March 13, 2024

Missing the point

Yesterday evening, I inadvertently sat in on a webinar on modelling unemployment.

There was talk about ‘search and matching theory’ as an explanation for why unemployment can never be 0 (it takes time for suitable jobs and suitable jobseekers to find each other).

There were also graphs describing the labour market as if it operated as a completely free market (how can it be free when one side must work or starve?).

But the graph that particularly struck me was the one showing that ‘the higher wages are, the fewer vacancies firms will post’.

Of course it’s not the wage level in itself that decides how many vacancies firms post, but the expected return on that wage. In other words, for any given business, it makes sense to employ an additional person if you can see that they will generate more revenue than the total cost to employ them.

If that’s not the case, perhaps you’re the right size already?

Or perhaps you could work more efficiently?

Automate more?

Save managment overhead by devolving more responsibility?

Find new markets?

Change your offer?


Accept lower profits?

Cheapening labour is an expedient, perhaps worth doing as a temporary measure, in agreement with your people.

It may be what everyone else does, but it misses the point, because it never solves the real problem.

Discipline makes Daring possible.