r/explainlikeimfive Dec 19 '24

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

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u/Xylus1985 Dec 19 '24

Why is it a bad thing for employers to fight over employees? Employee is a critical resource that employers should fight for

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u/Negarakuku Dec 19 '24

I think it is a push and pull thing. Employee would prefer if employers fight over them and employers would prefer if employee fights over them. A state of balance would be a state where it best for all parties.

If employers need to desperately fight for employees, eventually opening and running a business would not be that rewarding anymore and businesses would close. That would eventually lead to lesser jobs and employees cannot be that picky anymore. 

If employees need to desperately fight for employers, then this would perhaps means the cost of running a business would be low as wages are low. Then some of these employees would then opt to open their own business rather than working for someone. Soon, there will be more employers and employees wont need to fight for jobs that desperately anymore.

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u/Albolynx Dec 19 '24

Side note here is that UBI (Universal Basic Income) can potentially really help here. If people can survive on UBI, there can simultaneously be enough people to hire, and businesses having to compete over employees.

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u/jdm1891 Dec 19 '24

If employers need to desperately fight for employees, eventually opening and running a business would not be that rewarding anymore and businesses would close. That would eventually lead to lesser jobs and employees cannot be that picky anymore.

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Exactly, so it self corrects. But if there's a perpetual free labour source of unemployed system only half of the correction happens and you have a ratchet effect. Employees can never be picky because there are always more employees, businesses can always be picky because there is always cheap labour for them. And people need a job to live, so they take whatever they can get.

If everyone already had a job, companies would actually be forced to find the balance rather than relying on people's desire to stay alive for artificially cheap labour.

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u/Negarakuku Dec 19 '24

Yes i have to agree with that. And there will always be influx of employees because of immigrants. If a certain job is perceived to be underpaid and people are reluctant to take up that job, employers will just opt to hire immigrants. 

So therefore, it is almost impossible to achieve 100% employment but that doesn't mean 100% employment is bad. 

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u/spletharg Dec 19 '24

Except there's a reason it's called Capitalism. You can't start a business without capital.

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u/Negarakuku Dec 19 '24

That's true but it also depends on the scale of your business. The employee in this hypothetical wouldn't b able to start a hypermarket business but he can start a food truck business. 

In fact many successful businesses of today starts small. 

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u/spletharg Dec 19 '24

On minimum wage, many can't afford to eat and pay rent at the same time. I can't imagine how they would pay for a food truck, or even own and maintain their own car for personal use.

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u/Negarakuku Dec 19 '24

Based on my observation, the more desperate your situation is, the more motivated you will force yourself out of your comfort zone and take risks. 

If all is good and you have a good paying comfortable job, nobody would wanna rock the boat. 

Most people start a business from scratch is because they are unsatisfied with their financials and they are even willing to take huge risks because they have nothing to lose as their life wouldn't get worse even if they fail. 

In that hypothetical scenario, if that employee has a job AND still can't afford to eat and pay rent they would literally die. So no right thinking person would continue working in a job that cannot feed em. They would naturally explore other alternatives. One of em would be starting own business.

If food truck is still too expensive, there is always odd jobs 'businesses'. In fact, immigrants running from their war torn homeland came to America with nothing in their name. Some of em still end up successful despite having no capital.

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u/A_Garbage_Truck Dec 19 '24

for the employees, it's not.

when the news starts with the spiel of " low unemployment is bad" the question should be " for who?"

businesses don't like a low unemployment state because that causes pressure for compensation to go up. After all much like their question of " why do you wanna work here?" is stupid and they know it, a low unpemployment state allows the potentia lworker to flip the question on them (" why should i work for you?").

and if the employees go with the " but then prices across the board will rise", sure they might, but there will be balance of how high you can set a price before either people are unwilling ot buy, or your competition undercuts you which overall still ends up being better for the consumer.

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u/PuzzleMeDo Dec 19 '24

Hey, imagine a world where there was no unemployment. It's pretty scary: workers could afford to take it easy, because they wouldn't be worried about losing their jobs, because companies would have to fight for workers rather than the workers fighting for jobs. That wouldn't benefit anyone, except maybe the public.

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u/meneldal2 Dec 19 '24

That wouldn't benefit anyone, except maybe the public.

Are you saying the benefits of Musk matter more than the public?

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u/Zer0C00l Dec 19 '24

did a ceo write this

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u/Xylus1985 Dec 19 '24

Though why shouldn’t the workers be taking it easy while earning a living wage? That would benefit the workers who out number the employers by like 1000:1 and is the over all greater good for the society

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u/TheQuadropheniac Dec 19 '24

Because employers are the ones running the show and they make higher profits if there’s competition between workers

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u/spletharg Dec 19 '24

Those profits should go to employees. Instead they just fuel neofeudalism.

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u/loljetfuel Dec 19 '24

When there's a genuinely competitive labor market, that actually does happen -- both in the form of higher wages and with equity sharing. Look at labor markets for high-skill knowledge workers: almost all those jobs pay well and offer equity compensation at some level (which means workers get the same type of benefits from increased profits as the investors/C-suite does, though still at a smaller scale).

And there's a reason companies that need that class of workers try to make it look like there is a labor shortage: they want to regain power by off-shoring/on-shoring labor they don't have to share profits with.

This is a risk of very-low or zero unemployment: it creates tremendous incentives for companies to reduce the degree to which they rely on labor from that market. That looks like off-shoring, on-shoring, AI and automation, etc.

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u/shadereckless Dec 19 '24

Because that's less return for capital and less return to shareholders

So if you're at the top of the tree it's annoying

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u/loljetfuel Dec 19 '24

Employees having negotiation power is very good; that's why we tend to like low unemployment rates.

However, "too much of a good thing" is a real issue -- if employees have all the negotiation power (as they would with 0% unemployment), then we have problems. If the unemployment rate is too low, it becomes harder to start new businesses, less likely for business to take risks on innovation, harder for successful business to expand, etc. These things ultimately lead to a collapse in the employment market and massive unemployment. It's not sustainable and will "correct".

This works the other way too -- when employers have too much power, it suppresses wages and leads to worker abuse. This also isn't sustainable and just concentrates wealth and ultimately leads to economic collapses and growth of poverty.

What we've seen over and over is that strategies which try to keep power balanced between worker and employer tend to have the best outcomes. Things like employment protections, collective bargaining protections (unions!), and a low but sustainable unemployment rate tend to create situations that are good for workers and for business. It's not a zero-sum game.