This topic contains 3 replies, has 3 voices, and was last updated by  Jeff Herbener 8 months, 1 week ago.

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  • #12096

    Dan H
    Participant

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

    #12097

    Jeff Herbener
    Participant

    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

    #13623

    John Winters
    Participant

    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

    #13629

    Jeff Herbener
    Participant

    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

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