just over a year ago in march of 2020 unemployment in the u.s spiked to 15 percent as the fallout
of the coronavirus forced many businesses to close and many more to take drastic cost-cutting
measures to survive the turbulent times that lay ahead today thanks in part to government stimulus
and a new acceptance of the status quo in the workplace this figure has fallen to six percent
which is still far higher than the 3.5 percent was hovering around before the economy shut down
but it is obviously a massive improvement in fact today the usa is facing a completely different
somewhat paradoxical problem people are no longer struggling to find places to work workplaces are
struggling to find people reports of massive labor shortages have compelled some of the nation's
largest employers to offer potential recruits 50 just to show up for a job interview here
in australia uber is offering people a 500 bonus just to sign up as a driver and do 20 deliveries
what's more is that those same companies are having to offer higher salaries and career
progression opportunities beyond the minimum wage they have typically paid to entry level employees
so this sounds like a good thing unemployment falling wages rising conditions improving
what's not to like unless maybe you're a fast food franchise owner however these seemingly positive
headlines have actually got a few economists pretty worried to understand why we need to as
always look at a few things in detail and properly understand what this could all mean to the
recovery of the american economy as a whole so why are economists concerned about people having their
choice of jobs with better pay and conditions what could this situation do to the wider economy
and what is the best way to take advantage of this apparent surge in demand for new employees
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so you have probably heard the phrase full employment it gets thrown around a lot by
politicians economists and it's even one of the central goals of the federal reserve bank
but the actual phrase itself full employment is a bit misleading you would be forgiven for thinking
that this means zero unemployment but it doesn't for starters that's never actually been achieved
because in an economy as large as the us there is always going to be someone out of work so
what does it actually mean well economists kind of disagree on this they all agree it is a low rate
of unemployment but it will never be zero the first approximation of this is based on what is
called the natural rate of unemployment what this means is that the only people who are willing and
able to work but are not currently working are either temporarily between jobs like let's say an
executive taking a week off before starting a new role at a new company or are training up to work
in a different role like let's say a blacksmith learning to write code so they can go and work at
google yeah okay extreme example but you get the point this is known as frictional and structural
unemployment respectively these are normally seen as the good type of unemployment or at least the
type of unemployment that isn't terrible like the alternatives cyclical unemployment is the one that
we are normally afraid of this is unemployment caused by changes in the business cycle if an
economy goes into a recession there is naturally less demand which means fewer employees are needed
to meet that lower level of demand people are laid off and lose their income so they can't afford to
purchase as much which in turn reduces demand and the cruel cycle of cyclical unemployment continues
i must quickly add before anyone corrects me in the comments section that cyclical unemployment
is so core because it is caused by the short-term business cycle not because it compounds on itself
like demonstrated here that's just a nice little piece of irony that i like to point out anyway
this is why to try and avoid this the central bank is tasked with among other things maintaining full
employment but that role can sometimes spirit odds with another responsibility of the fed
which is maintaining low inflation there is another idea of what full employment is and
it has to do with a term that you may have heard thrown around in the news recently
the nehru which is just an acronym for the non-accelerating inflation rate of unemployment
this is the reason that economists don't want zero unemployment first analyzed by william phillips
he found that there was a relationship between the unemployment rate and inflation notably
higher levels of employment higher levels of inflation but it's not a linear relationship
sure as employment levels rise so too does inflation but it only really starts to become
a problem when it passes this arbitrary point the nehru now this graph may look daunting but
the actual fundamentals of this theory couldn't be more simple it's supply and demand imagine a
world with 10 unemployment it shouldn't be that difficult it was literally the world a year ago
if you are the unlucky one out of every 10 that finds themselves involuntarily out of work
then you are in trouble any job opening is going to have a lot of potential applicants
and a lot of applicants that will be willing to work for rock bottom wages just so they can
get a job at all it's worth mentioning that this also really sucks for the frictionally
and structurally unemployed as well because they might be training up for or transitioning into
jobs that don't exist anymore ultimately the labor market is a market like any other and more people
looking for fewer jobs means that there is more supply less demand and ultimately lower wages now
the opposite is also true but to a more extreme degree say your unemployment drops below this
nehru level then we will have a situation where almost everybody that wants a job has a job if
you are an employer and you post a job opening you might find that literally nobody applies so maybe
you have to offer a slightly higher salary or poach people from other workplaces with attractive
signing bonuses or you know maybe even pay people fifty dollars just to show up for a job interview
now a little bit of this is great it gives the working pool of labor a bit more negotiating power
it means that people don't need to work 80 hours a week in a coal mine or deal with environments that
will obviously impact their long-term health but too much can cause a problem there is certainly
a good argument for a higher minimum wage but what happens if restaurants need to turn around
and start paying all of their employees 15 20 40 100 an hour just to attract enough staff to make
sure the operation runs eventually the salary expenses of these businesses would just make it
infeasible for them to keep on running which means they will close down which reduces the
supply of tasty burgers in circulation which means that the burger places that are left in operation
will get to charge a premium for their products been sold in the burger market that they have now
cornered of course this is an extreme example but even gradual increases in income can lead
to gradual increases in the price level of goods and services if a company needs to pay a plumber
30 an hour to get them to show up to work they're going to be passing that cost along to you
and on the other side of that equation if that plumber is looking for a brand new truck to
celebrate his pay rise he's going to be competing against every other plumber that just got a pay
rise and wants to buy themselves a brand new truck now i know what you might be thinking oh
mr economics man just wants to complain about inflation again didn't you make a video on this
last month and well while that is half true there is more to this whole problem than just inflation
alone beyond that this is ignoring the glaring elephant in the room which is that unemployment
is still almost twice of what it was before the pandemic if this wasn't a problem back then
why is it a problem now the short answer is that the nehru has shifted but that only makes sense
when you address the bigger picture you are never going to see a politician campaign on a
platform of increasing unemployment and offering less jobs to less americans for a few reasons
obviously it would be incredibly unpopular with 99 of the people who either don't know what nehru is
or think at the very least it's a tiny micro nation in the south pacific but beyond that
increasing unemployment is very easy it's as simple as cancelling a few government projects
the challenge is more so in keeping unemployment as low as possible without racking up too much
debt or inflation the government tries very hard to get this figure as low as possible because
it is politically popular this is either done directly through employing people in government
roles as government contractors or indirectly by generally running an expansionary fiscal budget
where not a lot of money is tax but a lot of money is given away the problem with this second option
is that it can create a whole new category of unemployment that doesn't get nearly as much
attention as these other ones institutional unemployment this is unemployment that is
caused by institutional policies that impact the labor market this can be anything from
a mine getting shut down because the workers threatened to unionize to companies refusing
to hire workers of a particular race or gender but more commonly it has to do with government
intervention in markets there is an argument being made by a broad group of economists today
that the measures taken to protect people from the direct economic repercussions of the coronavirus
were too generous unemployment insurance combined with supplements of up to three hundred dollars
per week compounded by multiple stimulus checks have meant that people are making more money by
not working than they would be making in the industries which are hurting when it's also
considered that going to work also includes hidden costs like paying for transport to and from the
workplace child care eating out more because you don't have time to cook at home then this
decision makes logical fiscal sense what's more is that there is still a global pandemic going on
given the choice between staying home or working in food services where you'll come into contact
with hundreds of people in a given day i think i would know which choice i would take i know this
is anecdotal but i would like to think i'm the type of guy that values a solid day's work and
normally given this decision i would choose to earn my own money rather than take assistance
even if the earning potential was the same but given the context of the world that we
live in right now you would need to pay me a pretty healthy premium for taking that risk
now this entire process effectively means that the non-accelerating inflation rate of
unemployment that we were studying earlier can shift and indeed it shifts all the time
following the recession in 2008 this race spiked up by one percent to just under six percent of
course that never really became a problem because unemployment at this time was hovering over
eight percent but today we are in a potentially worse economic situation than we were back then
given that there are real material constraints on the economy there are not enough computer chips
not enough lumbar not enough cars and not enough of basically everything we use to run an economy
which is kind of to be expected let's not ignore the fact that we are still in a crisis right now
it surely makes sense that unemployment should be higher and the relentless obsession by governments
to drive this figure to be as low as possible is driving it beyond where it actually should be in a
properly functioning economy which is giving us all of the weirdness that we are seeing in the
world right now economists support this theory primarily those that subscribe to the austrian
school of economics we'll also point out that these distortions will cause knock-on impacts
in the economy that will end up doing more harm than good if that plumber from earlier who is
currently earning thirty dollars an hour has to go back to working for 20 an hour he might
default on the payments for that new ford f-150 he overpaid for which causes more issues than these
temporarily higher wages solved a rough analogy would be that covert hit the global economy
like an unexpected breakup now there are two ways to deal with a breakup you can realize that this
is gonna suck for a while take some steps to try and make yourself feel better and get over it
or you could go on a bender which will almost totally eliminate the pain and suffering in the
short term but inevitably make things much worse in the long term it must be noted that not all
economists agree with this rather pessimistic view some argue that this is simply a systematic issue
that will sort itself out over time this also does make sense when you look at the figures
as we saw at the height of the pandemic millions of people were laid off in a very short period of
time in the months since then most people have had to find alternatives to support themselves
this could be anything from going back to school to retrain to living off government welfare to
simply just getting a new job life finds a way so to speak fast forward to today and those same
businesses are reopening and looking to fill out their staff base all over again only to find that
all the people they'd let go had found these other arrangements job openings right now are
at the highest point in history and sure some of the people that were laid off will either be happy
or be forced to come back to work but some will end up sticking with the alternatives that they
have found during the lockdown over time this will even itself back out new people will join
the workforce and eventually there won't be as many businesses that need to hire staff to reopen
everybody lives happily ever after so to speak but what can you do to capitalize on all of this
well now is the perfect time to start shopping around for a new job with a better salary for
the first time in a long time it is the employers fighting over the employees rather than the other
way around studies suggest that employees who stay with their companies for longer than two years get
paid 50 percent less on average than their peers who are more happy to job hop for a promotion a
pay rise or just better conditions getting the best value for your hard work is always good
advice but maybe never more so than right now of course this process is made even easier by being
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