Saturday, December 19, 2009

recession question

So we're all used to hearing about how dynamic the US economy is, and we all learn in our intro economics classes how the labor market is supposed to function more or less like a free market. Even though no one really thinks that's true, I've been wondering why the labor market is seemingly so dysfuctional.

I read a reader's complaint on Andrew Sullivan's blog recently about how impossible it is for so many college graduates entering the labor market to find work (any work!) right now. I don't really understand why so many people are out of work when so many of the college graduates I know actually work more hours than they would like. I have one friend who works over 50 hours a week, doesn't like his job and is planning on quitting soon. He would be considerably less miserable if he worked fewer hours for less money. Why doesn't his employer hire more workers to work fewer hours at lower wages when there's so much excess labor out there? This would save them money and leave them with happier, more productive workers.

If his work were the highly skilled or training intensive type, this arrangement wouldn't make much sense, but it's the type of work plenty of college graduates are capable of doing. Maybe there are other things about the job that I don't understand, but this type of situation seems pretty common. So what's the deal? Why doesn't the economy naturally adjust to this type of situation more easily? I understand that firms tend to hold excess labor during recessions in anticipation of recovery, but this seems to go deeper than that. Most of the people in my friend's position, for instance, are only looking to work for the length of the current recession anyway.

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