What about worker quality? I recall reading during the worst of the recession many businesses were seeing the benefits of hiring people with far more talent and education than they could normally get for the wages and benefits they were offering. As a result productivity went up for various reasons as people brought new levels of talent and insight into jobs that normally didn’t see talented people taking them. High employment means that lower quality workers, who normally would have a hard time finding and holding jobs, enter the workforce and drive down productivity.
Also even if all the workers drive up wages isn’t that going to make automation seem more cost effective, reducing the demand for labor?
As long as marginal productivity is above the wage, it will make sense for the firm to hire the less productive worker and the transaction will add value to the economy. If you’ve taken micro-economics, recall marginal analysis
Economists envision “Demand for labor” as a downwards sloping curve. If you shift it out (along an upward sloping supply curve), the number of workers employed will go up. But, yes, there will be an offset: as wages rise, there will be incentive to switch to other inputs, such as machines.
All that said, “Full employment” is macro-economic concept, often taught in another semester. It covers whole economies, rather than individual markets.
Siam Sam - I searched the web last evening: the Thailand experience is a bit of a puzzle. That said, there is some evidence that lower unemployment leads to higher inflation, all else being equal. Of course all else is never equal, so you have to model these things.
Good point. In the middle of the 90’s during the Dotcom boom, anyone with half a brain who could write a basic program in BASIC (pun intended) could get an IT job somewhere. It didn’t matter much that they weren’t very productive - they were there to be a visionary, to dream dreams, because the future! Profit was an unimportant detail that would be figured out later. If you could dream it, a venture capitalist would fund it.
Again, your boss’s boss (probably) HATES high employment, because that means you can easily find another job if you quit or get fired. And when you know that, you’re going to ask for raises and safe working conditions, complain about or even refuse to come in on the weekend unpaid to wash his Lexus, and generally act like a human being around him instead of a cringing bootlicking toady. Which is of course the worst possible state of affairs, and why it’s much more important for central banks to keep economies from overheating than it is to get them out of recessions. At least from the point of view of all the central bankers’ friends and patrons.