Involuntary Unemployment.

Economics Economics Questions
21

Michael,

Perhaps you could say that it is not voluntary unemployment like the case of, “I want $10/hr, but no one is willing to pay me more than $8/hr, so I’ll remain jobless for now.” That it does not fit that (narrow) conception of voluntary unemployment does not necessarily mean it is involuntary unemployment.

This is not the type of unemployment we’re talking about when referring to involuntary unemployment. This is, I agree, voluntary unemployment.

Perhaps imperfect information is not a case of voluntary unemployment, but I definitely think it is not involuntary unemployment either. This is not to absolve the unimpeded labor market or belittle those who cannot find their perfect employer; it’s just holding language accountable.

It’s not about finding the perfect employer, it’s about finding an employer at all.

22

Wages may not always be perfectly in line with the equilibrium price.

You mean people aren’t omniscient or psychic? So what? All that means is that nobody wants to work at the wages offered. If everyone was a miser and would only pay ten cents a year perhaps no one would be employed - then they would just work for themselves and be employed!

Anyways, equilibrium isn’t even coherent; it’s a tool of thinking, logically its riddled with impossible nonsense.

23

A closer example would be if you are interested in buying a car, but you know of no dealer that exists (maybe you live out in the boonies).

So it’s about unemployed people who don’t know employers exist? Or about unemployed people who know employers exist but not for the job they wish to do?

Anyway, both are a result of people not searching enough.

24

Look, first of all you aren’t entitled to the best deal any more than I’m entitled to all of the available information in order to attain employment immediately after discharge from previous employment. And yes, information is scarce. That is what makes secrets so juicy. It is also what makes IP a precious (and controversial) item. But you cannot quantify my awareness of something that is unknown. Because simply, I don’t know it yet! You can quantify the things around ignorance.. but you can’t turn my mind into a commodity. I did not want to be unemployed. I did not give up. What occured was simply I did not know the curve between “x” amount of resumes and applications received by employers and “y” probability of employment. In a state of imperfect information, I can work towards that curve but never actually reach an optimum. Why? Because I am not omniscient, and no database exists to perfectly capture all information in existence regarding employment opportunities.

25

Let’s say that by “involuntary” you mean “compulsory”. What is compelling the person to be unemployed? If it’s another person compelling the person to unemployed by violence, that’s slavery. If it is “circumstances” that compel unemployment, then you are saying that the person has no other choice but to be unemployed. But, in a free market, and in a world in which (like ours) labor is more scarce than land and capital (because of its nonspecificity and the fact that all production requires it) every person can always be employed at SOME wage, even though that wage may be very low. This is true even in “transitional” periods in the market. Thus, all of what Mises called “catallactic unemployment” is by choice. However, policies like minimum wage laws create “institutional unemployment”, in which people cannot work, even for low wages, because the low wages are prohibited by law.

26

Vichy Army,

You mean people aren’t omniscient or psychic? So what? All that means is that nobody wants to work at the wages offered.

Um no. If the wage is higher than the equilibrium price for wages, then there will be less opportunities for wage-earners than there are wage-earners. This is the entire idea behind cyclical unemployment (productivity drops, other factors of production drop in price, wages must drop in price as well).

Anyways, equilibrium isn’t even coherent; it’s a tool of thinking, logically its riddled with impossible nonsense.

Ok? Thank you for this irrelevent tid bit.

Consultant,

So it’s about unemployed people who don’t know employers exist?

Yes; more specifically, don’t know there is a job offering available (more on this below).

Or about unemployed people who know employers exist but not for the job they wish to do?

No.

Anyway, both are a result of people not searching enough.

So? This doesn’t make it voluntary.

Lilburne,

What is compelling the person to be unemployed?

What if it’s the lack of an available job?

But, in a free market, and in a world in which (like ours) labor is more scarce than land and capital (because of its nonspecificity and the fact that all production requires it) every person can always be employed at SOME wage, even though that wage may be very low.

This is true as a general observation, but may be untrue in specific cases. In a free market, if we agree that long-run equilibrium is impossible, there’s no reason that some involuntary unemployment may be possible. This is why post-Mises authors carefully say that mass unemployment is impossible in a free market (this is how Reisman puts it), and how Huerta de Soto specifically says some involuntary unemployment is possible.

Austrians don’t claim markets work perfectly; they claim they work better than planned markets. There’s no reason to assume perfection in the labor market.

27

What if it’s the lack of an available job?

Work for yourself. Why does only employment by others count as employment? Why does only a certain wage level count as employment? If you can’t get hired so you buy and sell pencils at a profit of 2 cents a day, you’re still employed.

28

Work for yourself.

Easy for you to say. What if you can offer nothing that is in demand for some indertiminate amount of time?

Why does only employment by others count as employment?

It doesn’t, but “working for yourself” is not always a solution (I wish it was, because I wouldn’t be working for minimum wage right now).

Why does only a certain wage level count as employment?

It doesn’t. Why are you making this assumption?

If you can’t get hired so you buy and sell pencils at a profit of 2 cents a day, you’re still employed.

Nobody is denying otherwise. You make it seem as if even cyclical unemployment is involuntary (I mean, all the cyclically unemployed can work for themselves, right? Even if they starve to death? They are still employed, right?).

29

Easy for you to say. What if you can offer nothing that is in demand for some indertiminate amount of time?

So your job doesn’t pay as well as you’d like? Cry me a river.

30

Vichy Army,

So your job doesn’t pay as well as you’d like? Cry me a river.

Wow. Good argument. Unprofitable self-employment is not employment.

In any case, you are really off base with your notions on employment in the free-market. Free-market employment models depict a labor market consisting of wage-employees, to one degree or another, and free-market equilibrium models suggest that wage prices will remain at an equilibrium point where everyone can find employment as a wage-earner if necessary. Remaining self-employed, but unable to find someone to pay you for your service, is not being employed. In this case, either you have invested your time and labor into something unprofitable, or the labor market is above equilibrium.

31

Unprofitable self-employment is not employment.

Yes it is. Nobody owes you anything, and neither does the cosmos. You don’t make it, that’s not my problem.

Free-market employment models depict a labor market consisting of wage-employees,

No, it doesn’t it suggests that labor is a producer’s good. It doesn’t matter whether you’re employed by PepsiCo or grow tomatoes in a garden to sell. You have to separate out particular features of existing markets (which are not free at all, anyways) and the theoretical aspect.

32

Rothbard, MES:

One important distinction between capitalist-entrepreneurs and laborer-entrepreneurs is that only the former may suffer negative incomes in production. Even if a laborer emigrates to a nation where pay turns out to be lower than expected, he absorbs only a differential, or “opportunity,” loss from what he might have earned elsewhere. But he still earns a positive wage in production. Even in the unlikely event of a labor surplus vis-à-vis land, the laborer earns zero and not negative wages.

33

Vichy,

Yes it is. Nobody owes you anything, and neither does the cosmos. You don’t make it, that’s not my problem.

I’m sorry, that doesn’t address the topic in question. Furthermore, nobody suggested it’s your problem, and nobody suggested anybody owed anybody anything.

No, it doesn’t it suggests that labor is a producer’s good. It doesn’t matter whether you’re employed by PepsiCo or grow tomatoes in a garden to sell. You have to separate out particular features of existing markets (which are not free at all, anyways) and the theoretical aspect.

Err, but it assumes that the wage-earner is being payed for his labor. If you are not being paid for your labor you are unemployed.

Grayson,

A laborer who applies his labor to a product that doesn’t sell does not earn him any profit. Yes, it does represent opportunity cost, but some degree it also represents a loss in wealth (the wealth lost using accumulated capital to sustain yourself). You cannot seriously argue that there is no such thing as involuntary unemployment in general. Even Mises would disagree with that!

My point is that the laborer who grows tomatoes, but those tomatoes don’t earn him a wage (because nobody is interested in buying them and they do not satisfy any of his desires), is technically-speaking unemployed.

34

If you are not being paid for your labor you are unemployed.

Nice arbitrary assertion. So if a guy builds a chemical processing plant and its unprofitable, he was unemployed all that time? Wow, I didn’t know that.

Your arbitrary boundries are praxeological nonsense.

35

Vichy,

Nice arbitrary assertion. So if a guy builds a chemical processing plant and its unprofitable, he was unemployed all that time? Wow, I didn’t know that.

Your arbitrary boundries are praxeological nonsense.

Can you please stay away from these abstract words and phrases that hold absolutely no meaning (like “praxeological nonsense”)? It doesn’t really address the issue, and it’s not proper criticism (I mean, why is it “praxeological nonsense”?). I can say, “you’re wrong”, as well, but it doesn’t make me right.

I think it is obvious that at some point there is a distinction between an entrepreneur who invests accumulated capital and an unemployed laborer who decides to start up his own venture (and fails). I think that it’s fair to say that an unemployed laborer who does not begin his own venture, because he knows it will come to naught (in other words, that his labor will not be paid), is not voluntarily unemployed. Otherwise, the claim would be that there is absolutely no involuntary unemployment (cyclical or otherwise), because technically speaking everyone could be self-employed (even if that self-employment doesn’t produce anything that satisfies anybody’s desires)—ignoring that some people may not own the necessary resources to be self-employed, or that there is no demand for the services a laborer could technically provide on his own.

In fact, by this argument, all Austrian economists are wrong. Mass unemployment is not the product of government intervention, for all those unemployed could simply become self-employed! Problem solved!

36

Your argument has nothing to do with economics. Your distinctions have no meaning for human action; it’s just like deciding who makes ‘too much’ money. Anyways, don’t care.

37

Your argument has nothing to do with economics. Your distinctions have no meaning for human action; it’s just like deciding who makes ‘too much’ money. Anyways, don’t care.

Errr, what? This doesn’t make sense, sorry. Maybe a little more substance would help.

EDIT:

Also, I guess the definition of an employed person would be one who reports an income. In that sense, an entrepreneur is reporting an income, even if his income is less than his expenses. Similar to how a wage-earner may be earning an income, but it also may be below his expenses. So, this is definitely not what I am referring to. But, an unemployed person who decides to grow tomatoes in his backyard is not reporting an income, unless you consider the tomatoes some sort of income. But, again, this seems to be tottering on the edge of a ridiculous distinction between unemployment and employment, where technically it is impossible for anybody to be unemployed. So, an employed person would not just be reporting an income, but a money income (assuming an economy where there exists money, or a division of labor).

38

I guess the definition of an employed person would be one who reports an income.

And what happens, in cases like subsistence farming, when income can’t be measured in monetary terms? Here’s your problem: your definition of employment has no meaning in economics! This debate is pointless, you can either acknowledge this, or not.

39

And what happens, in cases like subsistence farming, when income can’t be measured in monetary terms?

Is that person even considered in the labor force?

From Wikipedia,

Normally, the labor force of a country (or other geographic entity) consists of everyone of working age (typically above a certain age (around 14 to 16) and below retirement (around 65) who are participating workers, that is people actively employed or seeking employment. People not counted include students, retired people, stay-at-home parents, people in prisons or similar institutions, people employed in jobs or professions with unreported income,…

This definition is a bit more technical, and includes those who do make an income but simply do not report it to the government. Nevertheless, it applies to those living in virtual autarky as well. In this case, I would argue that these persons are for all intents and purposes irrelevant to the discussion.

But, a person who is growing tomatoes, but despite that is not supporting himself through autarky should not be compared to one who is.

Here’s your problem: your definition of employment has no meaning in economics!

Can you please substantiate this? Professional economists seem to disagree with you.

This debate is pointless, you can either acknowledge this, or not.

I’m not sure why this debate is pointless. The only thing pointless is to make unsubstantiated claims, especially the really abstract ones that have no real meaning (like “this is meaningless in terms of human action”).

40

Mises, HA:

“Unemployment in the unhampered market is always voluntary. In the eyes of the unemployed man, unemployment is the minor of two evils between which he has to choose. The structure of the market may sometimes cause wage rates to drop. But, on the unhampered market, there is always for each type of labor a rate at which all those eager to work can get a job.”

Note that, here, Mises is talking about the “unhampered market”, and NOT the equilibrium state of the evenly rotating economy.

By that reasoning, an investment that results in a loss is, technically speaking, not an investment. All action is prospective. Capital is employed on a market when an actor uses it to seek interest and profit. Labor is employed on a market when an actor uses it to seek wages and profit. Whether either kind of employment ultimately bears fruit is immaterial with regard to the catallactic character of these actions.