At 4/12/2011 4:10:47 PM, TheAtheistAllegiance wrote:
At 4/11/2011 4:25:01 PM, LaissezFaire wrote:
At 4/11/2011 2:43:36 PM, TheAtheistAllegiance wrote:
Negative marginal productivity can generally exist anywhere there is a diseconomy of scale, which is in most industries. It can arise from communication costs, duplication of efforts, slow response time, etc. Overall, there is a sort of rigidity in the demand for labor, along with the supply -- businesses cannot increase efficiency by hypothetically hiring an infinite amount of employees for next to nothing, and there's always the likely possibility that many within the labor force will not accept 2 cents an hour.
Thus, it's likely that involuntary unemployment can arise in a free market.
Even if somehow ALL businesses that already existed had diseconomies of scale such that they couldn't profitably hire any more workers, my point would still stand. As long as there's a demand for more stuff, there's an opportunity for entrepreneurs to start a businesses providing those goods and services. There are always people wiling to try to start a business--even when they know they'll probably fail, as most small businesses do. If there's an opportunity for a business to be profitable, someone will try it.
Well, there's always barriers to entry, and more importantly, demand is only infinite at a price of zero, and even then there's opportunity costs to consider. However, nothing can be supplied for free, so entrepreneurship isn't an end-all, be-all solution. Obviously, circumstances change over time, so involuntary unemployment isn't permanent, but it can certainly exist in a free market in principle.
If someone loses their job (assuming for economic reasons like a business shutting down or downsizing, rather than, say, being drunk at work), then, in a free market, it can be because of 1) a change in technology/efficiency, making the old job obsolete, or 2) a change in preferences, such as an increase in the rate of savings or to a different kind of consumption. If 1), then that increase in efficiency frees up resources and money that can be used for other things--see: why the Luddites are wrong about technology causing unemployment. If 2), then a increase in, say, savings and decrease in consumption would cause jobs to be lost in the lower-order goods industries, places making immediate consumer goods, but would necessarily cause an increase in the production of capital goods, because savings and thus investment has increased. Obviously, someone laid off probably won't instantaneously
get a new job, but because any jobs lost would necessarily be replaced by other ones, there won't be involuntary unemployment for any significant amount of time.