[hemphill.daniel]

How does unemployment benefit the economy? Are there different kinds of unemployment that are beneficial and others that are not?

[jmherbener]

Unemployment can be voluntary or involuntary. Voluntary unemployment is beneficial since it is chosen by persons as their preferred alternative. Some people chose to retire from the workforce and live off their pensions. Millennials are known to take a “gap” year between graduating college and starting a career. Such forms of unemployment are beneficial. Likewise, employers benefit when choosing a preferred candidate over a less-preferred one in filling a position. Since employment requires a mutually-beneficial exchange of labor services between the worker and the employer and searches are required by both parties to find the best “fit”, unemployment during the search process can be chosen by workers and employers and therefore, be beneficial.

Involuntary unemployment harms someone. It occurs, mainly, when the state criminalizes certain terms of employment. A legal minimum wage above the market wage can result in involuntary employment. Both the employer and the worker would benefit from employment, but the employer refuses to hire the worker under penalty of law.

Here is an article on the topic by Hans Hoppe:

https://mises.org/library/misesian-case-against-keynes

[johnwinters91]

Profesor,

Does raising the minimum wage impact overall price inflation? If so, could it be said that doing so only increases unemployment until prices rise to the level that they were before in terms of purchasing power?

Thank you

[jmherbener]

Raising the minimum wage does not affect overall price inflation. It merely shifts entrepreneurial demands away from low-wage labor and toward capital equipment and higher-wage labor. To the extent that the reduced production of output increases price of goods produced by minimum-wage labor, consumers must demand less of other things to maintain their demands for such output. Prices go up on some goods and down on other goods.

Monetary inflation which causes price inflation will, as you suggest, reduce the impact of a particular level of the minimum wage over time. As the general purchasing power of the dollar falls, a given level of minimum wage declines relative to the rising prices of other inputs. As a result, the unemployment generated by a particular level of the minimum wage is reduced over time.

Here’s a wiki on minimum wages:

https://wiki.mises.org/wiki/Minimum_wage

[dan0]

How do you think an expansionary monetary policy has impacted manufacturing employment in the U.S.? I am wondering if inflation driven changes to time preference might impact how business evaluates the attractiveness of manufacturing. Thanks for any thoughts.

[jmherbener]

Here’s the data for manufacturing employment since 1939:

https://fred.stlouisfed.org/series/MANEMP

Manufacturing employment is sensitive to booms and busts for the entire data set. The Fed is clearly to blame for this volatility. The big drop-off in manufacturing employment, however, occurs between 2000 and 2010. From 2010 to 2019 there is a steady rise.

Here is the personal saving rate of Americans since 1959:

https://fred.stlouisfed.org/series/PSAVERT

There appears to be some correlation between MANEMP and PSAVERT. However, the correlation is not very strong. The time of falling MANEMP (2000-2010) doesn’t correspond completely with the time of falling PSAVERT (2004-2005). The Fed’s inflationary policy since 1971, however, is strongly correlated with the decline in personal saving rates.

In any case, I think the causation between MANEMP and PSAVERT is relatively weak. One reason for the weak causation is that manufacturers in the U.S. can access world capital markets. So, even though American’s save very little, this isn’t a binding constraint on American companies as foreigners save and invest in America too.

Here are a few other points:

https://www.stlouisfed.org/on-the-economy/2017/april/us-manufacturing-really-declining

https://mises.org/library/job-killing-labor-costs-and-manufacturing-sector

[Author]

Posts