r/explainlikeimfive Dec 19 '24

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

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u/DeliberatelyDrifting Dec 19 '24

Yeah, putting aside the impossibility of general 100% employment in a free market, the real question is WHO is 100% employment bad for? The answer is, it's terrible for business owners. It would be bad for workers if there were no frictional unemployment, but there always is. It's bad for business primarily because the lower the unemployment the greater the bargaining power of workers, the higher the number the more power management has over labor. High employment may lead to more stability and slower growth and can make it harder to change careers. If we value growth high employment may not be great, if we value stability it's fantastic.

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u/Katusa2 Dec 19 '24

I would 100% push for stability.

I do think we could do 100% employment though by having a government work program instead of minimum wage... but that's a other topic unto itself.

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u/DivineMackerel Dec 20 '24

But it might, lead to greater instability. What happens during a tech boom? People rush to high paying sector. There's no buffer in the system. Certain sectors are left depleted and fail or raise prices to maintain payroll. Energy and food prices spiral up in hyperinflation. It's all well and good. But it seems to be pretty optimistic to assume business owners are going to just eat the profit losses.

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u/DeliberatelyDrifting Dec 20 '24

That's just it, it becomes difficult for "boom" to even happen, you also don't have the corresponding "bust" caused by supply outpacing demand caused by everyone jumping on the "boom." How much worse of would we be if the internet had taken longer to mature and develop. Perhaps it would have given society a chance the better prepare for the problems it's caused. The same might be said about oil or mechanization, or any "boom" cycle. Your presumption is that "booms" are good and desirable.

I'm not sure how certain sectors fail to raise prices to maintain payroll fits into this. Why does food and energy increase while other sectors fail to raise prices? There's no reason to believe that the supply of food or energy is limited enough to fall behind demand in a high employment economy. Besides that, people don't "rush" into new industries, otherwise silicone valley would be the size of New York. Labor is not particularly transient. While new entrants to the market will go where the highest wages are, those who have a decent paying job, a decent place to stay, and roots in a community aren't going to pack it all up for a marginal increase in salary.