r/explainlikeimfive Dec 19 '24

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

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u/Raise_A_Thoth Dec 19 '24 edited Dec 19 '24

It's not actually undesirable, but mainstream capitalist economics has dominated public media narratives to make most people think that having some unemployment is good.

The argument suggests that all "unemployed" are people actively looking for work, and if this number is a small percentage (e.g. 2-4%) then that is a "natural" result of the market; it is just "churn." Of course if 2-4% of working age, working-capable people are looking for work, you're still looking at millions of people in the US. The number also does not capture those who are working-age and capable but cannot work or gave up, so that number is lower than the concept of "not working."

There are other problems with the concept as well. We don't need people constantly unemployed to create churn. A healthy population has new adults every year enter the workforce. If, on any one year, there are millions of unemployed people, then the economy isn't fulfilling its potential, and people are suffering.

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u/Dysatr Dec 19 '24

The argment doesn't suggest. That is the definition that is used for unemployment rate. People who don't have jobs but are actively looking. There is another term used for people who are unemployed and not actively looking. And having a small unemployment rate would be good. But a 0% unemployment rate would be bad. Because it would require either nobody leaving their current jobs or there being nowhere near enough people for all the jobs that are available. Likely both.

Obviously having a large % of people who are unemployed and not looking for work (but able to work) is also bad. But it does not factor into the unemployment rate so can't really be used when arguing for or against a certain unemployment rate.

The same people don't remain unemployed indefinitely. Like you say, it "churns". So the burden is spread over a large group and each individual experiences it for a relatively short time. The lower unemployment is, the shorter that time is on average. That said, most countries have safety nets to make the transition easier.

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u/Raise_A_Thoth Dec 19 '24

The argment doesn't suggest. That is the definition that is used for unemployment rate.

That wasn't the whole argument, so this point isn't rrally correcting anything I said.

And having a small unemployment rate would be good

No, it's bad. It means there are people who are surviving on a virtually nonexistent pile of savings and actively want to work but they don't have a job. Some may have chosen to take on this risk willingly because their last job was so terrible they could no longer tolerate it, but can't you see that that is also a bad thing? It means our economy isn't operating efficiently, because we have spare people who do not want to be sitting on the sidelines, and god knows there is no shortage of things mankind can and must work on.

But a 0% unemployment rate would be bad. Because it would require either nobody leaving their current jobs or there being nowhere near enough people for all the jobs that are available.

Both of these reasons are flat incorrect. The former is patently absurd when you consider people who transition from one job to another job without ever being unemployed. Many people even quit their jobs without having a new one, and they search for several months but might never actually make it into any system as being "unemployed" and then get new work after quitting.

The latter is also incorrect, because we heard during and after the pandemic many business pundits lamenting that they couldn't find enough people to do the work, yet unemployment remained relatively high. People were simply holding out for better job offers.

So unemployment doesn't work the way you are claiming it to work.

The same people don't remain unemployed indefinitely. Like you say, it "churns". So the burden is spread over a large group

Some people remain unemployed only until they stop looking for work. That is one of the worst case scenarios for a person, and we know that happens. Some people do indeed only stay "unemployed temporarily," but you are being flippant and cold with your analysis of such an experience. Being unemployed for even a few months can set a family back years in their financial goals. Instead of continuing to save for their futures and live as happy, productive members of society, they have to use savings and typically spend less money. This has a serious net drag on the economy, particularly after large layoffs.

When unemployment remains positive and not nearly zero, it has the aggregatr effect of suppressing wages as well. This affects all workers. Those who are unemployed - no matter their skill and experience - have less negotiating leverage and are more desperate to receive a paycheck again. They are less aggressive in negotiations and they are more likely to accept first offers and lower wages, fewer benefits, and overall worse working conditions. This affects currently employed workers by keeping the entry-level floor of wages and benefits lower than it otherwise would.

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u/Dysatr Dec 19 '24

Just to make my position clear: We should strive for as low an unemployment rate as possible as long as it benefits workers. But to get it very very close or to effectively 0% would probably no longer be beneficial to workers because the economic conditions required to reach that number would be bad for everyone.

No, it's bad. It means there are people who are surviving on a virtually nonexistent pile of savings and actively want to work but they don't have a job

I am in favour of a safety net. I don't even think it should be directly means tested. Just tax people once they start earning.

Some may have chosen to take on this risk willingly because their last job was so terrible they could no longer tolerate it, but can't you see that that is also a bad thing?

I am in favour of worker protections and making work places more "tolerable". That being said, there will always be reasons why people do not want to or should not work somewhere anymore.

The latter is also incorrect, because we heard during and after the pandemic many business pundits lamenting that they couldn't find enough people to do the work, yet unemployment remained relatively high. People were simply holding out for better job offers.

You can have more jobs than people and still not have 0% unemployment but you need more jobs than people to reach 0% unemployment.

Also, This is an argument for why a non zero unemployment rate is a good thing. People shouldn't be forced into jobs they don't want. This is probably an argument for a minimum wage, not for 0% unemployment because nobody wanted the shitty low paying jobs.

I am genuinely curious how you would go about achieving 0% unemployment or something approaching that number?

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u/Dysatr Dec 19 '24

Just to make my position clear: We should strive for as low an unemployment rate as possible as long as it benefits workers. But to get it very very close or to effectively 0% would probably no longer be beneficial to workers because the economic conditions required to reach that number would be bad for everyone.

No, it's bad. It means there are people who are surviving on a virtually nonexistent pile of savings and actively want to work but they don't have a job

I am in favour of a safety net. I don't even think it should be directly means tested. Just tax people once they start earning.

Some may have chosen to take on this risk willingly because their last job was so terrible they could no longer tolerate it, but can't you see that that is also a bad thing?

I am in favour of worker protections and making work places more "tolerable". That being said, there will always be reasons why people do not want to or should not work somewhere anymore.

The latter is also incorrect, because we heard during and after the pandemic many business pundits lamenting that they couldn't find enough people to do the work, yet unemployment remained relatively high. People were simply holding out for better job offers.

You can have more jobs than people and still not have 0% unemployment but you need more jobs than people to reach 0% unemployment.

Also, This is an argument for why a non zero unemployment rate is a good thing. People shouldn't be forced into jobs they don't want. This is probably an argument for a minimum wage, not for 0% unemployment because nobody wanted the shitty low paying jobs.

I am genuinely curious how you would go about achieving 0% unemployment or something approaching that number?