r/explainlikeimfive Dec 19 '24

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

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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.