I watched this video lecture and took notes, which I have included. I found the prompt given covered only a particular aspect of the material presented in the video, and thus I have chosen to write a brief summary that will include the societal and personal costs of unemployment.

Professor Timothy Taylor presents the basic economic principle that the health of an economy rests on the productivity of those involved, including businesses, the government and individual laborers. In order to explain how our economy works in relation to the idea of productivity, the lecture begins by explaining how the government defines unemployment. A survey is taken of U.S. households that is designed to determine what percentage of the U.S. population is “employed”. This survey of unemployment asks whether individuals are employed or looking for work. Based on their answers, people are classified as either employed (63%), unemployed (4%) or out of the labor force (33%). However, the validity of this measuring tool is refuted by the possibility that it understates (one person might have gotten frustrated with the job hunt and took a very low paying job - thus they are underemployed) or overstates (since the survey encourages individuals to lie and say that they’re looking for work, someone who is considered unemployed might actually be out of the labor force.) the true percentages.

A very interesting point that was brought up was how silly it is for the government to measure our country’s health in terms of how few people are unemployed. Should the epitome of a healthy society be one in which every adult between the ages of 18 and 65 is working? Is an individual is able to not work because they have another source of income, etc., should that be considered a bad thing? Theoretically, with more people working there is a higher level of production – but even if this means a healthy economy, does it also represent a socially and mentally healthy work force?

Supply and Demand in the labor market was illustrated by this graph:

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In this section, Professor Taylor also elaborated on the concept of unemployment. Unemployment is when more people are willing to work than is demanded by the economy. Those who are truly unemployed are those who are willing to work in the opportunity arises for what the market is willing to pay. A trend is also present - when the quantity of labor supplied is larger than the quantity demanded, the wage level is inclined the get “stuck”. Wages rarely decrease significantly, and when this stickiness occurs there are certain steps that can, but not necessarily should, be taken to remedy the problem.

If wages are above the supply and demand equilibrium, why not just lower them? This would mean that laborers would have less money in their pocket, and would thus be less able to maintain a higher standard of living. Generally, there would be less demand, less consumption, and hence less production. Since production is directly correlated with the health of an economy, it follows that an economic recession would occur.

Wages don’t usually fall because of several preventative factors. Minimum wage laws and union contracts are among the factors that prevent wages from decreasing and also cause unemployment among low-income workers. Since businesses are required to pay employees a certain amount, the businesses are unable to hire as many people, thus causing some workers to remain unemployed. In addition, is a company is doing badly and needs to decrease costs, it has two options. It can either lower everyone’s wages or lay some workers off. If the company chooses to lower wages, it is the company’s best workers that are most likely to leave, since they know that they have other options. This method also lowers moral and breaks the implicit contract that states “I will works little harder than necessary for the money I get and my employers will pay me a little better than they have to.” For this reason, lay offs are more frequent – this method allows companies to choose those who they consider low performers instead of losing their best workers.

However, since every American detests the idea of lower wages, this cannot possibly be used to fight unemployment. Why is unemployment bad, anyway? It is bad because it causes economic and personal/mental stress. First of all, more unemployed people means more people receiving money because of unemployment benefits, welfare and other government programs. In turn, this causes higher taxes, which every worker loathes. Also, the opportunity cost of the output that unemployed people could be producing is enormous. Unemployment is a huge waste of human resources. Hypothetically, is the U.S. lowers the unemployment rate by 1%, we would add 1% to the GDP (approximately $80 billion). Lastly, unemployment is notorious for the stress it causes individuals and families. Unemployment threatens an individual’s sense of self-worth and also causes economic difficulties because of decreased income. For this reason, lower unemployment benefits the individual, the overall standard of living and our country’s economy as a whole.

There are three types of unemployment - frictional, structural and cyclical.

Frictional unemployment is the idea that in any market economy there is going to be some companies, products, etc., doing better than others. This concept of ebb and flow simply upholds that there will always be some companies laying people off, and others hiring. The time a person is unemployed between jobs (termed “transitional unemployment”) is not necessarily bad.

Structural unemployment is unemployment that results from factors that are built into the economy, companies or government structures. Generous unemployment benefits provided by companies or the government act as disincentives. Workers are not inclined to return to work if they are getting paid to stay home. Businesses can also be reluctant to hire, depending on what economic structures are in place (i.e. high benefit requirements, laws that restrict business practices, etc.).

The third type of unemployment is cyclical. Cyclical unemployment follows the cycles of the economy, increasing during a recession and decreasing in times of economic growth. Economists’ fix-it for this particular type of unemployment involves increasing the buying power in the economy in order to encourage hiring. Things that would achieve increased buying power include tax cuts, an increase in government spending, lower interest rates and making it easier to borrow through cheaper credit. All of these things are designed to lift our economy out of a recession, but they only relieve cyclical unemployment.

Another idea outlined by Professor Taylor was that more jobs is a good thing, but not if they’re crappy jobs (low wages with no opportunity for advancement). He also outlined the differences between a typical European economy in comparison with the U.S. economy.

Thus it is a tradeoff. Either a country can have higher wages/benefits and fewer jobs, or it can have a large number of jobs and lower wages/benefits, with the people working longer hours in order to achieve the desired standard of living. There are two agendas that a country can use to reach its goals:

In this way, productivity directly affects how a labor market is structured. Wages go up when productivity increases, so economists struggle to decide which agenda will increase a country’s overall productivity. Is it better to have lots of unhappy people working mundanely, or to have fewer positive people focusing their effort towards productivity? Professor Taylor leans towards the later, as do I. If workers are happy, they will be more motivated to use their energy to help the company succeed, and this in turn will increase the productivity in any sector of any country.