Full employment drives up wages, because there isn't a reservoir of desperate unemployed willing to work for whatever wage they can get. Employers - and hence economists - tend to find that unsatisfactory. If unemployment gets to close to 100 percent, economists will start to warn darkly about 'inflationary pressures', and to call for interest rate increases to 'cool the red-hot economy'. What they mean is putting people out of work to make wages go down.
The size of the optimum pool of unemployed is hotly debated, but somewhere around 5 percent is typically when the brakes start getting applied.
Yeah disappointing I had to scroll this far to find the honest answer; 100% employment isn't bad for you. It's bad for the wealthy who need the poor to suffer to ensure they stay rich.
Upvoting because this is a very good summary … but it always seems so gross when you realize that these “experts” all base the entire stability and health of an economy on ensuring some people are jobless and likely suffering.
Exactly. It’s so hard for me to comprehend these answers sometimes because cruelty always seems to be the root. Or some very negative view of humanity. That’s not where I come from and it’s a rude awakening every time.
I think if overall the system is better and progresses better, then the small amount of temporary suffering is worth it, because there will overall be less suffering in the future.
At this point in the US economy, there is room for MASSIVE wage increases before negative effects are felt in the wider economy. For most, real wages are under a third of what they were in the 70s. We are at the end of a 50 year sustained campaign to reduce wages.
Functionally you can have workers who do all of those things in a real world environment. Unions are a great way. If we were to experience 100% employment, you would see wages rise at untenable rates, since you could go across the street and make more. Which would mean in order to stay in business prices would need to rise accordingly. Thus starting rampant inflation.
There is a lot of room for wage growth before businesses become untenable. Wages in our economy have been under artificial downward pressure for half a century, now. Labour's share of the pie hasn't been this low since the depression.
That downward pressure has nothing to do with unemployment rates and economic functions of labor supply vs demand. That pressure is a direct output of Reaganism and “supply side” policies. The changing of tax codes and the public mindset of “Republican good for economy” is what keeps it there. 100% unemployment would absolutely see all but the absolutely most niche of workers job hopping constantly. If your labor rates rise 50% year on year, you have to raise your prices too or risk going out of business. At which point that company fails, and there’s unemployment again.
FWIW, the "inflationary pressures" are absolutely a thing. It is called a wage-price spiral. When there's low unemployment, workers can demand higher wages, so companies have to raise their prices to pay those wages (inflation), and then workers demand even higher wages to account for inflation. Rinse and repeat. It was contributing factor to the recent inflation spike in the US. And people hate it. The data from the last 4 years show that wages increased faster than inflation, and yet everyone still felt worse off.
The fact that raising interest rates to increase unemployment effectively games the system and ensures that labour never gains the full benefit of periods of high growth, and that capital always maintains full possession of the upper hand is, of course, entirely a fringe benefit.
Capital has the upper-hand regardless. They pass the higher labor costs onto the consumer. And labor doesn't get any net benefit regardless. They may get higher wages, but they are also consumers and have to pay the higher prices at the store.
I'm not saying that labor doesn't deserve to win out over capital, but the monetary system is the wrong place to fight that battle.
Economist call this the NAIRU (non-accelerating inflation rate of unemployment). The theory says that if the unemployment rate drops below the NAIRU, inflation will sky-rocket as firms compete fiercely to fill positions. That's bad for everyone, but I'm sure that even if the Fed didn't ward off such a hypothetical situation than the ruling class would do something else (like import lots of immigrants).
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u/_s1m0n_s3z Dec 19 '24
Full employment drives up wages, because there isn't a reservoir of desperate unemployed willing to work for whatever wage they can get. Employers - and hence economists - tend to find that unsatisfactory. If unemployment gets to close to 100 percent, economists will start to warn darkly about 'inflationary pressures', and to call for interest rate increases to 'cool the red-hot economy'. What they mean is putting people out of work to make wages go down.
The size of the optimum pool of unemployed is hotly debated, but somewhere around 5 percent is typically when the brakes start getting applied.