Sunday, December 11, 2011

Declining marginal reward of Working

Say there is 15 million available jobs in the private sector.  And 20 million people who want to work full time.  (most people are worker bees, they don't have the independent thought to open their own business and run it).  That overhang of 5 million people will over time drive down the wages until there is no marginal benefit to working.

And btw as automation, offshoring, immigration, over-regulation and so on make us more efficient, each year the private sector is contracting.

It is simple supply and demand.  Imagine the auto industry in Europe produced 20 million cars every year.  But demand fell off to 15 million cars a year.  Yet the industry kept pumping the cars out.  It would only be a short time until the marginal profit on the cars was nothing - or even losses.  What the industry would do at that point is reduce capacity, as they have done since 2008, until capacity was better aligned with demand.  Alas we can't reduce our population by 5 million easily. 

No comments:

Post a Comment