Mon, 24 May 2004

Unemployment

Unemployment. Sounds like an undesirable attribute, like "undressed", or "unable", or "unstable", or ... "undesirable". It's true that anybody who wants to be employed surely doesn't want to have the label "unemployed". And yet ... there are nearly always jobs being advertised in the newspaper. So why is there persistent unemployment?

Another word for unemployment is leisure time. Sounds odd to put it that way, but yes, someone who is unemployed can be said to value leisure over all possible jobs. Leisure don't pay the mortgage, so why would anyone prefer leisure over employment?

The answer is simple enough: because they're waiting to find a better job. Someone who has taken an inferior job will be hindered in finding and getting a better job. Rather than get stuck in an inferior job, they refuse labor.

Let's say it right out: there will always be unemployment in a free market. The "natural" level of unemployment is affected by a number of things: the likelihood of someone finding a better job than any of their choices, their savings, whether they have other means of support (e.g. relatives), and their non-discretionary expenses. This level of unemployment is called "structural unemployment." The only way to eliminate this type of unemployment is to take away people's freedom to work at the job of their choice.

Another possibility is simply that labor is not desirable. Take as an example my wife, Heather. She has worked part-time as a bookkeeper for the local food coop, and could surely work full-time elsewhere as such. My income as a consultant makes it unnecessary for her to work. The incremental value of her salary is below the value of her leisure time to the family, so she doesn't work.

Now comes the truly interesting thing: how do you measure unemployment? The answer can only be that you can't. Someone who has the attribute "unemployed" has that attribute solely in their head. If they want a job and don't have one, they're unemployed. If they don't want a job and don't have one, they're at leisure. The only way to tell the difference, all the work of the Bureau of Labor Statistics aside, is to ask. Conduct an opinion poll.

Unemployment is in the mind of the beholder. Remember that the next time you hear authoritative-sounding figures about unemployment.

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