In the scenario you describe, the only reason workers “aren’t budging” is that they (correctly, it says here) anticipate that employers will fail to hire them at a profitable wage, due to the signalling effects of their reduced offer. Given that the employers are willing to restructure their businesses anyway, why don’t any of them restructure their hiring methods to make use of that cheaper labor pool?
Employers can do that, and they might. That would still take a while, however, and unemployment would persist in the meantime. This model isn’t a model of how unemployment would last forever, but only a way of showing that microeconomics has models that can produce a high level of unemployment without invoking irrationality.
But of course, employers might not do that as well. It depends: is it cheaper to restructure my business so that I don’t need those laborers, or is it cheaper to try to find out how to get those workers back indoors at a price I’m willing to pay? They’ve given me a pretty strong signal that the latter is going to be difficult. True, that signal was a result first of imperfect information and then a coordination problem, but that’s only obvious to the modeler. All the employer sees is that people walked out rather than take a pay cut and they’re not coming back even after learning that the economy in general is depressed.
Restructuring a business so that less labor is necessary seems like a more common activity than changing hiring practices so as to successfully lure workers back in. I hear about the former all the time, and I can’t recall a single instance of hearing about the latter, have you?
Not that this model is intended to actually explain anything that happens in reality, although it very well might. I don’t know. But it does show that rational microeconomic models can produce persistent high unemployment. This model can even lead to a fun Spiral of Doom where employees can’t get jobs because their old jobs are done by machines, so they need to go to school to learn new skills, but they can’t afford to go to school because they don’t have jobs, but they can’t get jobs because they don’t have any skills, but they can’t go to school...ad infinitum. Let’s hope there’s something about that model that’s very different from reality.
Restructuring a business so that less labor is necessary seems like a more common activity than changing hiring practices so as to successfully lure workers back in. I hear about the former all the time, and I can’t recall a single instance of hearing about the latter, have you?
If companies hiring employees at a lower wage than they used to pay is an example of this, then yes. If not, then I’m very confused.
In any case, I think I misunderstood your initial point and my confusion is entirely tangential to your actual point. Thanks for your clarification.
Yeah, no problem. Let me just add that lowering the wage they pay to workers is what employers tried in the first part of the model, and they received a very strong NO in response.
Wait, what?
In the scenario you describe, the only reason workers “aren’t budging” is that they (correctly, it says here) anticipate that employers will fail to hire them at a profitable wage, due to the signalling effects of their reduced offer. Given that the employers are willing to restructure their businesses anyway, why don’t any of them restructure their hiring methods to make use of that cheaper labor pool?
Employers can do that, and they might. That would still take a while, however, and unemployment would persist in the meantime. This model isn’t a model of how unemployment would last forever, but only a way of showing that microeconomics has models that can produce a high level of unemployment without invoking irrationality.
But of course, employers might not do that as well. It depends: is it cheaper to restructure my business so that I don’t need those laborers, or is it cheaper to try to find out how to get those workers back indoors at a price I’m willing to pay? They’ve given me a pretty strong signal that the latter is going to be difficult. True, that signal was a result first of imperfect information and then a coordination problem, but that’s only obvious to the modeler. All the employer sees is that people walked out rather than take a pay cut and they’re not coming back even after learning that the economy in general is depressed.
Restructuring a business so that less labor is necessary seems like a more common activity than changing hiring practices so as to successfully lure workers back in. I hear about the former all the time, and I can’t recall a single instance of hearing about the latter, have you?
Not that this model is intended to actually explain anything that happens in reality, although it very well might. I don’t know. But it does show that rational microeconomic models can produce persistent high unemployment. This model can even lead to a fun Spiral of Doom where employees can’t get jobs because their old jobs are done by machines, so they need to go to school to learn new skills, but they can’t afford to go to school because they don’t have jobs, but they can’t get jobs because they don’t have any skills, but they can’t go to school...ad infinitum. Let’s hope there’s something about that model that’s very different from reality.
If companies hiring employees at a lower wage than they used to pay is an example of this, then yes.
If not, then I’m very confused.
In any case, I think I misunderstood your initial point and my confusion is entirely tangential to your actual point.
Thanks for your clarification.
Yeah, no problem. Let me just add that lowering the wage they pay to workers is what employers tried in the first part of the model, and they received a very strong NO in response.