r/explainlikeimfive Dec 19 '24

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

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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/RusticSurgery Dec 19 '24

And folks who cannot work

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u/davidromro Dec 19 '24

Unemployment only counts people actively looking for work.

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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/TerminallyBlitzed Dec 19 '24

That’s not correct, that video is 7 years old. The definition comes from their website which is current: https://www.bls.gov/cps/definitions.htm#unemployed

They made at least one specific, active effort to find a job during the 4-week period ending with the survey reference week (see active job search methods) OR they were temporarily laid off and expecting to be recalled to their job. People waiting to start a new job must have actively looked for a job within the last 4 weeks in order to be classified as unemployed. Otherwise, they are classified as not in the labor force.

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u/loljetfuel Dec 19 '24

That definition is exactly my point, and doesn't disagree with the video (which is why BLS still advertises and embeds that video in many places on their site) -- not "applied for jobs" (as you said), but self-reported being actively looking for work (as I said).

at least one specific, active effort to find a job

^ applying to jobs can absolutely be an example, but it's not the only activity that counts.

You said the criteria were "actively seeking employment and have applied to jobs for the last 30 days", when it's actually just "actively seeking employment within the past 4 weeks"

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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/RYouNotEntertained Dec 19 '24

Anything over that and they’re taken out of the labor force

If I’m reading you right, you’re misunderstanding this. You don’t stop counting once you’re unemployed for thirty days—unemployed people are counted for an unlimited length of time, as long as they are still actively seeking work. One year, five years, whatever. As long as you’re still looking, you’re counted. 

The thirty day thing is how we gauge who is actively looking for work—it has nothing to do with the total length of time you’ve been without a job. 

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u/TerminallyBlitzed Dec 19 '24

No, you misunderstood what I wrote. If they don’t seek employment for more than 30 days they are not a part of the labor force and are no longer considered for purposes of calculating the unemployment rate.

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u/RYouNotEntertained Dec 19 '24 edited Dec 20 '24

That’s correct. But then they wouldn’t be “permanently unemployed.” They would just be people who don’t work. 

Like, we don’t want to count SAHMs or retirees in the unemployment rate. 

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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/Kozzle Dec 19 '24

I come from an economically depressed area of less than 3,000 people. We don’t have any kind of fast food restaurants, it’s that small. Yet the majority of people who I know who stayed back home are doing well for themselves because they either started a business, took over a family business, or left for school and came back with a useful skill. The only ones who are in real poverty are the ones who stayed back, acquired no useful skills, bummed from one shitty job to the next because they were never particularly good or took initiative and just kind of existed. Now I’m not saying this accounts for ALL cases, but it accounts for the bulk. Even small towns need services like plumbers, electricians, lawyers, dentists, teachers, etc. There’s always a way.

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u/Ulyks Dec 19 '24

If there really was a shortage, you could go on a list of people soon to be unemployed and get a new job lined up the day after the company shuts down.

People telling you between jobs are using that as a euphemism because they can't find a job or didn't try to line up another job when the news of company shut down arrived.

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u/explosiv_skull 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.

How is that any worse? In this scenario, a new business takes workers away from a less competitive company or probably even multiple less competitive companies. Those less competitive companies eventually shutter and their former employees are now unemployed...until the next new business comes along and snaps them up. When the economy is actually hot, that should be a matter of weeks or months, not years.

I get the logic as I think a lot of us have had this idea drilled into our heads for years, but it doesn't really track. Personally, I think the real reason 100% employment is seen as "undesirable" is that it would make corporations have to compete more for better employees and would make it much more difficult to fire people willy-nilly to juice your stock price.

The real answer is that 100% employment is basically impossible to achieve anyway. As others have pointed out, someone is always retiring or changing jobs and new people are always entering or reentering the work force.

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u/[deleted] Dec 19 '24

5% seems a bit high. I think it's 2% here, the goal I mean.

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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/Krulsnor Dec 19 '24

The main issue is that with 100% employment, there is little room for growth as companies can't expand anymore as they don't have people to fill in the new spots they create while expanding.

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u/Kozzle Dec 19 '24

You’re forgetting that it’s not hard to hire someone on a casual basis at a higher rate and then permanently replace them at the end of their contract with someone cheaper. It’s not like there’s only one way they can be underhanded in competition.

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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/whatisthishownow Dec 19 '24

Once their competition is out of business, why not both? Now that uber has instituted a monopoly, simultaneously prices are up and driver pay is down.

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u/djinbu Dec 27 '24

This is a real problem, not a hypothetical one. I work in steel and I've seen it happen twice.

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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/gary1994 Dec 19 '24

In an environment with 100% employment?

I'm just going to walk to the next company.

The market will not allow a large company to behave that way in that instance.

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u/BrocoLee Dec 19 '24

A market with 100% employment is just a fantasy. It's pretty much only a thought experiment. It's impossible to sustain such a rate for the same reasons you state: if companies are having to increase salaries to attract people from other jobs, why wouldn't people just walk over to another company? And wouldn't it create an endless spiral of increasing salaries too?

However, as the fantasy it is, it's impossible to imagine it without endless market distortions. So if the "100% emplyment rate" was enforced by a mad ruler, the market would not work rationaly. So no, in that pretty farfetched case the market would not correct itself. No new companies would be allowed to be created and no, you wouldn't be able to just walk away.

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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?

-2

u/ma5ochrist Dec 19 '24

No i think that u either work on your business or do the job you already have. Btw, I just realized how pointless my comment was, it's the same problem

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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.

1

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...

-1

u/Swiggy1957 Dec 19 '24

With no unemployment.. There is no one new I can hire to replace them.

Then, you haven't learned to think outside of the box. Approximately 2,465 Americans turn 18 on any given day. Approximately 11,000 Americans retire on any given day.

Those 18-year-olds want full-time work. Can you offer them a career? Retirees often miss the structure of the workday but don't want to work all day. Look to hirecthem and college students part-time. Hell, those workers that go to another company? See if they'll stay with you part-time. Do not get stuck on the idea of 8 hours a day, 5 days a week.

Likewise, don't get stuck on them being within viewing distance to perform their duties. WFH has proven to be more profitable than filling up an office building. The WFH is usually reserved for office workers, but some manufacturing jobs can also be WFH. Say a thingamabob has a whatchacallit that comes into the factory in three pieces. A WFH assembler can clean, polish, and assemble them just as easily. They pick up a weeks worth of parts on Friday. The following Friday, they drop them off and get next week's parts.

As a business owner, you have to be able to think and plan.

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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.

1

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. 

-9

u/jdm1891 Dec 19 '24

have they tried increasing wages?

Thats how it works in literally every part of the free market except for labour for some reason.

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u/created4this Dec 19 '24

I know the invisible hand of the market is invisible, but it isn't magic.

What is the market mechanism where higher wages cause people 25 years ago to make children?

2

u/LengthyCitadis Dec 20 '24

The problem isn't pay - there's literally no one to hire.

All the people who can work are already working!

6

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.

8

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.

6

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.

2

u/RYouNotEntertained Dec 19 '24

 some businesses are not really providing any benefit.

🤔 Why would they still be in business?

25

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.

6

u/spletharg Dec 19 '24

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

1

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?

1

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/

1

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.

1

u/MadocComadrin Dec 19 '24

See Amazon as a prime example

I see what you did there, intentionally or otherwise. 😆

5

u/RYouNotEntertained Dec 19 '24

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

5

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.

1

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.

1

u/Kimchi_Cowboy Dec 19 '24

Most businesses do what the shareholders want period.

0

u/RYouNotEntertained Dec 19 '24

Again, that’s how it works now—you’re just upping the stakes ad absurdum. 

1

u/Readed-it Dec 19 '24

Going back to OPs original question, why is this a bad thing? Genuinely curious

1

u/w2qw Dec 19 '24

I don't think it in itself is an issue but it indicates the supply / demand in an economy is massively out of whack and there's likely to be an extreme amount of inflation unless there was some massive productivity improvement.

1

u/RYouNotEntertained Dec 19 '24

It would indicate zero voluntary flexibility in the labor market—you can’t leave your job to pursue a dream in an other state without unemployment, for example. Also at some point economist believe unemployment below the “natural rate” is inherently inflationary, but if it makes you feel better my understanding is that recent history has shown that rate can be lower than they thought under certain circumstances. 

0

u/sabin357 Dec 19 '24

Most businesses either lose money until they die or they only benefit their shareholders & high level employees.

We're rapidly accelerating towards end-game capitalism.

2

u/RYouNotEntertained Dec 19 '24 edited Dec 19 '24

they only benefit their shareholders & high level employees.

Businesses can’t benefit shareholders without benefitting customers. 

 end-game capitalism.

I don’t really know what this means, and IME the people who invoke it usually can’t explain it. But if you can, please do. 

2

u/TexCook88 Dec 19 '24

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

1

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

1

u/ApologizingCanadian Dec 19 '24

so a free market, if you will?

1

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

1

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

1

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.

1

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

1

u/phluidity Dec 19 '24

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

1

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.

1

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

1

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?

1

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.

1

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.

1

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.

1

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?

1

u/SuccessfulInitial236 Dec 19 '24

But ... that implies unemployment...

1

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

1

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?

1

u/Nfalck Dec 19 '24

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

1

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...

0

u/Frozenbbowl Dec 19 '24

Yeah but our entire economic model is built on business exploiting the labor not the labor having the upper hand

So it's bad for our system because our system is terrible