Employment Insecurity

In a recent article in The Denver Post, author Aldo Svaldi wrote about how the employment situation is deteriorating in the Greater Metropolitcan area. People are losing jobs and the people who haven't lost their jobs yet face increased competition and insecurity in their jobs. I thought this would be a good place to talk about unemployment rates and what an acceptable rate should be. Many economists agree that a certain level of unemployment is desirable for the proper functioning of an economy because it allows employers the chance to select the most productive people for their enterprises. In addition, Marx, that champion of free markets, would argue that the ranks of the unemployed provide the basis for discontent in capitalist economies. Those who are unemployd find that their desires are not being met because they have no means of providing for their needs. In socialist countries, the unemployed make up a significant portion of the population, but their needs are provided.

I have met a few acquaintances who described what it is like to live in a quasi-socialist country such as France or Germany. Pretty much the thing that stands out most is that when one is in the ranks of the unemployed in a socialist country, your needs are provided for, but that wants over and above that are left unmet. In order to get a job, one must jump through a lot of hoops and perform at an above average level to prove your worth and even then if the economy falters the chopping block has more to do with seniority than talent. As a result, coupled with more regulations that are enforced to ensure safety, the quality of delivery of services many times exceeds levels that are seen in more open economies, but again the opportunities for advancement and true wealth creation are much less.

So that leaves us with a great question. What level of unemployment is acceptable for the functioning of an industrialized democracy? For many economies, the general answer to that question is around five percent. The reason behind this being that a country still has a pool of people who desire employment and are willing to bid wages down to an affordable level for businesses, but there is not so much unemployment that people start to feel disillusioned with their financial situation and turn to more destructive activities. It also accounts for changes cause by people who change careers, locations, and companies.

On a microeconomic level, job creation is a matter of specifics about locations and spin-off jobs. (A spin-off job would be a job in any kind of supportive industry to more primary sector jobs such as manufacturing and construction) On a general level, most industrial jobs rely on bigger markets for the creation of quantities of scale in order to justify higher levels of productivity. Therefore, for a specific location, producing more than that location can consume is generally good if a market exists for those products elsewhere. For example, a company that produces corn has two options when they are at a level of production too high for their given geographic region. Their options are to expand their market to greater geographic distances and market segments or reduce their production to meet the level of consumption.

Lastly, there are several main points we can glean from this information. The unemployment rate that is politically acceptable and economically justified will vary based off of how much of a social safety net there is in a given geographic jurisdiction. Market forces affect unemployment with ebbs and flows in every market economy, but the level at which they affect them primarily is determined by the competitive pressures of businesses on each other and artificial caps on supply made by government.