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That's what's supposed to happen. It's called Ricardo's Law of Comparative Advantage. For as long as people's labor has any value whatsoever, they ought to be

by Eliezer 17y ago

That's what's supposed to happen. It's called Ricardo's Law of Comparative Advantage. For as long as people's labor has any value whatsoever, they ought to be employed. The real puzzle is why anyone is ever unemployed.

netsp 17y ago
I'm not sure that that is exactly Ricardos law. That applies more to trade and specialisation. The basic laws of supply and demand (price of labour will adjust until all labour is employed) should theoretically be enough to cover it. But I don't find this to be sufficiently explanatory of what we observe in the world. For one thing, you would expect that the price of labour be extremely volatile, especially at the bottom, in response to technologically driven change. This is not the case. The price of labour tends to be stable and rises slowly across most categories at the bottom (though it does not necessarily keep pace with the economy). For another, in such a world one would expect the effects of minimum wage on employment levels to be easy to predict (like price restrictions on the consumption of goods and services). They are not. We can play games in the extreme margins (see what happens if you set minimum wage to $1000 p/h), but in the moderate ranges, the effects are usually pretty foggy. In any case, citing some fundamental economic principle is not what I meant when I said explanation. I meant at least to some idea of how the mechanics of that principle apply in this case. Labour is different to most inputs in that production of its raw materials is not really sensitive to prices or market forces,. It is, from the market's perspective, arbitrary.
radu_floricica 17y ago
Minimum wages.
- gort 17y ago
  Unemployment existed before those; and whether minimum wages increase unemployment should be open to empirical study - anyone got any data?
  - gloob 17y ago
    Empirical study is a tad tricky in a field where experimentation would probably be considered wildly unethical and you wouldn't be able to set up a control anyway.
    - gort 17y ago
      While presence of controls is admirable, it's still reasonable to simply look at countries that implemented a minimum wage and ask, what happened to the unemployment rate?
      - netsp 17y ago
        At the very least one would note that the effects don't seem to be predictable via the basic supply & demand theories.
- dagw 17y ago
  Even without minimum wage there is a price point where I'm better off not taking the job and trying to scrape out a living in a more ad hoc way.
dagw 17y ago
Unemployed doesn't mean zero income or zero utility. If the utility you offer them for working is less than the utility they get from being unemployed they won't take the job. There may be enough labour to keep everyone employed, but not enough of that labour has a high enough value that it's worth while for people to do it, and thus you have unemployment.
Tichy 17y ago
Could it just be friction?

by Eliezer 17y ago

netsp 17y ago

I'm not sure that that is exactly Ricardos law. That applies more to trade and specialisation. The basic laws of supply and demand (price of labour will adjust until all labour is employed) should theoretically be enough to cover it. But I don't find this to be sufficiently explanatory of what we observe in the world. For one thing, you would expect that the price of labour be extremely volatile, especially at the bottom, in response to technologically driven change. This is not the case. The price of labour tends to be stable and rises slowly across most categories at the bottom (though it does not necessarily keep pace with the economy). For another, in such a world one would expect the effects of minimum wage on employment levels to be easy to predict (like price restrictions on the consumption of goods and services). They are not. We can play games in the extreme margins (see what happens if you set minimum wage to $1000 p/h), but in the moderate ranges, the effects are usually pretty foggy. In any case, citing some fundamental economic principle is not what I meant when I said explanation. I meant at least to some idea of how the mechanics of that principle apply in this case. Labour is different to most inputs in that production of its raw materials is not really sensitive to prices or market forces,. It is, from the market's perspective, arbitrary.

radu_floricica 17y ago

Minimum wages.

gort 17y ago
Unemployment existed before those; and whether minimum wages increase unemployment should be open to empirical study - anyone got any data?
- gloob 17y ago
  Empirical study is a tad tricky in a field where experimentation would probably be considered wildly unethical and you wouldn't be able to set up a control anyway.
  - gort 17y ago
    While presence of controls is admirable, it's still reasonable to simply look at countries that implemented a minimum wage and ask, what happened to the unemployment rate?
    - netsp 17y ago
      At the very least one would note that the effects don't seem to be predictable via the basic supply & demand theories.
dagw 17y ago
Even without minimum wage there is a price point where I'm better off not taking the job and trying to scrape out a living in a more ad hoc way.

dagw 17y ago

Unemployed doesn't mean zero income or zero utility. If the utility you offer them for working is less than the utility they get from being unemployed they won't take the job. There may be enough labour to keep everyone employed, but not enough of that labour has a high enough value that it's worth while for people to do it, and thus you have unemployment.

Tichy 17y ago

Could it just be friction?