep his job search for an extended period of time. As his funds dry up, he will become more desperate to find a job and will be willing to accept a lower and lower wage as time goes on. Eventually, he will choose something.
We would expect some amount of voluntary unemployment to constantly exist – there are always people searching for jobs and there are always people being displaced. However, we generally wouldn’t expect any particular individual to be perpetually unemployed – eventually, they will always be able to find another job (examples where this is not the case include where the individual is addicted to drugs, etc.)
2) Involuntary unemployment – also called structural unemployment, this occurs when the government interferes with the free market. The free market is the amalgamation of all voluntary decisions and voluntary exchanges. Involuntary, structural unemployment then occurs when the government intervenes with the price system.
The minimum wage is the easiest example to expound this theory with. Let’s say a homeless, unskilled woman, if put even at her best field of work, can only accomplish $5.00/hr of productivity. If the minimum wage is then, $7.25, she will be permanently unemployed. Employers will not hire her for $7.25 if she only contributes $5.00. As the minimum wage rises, then, the number of individuals permanently unemployed rises. The only way to escape this, is for the unemployed to somehow gain skills without work, which can be tough to achieve if they are not young and in school. The path of learning on the job has completely been taken away from them.
Therefore, when we see the perpetually homeless and the perpetually unable to find a job, there are no obvious effects of harmful choices such as drug addiction (note: even such cases are possibly due to government intervention, if a person is already unable to find a job due to some law, and then becomes a drug addict), and such laws are in existence, the first place we should look at as the culprit are those laws. Other examples include regulations such as laws mandating benefits, such as health insurance. This essentially creates its own minimum wage based off of the cost of the insurance. Workers who contribute less than the amount of cost of insurance will be unable to find a job. (These regulations add up, a minimum wage + mandated benefit would then have a larger effect than that expected from the minimum wage alone). A final example would be government manipulation of the interest rate, a price itself, and interestingly, it is this manipulation that causes the business cycle.
Posted on December 31, 2013, in Economics and tagged homeless, involuntary unemployment, perpetually unemployed, structural unemployment, unemployed, voluntary unemployment. Bookmark the permalink. 3 Comments.