Jobless in America

"The business of America is business." -- Calvin Coolidge, ca. 1928

"The economy is fundamentally sound." -- Herbert Hoover, 1931

"The fundamentals of our economy are strong." -- John McCain, 2008

"A Country is not a Company." -- Paul Krugman, 1996


   Even in a boisterous, thriving economy, there will be some unemployment. An unemployment rate of zero is possible only in a dictatorship, where workers are assigned to job slots and lose the Freedom to Quit.
   There will always be some folks -- recent graduates, for example -- who are entering the workforce and seeking their first jobs. Or students looking for summer work. Or women who return to work as their children mature. Or people who are put out of work when a company shuts down. Or those who relocate. Or those who complete military service. Or those who face mandatory retirement but are still productive. Or caregivers who return to the workforce when they are no longer needed at home. Or show business wannabes waiting for their big break. Or farm workers waiting for crops to ripen. Or spouses who resign to go with their partners to a new assignment.
   So the question becomes how much unemployment a society is willing to tolerate -- another name for full employment. What percentage of the labor force -- those who are ready, willing, able and actively seeking work -- is acceptable as an unemployment rate?
   (To some extent, this is a political issue -- how many jobless people is a society willing to tolerate. That, in turn, brings in cultural issues. Some employers prefer to hire one of their own, even of lower competence, rather than hire someone of a different cultural, social or ethnic background.)
   If the unemployment rate is too low -- say less than 5 percent -- competition for labor will drive up wages -- good for workers, but not for companies. This causes either lower profits or higher prices as wage costs are passed on to consumers.
   If the jobless rate is too high -- call it more than 10 percent -- an excess supply of labor in the face of lower demand for workers causes downward pressure on wages as the unemployed compete for the few jobs that are available. Union contracts, however, offset this downward pressure, but in a prolonged recession employers gain strength in their ability to negotiate better -- for them -- terms. In its extreme form, this strength can lead to union busting.
   A corporate turnaround specialist can bring a firm back to profitability, but there are only two ways to do it: Reduce costs or increase revenue. With luck and skill, the successful manager can do both. Since labor is a major part of a firm's budget, reducing the number of employees -- firing workers -- becomes a quick way to cut costs.
   This strategy, however, while quite successful at a corporate level, only adds to a nation's unemployment. As Princeton economist and Nobel laureate Paul Krugman succinctly put it in his essay for the Harvard Business Review in 1996: "An executive who has made $1 billion is rarely the right person to turn to for advice about a $6 trillion economy."
   What works at the company level -- saving money by reducing the workforce -- only shifts the problem to society in general by increasing unemployment. And while people in need of work are no longer a company's problem, rising unemployment becomes a major problem for the country.