Is that a thing?
There’s two reasons I’ve heard given for a certain amount of unemployment to be desirable. One is that it’s desirable to have a certain amount of unemployed people around so that anyone who needs to hire someone has available labor to hire. A 100% employment rate would make it difficult at best to start up anything new or expand.
The other is “worker discipline”; that a high unemployment rate is desirable because it keeps workers too afraid of unemployment to do things like ask for better working conditions or a raise.
If by “too much employment” you mean that there are more jobs available than people to fill them, then it does lead to wage increases, which is good for workers. But then this also leads to costs in general rising (producers of goods have to pay higher wages so they have to charge more for whatever it is they produce), so the end result can be high rates of inflation and lower profits for the bosses.
There might be some argument to be made that friendly wellfare nets encourage complete slackers to suckle off the government rather than go into work and waste everyone’s time. Overall, it’s better for businesses if they’re populated by people with a functional work ethic. (Note, this is just a research topic, with potentially no actual relationship to reality.)
An unemployment rate that is too low has happened in places even recently. It occurred among tech workers in the late 1990’s in number of cities. The internet revolution combined with Y2K fears triggered most of it. The upside for people like me that worked in it at the time was that you could post any semi-qualified resume online and start receiving multiple calls back with offers of huge raises sometimes within minutes (literally). The downside is that the market was greatly overheated and unsustainable in the long-term. A lot of people with marginal skills moved into the sector because of the generous offers when they really weren’t needed in the long-term. After 2000, and especially after 9/11, companies were so tired of spending huge amounts of money on IT projects that they stopped funding new ones and went into maintenance only mode to focus on other parts of their business. That caused a sudden drought of IT jobs that lasted years and forced millions to find a new career.
The same thing happened recently in parts of North Dakota when a new oil boom was discovered there in an area without any significant infrastructure to support it. Suddenly, there were more than enough jobs paying ridiculous amounts of money for what they require to get people to move there and take them but nothing else to support the growth. Some of the people that moved there to take those high-paying jobs ended up paying more than they would for a nice apartment in NYC because there wasn’t enough housing or even hotels, motels or anything else to go around. That sudden wealth is starting to stabilize as new motel and restaurant owners move in to meet the demand but it was more like the Gold Rush or the Wild West for a while. Everyone had plenty of cash but there wasn’t anything to spend it on that wasn’t proportionally inflated.
Everything I have read suggests that an unemployment rate of 4 - 5% is natural and healthy for the U.S. at least. It provides an available labor pool for companies looking to start-up or expand and accounts for the natural churn of companies looking to dump people that may be perfectly capable at something but aren’t in the right job currently. It is like everything else in economics. You want the numbers to be good but moderate and not super-heated. Moderate growth and somewhat low unemployment are good but you don’t want extremely rapid growth and unusually low unemployment because that leads to big crashes later.
If everyone was employed that would probably be a bad thing but it is likely to sort itself out quickly. If everyone was employed wages would rise dramatically as employers competed for workers. Eventually some businesses would not be able to keep up and go out of business. Eventually there would be some surplus of workers as a balance was found.
That said there really is no such thing as 0% unemployment in a large society. There is always someone between jobs or taking a leave of absence or retired early or some such thing. As such economists consider “full employment” to be somewhere north of 0% although as you can see below that number is a matter for debate.
Suppose you had a hypothetical society in which everyone had a good job. And you want to open a new business selling some useful product that would improve society. The problem? You can’t find anyone to hire so you can open your business.
If you want to see a model for this, there’s a large category of board games know as “worker placement” games. The idea is that everyone has a bunch of opportunities to do things that will bring them closer to victory but each player only has a limited pool of pieces to assign. So the game play is based on figuring out where the best positions are to place your limited supply of workers. Even after every player has placed all their pieces, there will still be good opportunities left open because nobody has a piece left to fill it with.
Record employment rates here in Silicon Valley sure lead to horrific traffic gridlock. There may be many job openings, but it’s a good thing my husband is employed relatively nearby, because he wouldn’t be able to seek out one of those good, distant positions. It would simply be impossible to get there given the traffic mess.
All these things tend to be cyclical. High employment rates raise employment costs (as had been said) this drives employers to look hard at ways of reducing that cost, like outsourcing to a low cost country or investing in machinery. This then leads to fewer jobs, more people with no money and here we go round the mulberry bush.
Yes. It is a thing.
Central banks manipulate interest rates to leave the proper amount of slack in the economy. Too much slack gives you a recession. Too little slack gives you inflation. To see why, consider the unemployment rate, which is the share of people in the labor force who want a job, have looked for work in the past week, but don’t have a job. They don’t target a 0% rate. There’s something called frictional unemployment, which is the time spent when workers are between jobs. Since you want a good match between job and employee, it’s best if workers spend some time (not too much) doing a job search. So perhaps a 2% frictional unemployment rate is optimal.
There’s also structural unemployment which I won’t get into. Anyway, if central banks consistently set interest rates too low as they did during the 1970s, you get a wage/price spiral: firms bid for workers by setting higher wages, which leads to higher prices, which leads to higher wage demands, etc.
To get the balance right, central banks try to target NAIRU or the “Non-accelerating Inflation Rate of Unemployment”. It varies by time and country: maybe it’s something like 5% in the US now.
There is still slack in the US economy now, so there is no need to raise interest rates. Whether the Fed should raise rates next year is another matter: opinions differ and we’ll have to wait and see.
Is Agricola a game like that? (Just trying to see if I understand the premise)
Yes, that’s one of the classics of the genre.
I’ve encountered many employers who prefer a high unemployment rate because it keeps employees from moving and wages down and makes hiring easier.
No it’s not a thing.
Aside from the suffering, the unemployed cost money and don’t spend much.
If there’s full employment and employers have to compete for employees, so what? Businesses that can get the necessary productivity from their expensive employees will prosper and those that can’t will fail. And investments to improve productivity will become relatively more attractive.
Plus if course there’s immigration.
Thailand’s unemployment rate is consistently just below 1%. And there is a bad labor shortage here, particularly in the construction industry.
Add to the list - Alberta, and particularly Fort MacMurray tar sands operations… Stories of the workers at the coffee shops (Tim Hortons) making $16/hour, and shops in Calgary closing early most days during the Christmas season because they could not find the extra staff. I even recall on a visit to Florida about 2005(?) that the stores all had Help-Wanted signs.
The problem with zero unemployment is that labour is like any other commodity - when it’s in short supply, the price gets bid up. How much it will bid up - depends on how desperate the bidders are. And after all, if you are forced to pay overtime to substitute for hiring, there’s room to bid up at least 50% in general.
The other danger is inflation. You offer new hire X a wage 20% more, then long-time employee Y is going to want the same treatment. To some extent this is a zero-sum game. Everyone gets a raise, prices go up to pay those raises, and everyone is back where they started, except the people on fixed incomes and with locked-in savings.
Another downside, if wage rates are volatile, then your $20/hour menial job could disappear out from under you the moment the economy slows down. Labour perhaps should be more slow-and-steady than up-and-down; stability is good for the average worker. (Plus where do the seasonal workers come from?)
The general view of economists is that 4%-5% is normal as Shagnasty mentions; below that you have a shortage, not enough qualified people for most jobs, so economic opportunities are missed and wage rates, particularly for jobs needing credentials, will be bid up excessively.
I lived in Switzerland for six months in 1967 and, while I was there, the unemployment rate was below 1%. This made it hard to fill low-paying jobs (like trash collectors and other municipal service providers). Now you may say that they should have raised the wages and taxes correspondingly. What they did was import foreign workers in large numbers, mostly from Italy and some from Spain. While they got their garbage collectors, they really didn’t fill the labor shortage because–guess what–those workers got paid, spent their earnings (mostly) and created new demand. That has always been my answer to the claim that foreign workers take away “our” jobs. Of course, many of them sent part of their wages back home, so to that extent they probably relieved the shortage somewhat but not that much. Eventually, of course, it led to a backlash and an anti-foreign political party being founded. And ads on the tramlines in Zurich showing a black silhouette and the legend that translated, IIRC, as “Black workers out”. I don’t think this had anything to do with negroes of whom there were virtually none in the country at this time.
For Thailand though, labor remains cheap. I don’t know why that is. Construction workers are lucky to get US$10 a day, and even though that’s the official minimum, many get much less.
Inflation is always and everywhere a monetary phenomenon. If wages are going up and supply of money is constant than there is less money to be spent on other things and those prices will fall. This will result in higher prices for labor intensive goods and lower prices for capital intensive goods but no change in the overall price level.
There is some truth and some falsehood to that statement. Monetary policy affects demand for goods and services, but so does fiscal policy (taxing and spending). The money supply isn’t a particularly reliable guide to future inflation. Central banks tried targetting it in the early 1980s and ran up against Goodhart’s Law: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”
That said, if a central bank wants to reduce inflation by raising short term rates sufficient to engineer a recession, they can do so. Sometimes they can even reduce inflation (slowly) without a recession, but that is more difficult.