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by pjc50
3219 days ago
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> This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed. > If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles. I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later. Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages. |
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Except human capital is, from the economy's point of view, like money in your bank account: if you have none to spare, you cannot absorb increases in demand (to personalize it, say you have $100 per month for gasoline - if the price doubles, you can buy half as much for the same money .. you have no cushion to absorb that change).
Just about every economist I've read over the last 20+ years (ranging from the 1700s to now) agrees there, more or less - regardless of the school they adhere to: if you're operating with no margin of error, you experience the booms and busts less well than if you have a margin.
Unemployment is a form of margin in this context. Say there's 100,000 employable people, but 5,000 of them are unemployed. When demand for labor spikes by anything less than 6%, there is an "instant" buffer to bring onboard while new employable labor is "spun-up" (via training, growing old enough to work, etc).
>Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.
Pretty sure you have that backwards: the lower the unemployment, the more wages are likely to rise. If your unemployment is too high, wages will fall (or remain stagnant).