I think this fellow is a fellette. But no matter. It's hard to believe that Summers is so bad an economist that he doesn't understand the gist of this argument. It's a problem of signaling: someone offering themselves at a wage below the prevailing one sends the signal that he or she isn't as worth hiring as is someone who will accept the prevailing wage.
Also, there's a problem of adverse selection. An employer who offers to pay a wage below the prevailing one drives out the "high quality" employees and attracts large numbers of "low quality" employees (where "quality" is defined in a capitalist way, natch), so the applicant pool is swamped by the latter. On the other hand, if the employer goes with the prevailing wage (assumed to be above the unknown equilibrium), there are large numbers of job-seekers, including the "high quality" ones. Then, the employer can pick and choose the ones that fit his or her needs. This does not say that employers don't want low wages. They would like the prevailing wage to be lower. Mostly wages do not fall this way, however (since prevailing wages in one sector are partly or even largely determined by those in other sectors and there's no coordination among sectors). If prevailing wages did fall across the board, we'd likely find that the amount of the increase in hiring would be very small (wage-inelastic demand) and the shrinkage of the number of job-seekers would be very small, too (wage-inelastic supply), so that wages would hit the floor. Or maybe it's already there. Unemployment insurance benefits, in addition to being crucial to serving human needs, keep laid-off employees around (in the general geographic area and in the same skill pool), so that employers don't have to work as hard (when demand picks up again) to find and train new employees. It maintains a local reserve army for individual employers. If people don't have UI benefits, they leave town, take new jobs (often at significantly lower wages with work that doesn't fit their skills very well), etc. Getting rid of it might help the labor-power markets "clear" (with less official or "open" unemployment). But it makes the labor-power markets more like those of poor (a.k.a. third-world) countries. There, we see hidden unemployment instead. > Your article quotes Lawrence Summers's explanation that unemployment > insurance and other social insurance programs raise the reservation wage. > Were it not for these programs, desperate workers would lower their > reservation wage, and this would lead them to find employment faster. As a > professor of economics, I taught this to my students for years. But for the > past year, having found myself unemployed, I have learned that the logic of > that statement is not always correct. > > When I offered my services at a lower wage to prospective employers, I was > told time and again that they were not interested. They said if they paid me > less than I was worth, I would be unhappy, and therefore I would be > unproductive. Moreover, they were concerned that I would leave their employ > as soon as a better opportunity presented itself. This shows that employers > do not necessarily react to lowered reservation wages. The implication that > unemployment is the fault of the unemployed for not having lowered their > reservation wage is wrong. > > Joelle Saad-Lessler > > Brooklyn, N.Y. > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > > -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
