I have found interesting view in Huerta de Soto’s “The Austrian School: Market Process and Entrepreneurial Creativity” where he criticise both libertarian (chicago) and left neoclassical (neokeynesian) ecomists for the view on unemployment and tell that austrian view is in a middle position. I agree with critics of neokeynesian, but i disagree with the critics of chicago’s.
So Chicago economics view is (according to the mentioned book): every unemployment is involuntary, because of flexibility of wages. And to opposite the Austrian view is: there is always some non-involuntary unemployment becase market never riches equilibrium.
Is there a big difference between chicago and austrian view? If we talk only about people who just lost the work and are looking for another, i think chicago’s will agree that they exist.
But if we talk about some big number of people who can’t find a job for a long time - there will be, of course, difference in views (and de Soto, I think, was writing about that case). That unemployment surely is voluntary because every person always can find some job for a lower wage in a short time.
Is that a mistake of de Soto or common position among austrian economists?
I have not read the book, so I can’t judge on what Huerta de Soto’s true opinion is. From what you’ve said, it seems as if Professor Huerta’s argument is that given long-run equilibrium does not exist, given that the forces of supply and demand are constantly changing (a position held, I believe, by all Austrians), then you cannot say that over the long-run all unemployment is voluntary. If a firm ceases to exist and a man goes unemployed, a job immediately available to his knowledge and within his abilities may not exist. Like I said, I cannot really judge Professor Huerta, but I would venture to guess that he does agree with the Chicago interpretation in general, he just wants to make it clear that long-run equilibrium does not exist, and basing an opinion on long-run equilibrium is certainy fallacious.
That said, I will now see if I can buy the book (too many books and too little time, but Professor Huerta has always been a personal favorite; maybe it’s because I’m from Spain).
It seems there are about 60,000 tasks to choose from, each one typically paying 2 or 3 CENTS. So the planet you are living on offers the unemployed $1,500 to divvy up among 15,000,000, or a penny for every one hundred people.
If the original poster meant that anyone can get a job that pays one hundredth of a cent [per day? per week? per month?], yes maybe he’s right.
That’s not the whole story. The number of tasks fluctuates over time with varying prices as people complete them and order new HITs. Not to mention that employers put up qualification barriers among other things. You can also take qualification tests to be graded by the test maker.
Let’s be really generous and make a few unreal assumptions:
1] every one of those 15 million people are competent to do the tasks. [if they aren’t, that weakens the OP’s case]
2] there are 100,000 new tasks every single today
3] each one pays 10 dollars, not 2 or 3 CENTS.
SO we have a million dollars to split among 15 million people, or about 8 cents a day [being generous again].
If that’s what the OP meant, then it agrees with what I see with my own eyes every day, that people are desperate for jobs, even the most poor paying menial ones, and can’t get them.
BTW if the employer puts up qualification barriers, that only weakens the OP’s case.
I have de Soto’s book only in russian, but I tried to translate paragraphes about unemployment:
…The second example, helping to understand the Austrian proposal, is difference in theoretical assumptions concerning a labour market. As it is known, theorists of the Chicago school of the neoclassical macroeconomic theory strongly criticized irrationality of keynesian assumption that rates of nominal wages are unflexible to fall. We already saw that members of the Chicago school always consider ignorance, which exists in the market as “optimum”. In other words, the unemployed remains being unemployed because he prefers to continue search of more suitable work, than to accept that somebody offers him, so they conclude that in the real market there can not be an involuntary unemployment. They also mention existence of bisiness cycles, which influence employment, the reason of that can be or a number of unexpected changes of volume of the money supply, which hinder agents accurately to distinguish an event for the real reasons of change of the relative prices from changes of an overall price level generated by inflation, or simply sudden occurrence internal offers, or real shocks.
…To think, as Chicago theorists do, that all unemployment is “voluntary” extremely unrealistic, because thereby it is supposed that the real processes of coordination, which are forming an essence of market process, are already finished, that is why the final condition of rest, described by model of equilibrium, is reached. Actually the real market stays in a constant condition of disbalance, and even if there are no institional restrictions (laws on wages minimum, interference of trade unions and so forth), it is quite possible that many people who would be glad to work on certain businessmen (аnd they with pleasure would employ them), remain the unemployed, and they cannot meet these businessmen and if they and are crossed will not manage to use mutually advantageous opportunity to conclude the agreement for hiring - simply owing to defect of enterprise vigilance.
It seems, that author strongly disagree with Chicago view.
Talking about last sentence (as the main explanation), i think that "defect of enterprise vigilance" of worker does not implement in existance of forced unemployment, but in lower wage.
Of course, if the person isn’t good in profession, which he wants to be employed (that’s why he was fired), it will be hard to him to find that job. But every person have different abilities. As a temporary, he can be, for example, taxi driver or general worker (or any other low-skilled worker). Of course, there will be a LOWER WAGE.
Labor isn’t very different from any other commodity or service.
Shapiro and Stiglitz’s view seems apt. The reason that some degree of equilibrium unemployment must exist is because it functions as a worker discipline device to prevent shirking. As workers would shirk if full employment existed and termination simply meant quickly acquiring a new job, there must be some means of providing a disincentive. Since unemployment and underemployment are both forms of static inefficiency, however, this means that external inefficiency is a necessary condition of internal efficiency in the capitalist labor market.
It seems that my first guess was correct, then. What Prof. Huerta de Soto is saying is that the market does not operate on perfect information, and so it is nonsensical to believe that over the long-run the economy runs at equilibrium.
This doesn’t make sense. It doesn’t follow that an economy at full employment would mean that “workers would shirk”. And, while I agree with the last sentence to a degree (that firing exists at a disincentive) it doesn’t really address the issue. Chicago School is operating on long-run full equilibrium models, while Prof. Huerta de Soto suggests that the market is never really at equilibrium (since supply and demand shifts constantly) and information is imperfect (which is in line with Stiglitz, to a minor degree [Stiglitz tends to overstate the issue and then suggest nonsensical “solutions”]). This means that replying to you a Chicagoite would simply suggest that there would be another firm to take on that worker. Huerta de Soto would agree with the Chicagoite, but add the caveat that the worker may not know that that position is open and so remains involuntarily unemployed.
Not to be too critical, but does that actually mean anything? Could you say that with clearer language?
Since unemployment and underemployment are both forms of static inefficiency, however, this means that external inefficiency is a necessary condition of internal efficiency in the capitalist labor market.
Not to be too critical, but does that actually mean anything? Could you say that with clearer language?
My guess is that he means yet another evil of capitalism is exposed. The workers only actually do anything instead of shirking their lives away if they see the starving unemployed before their eyes, to terrify them by example. So that internal efficiency [getting work done by the employed] has to have external inefficiency [starving unemployed].
This is to be contrasted with a socialist system that has full employment and no shirking whatsoever
Is there a logical deficiency in that argument that you can identify?
It’s not overstated, actually; asymmetric information affects labor markets more adversely than consumption and financial markets due to principal-agent problems that affect firm efficiency and the particularly problematic nature of the agency problems of adverse selection and moral hazard. The labor market is not simply a collection of factors of production, as some rightists inaccurately seek to reduce it to.
How is that not clear? Unemployment and underemployment are forms of static inefficiency. Equilibrium unemployment is required to prevent labor market underemployment through employee shirking. Therefore, external inefficiency is required to maintain internal efficiency.
Yes. The worker doesn’t only have to fear being hired (according to your source not a fear, since the worker can just be re-hired). The authors ignore other considerations: pay raise incentives for higher productivity, benefits at one job versus another, losing a relatively higher pay rate for shirking and having to accept a lower wage, et cetera. It’s not so much a gap in logic, as just a failure to really take everything into consideration.
Yes, although whether there is a change in demand (i.e. a shift in the demand curve) or a change in quantity demanded, it doesn’t really have any relevant to what I said. These are not fixed factors, and are consistently changing, which is why long-run equilibrium is non-existent. In any case, it seems as if you have missed the point, preferring instead to attempt to look for a mistake.
Okay, this says absolutely nothing in connection to what I said. You neither have really stated what this imperfect information is, and so when I say “overstated” and you say “it’s not overstated”, neither of us have established any type of metric in order to quantify what is an overstatement and what is not. It just seems like another poor attempt to “prove me wrong” (and divert the debate onto some increasing irrelevant tangent).
I don’t think I have.
This is untrue (and, what is “equilibrium unemployment”?).
EDIT: Oh, you mean “natural rate of unemployment”. If so, then you have to understand that what Huerta de Soto is talking about is involuntary unemployment, not voluntary unemployment (natural unemployment is considered voluntary).
You don’t seem to have understood the equilibrium unemployment model particularly well. Simply read the first page of the study:
Suggesting that anyone concerned with a potentially anti-capitalist analysis of labor economics would ignore efficiency wages should have been a clue that you were making several errors.
It was necessary to make sure that you weren’t denying the existence of perfect equilibrium because of changes in supply and demand quantity as opposed to actual shifts. It’s a basic error that I’ve seen happen, along with assertions that elasticity is a measurement of response to supply and demand shifts as opposed to its actual application to changes in quantities of supply and demand. And I did make a point about the fact that supply and demand alone are not the only ruling elements of markets and certainly not of labor markets that you chose to ignore.
Didn’t you imply that Stiglitz would be overly critical of the absence of perfect information? I suggested that being critical of this was not excessive in a labor economics study, as the labor market is particularly adversely affected by asymmetric information.
Followed by your inquiry as to what it is?
What aspect of it is untrue? If you’re not familiar with the terminology used, read the study to understand the nature of the specific focus on market equilibrium.
But, you have completely failed to address what I said.
This is still not relevant to what I said. You are trying to change the subject, and it’s not working very well. You are trying to establish some type of authority in this argument, and you are failing. I suggest that you stay on topic.
I didn’t ignore anything, you are simply taking my comment out of context. I simply explained why long-run equilibrium is a fallacy.
He does overstate it when he considers them specific market failures that can be corrected by intervention.
Followed by your obscure terminology (with much better, and more mainstream, terminology in existence).
I have already addressed this in the first part of the post. Let’s not argue in circles.
Actually, I’ve pointed out that what you’ve said is misconception based on your failure to read even the first page of the study. To think that anyone interested in a labor economics analysis would focus solely on employment/unemployment rather than other factors (such as efficiency wages) is fallacious to begin with, but it’s especially fallacious considering that even their first premises illustrate the fact that your assertions aren’t true.
I’m trying to make sure that you realize what you’re talking about, and aren’t going to commit basic fallacies during our discussion. You then seized on that as an excuse to ignore my point.
Of course you did. You ignored and are still ignoring my comment about the fickle nature of supply and demand in labor markets.
And that might very well be true, but alone, your statement is an assertion, not an argument. Can you explain why “intervention” fails to correct asymmetric information and the related agency problems of adverse selection and moral hazard in labor markets?
We’re not arguing in circles, as that would imply that you provided argument at all.
I think you’ve forgotten the context of the thread, and misunderstood what I wrote. We are talking about involuntary unemployment. If you are talking about something else, then you are talking past us, and what you are talking about seems irrelevant.
No I didn’t. I just don’t appreciate your efforts to belittle me.
I only ignore it because it is completely irrelevant to my original post. You criticized my use of supply and demand by applying it to something that I didn’t. All I said in respect to supply and demand was that they are constantly changing, and so never meet equilibrium over the long-run.
I’m not sure I want to get into this type of discussion in a thread where such a discussion is out of context and tangential. There is plenty of academic material on the subject that you could just as easily read. If this means that I made an assertion, I don’t think I ever would have denied this, but it was an assertion pertinent to the fact that while Prof. Huerta’s argument is similar to Stiglitz’, it’s not nearly as radical in extent (and that is the only think you really should have gotten out of what I said… instead of trying to explode it into what it isn’t).