I should note that whatever you think of this explanation, it argues that unemployment is not an economic problem. It views the unemployed as happily and rationally choosing not to work, which thus suits their preferences better and thus is of higher economic value (neglecting, of course, the cost of providing unemployment insurance).
This seems to be a non sequitur: If a specific unemployed person in a given state of the job market maximizes their utility by not taking any job offer, it doesn’t imply that they are happy of the current state of the job market. They may be unwilling to work at the conditions that are currently offered, but they may be willing to work at different conditions.
The most obvious and extreme scenario is when you are starving and all the jobs available to you are physically strenuous and yet offer starvation wages: you’d probably better off conserving energy and trying something else, including begging or stealing (if you are caught, you will go to prison where the state will feed you).
More generally, in the standard one-shot prisoner’s dilemma, you are probably going to defect, since it is the choice that maximizes your utility assuming that the other player also tries to maximize their utility. This doesn’t imply that you are happy to play the standard one-shot prisoner’s dilemma.
This means that if some intervention gradually reduces everyone’s salaries by 50%, then most people will still be willing to work.
If all employers could pre-commit to do reduce everyone’s salaries by 50% and stick to their decision, and it was legally possible for them to do so, and they could somehow survive the massive strike that would ensue, then employees would probably have to swallow it. But even if employers could legally unilaterally change salaries, they compete with each other to get workers, so they can’t realistically do that.
It seems that you forgot to mention another obvious possible explanation: Some people may just be unemployable.
Some people may be unemployable in general because they are mentally ill or physically ill (though they are still accounted for as “employable” in the statistics because of underdiagnosis). The extreme example would occur if starting from tomorrow we counted chimps as people. All of them would be unemployed and permanently so because they would be always unfit for work.
Some other people may be employable under different economic/technological conditions, but not under the current ones. The extreme example would occur if we had robots with a IQ-160-human-level intelligence that could be rented for 1/100th of the current minimum wage. Who would be going to hire humans in this scenario?
Pareto improvements are not really a classical concept. I think Pareto used them, but it was the neoclassical Pigou or someone around that time who made them widespread.
Someone can rationally choose to not have a job as the utility-maximizing alternative in some given situation while wishing the job market were otherwise. What is efficient, and what is ideal, are not the same thing.
The extreme example would occur if we had robots with a IQ-160-human-level intelligence that could be rented for 1/100th of the current minimum wage. Who would be going to hire humans in this scenario?
My first thought was “sex workers,” thinking many customers might prefer a dull human to a smart robot. But as saturday night live pointed out on a recent show, and I paraphrase, 58% of people interviewed said they would have sex with a sex robot, and 42% were lying.
This seems to be a non sequitur:
If a specific unemployed person in a given state of the job market maximizes their utility by not taking any job offer, it doesn’t imply that they are happy of the current state of the job market. They may be unwilling to work at the conditions that are currently offered, but they may be willing to work at different conditions.
The most obvious and extreme scenario is when you are starving and all the jobs available to you are physically strenuous and yet offer starvation wages: you’d probably better off conserving energy and trying something else, including begging or stealing (if you are caught, you will go to prison where the state will feed you).
More generally, in the standard one-shot prisoner’s dilemma, you are probably going to defect, since it is the choice that maximizes your utility assuming that the other player also tries to maximize their utility. This doesn’t imply that you are happy to play the standard one-shot prisoner’s dilemma.
If all employers could pre-commit to do reduce everyone’s salaries by 50% and stick to their decision, and it was legally possible for them to do so, and they could somehow survive the massive strike that would ensue, then employees would probably have to swallow it. But even if employers could legally unilaterally change salaries, they compete with each other to get workers, so they can’t realistically do that.
It seems that you forgot to mention another obvious possible explanation:
Some people may just be unemployable.
Some people may be unemployable in general because they are mentally ill or physically ill (though they are still accounted for as “employable” in the statistics because of underdiagnosis).
The extreme example would occur if starting from tomorrow we counted chimps as people. All of them would be unemployed and permanently so because they would be always unfit for work.
Some other people may be employable under different economic/technological conditions, but not under the current ones. The extreme example would occur if we had robots with a IQ-160-human-level intelligence that could be rented for 1/100th of the current minimum wage. Who would be going to hire humans in this scenario?
That likely brings us to improvements that are non-Pareto, hence rarely addressed in classical economics.
I was more thinking of government interventions like employment taxations.
Possibly, but it may also happen that the current issues are caused by coordination failures, which if solved could lead to Pareto improvements.
But even if there are no available Pareto improvements, it doesn’t imply that this is the best of all possible worlds.
Pareto improvements are not really a classical concept. I think Pareto used them, but it was the neoclassical Pigou or someone around that time who made them widespread.
Someone can rationally choose to not have a job as the utility-maximizing alternative in some given situation while wishing the job market were otherwise. What is efficient, and what is ideal, are not the same thing.
My first thought was “sex workers,” thinking many customers might prefer a dull human to a smart robot. But as saturday night live pointed out on a recent show, and I paraphrase, 58% of people interviewed said they would have sex with a sex robot, and 42% were lying.