Monday, 7 October 2013

Banning zero hours agreements reduces GDP.

If an employer is not allowed to send employees home when there’s no work for them, the employer is then forced to employ those people to effectively do nothing (or to do something that is of little value to the employer or customer).

It’s far better to send relevant employees home: that way unwanted employees enjoy more leisure, OR find themselves an alternative form of employment which involves a respectable level of output: one where the employer is prepared to pay at least the minimum wage.

Economic illiterates might oppose the above points on the grounds that the above “send home policy” or high levels of flexibility do not of themselves raise aggregate demand (AD), and thus do not increase the TOTAL AMOUNT of work available. Thus it might be argued that the fact of sending employees home does not of itself increase the total amount of work available.


If aggregate supply (AS) is increased, then AD can be increased without inflatinary consequences. A classic example is the million or so immigrants have have arrived in the US every year for the last 200 years. Those immigrants have not raised unemployment: unemployment is about the same in the US as in other developed economies. Those immigrants have increased AS which in turn has facilited an increase in AD which in turn means the immigrants find work. Same goes for the above employees who are sent home. That is, if the "sent homees" look for alternative work, that increases AS which means that alternative work will materialise, just as the fact that immigrants to the US looked for work over the last 200 years brought work into existence for them.

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