From: Technotranscendence (neptune@mars.superlink.net)
Date: Sun Sep 01 2002 - 08:54:22 MDT
On Sunday, September 01, 2002 9:35 AM Ron h. Dehede011@aol.com wrote:
> The question in this country is not about
> idled workers, we can see them accumulating,
> but instead the question is anyone investing to
> put those folks to work and earn a profit for the
> investor. If no one is doing that,
> then the question that interests me is "why not?"
I haven't followed this thread closely, so pardon me if I say something
that has either been covered or is obvious to everyone.
If the above statement is in the context of current labor idleness, one
factor we have to account for is government intervention in labor
markets. Things like minimum wage laws, unemployment payments, and
union laws lead to "rigidities" in the labor market. By "rigidities" is
meant that the adjustment of demand and supply does not proceed smoothly
and tends to happen if at all in jumps and spurts. (Of course, even in
markets with no government interventions, there will never be complete
smoothness. That's an idealization, but government interventions do
account for long term stickiness, while time lags, contractual
agreements, imperfect information, and the like account for short term
stickiness.)
As an example, imagine the 20 men working on the island thing. Imagine,
there's unemployment insurance of some sort. The new method of fishing
is introduced and 10 of the men are laid off. Now, the unemployment is
enough for them to get by for say a year without looking for other
prospects, such as vegetable farming -- even if vegetable farming
promises to yield more wealth for each unemployed man than unemployment
payments. Vegetable farming still involves some risk -- it might
fail -- and it involves doing more than just collecting a check. Now,
the actual value of vegetable farming -- assuming it does work -- is
actually the difference between the pure profit of unemployment payments
and the profits of farming.
To put this more concretely, imagine each worker gets $100 per week for
fishing, $50 for being unemployed, and vegetable farming promises to
yield $110 per week. If there were no unemployment payments, this would
be a no brainer. The worker would have to choose between getting
nothing or taking a risk for $110 per week. But the worker is actually
taking a risk for an extra $60 per week and can still, in this example,
live frugally for a year on unemployment. Many workers, in this
position, would probably opt for taking the $50 per week until they get
desparate.
Add to this, imagine the kind of farming involved requires, say, 6 men
to even work. If five men decide they'll stay unemployed until next
year, the farming industry on this island will be delayed probably by
that long. People not looking at the unemployment payments will
probably see them as idle and claim the market is not working -- and
propose more interventions, such as public works projects or special
subsidies for farming or even that the new fishing method be banned.
The same sort of argument applies to minimum wage laws and the like.
For instance, with minimum wage laws, imagine farming can only deliver
$80 per week. That's better than nothing, but imagine the law requires
that each worker make $90 per week. That might make it unprofitable for
farming to proceed at a full employment level -- employing all 10 men --
but might proceed at an 8 man level, leaving 2 unemployed. Again, those
not accounting for the minimum wage law might again see this as yet
another market failure.
The economist William H. Hutt did a lot of in this area, though I've
only read about him through secondary sources, such as Stephen Horwitz's
recent book _Microfoundations and Macroeconomics_. (Horwitz's web site
is at http://it.stlawu.edu/shor/ He has other stuff on labor there,
though his main focus is on capital theory and, of late, family and
economics. I also reviewed his book and my review is online at
http://uweb.superlink.net/neptune/Macro.html )
Cheers!
Dan
http://uweb.superlink.net/neptune/MyWorksBySubject.html
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