As we know, the world is filled with unemployment and that’s unfortunate, etc. And sometimes, I do find myself asking “But why does it exist? Unlimited wants/needs, we have. Unlimited! Surely we can find new ways for people to employ themselves and their time…” But I recently came across a new reason for it, which I think is worth sharing.
A quote from Marx:
“It is in the very nature of the capitalistic mode of production to overwork some workers while keeping the rest as a reserve army of unemployed paupers.”
– Marx, Theory of Surplus Value.
- Capitalists deliberately don’t hire enough people.
- Meaning that they overwork their workers.
- And that they keep the unemployed in reserve for expansion plans.
- So therefore, they are pigs.
I realise that I’m being facetious. Allow me to rephrase:
- In a capitalist world, there are two types of people:
- Employers; and
- There is a third kind (those that can’t work, or don’t want to) – but they’re not really part of the equation.
- The world view of an employer:
- I need people to work for me.
- But, like, I actually need them to work for me – I can’t have them shirking.
- Otherwise that would mean my business would fail.
- The world view of an employee:
- I will work as much as I have to.
- I mean – sure. Job satisfaction, doing what I love, career advancement, etc.
- But mostly: money. That’s why I’m here.
- And if I find a nicer place to work, then I’ll be jumping ship. Obviously. You surely didn’t expect otherwise?
- Given those two world views, there is a problem in the labour market.
- Here’s the standard labour demand-worker supply graph:
- That w* is the market-clearing wage rate.
- If the employer pays w*, then he’ll be paying the employee exactly what he could be earning anywhere else.
- That’s not good for business, because it means that there might be a lot of jumping ship. And really, what’s the reason for working well?
- There is therefore a clear incentive for the employer to pay a wage that is above the market-clearing wage, because this means that:
- The employer will employ fewer people (“If I’m paying you more, then I expect more from you”).
- The employee has fewer better alternatives (so there’s more stability in staff turnover); and
- The employee will likely work harder in order to keep the job he/she is in (and in order to avoid ending up in that reserve army that the employer just created).
- If you have a wage rate that’s above the market-clearing wage, then that sounds a lot like a minimum wage story, and you get this:
- And/or: systemic unemployment.
- Conclusion: capitalism causes unemployment just by virtue of being capitalism.
I just thought this was interesting – I hadn’t heard this version before.
For more on unemployment, this post: Unemployment is Man-made.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.