Sunday, February 9, 2014

Employers don't need Back Scratchers

You (as an employer) are in an completely empty room with three unemployed people—an 18-year old young man (who just graduated from high school), a "prime-age" 30-year old man, and a middle-aged 55-year old man (who is 7 years away from an early Social Security retirement).

All three people represent the entire work force, and are potential employees.

You are the only employer. You have one dollar in your pocket and you want to hire one of those three unemployed people by paying them one dollar to scratch a small itch in the middle of your back.

All three people can most likely perform the task equally as well, as it requires no special skill or education, no work-related experience and no extra strength or physical endurance.

All three people offer their service to you, but you only need one person to perform this task, and you only want to spend one dollar for this task; so as the employer, you will choose just one person.

After you make your choice (say the "prime-age" 30-year old man), that person becomes employed; but the other two remain unemployed and are not in the labor force. Why is that?

Is it because the high school graduate was discouraged and couldn't find someone's back to scratch? Is it because the middle-aged man retired? Or is it just because there were not enough backs to scratch? (lack of jobs)

So why do some economists want to say that the high school graduate is probably in college, when he's on his mom's couch? Or that the middle-aged man is probably retired, when he's living as a homeless man?

Abstract: "In this paper, we provide compelling evidence that cyclical factors account for the bulk of the post-2007 decline in the U.S. labor force participation rate." (Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work.)

As an aside: Are either of those two unemployed men drunks, drug addicts or lazy—just because no one else wanted their backs scratched?

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  1. American billionaires, such as Warren Buffett (or the ultra-wealthy major shareholders of big banks, private equity firms and hedge funds), shouldn't be allowed to own the majority of shares in a "holding company" like Berkshire Hathaway, and then buy another major corporation like Apple or Nike, and then set up another shell corporation in China or Vietnam, that owns manufacturing companies with factories in Cambodia or Taiwan, that makes shoes or iPhones, and then imports them into the U.S. to sell here, and then keeps the profits untaxed in offshore banks in the Cook Islands or Switzerland. This will only make the U.S. labor force participation rate decline further (as it's projected to do going into 2022), and starve the U.S. government for much needed revenues that will be needed to pay for food stamps to feed all those that were made unemployed by offshoring all those jobs in the first place.

    1. Absolutely! But what to do, what to do??