Thursday, December 26, 2013

High Unemployment Good for Employers?

Here's another reason why high unemployment (an over-saturated labor market) might be a GOOD thing for employers --- despite employers having less people spending money buying their products and services (and creating more "demand".)

Paul Krugman writes,

"The continuing dire state of the labor market enhances the bargaining position of employers, increasing their power. But can this effect actually mean that employers are better off in a somewhat depressed economy than they would be in a boom? ... There’s no rule saying that firms have to do worse in a depressed economy; they could actually do better."

Krugman points out that profits and stocks have soared, while unemployment remains high as wages have stayed low.

He also says, "A slack economy could in effect serve as a coordinating device for firms; one way to think about it is that it keeps firms from competing too hard for workers, enabling them to exert more monopsony power."

A "monopsony" is defined as a market similar to a "monopoly" except that a large buyer, not seller, controls a large proportion of the market and drives the prices down. Sometimes referred to as the buyer's monopoly.

An example would be Ernest and Julio Gallo (the big wine makers), who were accused of being a monopsony. They had such power buying grapes from growers, that sellers had no choice but to agree to their terms.

I mentioned Walmart as a "basis pointer" and a reason for why so many manufacturers in the U.S. have offshored for cheaper wages (to meet Walmart's buying prices) --- so maybe Walmart would also be a "monopsony".

And the race to the bottom continues...


  1. Ralph Nader's Letter to Boeing’s Boss: Squeezing workers for corporate welfare

    10 Reasons That Long-Term Unemployment Is a National Catastrophe

    Without Manufacturing, We’re Doomed

  2. Paul Krugman --- The Fear Economy