Musings on Employment

As Los Angeles cuts a few thousand jobs, I reflect upon the nature of employment. For most people, work is taken for granted as necessary condition for survival, and rightly so. Humans are born with no capacity for self sustenance. Never has a baby been born who could feed and protect itself. So at first we depend on our mother to feed and protect us, but once developed humans, like most creatures, must secure their own subsistence. This is where the need for work comes in. We no longer live in ancient times when the only endeavor that could sustain us was working the land, foraging, hunting and/or fishing. Most people nowadays have no access to land that they can freely work or forage or hunt, and while fishing can surely still provide a man with sustenance, it rarely provides such surplus as to be able to afford the land on which to live. The long and short of the story is that almost everyone is born with nothing but their labor to sell. 



So as I see so many losing their jobs, joining the many that have yet to find their jobs, I wonder if the fundamentals of our economy are as sound as some would have us believe. It seems obvious that the less people have work, the less people can consume. For a nation whose economy is built on consumption this seems to be a death spiral. The more people are unemployed, the lower the cost of labor (because of increased competition for jobs), and the lower the power of consumption. Again, a death spiral. Finally, as companies lay off workers and decrease production (in response to lower demand) the prices of commodities rise reducing further the real wages of labor and the consumer's buying power. 


There would seem to be no clear winner in this downward spiral, but that is not the case. The companies that can survive while downsizing their labor forces and inventories will prosper due to decreased competition from smaller companies that could not weather the current down-turn. Profits for these companies will soar as they decrease labor costs and increase revenues thanks to decreased competition and inventories. 


In the end, we will see a decrease in the size and strength of the labor market until it reaches a threshold which might endanger production (by increasing labor costs due to insufficient labor.) This is the opposite end of the "leading economic indicators". It's the trailing economic indicators. A trail of pain and suffering that is borne by the poor and by the leftover, unneeded labor that will die and drop out of the work force. 


Decisions like these are so often made with only the myopic glance at the present and little regard for the future by people who seldom care about any long term effect. It's not that dissimilar to the ills we see in finance, except that instead of gambling with other peoples' money, politicians are gambling with peoples' lives.