"Permanent job loss" fallacy. There is no permanent job loss!

Discussion in 'Economics' started by trade4succes, May 24, 2009.

  1. Many people here seem to fear some kind of scenario where unemployment will have to rise permanently in the West.

    Couple of years ago it offshoring was the culprit, now the recession.

    Both offshoring and the recession have nothing to do with rising permanent unemployment I will argue here.

    The current recession related rising unemployment is because of the boom and bust cycle. The boom was debt related. We consumed too much ahead, so now we have to catch up through a bust (bust means: *temporary* higher unemployment) to get to real consumption levels based on reality.

    Offshoring: Let me explain by using a hypothetical scenario.

    Imagine a hypothetical closed economy, with a thriving auto industry, employing 5% of workers.

    Now suddenly, high quality cars start falling out of the sky permanently and of course, the car industry cannot compete with that, so they go bankrupt. 5% of workers are unemployed now.

    Do the 95% who kept their jobs start working less, because they get their cars for free now? No they won´t. Why not? Well, for example because of "the keeping up with the Joneses" effect. The money these 95% of workers save on not having to buy cars, will be used on other consumption goods, to keep up with the Joneses. They are not going to work less.

    If these 95% of workers will spend their money on other goods, for example going out to eat at restaurants more often, that´s where the 5% of laid off workers will find new jobs: in restaurants.

    The only reason why there would be higher permanent employment, could be through government related actions, like higher handouts for the unemployed (why would you go to work for $900 per month, if you get $1,000 for free from the government), or introducing rules making it more difficult (and therefore costing more time) for laid off people to get new jobs (job protection laws, or difficulty opening new businesses).

    I challenge anyone to prick holes in this theory, but I bet it´s impossible ;-)
  2. There are categories of jobs that can be lost permanently.

    When those jobs pay a higher wage than the jobs the displaced workers migrate to in the future, this is the what leads to lower living standards for such individuals.

    When this happens on widespread, national or even regional basis in a nation, typically when particular industries that pay higher than average wages are 'hollowed out' or die off, with such jobs 'exported' to other nations (whether those workers in the recipient nation pay more, the same or less in terms of wages for the same units of work) it can drag down median and average standards of living in the donor country.
  3. This Milton Friedmans theory. Business will expand as long as the money supply is growing. As long as that moneysupply is demand driven and market based
  4. So we will get ever increasing numbers of people selling financial products to one another. Yeah, that sounds workable.

    How's the employment outlook for mortgage brokers these days?
  5. clacy


    The mortgage market is booming right now with refi's.

    With that said, you're point is still valid, IMO.
  6. *All* the money that gets sent to China from the US for imports is in US$. Foreigners in the end can only spend US$ in the... US! So the money always comes back in equal amounts as either investment (lowering cost of capital in US, therefore more economic activity, therefore more jobs!), or as payment for US fabricated consumption goods -> US jobs. So the money sent to China is not at fault here.

    Since there is the same money going around in the US, how can the new jobs be lower payed? Temporary, yes, it´s possible, but as soon as the money saved (by buying the cheaper imported goods as opposed to the expensive domestic product) gets put to use, the keeping up with the Joneses effect will make the new jobs equally payed.

    I conclude your argument wrong ;-)
  7. Yes.
    Long term/permanent economic growth (wellfare) has to be driven by productivity growth (levels).
  8. Ps. Mind you that we just saw economic growth in this scenario. Before we had expensive domestic goods and no money saved to be put to use for new things!

    Now we have cheaper imported goods, and money saved for extra consumption!
  9. america hasn't seen a technological breakthrough for at least the last 10 years, and it never will

    almost everything else it has developed so far has been reversed engineered by other countries at a fraction of the cost, and recreated

    if unemployment continues at this rate, there is no point of recovery, because as time passes by our technological edge over other countries decreases rapidly
  10. oh and if you think shoving money into american universities is going to fix this (see above), you are fooling yourself, because universities breed rubbish like sororities and fraternities
    #10     May 24, 2009