Video Transcript: Labor Market Failure
Hello, welcome back. In this video, we're going to discuss labor market failure. So, look, let's look at the unemployment rate in the UK relative from 1971 to 2015. Right. So, so we've kind of seen a little bit of dramatic downplay, right, from from the unemployment rate in the UK. It looks like overall the trend is moving downward, right. So you can see, in about 1983, we topped about 12%. Then in 1993 we topped a little bit greater than 10%, but now in 2011 we saw the high there recently at 8%. So so we're moving down in a gradual decrease in unemployment rate, which is very positive. So economic inactivity, right? This is going to measure the amount of economic output, right, and by the employment by the labor market, right. So we can see that economic inactivity, that rate is truly decreasing, right. So so this can show or prove that we are seeing a nice recovery in in the activity rate in the economy, right. So so labor is increasing unemployment rate decreasing right wages potentially going up sales potentially going up so we are using this as a measurement of the economic inactivity rate which you can see in this graph is decreasing which is a positive sign for the UK economy now let's look at root causes of the labor market failure, right? So, so labor immobility, right? So barriers to moving easily between jobs, right? So if you're if you're skilled in a certain trade and you know the labor market is tightening for that trade, it's going to be tough to maybe you know move out of that job into something else because you are very centralized in what you can do because you have one specific skill, right? So let's talk about geographical immobility, right? We can't change jobs because it's tough to change locations, right? There's a lot of costs involved in moving. You know, other factors, children, spouse, other things like that may prevent you from being mobile as far as labor. Let's talk about disincentives to find or take work, right? So the unemployment trap, which is very prominent globally, right, where people are reliant too heavily on the government for subsidies as far as housing, food, Etc. Right, so don't get caught in the unemployment trap where economic incentives to take a job are poor, right, relative to maybe being on the government payroll, right. So this is why we want to promote a entrepreneurial spirit so that we don't get caught in this unemployment trap or the poverty trap, where the poverty trap is described as disincentives to earn extra income. Right? Why would I want to go work and make extra income when the government's just going to give it to me? I can find better things to do with my life. Don't get caught in those traps. Right? Let's now let's avoid that. Let's take control of our life and let's become entrepreneurs and and and change the world through our entrepreneurial spirit. It's simple, right? Instead of suppressing our spirit and and falling into the unemployment and poverty trap, right? Or all of our mindset, all of our decision making is based on our mindset, right? So why? So so don't get caught in the free money trap, Right, discrimination by employers. Right, this is a part. This is a part explanation of the gender gap in pay and women in senior roles. Right, the discrimination badly affects wages and employment for the affected groups.
Right, so next cause for labor market failure, monopsony power of employees. They can use their buying power in the labor market to drive down wages because they control the wage rate, right? To a certain extent, you know the floor is obviously the minimum wage, but because they are, they have the cash, they can use their buying power to drive down wages and maybe even higher at the floor. So what's what's immobility? Let's go a little further into why is labor immobility a significant problem, a cause of structural structural unemployment and economic vulnerability, right? Occupational immobility is a barrier to people finding work. Towns with low mobility more are more exposed to external shocks, right? Towns with low mobility, right? So, so, so the external environment, you know. Geopolitical headwinds, you know, different kind of market failures. Right, you are going to be exposed to those external shocks and not so insulated because you do not have the ability to move quickly to take advantage of opportunities for higher wages or better jobs. A cause of persistent relative poverty, long-term unemployment damages lifetime earnings. Right, I can't earn money. I won't earn money. I can't earn money if I'm not employed. Right, so so I can't reinvest cash. I can't improve my family's well-being. Right, areas with low mobility are more likely to to to suffer. economic deprivation, leading to a fall in incomes and higher debt level. Right. So follow. So get out of that poverty trap and let's continue to have an entrepreneurial mindset. But at the same time, we understand that it's tough to mobilize when when we don't have the opportunity, or the funds, or the resources to do so, so so while we are forward thinking, we need to be putting ourselves in a position to where we'll have an opportunity to be mobile, even if we don't live in the most efficient areas, right? If we don't live in the places with the maximum opportunity, and that's why through CLI you can put yourself in a position to really harness your social and your economic and your entrepreneurial spirit, right? And and and position yourselves to where these causes of immobility are less impactful on your life, right? So the loss of economic efficiency and social welfare. Immobility stops scarce resources from being used optimally. Too much waste going on if there's not any economic efficiency, right? So social costs from increased unemployment and from rising level of relative poverty. Right, so now because we have rising level of poverty, now the government has got to come in, tax more, now redistribute that wealth to people that are in stage stages of poverty, right? Which is good for a short-term fix, but let's put ourselves in a position to where we can be forward-thinking, long-term focused, and sustainable on our own, right? We want to get away from being in these unemployment and economic vulnerability traps, right? We can set ourselves up for success instead of relying on our failure, right? Labor market discrimination. Labor market discrimination occurs when an employer uses metrics or characteristics other than measured productivity for a worker to judge their attractiveness for a job or a role, right? The discrimination can be on the basis of what: gender, ethnicity,
faith, sexuality, age, height, social background, and any other characteristics, right? We need as employers to get away from this discrimination and truly, truly pay people right wages that are reciprocal to their skill level, right? So regardless of gender or ethnicity, faith, sexuality, age, height-any of these characteristics-those need to be done away with, and we need to view the individual that is based upon their ability to promote social, economic, and entrepreneurial factors. Right, that can help progress society forward, right? Regardless of all these discrimination factors, those need to be irrelevant and obsolete, and we need to move forward, and we need to compensate and hire based upon skill level and not these aspects. So the demand for labor of discriminated groups will be lower in wages and employment will be lower as a result, right? So, so wage one and wage two, right? So no one's going to demand labor at wage two when they can get labor at wage one. But so, so, so unfortunately, we see groups being discriminated upon, right? Which is definitely wrong, right? But but because of that, there's more poverty in these discriminated groups because there's not enough opportunity, and people aren't willing to work at the wage level two as they would be at wage level one, right? So you can see by the graph that in wage level two, the supply of of labor decreases, you know, more proportionate than than the wage decrease, right? So, so it really stymies people, really gives them disincentive to work at a lower wage rate. So, so if we can get away from these market discriminations, right, and then we may not have as many people on a government. Payroll, right, or worried about government subsidy, right? So we can promote and sustain equality and individual freedom and entrepreneurial spirit through paying proper wages. So the gender pay gap, median, okay. So look, so so we can see that at a proportion, at a disproportionate level, men are paid more than women, right? And and we really need to get away from this stereotype as employers, right? As entrepreneurs, some of us may come and take these business classes, and guess what? It might spark an idea for you to open up your own business and and become personally financially free and sustain your own wealth, right? But let's try not to. Let's be very conscious not to be caught into these discriminatory roles, right? Let's make sure that we are hiring on value based on their content, their skill level versus one of these discrimination factors, right? So, so this this men to women pay gap really needs to come into balance because it's sad that we are experiencing this when, when obviously women are just as capable as men. So explaining the gender pay gap breaks from the labor market when women take maternity leave to raise a family. It's harder to achieve promotion when re-entering the job market, that is a sad state, right? We do not need to continue that mindset, right? Women have a right to leave the workplace and to raise a family, and I think in today's society we're getting a little better at this, but we we need to make sure that they are not hindered or penalized for you know, doing doing what basically God tells them they need to do, right? They need to
raise a family and and and take care of their family and do that, right? But if they want to re-enter the market, look, let's make sure that they can re-enter the market fairly at the same at the same level and in the same pay, right? That's the only right thing to do. Age at which women take a break from the labor force is often the point when careers take off and wages rise at a fast pace. Again, we cannot penalize women for this, right? This is that's the wrong thing to do. We need to support them and support the family, right, and make sure that the family has an opportunity to prosper, right, and and be flexible with women in the workplace, access to education in many lower and middle income countries, opportunity for women to earn qualifications and gain experience is limited. This is affected by social norms and high fertility rates, right? So, you know, this this this is an opportunity, a socio-economic downfall, right, for some some people and in different in different environments, right. So access to education, right. That's why CLI is so great, right. We give you access to high-level education, ministry, and enterprise, right, to actually become a bi-vocational preacher. teacher, worker, business owner, right? To to take to take hold of your future through free education, right? And giving you access to where people wouldn't have access before. So hopefully, institutions like CLI can really begin to mitigate all of these discrimination factors, patterns of employment in developed countries, women are disproportionately represented in part-time work. Many females tend to be clustered in service occupations that pay less-clerical caring, catering, cleaning, etc. Many women in vocations where wages are relatively lower. The gender pay gap remains affected by continued employer discrimination, increased female participation rates in economies. Right, so we need to really get past this. Right, and I understand that you know that that in some undeveloped places they don't have quite the access that that developed countries may have, but if you are in a developed nation and you are you know hiring an employer, if you're a hiring employer, you know we need to really make sure that we are paying fair wages, fair rates based on skills and nothing less. So let's look at monopsony in the labor market, right? So, so it's a chain of reasoning, right? A monopsony occurs when there is a sole or dominant employer in a labor market, right? The employer therefore has buying power over the employees. They can dictate the employment situation because they dominate the market, and they can therefore suppress wages to whoever they want. Because guess what? You like working for my company, and you like what you do, but I'm the only one doing it. That gives me the advantage. Right or wrong, that is how it is. This gives them wage-setting power, right? And because we work in a free market, we live in a free market. The government can't come in and and put on a price floor. On any on any company that they want, right? They they as long you know unemployment or minimum wage, obviously, but but but nothing above that, right? So in theory, this leads to lower wages than in a competitive market. So so don't specialize in an industry that is dominated by
just a few players, right? So make sure that you can put yourself in a situation to be competitive and specialize in the industry that is growing and that offers a wide variety of opportunities and pay scales as they continue to compete for market share and look to retain top and top talent, and therefore we can pay or will pay subsequent wages, right? So, profit-maximizing employment level is where MCL, right? So, our marginal cost of labor equals to our market demand for labor, right? So, E2 number of people are employed, right? So at E2, right, we are sensing some equilibrium here. Their marginal revenue product is valued at W2, right? So they, so they're up a little higher, right? Monopoly power of the employee allows them to pay a wage rate at wage level three, right? Because they are the only ones in the market dominating that market. So therefore, that gives them buying power, right? So therefore, they can suppress wages or manipulate wages however they choose above the price floor. Policies to address labor market failures. So, so let's let's talk about how can we address labor immobility, targeted unemployment, subsidies, apprenticeships, internship opportunities. Right. So, so we need to be able to you know you know give provide opportunities for potential market entrancies, employees to obtain skills, apprenticeships and internships, right, to heighten their skills and make them more valuable in a free marketplace. Reforms to the housing market to improve affordability and lower travel costs, right. So, so these are some ways that we can, or that the government, or the free market, or society can help to mitigate some of this immobility risk, right? So some disincentives to find or take work, reforms in income taxes, right? So so lower marginal rates, as we just recently saw in the United States, a lower corporate tax rate, a lower federal personal income tax rate. This is going to lead to more hiring, stronger wages, right? Benefit reforms, right? So, so we need to make sure that so that that that subsidies given into the market, right, to unemployed or less fortunate, or those in poverty. Right, we need to make sure we can reform those benefits. Right, and and and cap those welfare claims. Right, by giving incentive, providing opportunity, lowering taxes. Right, this will spur economic growth. Right, which will allow companies to hire more, and if they hire more, then people will be pulled out of personal poverty. Right, their families will be pulled out. So, so we need to make conditions inside the market conducive to, you know, you know, lifting people up out of their, you know, this or you know, unadvantageous positions, right? We need to put them in a better position to be successful, and we need to cultivate that, right, into our society and lift up others, right? So discrimination by employers, we need to have tougher laws on equality and penalties for businesses that aren't following the law. Right, so we need equality in the marketplace. Right, there are so many skilled workers, there are so many people that are so talented that aren't paid their deserved rates. That we need to ensure that that equality is pushed for. Right, laws on unfair dismissal. Right, so so we got to make sure that we can't just be firing people just because we didn't
like the color of shoes they wore that day, or you know anything like that. Right, so make sure that it's it's a fair discharge practice. Right, so monopsony power of employers. Right, so encourage business startups, right? Make sure this is the only competitor in the space that's dominating. Let's encourage startups, encourage and promote competition, right? Because competition just makes the marketplace stronger, and that way we can bid up wages, take down unemployment, and and increase investment and savings by. Are individuals right? So, so countries with the highest employment rate, okay, being risk of being replaced by automation, right? So we're so we're looking at this, right? So the you know the risk of automation, this is pretty high, right? So you can see in undeveloped countries, right? Besides China, Thailand's pretty developed. India's so automation is coming in to play, right? Automation is coming into play, so that's something we need to be prepared for, and we need to be able to know how to handle those risks, but also be prepared to you know take advantage of automation as well because we can specialize in automation technology, and then potentially come in and you know help implement the automation and and be an overseer of it too. So so there's a lot of things that that are going on right there. And currently, as we're in a transition to potentially the fourth industrial revolution through AI. So this is a risk that we may that we will see in the future, and we need to be prepared. But I think businesses do not need to be so short sighted. Firms do not need to be so short-sighted that they are only thinking about increasing profit margin through automation and disposing the human worker. We need to make sure that this is a very delicate balance between the employment ecosystem, right? So the ecosystem, right? The employment ecosystem. So so we got to make sure that this is this is handled with a delicate balance. So now there. So you can do your. You can you know you can read further on this, but there are some debates going on about universal income, right? Due to automation, right? So we'll we'll see how this plays out. I don't know if this will you know ever take hold in the states, but I know Europe is really mulling this over, and yeah. So do your own research on this, and I'd like to know your feedback.