In the real world, every community has a problem with unemployment and job creation. But, the recent Nobel prize winners for economics may provide a view that helps us understand the scope of the problem. Some of what they say supports action that a Responsible Community should take with those that are unemployed.
Three men, Peter Diamond, Dale Mortenson and Chris Pissarides, were awarded the 2010 Nobel Memorial Prize in Economic Science. Their work was on why buyers and sellers in various markets have trouble finding each other.
Full disclosure: I am not an economist and have not read the full breadth of their work. On the practical side, what has been read makes sense.
According to theory, unemployment should always be at zero. But, in reality, even in an economy that is humming, unemployment can be as higher as 5 % and be considered full employment. This reason for this is that a percent of people are always leaving one job to take another. This activity is the continuous adjustment in the market place of the mix of jobs, wages, training and the employment pool. (And, yes, there are those individuals that find difficulty in find a permanent job, often because of their own personal issues.)
But the real problem is when the unemployment levels are higher. That means, on the community level, individuals can’t find jobs that they are qualified for or business wont hire individuals at the pay scale that the individual needs or wants.
The trio suggest that unemployment insurance provided by the community makes it more difficult for the market to work. If workers are getting enough from unemployment insurance to maintain, they will be reluctant to take any job. On the other side, business will need to increase the pay scale or benefits to make the job more enticing to people that are on unemployment.
Keeping the paragraph above in mind, it is difficult for the community to encourage an electrician to take the first job offered, which may be at McDonalds cooking fast food. It would make it more difficult for him to get a job that he is trained for and not provide the income necessary to maintain a lifestyle built on higher wages. From the community’s point of view, it is a waste of resources for the training and experience invested in the electrician to cook fast food.
Part of the answer is the expectations the community has on the return on investment from the unemployment insurance provided. As stated in a blog earlier this year, “Require a return on investment from unemployment”, in the short run, a community should provide enough income to allow an individual to maintain a portion of the lifestyle they have. This allows time for him to find a job in the field that he is trained to do without taking the first job offered. For that investment, the community needs to make it clear there are expectations of return. If after a short period of time the individual is not employed, the system needs to hold them accountable. Make an evaluation of their life and skills. Find markets that can employ them. Train them for their new jobs. Help them move if necessary to those markets. In return for the community’s investment, the unemployed individual needs to do also help themselves by cooperating with the community on all of the above and more. If not, they should be dropped from the program.
We formed communities to help each other in times of crisis. The community needs to help individuals through times of unemployment. No one in the community benefits when individuals and families lose their savings and even their homes when unemployed. But, to continuously keep supporting individuals that are not fully engage in their future is against the rules of success of the individual, the community and as the winners of the Nobel prize point out, the markets.