I was wondering why involuntary unemployment exists among skilled laborers (who make well above the minimum wage, so no price floors are involved). Shouldn’t market forces drive prices to an equilibrium point where the quantity of labor demanded equals the quantity supplied?
Also, is there anywhere I can get unemployment statistics for years prior to 1900?
Most of those people labeled as involuntary unemployed are actually voluntary unemployed. People rely on unemployment benefits, welfare benefits, personal savings, parent’s savings, etc… to fall back on so they can take their time to find a new job or say no to a salary cut until they run out of money or benefits, and find whatever job they can get their hands on.
Prices do adjust. Ask anybody in the private sector who most likely got his salary and benefits substantially cut over the past 2 years. The economists who talk about price stickiness (and even some Austrians among them) simply never held a real job out in the real world. Businesses cut prices and wages. If they can’t because of some laws, they let you go.
Be wary of aggregate demand/supply fallacies. Skilled laborers can be unemployed because there is not enough specific fixed capital to employ their skills. (What good is being a skilled piano tuner if there are fewer and fewer pianos? The best tuners will claim the whole market and the rest will be unemployed.)
Market forces will only restore equilibrium if the supply of capital can increase in response to lower prices for labor. If there is a regulatory/legislative uncertainty, capitalists will not invest and unemployment will persist indefinitely.
So they just go hungry?
Why won’t wages get adjusted? This has nothing to do with insufficient capital.
DD5 wrote the following post at Wed, Sep 8 2010 5:55 AM:
So they just go hungry?
Why won’t wages get adjusted? This has nothing to do with insufficient capital.
That’s not the point. Wages can adjust to zero, but if there is no capital being invested in response, unemployment will still persist.
Basically you cannot employ more people than there is capital to employ them with. There cannot be more taxi drivers than there are taxi cabs. There cannot be more McDonald’s burger flippers than there are McDonald’s stores. If the capital structure at the long end collapses in a recession, the capital structure at the short end needs to expand with more investment to absorb the surplus labor. If investment is discouraged by the political regime, there will not be enough capital goods to employ people with, and capital owners will simply keep the most productive piano tuners/taxi drivers/burger flippers on staff out of the enormous pool of applicants for the limited spots available. Notice also that years of experience as a HR manager does not give you any competitive advantage over a teenager at flipping burgers, in fact the teenager is a much better candidate for many reasons, so it is entirely possible that you will be involuntarily unemployed for the duration of a recession.
(If you don’t think that wages can adjust to zero while unemployment still persists, just look at the competition for unpaid internships.)
The taxi driver doesn’t have to drive taxis.
And that’s precisely the point! That’s not an unemployment problem. Sure, anybody has the right (in a free society) to insist on a particular job in a particular place at a particular wage, but if he cannot find any such job, then he chooses voluntarily to remain unemployed. That’s not an unemployment problem.
If half the population wanted to become movie stars and insisted on working in nothing but movie acting, they would all obviously become unemployed. Should we considered them to be involuntary unemployed?\
There is always employment for everyone in a free market if the person is willing to work at any wage and at any job.
You can theoretically even work for a negative wage.
DD5 wrote the following post at Wed, Sep 8 2010 3:54 PM:
The taxi driver doesn’t have to drive taxis.
And that’s precisely the point! That’s not an unemployment problem. Sure, anybody has the right (in a free society) to insist on a particular job in a particular place at a particular wage, but if he cannot find any such job, then he chooses voluntarily to remain unemployed. That’s not an unemployment problem.
If half the population wanted to become movie stars and insisted on working in nothing but movie acting, they would all obviously become unemployed. Should we considered them to be involuntary unemployed?\
There is always employment for everyone in a free market if the person is willing to work at any wage and at any job.
You can theoretically even work for a negative wage.
I don’t think that suggesting that people work at a negative wage is going to be considered a solution to the unemployment problem. You are not even touching the problem, you are just redefining unemployment. Whatever condition remains that people are stuck in is still an economic calamity.
There is no avoiding the capital side of the recession. You cannot continue to blame the victims for everything. A taxi driver needs a car to be a taxi driver. He cannot make a living walking people around town.
Besides, even working at a negative wage might not resolve unemployment if capitalists are still wary of investing more capital, or they simply can’t produce capital fast enough. The negative wage workers will still be competing over a fixed and diminishing supply of capital goods.
So how do you suggest to solve the “problem” of somebody wanting to work at a particular job where his DMVP is below 0?
Oh, so somebody who wants to drive a taxi but has nobody who’s willing to hire him is a victim? Why? was he born to be a taxi driver?
What about all those who want to be NBA players? So now they’re unemployed victims also?
There is voluntary unemployment and involuntary unemployment. Those who insist on being NBA players and refuse to work at the hamburger joint are of the former. Not the latter! I don’t care for statist definitions, by the way.
Rothbard covers this quite well:
http://mises.org/rothbard/mes/chap9b.asp#2G._Problem_of_Unemployment
DD5 wrote the following post at Thu, Sep 9 2010 3:44 AM:
So how do you suggest to solve the “problem” of somebody wanting to work at a particular job where his DMVP is below 0?
First I will point out the heartlessness of not considering the severe problem of survival of someone who has been thrown out of the labor market by a capital contraction that was not his making. It truly saddens me that you hold this view. I hope that when disaster happens to you your community is more charitable than you are.
That having been said, the problem of DMVP being below zero is one that is caused by capital, not by labor. Hence there is nothing that labor can do to resolve the situation. The unemployed man does not have a choice of any particular job because all productive capital goods are employed with some other laborer. His DMVP is at zero only because there is no capital to employ him. The solution is as obvious as how many times I’ve employed the word capital: the liquidation of capital and the expansion of investment in capital goods. If unnatural, political interference is restricting capital investment and causing capital consumption, as is currently the case in the USA and much of the world, no economic recovery is possible. The unemployed will remain unemployed permanently, through no fault of their own. Their only choice is begging enough resources to immigrate to a country where capital is being expanded.
What about the fact that capital is employed somewhere else because the consumer doesn’t want to reimburse the LA Lakers for hiring me as their starting point guard? Did you ever think of that?
I’m sorry, I didn’t realize I was expressing my own personal values and not perhaps the economic reality of scarcity!
You just made a personal attack on my character because my economics don’t suit your preconceived and mythical ideas about how the economy works, or should work according to your own values.
Edit: yes, by the way.. All of us Austrians are just so heartless. You should know that by now.
DD5 wrote the following post at Thu, Sep 9 2010 5:25 AM:
What about the fact that capital is employed somewhere else because the consumer doesn’t want to reimburse the LA Lakers for hiring me as their starting point guard? Did you ever think of that?
No I didn’t because it’s the stupidest thing I’ve ever heard and irrelevant to the subject.
Did the OP mention that the capital market was being tampered with? If not why are we assuming that? If we are truly interested in pointing out this specific detail to the original poster, and not interested in arguing with DD5, then we should point out that a contraction in capital, in discoordination with the market, is a symptom of a larger issue, not a cause. IE the capital market is being tampered with in some way, which could cause temporary unemployment until things are allowed to correct.
Otherwise, if left alone, markets will continuously adjust striving to operate optimally and the conditions described above would only be temporary(As DD5 really points out).
IMO this is a poor example. It does not follow necessarily that this example is one of involuntary unemployment. What if simply no one genuinely wants piano’s? Similarly I could reword the statement, “What good is being a skilled crap sculpture if there are fewer people interested in sculpted feces?”
Point being, if no one wants it, thats not an issue of capital, the guy needs to change jobs and produce something in demand, instead of wedding himself to a dead industry. Horse and buggy for example. It’s not an issue of lacking capital, there are other reasons for involuntary unemployment.
The OP asked specifically what are the causes of involuntary unemployment. Based on the current series of posts one is lead to believe there is only one cause, having to do with capital. Is a disconnect between capital and labor the only cause? Or is it one of many, and if the latter, what are some of the other common causes of unemployment?
Good argument you got going there,
now allow me to split and perhaps clear the floor for some other heartless fellow who wants to take a shot at you.
Yes if only there was more horse-and-buggies around he’d be right at work! Clearly a lack of capital.
Filc,
You’re heartless with that piano example. take it back!
Actually I hope he calls me stupid again. It’s hilarious every time.
It should be noted the minimum wage isn’t the only intervention that messes with the labor markets.
But for this example let us consider an unhampered market. We shall define the following terms:
We shall call the infimum rate of an employment activity the least monetary level at which the utility gained by the laborer through the wages is greater than the disutility of performing the job. Like all value judgements this is subjective and differs between person, employment activity, and time.
Likewise, we shall call the supremum rate of the employment activity the greatest monetary level where total utility gained by the employer when that activity is performed for him is greater than the utility of the wages given.
It is obvious that an employment relationship can only occur where the wage given is above the infimum and below the supremum. In both cases both parties are gaining more than they are losing. Given an employer and employee, an employment activity, and a time, we may call the set of wage rates above the infimum and below the supremum the acceptable range. We say that a worker is unemployable to a given employer for a given activity at a known time if and only if the supremum is below the infimum, and thus the acceptable range is empty. To say that a worker is unemployable is to say that the relationship would be only wasteful.
The law of association proves that a possible relationship within the acceptable range must always exist, and indeed always exists between every person at all times. This leaves the only variable the employment activity. Thus a person cannot be unemployable for every activity: A person cannot completely be a debt to society.
We may call an acceptable employment between an employer and employee at a given time an employment activity for which the acceptable range is populated, that is, not empty. Given a set of people and a set of known acceptable employments, it is obvious the worker will choose the employment where the supremum is highest.
The problem is, it is not obvious what the acceptable employments are. A person cannot trade with someone they do not have any way to contact, or any known things to trade. It is perfectly reasonable to conject, and indeed happens very often, that two people could profit enormously by cooperating yet the profit does not occur because they do not know of this opportunity, or even that the other person exists at all. We may thus define unemployment as the situation where a person does not know of any acceptable employments available to them. However, it is also known that acceptable employments always exist. Thus the unemployment problem is one of information.
I don’t really like the use of “involuntary employment” on the unhampered market as it really twists around the definition of voluntary. If it starts raining when I’m out for a walk, am I suffering from “involuntary weather?”
As for “the unemployment is voluntary, they can lower their reserve wage if they want to” it is perfectly compatible with my definitions without having to mess around with fuzzy concepts. As a person waits longer, their savings deplete, and they become more desperate, the infimum lowers and the acceptable range widens, increasing the amount of acceptable employments, making one easier to discover.
Azure wrote the following post at Thu, Sep 9 2010 7:21 AM:
As for “the unemployment is voluntary, they can lower their reserve wage if they want to” it is perfectly compatible with my definitions without having to mess around with fuzzy concepts. As a person waits longer, their savings deplete, and they become more desperate, the infimum lowers and the acceptable range widens, increasing the amount of acceptable employments, making one easier to discover.
The problem with employing this definition is that unemployed laborers will eventually reduce their wage demand to the level of a beggar on the street. They will then be considered “employed” by the model (people will pay them in return for their pitiful look), but by standards of common sense, they are involuntarily unemployed - not engaged in any kind of productive activity - because all capital goods are employed and no capitalist wants to invest any further.
So in theory, so long as people can beg on the street, unemployment is impossible. By common sense, however, the country has a severe unemployment problem.
What is your reasoning behind this?
If they perform the service and people pay for it voluntarily, then the activity is productive by definition, even if only very marginally so. Your “standard of common sense” is nothing more than an arbitrary value judgement.
Azure wrote the following post at Sat, Sep 11 2010 12:29 AM:
What is your reasoning behind this?
That is the only activity that can be performed without capital, and you assume that the unemployed must deplete their savings to reduce wage demand.
If they perform the service and people pay for it voluntarily, then the activity is productive by definition, even if only very marginally so. Your “standard of common sense” is nothing more than an arbitrary value judgement.
An arbitrary value judgement held in common is called common sense. Common sense says that it should be heeded. 
As I said previously, if you declare that street begging is employment, people with common sense will simply reformulate the question: why do street beggars exist? You then have two choices: the same response as when you blamed unemployment on welfare systems, but this time the attack is aimed at charitable givers who hold back the beggars’ wage demands, or pointing out that starvation will eventually eliminate them. You have thus provided a wonderful non-explanation to people who asked you to explain how a capitalist economy is arranged, by not detailing the role of the capitalist in the arrangement at all.