John Quiggin wonders why, given that computers
have HUGELY improved the efficiency with which job seekers can be matched with
vacancies, unemployment has not come
down dramatically.
He partially answers the question
himself when he points to the fact that even given perfect matching,
unemployment will not decline unless the wages in each profession respond to
supply and demand for relevant skills. As he puts it, “Why doesn’t competition
between unemployed and employed workers work quickly to reduce wages to the
point where demand equals supply?”
Well that’s easily answered. In fact
it was answered by Keynes nearly a century ago: wages tend to be sticky
downwards. At least they’re nowhere near as flexible as share prices on the
stock exchange, or the price of grain, iron ore, etc.
There is however a solution to that
lack of flexibility, and that’s to hire out the unemployed for free or at a subsidised
rate (with the unemployed still getting their benefit money) as I explained here.
Isn't there much more to the unemployment issue?
ReplyDeleteFirst of all, many people do not use computers. The use or non-use of a computer is the first division point.
Next, if we walk down the street, knock on each door and ask if the occupants could put someone to work, the answer would usually be "no". Give each occupant more time and maybe they would say "yes, I could use some help around the house or yard" but then would probably go on about how much that would cost or the barriers to hiring. The point here is that it is not easy to put people to work.
Finally, wages are only part of the decision when considering to add employees. The ability to cash flow the added cost, the ability to manage the new employee constructively, and the existence of adequate workplace and tools are all important considerations.
I get the idea that "wages are sticky". The minimum wage adds to the stickiness. It seems to me like the NEED for more labor is also a major driving factor. No doubt, need is always balanced against cost.
Hi Roger,
DeleteRe your 2nd para, “First of all…” its true that not everyone uses computers, but employment agencies do, so you might expect that to reduce unemployment.
Re your 3rd para, “Finally wages…”, what your’re saying there is that the “revenue product” of employees is important (that’s the addition to sales that each employ brings less the costs the employee causes – wages, materials, etc etc). Given very high unemployment, rev prod isn't too bad because new employees tend to be suited to vacancies (cos there’s lots of unemployed people to choose from). But as unemployment, the rev prod of each succeeding person hired tends to fall. And when it reaches the min wage / union wage etc, there’s trouble. Inflation rears its ugly head.
So my solution is to subsidise those relatively unsuitable employees.