[quote]LIFTICVSMAXIMVS wrote:
blithe wrote:
Either way, continual 100% employment of the Labor Force is a dream.
Why was unemployment nonexistent in Colonial America then? The only people who did not work were the self unemployed and unemployment by choice is not unemployment.
Unemployment is a phenomenon caused by a disturbance in the market forces that prevent the reallocation of capital and labor to alternatively more urgent needs from those that are less so.
The reason why there can never be unemployment in a healthy and therefore unhampered market is that there is always unused capacity that can be directed to productive means.
In an unhampered market anyone that can work will work. It is not just theoretical, it is apodictically certain.[/quote]
I agree with your definition of unemployment, hence my capitalization of Labor Force, denoting the CLF and their formula. A side note here is depressed workers, which we might come back to depending on how long this argument runs.
First, I find it hard to believe that the colonials were at 100% employment. I do not believe there is any reliable dataset anywhere which could prove this. Theoretically speaking though, there were trappers who ran afoul of bad luck and lost their gear, farmers who had their crops killed by frost, and sailors who were stranded, to name a few. They probably found work eventually, but they must have taken time out to search, which knocks the number out of 100%.
Second, times have changed a great deal between then and now and people are much more specialized. The farmer could find work farming, sailors could find work fishing, w/e. Out of work investment bankers have a hard, hard time finding work. They may have to settle for a pay cut in the end, but seeing as how they have a significant amount invested in their human capital, they will be loathe to take those pay cuts unless there is no other choice, lengthening their search period. The same goes for any other specialized, highly trained worker who is out of a job.
Essentially, I accept your argument that the state of the economy is to work towards 100% employment. However, I reject that it is feasible, and assert that the friction of matching jobs and workers, capital and investors, will push the economy towards the “natural” rate of unemployment, which economists would hesitantly say is around 5%.