As I mentioned in my previous post, a more thorough explanation of the American Labor market is needed. Well, here you have it:
The labor market is like any other market; prices, in this case wages, are set by the forces of supply and demand. For any particular job function, there are a certain number of people in the world who are qualified to perform it (supply). For most job functions, there are a certain number of businesses/employers in the world who require a person to fill the position (demand).
(Now, I started off by talking about the American labor market, so why now am I talking about the global labor market? Because we live in a globalized economy in which, with exception of those nations that enforce protectionist policy, businesses are free to move across borders in pursuit of the most favorable operating conditions.)
So when ABC Inc. needs a new XYZ7000 machine operator they list the job opening. The XYZ7000 just happens to be the newest most technologically advanced piece of machinery there is so there are only 5 people in the area, seeking employment, that have the training and qualifications to run the XYZ7000. Well, if ABC Inc. is the only company in town, they only have to offer a wage superior to that of 1 of the 5 people's next best offer, in this case let's say manual labor at $7/hour. ABC Inc. offers $10/hour and John, one of the five, is hired. Well, if Bill is willing to take the position for $8/hour, he will get the position instead and the equilibrium wage for an XYZ7000 machine operator is $8/hour; where supply equals demand. Now, if 9 more firms all purchase the XYZ7000 and need operators for it the case is completely different. Now the 10 firms will be willing to pay per hour up to the cost of their best alternative, let's say having 30 workers do what the machine does by hand. We have said, for our example, that manual labor is worth $7/hour; 30 workers = $210/hour. Now John gets a raise to $200/hour just to retain him from getting hired by one of the other firms for that rate. Bill, being the the shrewdest negotiator, gets hired by one of the other five firms for $209/hour. As we see from the above example, supply and demand dictate wages. (I apologize to anyone already well versed in the concept.)
What's my point? The ones complaining not having/getting a job are those who have skill sets for which there is a far greater supply than there is for demand. What's the answer? Guess what, 9 times out of 10, if you don't have/can't get a job then you are not willing to work for the wage you deserve. Don't get outraged, just understand- when supply outnumbers demand, it's the demand that decides what you're worth. That's so unfair! You cold hearted son of a gun! This is the usual response. Unfortunately for everyone with this mindset, this is not a subjective matter. If you demand $34/hour for your manual labor on an assembly line and workers in Mexico can and will perform the same task at the same quality for $5/hour don't be surprised when your employer hops the border for more favorable labor costs.
This is what minimum wages do; make businesses leave in favor of better conditions, or when in response the government implements protectionist policies to try to stop that process the companies just get squeezed to death.
I hope this helps a bit to clarify why people "can't get work"; because they are asking too much for their skills relative to the supply of that particular type of labor. This doesn't even get into tax policies and disincentives to work which will be heavily covered soon. If you would like any points clarified or expounded upon please respond and let me know, I don't want to sound like a textbook, especially for those already familiar with this concept. Also, please feel free to criticize.
Subscribe to:
Post Comments (Atom)
2 comments:
I believe that the touched on points regarding the labor markets are true, and the fact that a firm can save money via finding workers elsewhere who demand cheaper pay makes all the sense in the world. The bottom line is that corporations have an obligation to their shareholders and as a shareholder of numerous companies, such moves that aim to increase shareholder value can do a lot for America as a whole. Not only would the profits that are aggregately created when such firms make layoffs trickle down to those who have gotten laid off (via philanthropy and facilities), but it does something for America that I believe many do not consider… It encourages us to revisit our roots: innovation (and helping the ones in need).
The Enlightened Economist said, “…so why now am I talking about the global labor market? Because we live in a globalized economy…” and that is a key remark. So when we create employment in distressed countries or medium income countries, aren’t we doing ourselves a favor? I would like to think so. Let’s add more to this thought. How much government aid to we disperse to developing countries who are “reapers of the American labor market?” I can guarantee a substantial amount. However, when an unknown amount (in the millions) of ‘once American’ jobs have been outsourced, at the point, so much prosperity would be fulfilled in these distressed countries that are recipients of these jobs thus allowing the US government to perhaps reduce foreign aid to such hurting regions around the globe (because they would no longer be hurting if unemployment is decreasing). With that said, wouldn’t the US government then focus more on spending in America? I’d like to think so. In other words, 6,000 jobs in Mexico or Sierra Leone are a lot more valuable than 6,000 jobs in America. What this creates for many low and middle income countries is the ability for them to have more evenly distributed incomes thus creating more equality, an improvement in savings, advancement in economic development, technology, education, population quality, health, and so on. With the potential that such underdeveloped nations are going to be equivalent to how our country is today in terms of economic development let’s say within a hundred years, if that, doesn’t this ring a bell for American citizens, especially those being laid off?
With that said, there was only one man that started General Motors! So why can’t the thousands of people that were laid off at whatever firm team up and start a business? Why can’t the thousands of ‘intelligent’ individuals who were laid off at Caterpillar or Lehman Brothers start an engineering company or financial consulting company, respectively? America was built on innovation! And to add for crying out loud, we are among the most educated countries in the world! There is no excuse for people to either A) not want to find a job, or B) not want to build up an organization or an idea. Well… actually there is thanks to President Barack Obama… Look, General Motors never had to be incorporated (synergies aside) and all the sudden become responsible for thousands of lives. And how about the fact that given communities collapse when one plant, in which was responsible for employing a majority of the community, had to close? I believe that stamps poor local government directly on the forehead of those local politicians. If a local mayor relies on one business solely to employ a majority of the town, I believe that is very irresponsible. Diversify! Or just understand economics and how businesses in American and globally do respond to incentives!
Bottom line, the obligation to shareholders is of more concern to a corporation opposed to what the people they had hired and then laid off are going to do with themselves. And how many people take their severance packages or unemployment benefits and use such funds to develop an idea? Pay a couple hundred bucks to incorporate themselves and start a business? Not as many as there are turning to alcohol, drugs, gambling, a vacation, and tobacco. Unless we get back to what we were once phenomenal at in the good old days, building new corporations and developing profound ideas, America sooner than later, will stray further and further away from its true path to prosperity.
H.W. Daniel makes a crucial argument:
"With that said, there was only one man that started General Motors! So why can’t the thousands of people that were laid off at whatever firm team up and start a business? Why can’t the thousands of ‘intelligent’ individuals who were laid off at Caterpillar or Lehman Brothers start an engineering company or financial consulting company, respectively? America was built on innovation!"
This thought deserves some serious consideration. Why has the vast majority of America surrendered to the bleak notion of either being 'employed' or 'unemployed'? As if these 'employers' are permanent fixtures in our economy that always have been and always will be. Individuals founded these companies that have become the 'employers'. It seems these days people will come up with any and every excuse to hold themselves to artificial constraints and imagine infinite barriers to entry rather than attempting to be self reliant.
"And how many people take their severance packages or unemployment benefits and use such funds to develop an idea? Pay a couple hundred bucks to incorporate themselves and start a business?"
If these questions yield even a single excuse in your mind when read, just think about it, it was those people that did exactly that which resulted in the formation and realization of the ideas and businesses that we now so commonly and ambiguously call 'employers'.
Instead of complaining about getting laid off or not having a job, follow H.W. Daniel's logic, take some initiative, and create your own 'job' and jobs for those around you while you're at it.
Post a Comment