Friday, April 3, 2020

Joblessness during crysis

Pandemic -> people stop using airlines, theaters, cinemas, restaurants, ... -> they stop operating -> they fire employees. The pandemic causes these job losses. From here most people conclude that the losses of these jobs cause joblessness. But this is false. That is the mistake of confusing trigger and cause. Loosing a job does not cause joblessness. One can still work after a job loss, only has to find a new job. Only not beeing able to find a new one causes joblessness. And what causes that? Lets examine :

A human who is not sick and hence can work has a positive work efficiency. Hence it is worth to offer to it a job. Hence some firms do that. That is how firms operate. They turn work into client satisfaction. They offer x money for work and get y money from the client in return, where y > x. This is how firms make profit, which they exist for in the first place. The firms are in the business of offering employement, that is their self interest. No matter how small y is, firms would always want to offer somewhat less for work. And y is always there because we humans have always consumption whishes and investment plans. This mechanism always works, is not any different in the time of a serious pandemic or any other crisis.

But in most states firms are not totally free to offer jobs. Some laws restrict that. Most importantly : the wage minimum law. Which totally prohibits the employment of people whose work efficiency is below the wage minimum. "But wait a minute" - you may say - "the wage minimum did not grow recently, it did not become stricter." Well : it did not in the nominal sense. But it did relatively to the work efficiency, because the work efficiency got smaller. Work efficiency here is in the business sense : how much business value the employee generates for its employer. That is what determines the wage. Why did it get smaller?:

1 : Generally the efficiency of the economy got smaller, because of the movement restrictions, legal, financial, ... risks.
2 : Changing employer causes a temporary work efficiency loss, because the worker needs to learn things specific to the employer.
3 : The job loss is significantly sectorial, many workers need to change not only employer, but also profession. That causes even more need to learn.

The efficiency of many of the affected workers was near the wage minimum before the pandemic. With the efficiency drop : they got under the wage minimum and thus became illegal to be employed.

Hence now it is especially important to reconsider to drop the wage minimum law. Anyway it is harmful for everyone, even in calm times, it does not have any advantage.

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