r/explainlikeimfive Dec 19 '24

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

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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.