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.

That is:

  1. Capitalists deliberately don’t hire enough people.
  2. Meaning that they overwork their workers.
  3. And that they keep the unemployed in reserve for expansion plans.
  4. So therefore, they are pigs.

I realise that I’m being facetious. Allow me to rephrase:

  1. In a capitalist world, there are two types of people:
    1. Employers; and
    2. Employees.
  2. There is a third kind (those that can’t work, or don’t want to) – but they’re not really part of the equation.
  3. The world view of an employer:
    1. I need people to work for me.
    2. But, like, I actually need them to work for me – I can’t have them shirking.
    3. Otherwise that would mean my business would fail.
  4. The world view of an employee:
    1. I will work as much as I have to.
    2. I mean – sure. Job satisfaction, doing what I love, career advancement, etc.
    3. But mostly: money. That’s why I’m here.
    4. And if I find a nicer place to work, then I’ll be jumping ship. Obviously. You surely didn’t expect otherwise?
  5. Given those two world views, there is a problem in the labour market.
  6. Here’s the standard labour demand-worker supply graph: Screen Shot 2014-07-15 at 7.58.45 AM
  7. That w* is the market-clearing wage rate.
  8. If the employer pays w*, then he’ll be paying the employee exactly what he could be earning anywhere else.
  9. 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?
  10. There is therefore a clear incentive for the employer to pay a wage that is above the market-clearing wage, because this means that:
    1. The employer will employ fewer people (“If I’m paying you more, then I expect more from you”).
    2. The employee has fewer better alternatives (so there’s more stability in staff turnover); and
    3. 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).
  11. 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:Screen Shot 2014-07-15 at 8.06.53 AM
  12. And/or: systemic unemployment.
  13. 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