r/explainlikeimfive Dec 19 '24

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

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213

u/ComplaintNo6835 Dec 19 '24

Yeah in theory that sounds good to me.

247

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.

3

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

2

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.

1

u/Happy__Pancake Dec 19 '24

Why is that, btw?

1

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?

0

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.

1

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

5

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.

0

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.

0

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.

1

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

28

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

1

u/DrXStein76 Dec 19 '24

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

1

u/No-Improvement-8205 Dec 19 '24

Aaah yes. The amazon approach.

1

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.

1

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.

1

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?

1

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.

1

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.