(mysterious music)
- [Speaker 1] Unemployment rates.
- Unemployment. - Catastrophe of unemployment.
- Unemployment. - Fear of unemployment.
- Unemployment.
Something we hear a lot about.
- Unemployment rate. - Unemployment rate.
- It's in the news.
Politicians are always talking about it.
- Unemployment rate. - Unemployment rate.
- Unemployment. - Unemployment.
- Unemployment. - Unemployment rate.
- Basically whenever we talk about the economy,
unemployment is a part of the conversation.
But it seems kind of simple, right?
Like, isn't it just a measure
of how many people can't find jobs?
So why have I decided to make an entire video about it?
Well, because behind this definition
there is something much bigger going on,
something that teaches us
about the inner workings of the economy.
- Unemployment remains a serious problem.
- Unemployment is where the cold rational mechanics
of economics meets the aspirations and disappointments
of millions of people.
And it shows us how our capitalistic system
can succeed and fail
in allocating the most important of its resources.
It's people.
- Unemployment. - Unemployment.
- Unemployment. - The unemployment rate.
- Unemployment. - It's okay, I got options.
Unemployment. - Financial crisis.
(clock ticking)
- Looks good.
(Johnny exhaling)
Let's go.
So we hear this word economy all the time,
but what exactly is an economy?
Think of the economy as a set of rules, relationships,
and patterns that help huge groups of people
that don't know each other
somehow peacefully, coordinate with one another.
All of this with the aim of allocating scarce resources
in an efficient way that, theoretically,
should benefit everyone.
We all live and participate in an economy
that somehow mostly works.
Somehow all of us billions of people
manage to coordinate with each other,
to produce, to innovate,
to push the productive boundaries of society forward.
But none of this complex coordination would be possible
without one key ingredient.
It's the number that you see everywhere you go.
This key ingredient is prices.
- Over $7.99. - Bigger, bigger.
- [Speaker 2] One with $1.99 hamburger.
- [Speaker 3] $1.99, 20 for $5.99, only at KFC.
- Prices are not just prices.
Like, it's not just the number to be like,
"That's how much it costs."
Prices are like telephone wires in the economy.
They're like the lighthouse that sends out a signal
to make the whole thing work.
Anyone who didn't study economics is like,
"Wait.
It's just prices.
Why are you calling it a lighthouse?"
When I was studying econ, this "prices are a signal" thing
was really hard to get my head around.
But I now understand that prices
are the glue of the economy,
the mechanism through which the market organizes itself
so that millions of people can make billions of decisions
in a harmonious way.
To see what I mean, and to figure out
what this has to do with unemployment,
which is why you clicked on this video,
let's go back to the neighborhood
that helped us understand what a recession is
in our last econ video that we made.
Yes, I make macroeconomic videos now
because the people seem to like it, and I seem to like it.
So we're all happy.
And let's once again focus on baguettes
because I like French bread, and I lament the fact
that my country doesn't have enough of it.
- [Nick] I have have a baguette over there too.
- Do you?
- [Nick] Yeah, I bought one very coincidentally.
- You have a baguette in this studio right now?
- [Nick] Yeah, it's in the kitchen.
- Not only will you have animation,
you'll have a real baguette
that I may nibble on throughout this video.
(Nick laughing)
Okay.
Let's go to the neighborhood.
Okay, so we're in this neighborhood
and baguettes are actually becoming a cool thing.
They're trending.
Everyone's talking about baguettes.
And this one bakery is pumping out
delicious artisan baguettes for your neighborhood.
These baguettes are like $3 a piece,
which is a nice, affordable price.
More and more people are showing up to buy them.
But the bakery has a problem.
They only have capacity to make 20 baguettes per day.
But because baguettes are trending,
30 people want to buy baguettes at $3 a piece.
So what does the baker do to fix this?
"I know," says the baker, "let's raise prices."
The baker realizes that because of all this demand,
they can raise prices from $3 to $4
and that's exactly what he does.
And boom!
It just sent out a signal to the entire neighborhood.
Baguettes are trending in the neighborhood.
The baker thinks that people are willing to pay $4.
Of the 30 people who were in line to buy the baguettes
back when they were $3, 10 of them shake their head.
They're like, "No way, Jose.
$4 is way too spendy for a baguette."
These 10 neighbors either can't afford
or are not willing to pay four bucks for a baguette.
But look, 20 of them are either fancy rich people
or just really love baguettes.
And they're willing to stay in that line
to pay four bucks for their baguettes.
Oh, and look, remember that the baker is only able to make
exactly 20 baguettes to meet the 20 baguettes demanded
by the people who are willing to pay $4.
Prices did that.
I mean in reality, the baker didn't raise prices
just so that he could create a nice equilibrium
between supply and demand.
He did it because he saw an opportunity to make more money.
But in the process he found a price
that matched his 20 baguettes to 20 people
who were willing to buy them.
Nothing goes to waste.
Everyone is happy and the invisible hand has done its work.
Thank you, Adam Smith.
Now inevitably some entrepreneur is gonna show up
and be like, "Oh, there's a profit making opportunity
in this neighborhood."
They're gonna open a bakery
and now the bakery's making like 50 baguettes
and competing with the other bakery.
And both these bakeries will eventually
have to lower their prices
so that more people can get in on these baguettes
so they can get rid of all their baguettes
and baguettes eventually will stabilize to $2.50
or three bucks, and now the prices have been stabilized.
Thank you competition for keeping prices low.
My point in talking over supply and demand here
is so that when you see the little price tag
on, like, a box of cereal in the grocery store,
just know that this isn't the company just
throwing out a random number.
That number in a sense has been decided for the company
by the magic of the economy that pushes prices
to be just where they need to be to connect
all the stuff available to the number of people
who are willing to pay for it.
There's all sorts of caveats to this.
Prices can sometimes create really bad outcomes for people.
What I'm trying to convey here
is that prices are the language that businesses use
to communicate with consumers.
A signal that conveys information
and makes it possible for billions of people
to organize and trade with each other.
Thank you, prices.
Thank you, market.
Speaking of prices and markets
I'm a small business owner and you might be too.
And so I'm gonna take a moment to thank our sponsor,
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I'm saying this very authentically.
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Oh, but how are we supposed to know
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So it's cheaper and it's very easy and quick to set up.
There's a reason why stamps.com has been around
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There's a link in my description, stamps.com/johnnyharris.
Clicking that link helps support this channel
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A trial where you can try this out.
You also get free postage and a free scale.
Like, they'll send you the scale.
Again, I got in on this deal
from, like, another YouTuber a few years ago
and I haven't gone back.
Thank you stamps.com for sponsoring today's video,
supporting this channel.
Let's get back to unemployment.
Market works because of prices.
Okay, so what happens when you apply the same market logic,
not just to baguettes and cereal,
but to the most important resource of all,
the people.
In economics, we call the people "Labor."
We are all just labor.
And instead of prices we call it "Wages."
Like, how much you get paid for your labor.
But the dynamic is really similar.
When companies in an economy need workers
with certain skills, they goes shopping for labor
by posting a job and deciding how much
they're willing to pay for that job in the form of wages.
Okay, so now we're in a market.
And once again, prices or wages help match up jobs demanded
by the job hunters with jobs supplied by the companies
looking for labor.
If a company has a lot of money or really needs workers,
they can offer a high wage like back in our neighborhood
where baguettes are trending
and the baker is making great profits
and they need help making more baguettes
who is willing to pay really well
and he quickly attracts people
with the right skills and the job is filled.
Prices or wages have once again served
as a great matchmaker in the economy.
And thanks to this labor market dynamic,
more high-quality baguettes will be produced
with the energy and talent of different people.
The productive frontiers of the economy are pushed forward.
People have jobs, the economy is growing.
(intense music)
Okay, wait, let's just look at real life for a second.
I love the animated world, it's beautiful.
But, like, the labor market works in real life
and it's kind of nuts.
Like, have you ever wondered how on Earth
you can walk into, like, a pharmacy
and there will be people behind the counter
who have exactly the special training needed to be there?
Not just in one pharmacy,
but in every pharmacy in your city,
every pharmacy in the country.
All of these people were somehow physically distributed
throughout the whole country
to meet the demand for pharmacists.
In order for these pharmacists to end up
at all of these different pharmacies,
they had to spend years studying and training.
And then they had to take the job
and potentially move to a new place to start working there.
And no one overtly told them to do this.
Like, years ago they decided
they wanted to study to be a pharmacist.
And then they eventually graduated and they found a job
and maybe they had to move across the country.
And that's one person's journey.
Now times that by every pharmacist in every pharmacy.
And now times that by every architect, and doctor,
and engineer, and x-ray technician,
and molecular biologists, and speech pathologists,
and schoolteacher, and police officer.
And somehow human beings
are being distributed like baguettes.
How on Earth does that happen?
It's thanks to markets and prices,
and that's the moral of the story.
Humans are basically like baguettes
who get allocated throughout the economy
based on price signals allowing for a perfect pairing
of people and jobs,
and not a single person can't find a job.
Womp, womp, womp.
Not so fast free market.
Free market economics does miraculously work quite well
to get people paired up with jobs
all over this country and world.
But no, people are not baguettes.
They can't just be quickly allocated around
based on the economy's needs.
Sometimes the market fails us.
And when it does, we have unemployment.
- You had about 6 million people in the country unemployed.
Now you have 12 million people in the country unemployed.
- People are complex.
We have different talents, dreams, aspirations.
And the jobs we take
are some of the biggest decisions of our lives.
There are way more factors at play
than just how much the job pays.
The vastness of human experience
doesn't always coordinate perfectly
with the immediate needs of a market
which only cares about efficiently allocating
a scarce resource.
And this gets to one really important version
of unemployment.
Economists call this "Natural unemployment."
It's an acknowledgement that even in the best of times
there will always be certain job seekers
who aren't working because they had to go back
and get certain training, or they have skills
that are no longer super relevant to the economy.
So they have to pivot.
Or in a lot of cases,
they aren't willing to move across the country,
far away from family, to take a job that pays well
but maybe doesn't align with their values or whatever.
Meaning it happens because humans are just being
complex humans making important decisions.
And the result is that some portion of the population
will not be able to find a job.
Productive resources of the economy sit idle
and we have unemployment, natural unemployment.
Here's what the U.S. natural unemployment
over the last 70 years has looked like.
Sort of hovers between four to seven percent,
which means that at any given point,
somewhere between six and seven million people
want a job but can't find one just
'cause,
because the economy is always changing,
and the skills that are needed are always changing,
and humans are complicated and not baguettes,
and finding new jobs is a big deal.
That's natural unemployment.
And it's the one that you never hear about.
No one cares about it.
It is natural.
It is a part of our economy.
We kind of forget about it.
The type of unemployment that we talk about a lot
is the one I'm about to to talk about.
But first I have to mention two things
that don't get measured in any of this.
First is the fact that sometimes you have a situation
where pharmacists can't find a job
because there's no jobs available.
All the pharmacies have the pharmacists they need.
So now you've got this pharmacist who's, like,
teaching tennis because they can't find a job
for what they were trained in.
This is called "Underemployment,"
and it's really hard to measure.
And quickly, the other thing
is that when we measure employment, all of these graphs,
we're only measuring work that makes money for the economy.
There are millions of people in the U.S.
doing unpaid but highly-economically valuable work,
mostly caring for people.
I'm talking about parents.
So anyway, underemployment and not paying caretakers
is a whole other topic.
And I can make a whole video about that.
Let's get to the unemployment that we always hear about.
- In the USA, another 2.4 million people
have filed for unemployment benefits.
In the past week, more than 38 million people
have now lost their jobs.
- The unemployment that news anchors and politicians
freak out about, looks like this.
- [Speaker 4] Unemployment numbers are rising.
- [Speaker 5] This is the worst crisis they've faced.
- Shock and panic. - These are the worse layoffs
the country has seen since The Great Depression.
- This is called "Cyclical unemployment,"
and it's a part of that mysterious pattern
that we talked about in the recession video
where seemingly inevitably and unpredictably
shocks come blowing through our economy every few years,
throwing off the nice balance
that markets are supposed to trend towards.
Demand in your industry falls.
Your company can no longer afford to pay you.
You get fired, you're freaked out,
and without a paycheck you're not able to spend money,
which means that the other companies are losing revenue,
and they have to lay off their people.
And the cycle continues and continues.
- [Speaker 6] The housing market collapse
created one financial crisis after another.
- This cyclical unemployment.
This cycle is at the heart of why recessions happen.
It's like a dangerous avalanche of capitalist economies.
And because we workers are treated like baguettes,
put into a market where there's supply and demand,
we get hit by this too.
But remember that the worst thing that can happen
to a baguette is that it will sit unsold and uneaten
on the shelf getting stale.
I mean, you can make some good croutons out of those.
I'm not complaining.
But humans aren't baguettes.
When humans are an unused resource in an economy
that means suffering, and misery, and anxiety, and worry.
You didn't do anything wrong.
You got your training, you got your job,
you followed your dreams,
the economy even allocated you to a good fit.
But now suddenly you are out of work
because everyone around you is losing income.
The GDP line is going down.
And like I explained in the recession video,
when this line goes down in a capitalist economy,
bad things happen.
(mysterious music)
There's a certain paradox to all of this.
An economy in a recession
is an economy starving of new talent, new output.
And yet during these spikes, when we're in a recession,
all of the people that could be contributing to it
are sitting idle, unable to find a job
in a system that failed them
and failed to coordinate in the worst way possible.
Ultimately, economies exist to help people prosper.
So when an economy produces all of this misery,
it's really failing, which is why in a lot of countries
the government has tools to step in and help
both to reduce the suffering,
but also to ensure that this cycle doesn't gain momentum
and turn the whole thing into an anxiety-ridden chaos,
which whether we want to think so or not, is an option here.
Economies do collapse because there is momentum
when all of this anxiety starts to spread
and people stop spending money
and people keep losing their jobs.
Governments often have to step in and help pump the brakes.
So even during the good times
the government will step in and support unemployed people.
And during the bad times,
unemployment becomes especially vital
for keeping the economy from collapsing.
I mean, we saw this during COVID.
Unemployment skyrocketed and the government had to scramble
to send us all money so that we would keep spending
even if we just got fired from our jobs.
In Europe, and Japan, and Korea
they did it a little bit differently.
They actually paid the employers
to just not fire people.
Either way, the government did this
not only to alleviate the immediate suffering
of the people who were losing their jobs,
but also to avoid the vicious cycle.
- [Speaker 7] Unveiled a nearly $2 trillion COVID-19
relief plan on Thursday, urging lawmakers to act fast
and jumpstart an economy pummeled by the pandemic.
- The upshot here is that unemployment
is both complicated and incredibly high stakes.
It's unpredictable.
We can't really stop it.
Or at least we haven't figured out how to yet.
Not only because it deals with complicated human lives
that have a capacity for suffering,
but also because at the end of the day
we humans aren't just participants in the economy.
We are the economy in a very real sense.
Our mass psychology dictates how this all plays out.
And because we are all tied into this together,
no single one of us has total control
over our own situation,
which is an incredibly scary thing to think about.
So don't think about it too much.
It's a sort of Faustian bargain that we've made.
And for most of us, it's worth it.
Incredible opportunity for prosperity
in exchange for surrendering some control of our situation.
So we do this as one giant connected group,
working hard to coordinate with each other
using the language of prices and wages
with the hope of procuring and providing resources
for ourselves and our family.
And this is why politicians and the news
talk about unemployment all the time.
It's because our jobs are not baguettes.
Our work is a huge part of our lives,
and yet they are not guaranteed.
So supporting jobs, job security, job wellbeing,
and solid employment
truly is one of the most important things
a government can and should do for its people.
(clock ticking) Okay, done.
- [Nick] Sweet.
- I'm just going to,
I'm just gonna be a chaotic man for a second.
(Johnny exclaiming)
Okay, so.
Whoa, hi.
(Johnny exhaling) Unemployment.
Hope you understand more about that topic.
(bread crunching)
Moral of the story is that humans aren't baguettes.
That's all I was trying to say, okay?
It doesn't mean baguettes aren't special.
Hold on, let me finish eating this baguette.
I hope everyone's liking these macroeconomics explainers.
There's so many topics here that are kind of gate kept
by economists who like to make them really complicated.
They're not that complicated.
Like, we can all understand what this stuff is.
And yeah, I just like the idea
of having like a whole library of macroeconomic concepts
that we can explain.
Anyway, thanks for watching today's video.
And thanks to the supporters over at The Newsroom,
which is our Patreon who support our videos,
support our studio,
support all the people behind the scenes.
We make an extra video for our patrons every single month.
And it's a behind the scenes vlog
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That's why we're able to publish every week.
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And lastly, if there is an economic principle,
or idea, or thing that you hear a lot about
and want me to explain and unpack, just let me know.
I am more than happy to keep this up.
Thank you all for being here.
Thanks for watching here until the very end of this video.
Like, we're in the last moments here
and you are still watching, which I really appreciate.
So I guess we'll see you with the next one,
which is probably gonna be soon.
Or if you go to Nebula
you could watch it literally right now.
But see you.
(ethereal music)
Okay, we're done here.