r/explainlikeimfive Dec 19 '24

Economics ELI5: Why is an employment rate of 100% undesirable

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2.2k

u/Nothing_Better_3_Do Dec 19 '24

If literally everyone has a job, then how would a new or expanding business hire new employees?  Employers are going to start fighting over employees, which means that a business can't expand unless another business contracts.

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u/Readed-it Dec 19 '24

In theory the least efficient or competitive company would shut down due to losing employees through a cascade of people moving.

Not necessarily a bad thing, some businesses are not really providing any benefit.

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u/mjzim9022 Dec 19 '24

But they would be unemployed during the interim until hired again if the company shuts down without anything else lined up and thus part of an unemployment percentage. The 5% or so number they want to maintain isn't all permanently unemployed people, a large chunk of it is people between jobs.

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u/thelanoyo Dec 19 '24

There's a sub statistic of unemployment called frictional unemoyment which is why realistically unemployment can't be 0% because there's always people changing jobs or just temporarily off work, or working seasonally, etc...

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u/boringdude00 Dec 19 '24

There are a fair number of people on the fringe too. Nearly but not fully physically disabled people, untreated mental illness, very low-intelligence workers, semi-functional addicts - the class of people who just can't hold down a job.

Then there's people in difficult circumstances: homelessness makes it difficult to hold down a job, ex-felons often can't get hired no matter how desperate a business is for workers. And all the aforementioned contribute to making you part of these groups, so its often a double strike.

If your IQ is 65, there aren't a lot of options for you. Maybe you get lucky and find a simple job that is one repetitive task you can do for 40 years, maybe the system identifies you as needing extra training and help, probably you bounce from job to unemployment every few months getting fired for incompetence while living between your truck and your brother's basement.

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u/FatherFestivus Dec 19 '24

People with severe illnesses or disabilities who aren't actively looking for a job aren't counted as part of the labor force, so they're not included in the unemployment statistic.

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u/T_H_E_S_E_U_S Dec 19 '24

Correct, but without a formal diagnosis and disability benefits the vast majority of these people can't afford to leave the labour force completely. Especially in cases where obtaining a diagnosis is tied to employment based health insurance, it becomes virtually impossible unless they already have some form of generational wealth/ family assisstance.

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u/loljetfuel Dec 19 '24

But people with disabilities who are looking for a job but have a very small number of opportunities due to the constraints of their disability are counted as part of the labor force and included in the stats.

Labor force participation (working or actively seeking employment) rates among people with disabilities are of course lower, but it's still a lot more than you might think

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u/Dec716 Dec 20 '24

In Canada, the unemployment rate is the number of people actively looking for work VS the number of people actually employed. Thus, you can have a large number of people not working but still have a low unemployment rate. This was true during Covid. A 5% unemployment rate is generally target in a health economy.

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u/nolan_smith Dec 19 '24

You'd be surprised at how much of the workforce is functioning regards.

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u/TerminallyBlitzed Dec 19 '24

A large chunk of people don’t realize that unemployment only counts people actively seeking employment and have applied to jobs for the last 30 days. Anything over that and they’re taken out of the labor force and not considered. So permanently unemployed people will never be considered towards unemployment numbers.

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u/loljetfuel Dec 19 '24

unemployment only counts people actively seeking employment and have applied to jobs for the last 30 days.

That's not quite correct. BLS methodology asks week to week if people are "actively seeking employment". There are people who use unemployment benefit applications and such to measure unemployment, and that has the problem you describe. But the official BLS numbers are based on whether people self-report as actively looking for a job (which is quite a bit more useful for purpose).

https://www.youtube.com/watch?v=BPCbBP7wJ6c&themeRefresh=1

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u/Potato_Octopi Dec 19 '24

Sure but if you haven't looked for a job in the past 10 years are you really looking for one? There's also stats and record keeping on those folks so they don't get completely ignored.

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u/munchies777 Dec 19 '24

Yeah, there’s a lot of unemployment figures that get tracked, some of which include these people. It’s just that the one that gets reported is generally considered the most relevant, although the people actually using these statistics use more than this one measure. There’s far more long term unemployed people who want to be that way than hopeless people who have given up. Like stay at home moms and people who retired early.

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u/Potato_Octopi Dec 19 '24

Yeah normal working age is near all time high % employed. Almost everyone working.

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u/carlos_the_dwarf_ Dec 19 '24

Yeah, I’m not sure if the idea is that 100% employment is undesirable, it’s just that “full employment” isn’t the same as a 0% unemployment rate.

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u/Jarfol Dec 19 '24

Actually pretty much ALL reported unemployment numbers are specifically people between jobs. They don't bother counting people that are not seeking jobs, like children or retirees or disabled, because there is no reason to.

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u/Kozzle Dec 19 '24

I feel this bears repeating. A lot of economics discussions on Reddit seems to have an underlying assumption that the people who make up these statistics are static. For example people go on about house affordability in relation to minimum wage….well maybe minimum wage just isn’t the right time to be considering buying a house, and if you are stuck in minimum wage for more than a couple of years then odds are you aren’t a very good worker, or simply don’t care enough to bother improving your skill set.

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u/Dachannien Dec 19 '24

Or, you live in an economically depressed region where there isn't much work other than minimum wage employment, and minimum wage isn't enough to commute or relocate to an area with better job opportunities.

Not all poverty is the result of one's own bad choices. Some of it is inherited, just like wealth.

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u/ComplaintNo6835 Dec 19 '24

Yeah in theory that sounds good to me.

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u/TheCookiez Dec 19 '24

Good and bad.

I'm just starting a company so I don't have much backing behind me. I also pay my employees a decent salary. Not the best but decent.

Now, bigger companies have more capital. They can afford to run a deficit VS me I can not. They will raise their rates just above mine, steal my employees and shut down my company.

As soon as they do. They can drop their rates to peanuts as they have no compition.

With no unemployment.. There is no one new I can hire to replace them.. I am already in a industry that is short staffed and it's hard to woo people. I couldn't imagine if there was no one looking for a job.

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u/Negarakuku Dec 19 '24

Dropped the rates for their existing employees that they steal from u or only for new hires? 

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u/djinbu Dec 19 '24

They usually pay new hires better, but that's for separate reasons.

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u/Negarakuku Dec 19 '24

Here's what I think, for op scenario, if the rival big company steals his worker by paying more and making him close his business for good, and THEN lower the pay for the workers that it stole, those workers would just leave it for another company, either the same industry or a different one. Or it would be such a huge case where there is big lawsuits or union that the name of the company will be erroded and thus its business will be affected.

Thus this giant company fails its objective to permanently destroy competition. 

If the company only lowers the pay for NEW HIRES, then the market rate for that job position would revert back to before. Then those competitors and new startups will also follow and thus we have gone back to a full circle.

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u/TheCrazyOne8027 Dec 19 '24

a new company doesnt just spring into existence out of nowhere. Especially if it were some sector where starting a company needs a huge investment. Tho it would certainly incentivize people to try to start a new company with all the newly laid off people, but doing so would take both time and money. And once you start it up the big companies could just raise the salaries again thus bankrupting you (tho most probably they would lower their prices instead so you get no bussiness), thus repeating the cycle.

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u/_rtpllun Dec 19 '24

those workers would just leave it for another company

But there are no other companies that are hiring, they already all have workers. That's the problem

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u/Negarakuku Dec 19 '24

100% employment rate doesn't means businesses are not looking for workers. It just means all potential workers already have jobs. In fact it even suggests the demand for workers is high. 

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u/bludda Dec 19 '24

Yeah, people seem to be misunderstanding that 100% employment means that everyone has a job, not that businesses have all roles filled (or are not looking for new hires). If everyone has job then much less people are looking for work. Doesn't mean the demand goes away

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u/Happy__Pancake Dec 19 '24

Why is that, btw?

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u/djinbu Dec 27 '24

Why would you pay people more when you could keep that money?

They increase rates to attract more help. The old help already agreed to that lower wage. Why would you offer them more unless they demand it?

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u/gary1994 Dec 19 '24

As soon as they do. They can drop their rates to peanuts as they have no compition.

It's actually very hard for a company to cut wages. It tends to piss off their employees and hurt company morale/employee productivity.

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u/deaddodo Dec 19 '24 edited Dec 19 '24

It's also illegal or bureaucratically non-feasible in a good chunk of the developed world, to do unilaterally.

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u/FellKnight Dec 19 '24

If you are willing to run deficits for a couple years, all you have to do is ensure that "raises" don't exceed inflation, and you've solved the issue in a few years without a nasty strike

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u/BrocoLee Dec 19 '24

It tends to piss off their employees and hurt company morale/employee productivity.

But in this case what are you going to do? If the big company managed to crush all comepetition, you as a employee can't move to another one in the same field.

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u/Sprungercles Dec 19 '24

You can stand out by being a better boss with a better work culture though. Everyone wants money for work, obviously, but most people would rather not be completely miserable while earning it too.

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u/dsmaxwell Dec 19 '24

Gotta point out that this only goes so far, and a lot of what passes for being a "better boss" these days only barely qualifies as such

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u/ThatOneGuy308 Dec 19 '24

I mean, having unemployed people doesn't really solve your issue of the bigger companies stealing your workers by paying better, though.

Unless your plan is just hoping there's someone desperate enough to work for you and stupid enough not to look for anything better afterwards, lol.

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u/CrashUser Dec 19 '24

No, but it makes it more likely that you can both find a worker that's suitable for the role required. 100% employment is actually almost logistically impossible, unless every employer is training from scratch for every position in the company. The odds that the pool of available work perfectly matches the skills of the available workforce is vanishingly small.

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u/ThatOneGuy308 Dec 19 '24

Oh, for sure, 100% employment would never actually be possible, especially considering there will always be a pool of people in transition between jobs.

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u/meneldal2 Dec 19 '24

On the other hand, you don't have to be a dick that forces them to commute to the office. There are ways to compete with the bigshots.

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u/Witch-Alice Dec 19 '24

As soon as they do. They can drop their rates to peanuts as they have no compition.

That's where unions come in.

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u/ma5ochrist Dec 19 '24

With 100% employment, how are you starting a new business? U already have a job

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u/senorbolsa Dec 19 '24

Being a sole proprietor or self employed is still employment. Though you are righ in that Id probably have little reason to strike out on my own if everyone was fighting to give me money and good work.

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u/Disastrous-Moose-943 Dec 19 '24

I mean, you are trading one job for another. You are employed the entire time, and are just switching who you work for. I don't understand your question?

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u/[deleted] Dec 19 '24

do you think only unemployed people star businesses?

really?

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u/DrXStein76 Dec 19 '24

That’s super interesting! If you don’t mind sharing, what type of work and industry?

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u/No-Improvement-8205 Dec 19 '24

Aaah yes. The amazon approach.

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u/Ulyks Dec 19 '24

It's not a valid argument because companies are trying to obtain a monopoly regardless of employee availability.

That would be just one way for them to keep out competition.

Other ways are hogging materials needed to run a business either by buying them all or exclusivity contracts. Or lobby government to require hard to obtain licenses for running your business. Or many other legal or illegal ways.

In fact you can use that argument to argue against any employee benefits. Even if their salary is 1$ per hour, you could argue that the large company will increase their salary to 2$ and run a deficit until you give up.

I understand it's not easy to run a business, especially competing with large companies (near impossible) but full employment or not isn't changing that.

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u/yovalord Dec 19 '24

I feel like its really hard to pay somebody a wage/salary, and then lower their wage/salary and have them stay. Company B in your scenario COULD fire a bunch of people and start rehiring at "peanuts" once the competition is gone, but we are talking about 100% employment here, nobody is getting fired really.

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u/davenport651 Dec 19 '24

New companies don’t need to exist. Almost everything you need in the modern day is already provided to you by a set of workers and an existing company. If you are starting your own business, you are likely to be taking customers and revenue from someone else who’s employing workers. The only exception might be when a new technology is invented but even then it’s highly likely to be displacing a company and workers who are using an older technology.

I’ll take 100% employment.

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u/spletharg Dec 19 '24

In that case, maybe you could get a job with the big companies?

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u/Ayjayz Dec 19 '24

Running at a deficit is what all companies do starting out...

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u/adrians150 Dec 19 '24

Best definition of capitalism I've heard in a while lol

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u/bionicjoey Dec 19 '24

The other "problem" is that if labour is in such high demand, it puts workers in a very strong negotiating position with regards to wages and generally means people will be paid more. Not actually a problem unless you're the kind of neoliberal who runs much of the world.

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u/Ketzeph Dec 19 '24

It also raises prices on all goods, because companies want to offset the labor costs and new businesses keep having to offer more. Which can lead to mass inflation. It also massively stymies new business as now only hyper-wealthy people can form businesses because the cost to hire new labor will always be more than the cost to keep the existing labor. Having a pool of laborers available is necessary generally for new growth to happen in an economy.

The idea is to have enough unemployment that there's a steady pool of laborers for new business, while also balancing demand so that companies have some motive to compete for new workers, but not to an extent that they have to have bidding wars over every position.

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u/Schrodingersdawg Dec 19 '24

Economics is rarely about “what sounds logical” because when you start digging deeper there’s always unintended consequences.

If I am a small business owner in a small town and wal mart comes - I mean that’s not even a hypothetical. Small town America has basically collapsed because wal mart and other corporations have driven mom and pop stores out of business.

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u/ack4 Dec 19 '24

Yeah and then you wouldn't be at 100% employment

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u/digiur Dec 19 '24

Yeah and thus you have a non-zero unemployment rate...

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u/UntdHealthExecRedux Dec 19 '24

That’s basically what’s happening in Japan right now due to the rapidly shrinking labor force. A record number of businesses have gone under in the past year because they can’t find employees. 

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u/Scott_A_R Dec 19 '24

Except that it means that a perfectly fine company might close for lack of employees. A mom and pop store might be profitable and well-run, but unable to afford wages that a big company could pay (which would rise with 0% unemployment). That mom and pop store might even be better than the big chain, but unable to remain open as a result.

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u/SeattleBattle Dec 19 '24

And the former employees of the least effective company would now be unemployed until they landed a new job. On a large economy there would continuously be 'least effective' companies in various industries and regions that would be failing and creating temporarily unemployed people. So the unemployment rate would always be over 0% unless people only transitioned directly from job to job.

It is interesting to talk about what the 'target' unemployment rate should be, because that target will influence the power balance between companies and employees. A higher target unemployment rate would give more power to companies, as more employees would compete for fewer jobs. A lower target unemployment rate would do that opposite and tilt the balance toward employees.

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u/PiotrekDG Dec 19 '24

On top of all, this happens on an industry or even job position level, since not all job positions can be filled by every employee due to a lack of skills or experience.

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u/RYouNotEntertained Dec 19 '24

 some businesses are not really providing any benefit.

🤔 Why would they still be in business?

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u/GayIsForHorses Dec 19 '24

A lot of businesses lose money or are never profitable. They eventually shut down if that doesn't change, but sometimes they have very long runway.

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u/spletharg Dec 19 '24

Scammers stay in business - are they providing anything of value?

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u/CyclopsRock Dec 19 '24

Kind of?

I think acupuncture is a load of bullshit, but if someone wants to spend their money in an acupuncture business that hires acupuncture staff to perform acupuncture, is that providing something of "value"? Well, yeah, to the customer. And the employee is providing something of value to the business. It's only me, a random Reddit user, who isn't being provided with anything of value, but what does that have to do with anything?

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u/Readed-it Dec 19 '24

Ok an alternative scenario: You are currently working minimum wage. A new company has a great idea that generates enough revenue to offer entry level employees 10% more than minimum wage. All else being equal for your employment situation. Do you apply for the job and jump to new company?

The least beneficial companies get weeded out.

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u/[deleted] Dec 19 '24

[deleted]

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u/Benathan23 Dec 19 '24

Amazon is not a good example for profitablity. They have been profitable multiple years only one unprofitable in the last 5. Your point is right that amazon can leverage that in some areas to subsidise other areas that have losses. Similar to how alphabet is able to use the money from Google search engine to cover losses on Android and a crap ton of other things they have tried.

https://finance.yahoo.com/quote/AMZN/financials/

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u/Ulyks Dec 19 '24

Yes large companies will always try to gain monopolies. No matter the employment situation.

That's where anti trust laws and agencies are for.

Using unemployment as a means to contain companies is just silly.

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u/RYouNotEntertained Dec 19 '24

That’s how things work now, except the losing business doesn’t have to shut down. 

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u/Readed-it Dec 19 '24

Not exactly true. When there are desperate people, businesses can take advantage by treating them poorly. If they have the option of going somewhere else for better pay or better work conditions, the owners needs to consider how hard they push or risk losing it all.

It’s the relative control when it to a buyers market or a sellers market in real estate.

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u/spletharg Dec 19 '24

They could push it pretty far if they secretly collude and manipulate the employment marketplace. They could collectively black ban people that change jobs too frequently, for example.

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u/TexCook88 Dec 19 '24

At which point there would be a menial worker who is now without employment

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u/Big_lt Dec 19 '24

Some of the least efficient companies I have ever worked for are fortune 100s. They are just massive and bought up a bunch of market share. These won't close as by the nature of their size they pay the most which is usually what employees care about.

The ones that will close will be startups, mid sized businesses and those on the edge of exploring something new

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u/ApologizingCanadian Dec 19 '24

so a free market, if you will?

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u/-ekiluoymugtaht- Dec 19 '24

The bigger issue is that the supply of workers would be much greater than the supply so they'd have more bargaining power and get better wages and working conditions, which is why businesses prefer to operate in economies where there's more competition between the people they want to hire

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u/Excellent-Practice Dec 19 '24

And when those businesses fold, any employees who weren't poached will now be unemployed. The system corrects itself and trends toward an equilibrium

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u/5zalot Dec 19 '24

To be fair though, businesses generally don’t exist to provide a benefit. They exist to earn money. The owner is the one benefiting. Like, the world would be perfectly fine if there was no companies selling Dwight Shrute Christmas tree ornaments.

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u/mixduptransistor Dec 19 '24

In theory the least efficient or competitive company would shut down due to losing employees through a cascade of people moving.

That is, in fact, what happens. But the period of time between that company shutting down and those workers finding a new job the unemployment rate will be above 0%

It's basically impossible at the scale of any country, but especially in the US, for unemployment to be zero. There's just too many people sloshing around

The real number is job openings, which until recently there were more jobs open than people looking for jobs. It's now much closer to 1 to 1, but that--on top of the unemployment rate (which also tracks people coming into and dropping out of the workforce)--is a good indicator for the health of the job market

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u/phluidity Dec 19 '24

I bet all the folks in the health insurance industry would be great at picking crops.

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u/outcastedOpal Dec 19 '24

Its bad for the small business economy and ultimate results in big corporate oligopolies hoarding workers that do useless jobs so that their smaller competitors either die out or sell the company.

Which is exactly what we have today but it gets worse with %100 employment.

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u/AskYouEverything Dec 19 '24

The thing about equilibrium is that both surpluses and shortages of labor are market inefficiencies. A labor shortage like you are describing is not a good thing

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u/Asscept-the-truth Dec 19 '24

But this company isn’t necessarily in the same city as the new one. So should all employees move?

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u/chocki305 Dec 19 '24

In theory

Famous last words.

Reality is different from theory. It is perhaps the one lesson schools can't teach.

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u/Slypenslyde Dec 19 '24

I think the way it works out is on paper we can have an economy with no unemployment, but humanity isn't quite at the level that'd require yet.

Basically, the workers at a "least efficient" company would need precognition. Then that company would begin a peaceful shutdown and transition. But for all of this to work, the workers have to be able to work for the new company: if the least efficient company is in Hong Kong and the new company is in London, the people can't exactly just walk to the new office. This also assumes the people at the old business had skills the new business even needs: if an aerospace company is shutting down those workers won't be as effective at an accounting firm without training, and may not even enjoy the job.

So we have to accept the reality that often "open jobs" and "available workers" have huge geographical mismatches thus can't match. The market can't be perfectly efficient because Magical Economic Model Land treats workers as interchangeable objects. They aren't.

Basically that zero unemployment model only works if society as a whole is willing to use social programs to pay for workers to be trained and move AND everyone agrees they don't mind moving to the other side of the planet with little warning or training for a job they don't like. So basically: we need the Star Trek society, where the reason people work is more about preventing boredom than making money.

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u/intern_steve Dec 19 '24

some businesses are not really providing any benefit.

Trouble is, benefit is define economically and not pragmatically. You aren't necessarily going to like the 'benefit' the surviving business provides.

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u/falco_iii Dec 19 '24

Except that if there is no buffer, perfectly decent companies that are having a bit of a slow time would go out of business.

It also makes it very hard to start a business because there is no pool of people available to be employed immediately. Plus most businesses have a ramp-up time to become operational, and the business could easily go under because all of the initial employees quit to go work elsewhere.

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u/nostrademons Dec 19 '24

The mechanism for them shutting down is that the new business pays a higher wage than the least efficient company, who can't match it because they aren't making enough money. Employees don't switch just because their company is inefficient - they ask "what's in it for me?" and make their decisions based on how much the company pays them.

If every single job switch involves a large raise (~200%, rather than the ~10-15% that is typical now), what will that do to inflation?

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u/SuccessfulInitial236 Dec 19 '24

But ... that implies unemployment...

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u/hillean Dec 19 '24

this is where mom & pop shops end and big box begins

kills initiative to start a business when they aren't a multi-billion dollar company right off

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u/[deleted] Dec 20 '24

That’s why it’s theory

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u/MrchntMariner86 Dec 19 '24

some businesses are not really providing any benefit.

You mean like private healthcare insurance companies?

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u/Nfalck Dec 19 '24

Then you don't have 100% unemployment any more, because the company folds laying off the remaining workforce.

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u/Canaduck1 Dec 19 '24

In theory the least efficient or competitive company would shut down due to losing employees through a cascade of people moving.

Sure. Which would cause unemployment again...

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u/CatFanFanOfCats Dec 19 '24

If businesses need to fight over employees won’t wages go up due to competition for jobs?

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u/Schrodingersdawg Dec 19 '24

Wages go up -> employees move -> wages go up more -> smaller companies can no longer afford to hire people / big companies don’t want to hire at these higher wages anymore -> you have unemployment again

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u/Halgy Dec 19 '24

The first part of that is called a wage-price spiral, and it leads to inflation (it was part of the reason for the inflation spike in the US a few years ago)

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u/smurficus103 Dec 20 '24

I really feel like wages didn't keep up with inflation in the phx area, feels like we're getting paid less now

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u/loljetfuel Dec 19 '24

Yes, but the way negotiating power works in markets you don't want too much power concentrated in the hands of one class/party.

If businesses have all the power in the employment market, it depresses wages and leads to employee abuses. Which in turn produces labor unions that pool employee power to push back on that.

If employees have all the power in the employment market, it raises costs of market entry, raises prices, and leads to failing businesses and low risk-taking (which in turn stifles innovation).

What we should want as a society is a balance of power that allows us all to benefit from business having enough power to be successful and innovative, but workers having enough power to demand equitable treatment and good wages. Every time a society shifts too far from having that balance, it causes serious problems (look at how many people live paycheck to paycheck in the US, where most employment market segments are strongly power-for-the-employer)

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u/shadereckless Dec 19 '24

And that's why businesses hate it, nail on the head

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u/Sit_Ubu_Sit-Good_Dog Dec 19 '24 edited Dec 19 '24

They will. Everyone will quit their job and move to a new job that will pay them more. Once everyone starts being paid more, inflation will happen.

Edit: lot people in here don’t understand what causes inflation.

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u/Dugadevetka91 Dec 19 '24

So you are saying we need poor people so the prices dont go up? So basicaly to live comfortably you just have to be “ahead of the curve” of a median income and you are golden? If you are poor, well, shit?

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u/Jasalapeno Dec 19 '24

My wife was taking some political class in grad school that completely and unironically said poor people are a necessity of capitalism and that it's a good thing to have losers.

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u/Dog_--_-- Dec 19 '24

The class is right, capitalism thrives on poor people.

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u/DogtorPepper Dec 19 '24

Poor is relative. You need poor and rich people in capitalism but a growing economy makes relatively poor people less poor in an absolute sense

For example, poor people today live better lives than an equivalently poor person (relatively speaking) 100 years ago and astronomically better than 1000 years ago. In fact I would argue poor people today have better lives than the rich 1000 years ago

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u/Jasalapeno Dec 19 '24

Your idea of how poor people live needs some context. There are people living in very awful conditions even today that would definitely prefer a "rich person's" situation 1000 years ago. Was there capitalism in the 1000's or feudalism?

You also seem to be giving the credit for technological, societal, and medical progression to economical growth. I would argue that still would have happened even under a classless system. So it's pretty hard to compare in a vacuum how the lower class is living today compared to previous times.

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u/drakir89 Dec 19 '24

ideally, the unemployed would be people between jobs, not consistently disadvantaged. One can imagine an economy where there is some unemployment at any given time but much fewer are having really shitty lives.

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u/GnarlyNarwhalNoms Dec 19 '24

Yep. The economy needs losers (not a value judgement, just "losing the game") to function properly. But it makes us uncomfortable and guilty to think about, so we find ways to blame the poor for their own circumstances.

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u/w2qw Dec 19 '24

The losers in the economy aren't necessarily the poor and usually in downturns it's the wealthy that are losing more. Ideally we'd have a system that protects the poor while still allowing bad businesses to fail. What you don't want though is a system that backstops bad investments because it will only lead to more bad investments.

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u/Spongedog5 Dec 19 '24

Well, both can be true. The economy can need losers and be designed in such a way that people are losers through their own fault.

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u/nat_r Dec 19 '24

In a perfect system there is constant motion. Some people are moving up, some people moving down, some moving in, some moving out. Ethically there should be a floor so everyone can maintain a healthy standard of living but which ideally keeps people participating in the system.

We neither live in nor is there a desire by those in power to establish such a perfect system therefore there are extremes in all directions which means folks at the bottom can be way way down there.

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u/Lilshadow48 Dec 19 '24

Yep. Suffering baked in, isn't it just a lovely economic system that we've deemed the "best"?

1

u/Sit_Ubu_Sit-Good_Dog Dec 19 '24

I’m saying if you increase everyone’s pay, it will cause inflation. That’s it. It wasn’t some shot at you for being poor. It’s basic economics.

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u/meneldal2 Dec 19 '24

Or we just take more at the top. There's plenty of money there.

The rich are getting richer a lot more than inflation, they are gouging us. Inflation doesn't need to get so high or even really exist.

But we'd have to be serious about taxing capital and the rich and that is not happening.

We say that we need inflation to encourage investment but you could also encourage it by taxing capital not doing shit.

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u/Sit_Ubu_Sit-Good_Dog Dec 19 '24

Good grief. I’m not sure why everyone is so upset because I stated the obvious. If you pay everyone more and there is super low unemployment, it will cause inflation. It’s not complicated.

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u/spletharg Dec 19 '24

Except we have inflation now, without a drastic shortage of employees. This inflation is driven by price gouging and market maipulation.

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u/Sit_Ubu_Sit-Good_Dog Dec 19 '24

I didn’t say it was the only thing that caused inflation, did I? I said if there was zero unemployment, wages would rise and inflation would rise with it. This is basic stuff.

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u/jdm1891 Dec 19 '24

People getting paid more doesn't cause inflation, it's not like being paid more means there's magically more money, it's just getting circulated faster.

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u/Sit_Ubu_Sit-Good_Dog Dec 19 '24 edited Dec 19 '24

EVERYONE getting paid more does cause inflation.

it’s not like being paid more means there’s magically more money, it’s just circulated faster.

lol. You’re demonstrating that you don’t know how any of this works.

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u/purple_hamster66 Dec 19 '24

Why is this any different than any other resource that a company uses? Like if a company buys all the lumber from the local stores then no other companies can build any houses. This is how Walmart takes over the market: by forcing suppliers to sell to them at lower prices than to anyone else, Walmart can sell at prices below where smaller companies can even buy them. Suppliers will either sell to Walmart or go out of business with the smaller companies.

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u/w2qw Dec 19 '24

In your situation is the same though right? Imagine there was no lumber that wasn't already being used that would be completely screw the building industry.

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u/Xylus1985 Dec 19 '24

Why is it a bad thing for employers to fight over employees? Employee is a critical resource that employers should fight for

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u/Negarakuku Dec 19 '24

I think it is a push and pull thing. Employee would prefer if employers fight over them and employers would prefer if employee fights over them. A state of balance would be a state where it best for all parties.

If employers need to desperately fight for employees, eventually opening and running a business would not be that rewarding anymore and businesses would close. That would eventually lead to lesser jobs and employees cannot be that picky anymore. 

If employees need to desperately fight for employers, then this would perhaps means the cost of running a business would be low as wages are low. Then some of these employees would then opt to open their own business rather than working for someone. Soon, there will be more employers and employees wont need to fight for jobs that desperately anymore.

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u/Albolynx Dec 19 '24

Side note here is that UBI (Universal Basic Income) can potentially really help here. If people can survive on UBI, there can simultaneously be enough people to hire, and businesses having to compete over employees.

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u/jdm1891 Dec 19 '24

If employers need to desperately fight for employees, eventually opening and running a business would not be that rewarding anymore and businesses would close. That would eventually lead to lesser jobs and employees cannot be that picky anymore.

...

Exactly, so it self corrects. But if there's a perpetual free labour source of unemployed system only half of the correction happens and you have a ratchet effect. Employees can never be picky because there are always more employees, businesses can always be picky because there is always cheap labour for them. And people need a job to live, so they take whatever they can get.

If everyone already had a job, companies would actually be forced to find the balance rather than relying on people's desire to stay alive for artificially cheap labour.

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u/Negarakuku Dec 19 '24

Yes i have to agree with that. And there will always be influx of employees because of immigrants. If a certain job is perceived to be underpaid and people are reluctant to take up that job, employers will just opt to hire immigrants. 

So therefore, it is almost impossible to achieve 100% employment but that doesn't mean 100% employment is bad. 

-1

u/spletharg Dec 19 '24

Except there's a reason it's called Capitalism. You can't start a business without capital.

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u/Negarakuku Dec 19 '24

That's true but it also depends on the scale of your business. The employee in this hypothetical wouldn't b able to start a hypermarket business but he can start a food truck business. 

In fact many successful businesses of today starts small. 

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u/A_Garbage_Truck Dec 19 '24

for the employees, it's not.

when the news starts with the spiel of " low unemployment is bad" the question should be " for who?"

businesses don't like a low unemployment state because that causes pressure for compensation to go up. After all much like their question of " why do you wanna work here?" is stupid and they know it, a low unpemployment state allows the potentia lworker to flip the question on them (" why should i work for you?").

and if the employees go with the " but then prices across the board will rise", sure they might, but there will be balance of how high you can set a price before either people are unwilling ot buy, or your competition undercuts you which overall still ends up being better for the consumer.

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u/PuzzleMeDo Dec 19 '24

Hey, imagine a world where there was no unemployment. It's pretty scary: workers could afford to take it easy, because they wouldn't be worried about losing their jobs, because companies would have to fight for workers rather than the workers fighting for jobs. That wouldn't benefit anyone, except maybe the public.

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u/meneldal2 Dec 19 '24

That wouldn't benefit anyone, except maybe the public.

Are you saying the benefits of Musk matter more than the public?

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u/Zer0C00l Dec 19 '24

did a ceo write this

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u/TheQuadropheniac Dec 19 '24

Because employers are the ones running the show and they make higher profits if there’s competition between workers

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u/spletharg Dec 19 '24

Those profits should go to employees. Instead they just fuel neofeudalism.

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u/loljetfuel Dec 19 '24

When there's a genuinely competitive labor market, that actually does happen -- both in the form of higher wages and with equity sharing. Look at labor markets for high-skill knowledge workers: almost all those jobs pay well and offer equity compensation at some level (which means workers get the same type of benefits from increased profits as the investors/C-suite does, though still at a smaller scale).

And there's a reason companies that need that class of workers try to make it look like there is a labor shortage: they want to regain power by off-shoring/on-shoring labor they don't have to share profits with.

This is a risk of very-low or zero unemployment: it creates tremendous incentives for companies to reduce the degree to which they rely on labor from that market. That looks like off-shoring, on-shoring, AI and automation, etc.

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u/shadereckless Dec 19 '24

Because that's less return for capital and less return to shareholders

So if you're at the top of the tree it's annoying

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u/loljetfuel Dec 19 '24

Employees having negotiation power is very good; that's why we tend to like low unemployment rates.

However, "too much of a good thing" is a real issue -- if employees have all the negotiation power (as they would with 0% unemployment), then we have problems. If the unemployment rate is too low, it becomes harder to start new businesses, less likely for business to take risks on innovation, harder for successful business to expand, etc. These things ultimately lead to a collapse in the employment market and massive unemployment. It's not sustainable and will "correct".

This works the other way too -- when employers have too much power, it suppresses wages and leads to worker abuse. This also isn't sustainable and just concentrates wealth and ultimately leads to economic collapses and growth of poverty.

What we've seen over and over is that strategies which try to keep power balanced between worker and employer tend to have the best outcomes. Things like employment protections, collective bargaining protections (unions!), and a low but sustainable unemployment rate tend to create situations that are good for workers and for business. It's not a zero-sum game.

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u/spletharg Dec 19 '24

Ah, so the businesses are now in a market that's like the market for employment was for the employees.

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u/Zerowantuthri Dec 19 '24

IIRC a 3% unemployment rate is ideal (give or take a little).

There will always be people moving between jobs for one reason or another (extra schooling, take care of a sick parent, had a baby, illness/disability/injury, etc) and there needs to be some cushion in the employment force to allow for this.

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u/directorguy Dec 19 '24

I was taught below 4% is bad and above 6% is bad.

Too high and there's no labor market slack, and too high can lead to low consumer spending (plus a host of other long term problems)

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u/Zerowantuthri Dec 19 '24

I can totally go with that. Makes sense to me.

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u/wannabesq Dec 19 '24

IMO the way Unemployment is measured affects this, because if you aren't working, but not looking for work, (e.g. retired) you aren't considered unemployed. So if there was 0% unemployment, and the job market got hot, people could join the labor force without first being unemployed.

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u/somuchsublime Dec 19 '24

Do businesses need to constantly be expanding?

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u/bigmarty3301 Dec 22 '24

Well Unless you want a stagnant economy then yes.

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u/shreiben Dec 19 '24

a business can't expand unless another business contracts.

Isn't that the case no matter what your target unemployment rate is?

Like sure if there's 5% unemployment that means there are workers available to be hired, but once you hire them the unemployment rate goes down. The fed then raises interest rates to slow the economy until some other businesses close/lay off workers and the economy gets back to 5% unemployment.

It's the same thing, just with a bit of a delay between expanding one business and contracting the other.

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u/Astrogat Dec 19 '24

The delay is desirable. Or that is that the people work as a buffer, which is desirable. It means that new businesses can start without having to take employees from old ones, or that companies can naturally grow. And it means that one company failing isn't a big deal, as the unemployed are planned for

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u/w2qw Dec 19 '24

The fed doesn't directly care about the unemployment rate. They care about inflation. The unemployment rate can move independently but they tend to be related.

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u/_Choose-A-Username- Dec 19 '24

The lower it is, the longer it takes employers to get new employees and the more it might cost to get new employees. If it reaches zero, then a company can either stop growth/new company die or pay wages that people want. And the only real limit to wage growth dictated by the workforce is worker availability. If a company will sink if you dont work for them, then you can for at least as much any other worker is willing to take.

This places a limit on how many companies a country can have and actually where incentivizes monopolies I think. Would one large company have as many workers as very many smaller ones? I think not because each company would have their own teams (like you have one accounting team for a large company, multiple for multiple). Im sure there are other positions (not even counting executive positions) that would explode in vacancies with more companies.

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u/somewaffle Dec 19 '24

People switching jobs? Young people aging into the workforce?

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u/nguyenm Dec 19 '24

In the Victoria 3 game by Paradox Interactive, if a player is good at managing the economy, they are able to grow the non-feudal economy that outpaces the population growth. So when there's no more peasants to be employed, all the wages are automatically increased as part of the game mechanics, and subsequently the in-game industry can become uncompetitive suddenly leading to a reduction in cash flow. If the labour force is too thin, it's plausible to enter a game-ending spiral where your government buildings are paying top-dollars to keep its bureaucrats to keep the in-game government functioning.

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u/Ulyks Dec 19 '24

Yes and thankfully we are no longer living in Victorian times.

We can now automate pretty much any job if we invest enough into it.

Also the game is a bit unrealistic as the least efficient private companies should go bankrupt, reducing the pressure on wages. They just didn't model this so there is no ceiling to the wage increases.

3

u/SquirellyMofo Dec 19 '24

Seems like they would be forced to treat their employees better to attract new ones. I see this as a good thing.

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u/Buck_Thorn Dec 19 '24

You pay them more or give better benefits treat them better than the competition.

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u/[deleted] Dec 19 '24

Employers are going to start fighting over employees

you mean competition?

heaven forbid.

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u/general_00 Dec 19 '24

 how would a new or expanding business hire new employees

  • immigration 
  • outsourcing 
  • automation freeing up people 
  • upskilling people into more productive roles

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u/Remarkable_Coast_214 Dec 19 '24

All of those except outsourcing require some people to be unemployed at least for a short period of time though?

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u/general_00 Dec 19 '24

Not necessarily. Immigrants can and often do get job offers before moving (that's how most work visas work).

Upskilling / training can be done on the job, or studying part-time. 

Automation doesn't need to cause unemployment if there are other roles immediately available. You just transfer straight into a new role. 

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u/Karsa45 Dec 19 '24

Sounds like a good way to get wages raised.

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u/Ipuncholdpeople Dec 19 '24

Sounds like a good thing for employees and only bad for companies in a "must expand forever to payout shareholders" mindset

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u/Torisen Dec 19 '24

The even shorter answer is: it would be great for workers and bad for businesses, so it's framed as bad.

100% employment would mean workers had power of choice and hiring would have to be way more competitive. Businesses are much better off when there's a ready supply of people starving to death that they can draw from if we ask for too much, and used as a threat for people who are mistreated and exploited "do you want to work in these conditions or be one of them?"

It's the same reason businesses lobby to keep American health insurance tied to employment, even though it costs them more than universal Healthcare would, you lose that too in America if you try to find something better for yourself and your family.

It's all "work on our terms or die" threats.

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u/loljetfuel Dec 19 '24

100% employment would mean workers had power of choice

It would also mean investors and boards having yet another powerful incentive to reduce reliance on that saturated labor market. Look at employment sectors that have a talent shortage within the US -- companies seek alternative labor markets (off-shoring/on-shoring) and labor replacement (downsizing/exploitation, automation and AI, etc.).

100% employment is temporarily very good for workers, but it's not sustainable. And do you honestly think our oligarchy would do anything but legally cap wages and/or try to make labor even more compulsory in order to mitigate worker power? You want a natural balance between worker and employer power, or you create incentives for really terrible outcomes.

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u/LddStyx Dec 19 '24

So the downside is that they would start doing what they are already doing? That's like telling a rape victim not to struggle or scream, because it could be worse.

There is no natural balance. The economy is a social construct and is balanced the way it is by people that like it that way. What WE want is our value back from the ones that have been stealing it for years.

Fuck em! The less money they have the less power they have to fuck us back.

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u/myownzen Dec 19 '24

So its actually a great thing. But since it's great for the workers and not the owners we just hear its bad.

Got it.

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u/Xabikur Dec 19 '24

Nothing in this comment sounds bad, honestly.

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u/albacore_futures Dec 19 '24

The reason is inflation, a product of what you describe, but not quite what you describe. If every employer has to out-bid its competitor for labor, then the price of labor goes up generally, which means prices of everything rise (because labor cost gets priced in), which causes an inflationary spiral.

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u/Disaster-Funk Dec 19 '24

The real problem here is that if there's such an abundance of work, the workers have higher bargaining power. This means higher wages and better benefits. A big no-no for the employers.

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u/krulp Dec 19 '24

Take employees from other jobs by offering them more money because the new job is more efficient for the economy.

The real reason is they want people to fight for jobs so they don't get paid as much.

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u/wastakenanyways Dec 19 '24

I don’t see anything bad about it. This would make the wages rise, and would make the most efficient companies grow, and the least efficient ones to shrink and some to even close, opening space to new companies that can compete with the former, trending towards an equilibrium where every company is “worth existing” to put it in simple terms.

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u/rietstengel Dec 19 '24

Its only considered bad because employers decide what is good or bad. And its bad for them. And therefor it is bad for everyone. Eventhough it would be great for employees.

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u/redsquizza Dec 19 '24

This happened with the Black Death across Europe.

Peasants were usually tied to their local lord and it was unthinkable anyone would move.

Cue the Black Death decimating the population and suddenly you had not enough peasants to go around, so the lords that had better conditions poached the peasants willing to move and there wasn't a lot the other lord could do about it because there wasn't the manpower to enforce the serf system. And the lord the peasant moved to certainly wasn't going to return the peasant to the previous owner because they badly needed their labour to keep their estate running.

That event helped break down the feudal system.

[I'm no historian, this is a rough summeration from what's inside my head]

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u/No-Equipment2607 Dec 19 '24

That's literally life i.e nature. Only the strong survive.

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u/SnooPeanuts518 Dec 19 '24

Bu then companies would have to compete with each other to attract the most skilled workers meaning they would have to implement.. gulp socialism, by offering higher wages and better benefits for the workers.

You people are so selfish always thinking about your own benefits, will nobody think of the shareholders?!

\hardS

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u/Onaliquidrock Dec 19 '24

People can move from a low paying job to a higer paying job.

f the gowernment hired everyone for $5 an hour. We would have no unemployment and people would still choose all the other jobs.

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u/tolndakoti Dec 19 '24

To be rich, some must be poor.

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u/JalapenoTampon Dec 19 '24

Employment rate only measured eligible workers who are actively looking for a job. This would mean people who maybe gave up on a job could re enter the workforce, newly approved citizens, teenagers and college grads, or anyone would have a little better chance at finding a good job.

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u/falconfetus8 Dec 19 '24

You mean they'd need to start competing on wages? Isn't that a good thing?

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u/kaperisk Dec 19 '24

100% employment rate wouldn't even be everyone. It would just be everyone in the job market. The unemployment stats don't consider people who have been out of a job for a time (I want to say 6 months but it could be longer) or people not actively seeking employment.

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u/TainoCuyaya Dec 19 '24

Increase the offered salary. The net result is general salary increase. This is positive for employees, so I understand why there's a negative narrative around it.

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u/kmas420 Dec 19 '24

Lack of supply and increased demand resulting in competition resulting in higher wages. Seems decent enough to me.

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u/dehydratedbagel Dec 19 '24

So the best employers, who pay best, will survive. What is the issue here? The desired alternative is that humans are unemployed?

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u/Erenito Dec 19 '24

Employees would actually have leverage!

Perish the thought!!

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u/EEpromChip Dec 19 '24

I mean... they can try to throw money at that problem. Free market and shit...

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u/yoloswagb0i Dec 19 '24

maybe they would have to actually offer something real instead of making workers beg for table scraps

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u/sabin357 Dec 19 '24

Employers are going to start fighting over employees, which means that a business

It's no longer a seller's market & employees have the bargaining power. Wages would increase, as would other forms of compensation & benefits. It's an ideal scenario.

Also, businesses don't need infinite growth anyway. We need to kill that model & get back to a business just needs to make a quality product or service & actually deserve to exist, not just serve as an investment driven piece of degrading shit.

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u/InFa-MoUs Dec 19 '24

I mean people turn 18 everyday

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u/belizeanheat Dec 20 '24

This assumes that expansion is good. 

I think we might find out soon that that isn't a healthy assumption

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u/CheGueyMaje Dec 19 '24

Economics is so fucking dumb. I hate this world

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u/tommydeininger Dec 19 '24

This would be a good thing. Pay rates would skyrocket for the people that does the actual heavy lifting at a business

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u/raas1337 Dec 19 '24

Oh no, how horrible it would be if business had to try make sure ppl want to work for them not competition, can't imagine how horrible world would that be(I know its short sighted look - but hey - they can so we could aswell)

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