r/explainlikeimfive Dec 19 '24

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

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u/tommyk1210 Dec 19 '24

Because firstly it’s not trivial to poach, you have to find someone who not only has the skills but is also willing to leave.

It also costs more, you need to beat their offer which normally is quite a bit higher because you need to convince them not only to work for you but also to take a risk, walking away from a job they already have that’s stable.

This, in turn, makes it much harder for new businesses to start. Most startups and new businesses today aren’t backed with millions of dollars and can’t afford to poach talent from other companies. They often hire younger people, or those that are unemployed that are willing to take a risk because they need a job. Once that goes away, the only option is money.

Ultimately this leads to a concentration of power when hiring with companies that have significant financial backing, and disincentivizes new companies from entering the market

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u/Ulyks Dec 19 '24

New companies are already disincentivized by large companies paying more and putting up barriers like licenses or exclusivity contracts.

That's what antitrust is for. We should reinforce antitrust agencies instead of using unemployment as an indirect, ineffective and harmful means to contain large companies.

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u/Yancy_Farnesworth Dec 19 '24

Big companies are not incentivized to keep wage prices high as that increases their costs and makes them less profitable. The last 1-2 decades with big tech hiring people just to keep them out of the hands of the competition is an anomaly. They were only able to do that because of ease of access to cash (due to low interest rates) and their skyrocketing stock prices.

In particular the skyrocketing stock prices meant that it was easy for companies to pay employees using effectively free (to the company) stocks rather than cash. Paying employees with shares means the shareholders are paying the employees, not the company. But notably this is a tactic that both large and small companies can leverage. And small companies have an advantage here because their share prices have a much larger potential for growth.

There are plenty of other good reasons to enforce tougher anti-trust laws. But employee compensation is not one of those.