There Is No Unemployment
Yes, you read that correctly: there is no unemployment. There is only voluntarily chosen leisure.
This is not a joke or an outrageous view of “naïve economists” with their common (lacking) sense of empathic. It is actually true. But only under certain circumstances. It is certainly not true today in most western civilizations (and eastern too), as we know all too well. Following the financial crisis, most of us probably know someone who is unemployed, was unemployed, or has been ever since the bubble burst. So obviously there is unemployment in the world. The real question, however, is if this is “natural” and if there is such a thing as “necessary” (or even “equilibrium”) unemployment.
The answer to this question should be a resounding NO, and the reason for this is that labor is the most useful, most usable, and most valuable resource we have. We will run out of supply of this treasured resource as soon as we have satisfied all human wants, but not sooner than this. And, as we know, human wants are practically (if not literally) insatiable – so there is necessarily an unlimited demand for labor.
So why is there unemployment?
Luddites might claim it is the development of machinery and other technology that makes labor superfluous. This is only a half-truth, and it would be much more accurate to say that the development of productive capital makes labor more productive. This, in turn, may lead to the freeing up of labor resources from previously unproductive production processes so that they can be better used elsewhere in the economy. So while the development of capital causes relative unemployment in specific production processes, what we really get is “more for less” as well as access to much more available labor resources than before. It is a win-win situation, as so often on the market.
But what about those who lose their job because all they did before can now be done by only a few men (with the help of capital)? Aren’t they unemployed? Yes, they are. But this is a temporary situation; they are really transitioning from one production process to another. There may be delays if there are frictions in the market and, for instance, a lack of education to carry out other tasks, but these are rather easily overcomeable problems. And let us not forget that as this capital accumulation (or rather: capital formation and creation) process continues throughout the market, the value of labor rises and so will wages. At the same time, the more efficient production processes mean goods and services can be sold at much lower prices while still providing whatever entrepreneurs and capitalists with a decent profit. So prices go down, and labor’s wage (at least in real terms) goes up.
Does it sound naïve yet? Of course it does. This type of economic narrative seems completely foreign to us. This is not what the economy looks like at all. Why don’t these economists get their butts out of their armchairs and look at what is going on? Instead they’re delivering these outrageous theories.
Well, the theory is actually true. There is no reason to assume unemployment. Labor is the most useful, the most usable, and therefore the most valuable resource. Labor cannot be replaced by machinery – it can only be enhanced and improved and consequently be made more productive. A machine without labor is not operated, and will at best be a very heavy paper weight. But take one step further back – that machinery cannot be produced were it not for labor.
Everywhere we look, everything that is made and that can be made has necessarily been made by investing labor. In the beginning there was no capital, there was only the categories land and labor. Land supplies some value (like fruits, berries, wild steaks running around on four legs playing hard to catch), but not much. It is not until land is mixed with labor (or vice versa) and consciously put to certain uses that we get capital. And the reason for capital is to make labor more productive – so that we can do fun stuff (leisure) instead.
In a land-labor world, a man can catch fish with his hands and pick berries. In a land-capital-labor world that same man can catch hundreds (or more) fish from his boat and grow a billion beautiful berries in greenhouses. Capital makes labor more productive so that labor can be freed to do other things: either produce even more prosperity, or take time off – or both.
So why isn’t this what we see in the world today? The reason is regulation. If it were the case that businesses freely competed for labor, labor freely competed for employment, and both of these “competitions” were subject to free entry and exit (no artificial barriers) – then there would be no unemployment. Unemployment is the result of forcing wages to an artificially high level by limiting supply (that is, unemployment by union); of forcing wages to an artificially high level to limit demand (that is, unemployment by government); and of forcing wages to an artificially high level by raising barriers to entry in the market (licensing, taxes, regulations).
This goes both ways.
Taxes force businesses to be “extra” profitable (compared to the market) so that they can pay their taxes, and therefore they cannot afford to hire more (and thus less productive) labor. This is only part of the truth. It is equally true that taxes force labor into the labor market, since they have to make more money than they otherwise would need – to pay their taxes. This is a win-win deal for regulators, and a lose-lose deal for everybody else. Due to these tax measures, businesses are kept out of the market simply because their business models are profitable but not profitable enough after taxes – and labor floods the labor market (both by already willing labor needing to work longer hours and unwilling labor to enter the job market only to pay taxes!).
The effect is obvious: lower real wages. Demand for labor is restricted, and supply of labor is artificially boosted.
Of course, with lower demand but higher supply – we get unemployment. Actually, we get long-lasting unemployment. There is simply a rather enormous over-supply of labor (workers) and an under-demand of labor (jobs).
To solve the suffering due to this problem, policy-makers try several measures. One is to subsidize unemployment by offering “benefits” for those unemployed so that they don’t actually need (but most of them probably still want) a job. Another is to force wages up by minimum wage laws so that jobs become even more attractive and businesses even more reluctant to hire. The effect of these measures should be obvious even to those despising economics: more unemployment.
Now ask yourself, which of these measures are naturally occurring market phenomena? The fact is that there may be frictions in the market with temporary unemployment while labor workers are transitioning to other jobs, but there should always be jobs. Unemployment is voluntary – it exists simply because some jobs are considered unattractive or aren’t paying “enough.” Well, this is a problem of luxury; it means labor can afford not to take these jobs. So there is no unemployment.
Today’s backward world sees 10-15% of the adult population longing for employment but unable to find jobs – they’re involuntarily unemployed. This is not how it is supposed to be and it is not how the economy works – it is the exact opposite of what the market brings about. But it is, unfortunately, what regulation brings.
Structured, rational thinking about community, cooperation, and the market