http://www.columbia.edu/dlc/wp/econ/vickrey.html
"Fallacy 15
Unemployment is not due to lack of effective demand, reducible by
demand-increasing deficits, but is either "structural," resulting from a
mismatch between the skills of the unemployed and the requirements of jobs, or
"regulatory", resulting from minimum wage laws, restrictions on the employment
of classes of individuals in certain occupations, requirements for medical
coverage, or burdensome dismissal constraints, or is "voluntary," in part the
result of excessively generous and poorly designed social insurance and relief
provisions.
"
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" To anyone acquainted with labor market conditions, it is
abundantly apparent that a large proportion of those currently officially
registered as unemployed, as well as large numbers who are not, are ready and
able to take most, if not all, of the kinds of jobs that would be opened up by
an increase in market demand. In the absence of such an increase, at current
levels of unemployment, attempts to move selected unemployed individuals or
groups into jobs by training, instruction in job search techniques, threats of
benefit withdrawal or denial, and the like, merely move the selected individuals
to the head of the queue without reducing the length of the queue. Merely
because any one traveler can secure a seat on a flight by getting to the airport
sufficiently early does not mean that if everyone gets to the airport
sufficiently early that 200 passengers can get on a flight with seats for 150.
"
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"Even if jobs are specifically created for selected clients, as by
facilitating the opening of a new shop or business, while there may be a
temporary stimulus to the economy from whatever capital investment is involved,
ultimately in many cases this will merely draw purchasing power from other
establishments, resulting in reduced sales, reduced capital value, and
eventually reduced employment elsewhere. Only if some element of novelty tempts
consumers to spend additional amounts, impinging on their planned savings, or if
"workfare" involves producing a free public good or service enhancement that
does not compete for purchasing power or replace other public employment, will
there be any net reduction in unemployment. But while such public works programs
can indeed convert unemployed labor into improved public amenities and
facilities of various types, as long as they are financed on the basis of an
unchanged deficit, any further impact on the economy as a whole will be limited
to the difference between the appending rate of those deriving income from the
program and the spending rate of those paying the taxes to finance it.
Aside from such a public works program, the result of attempts to push people
into jobs is simply a vast game of musical chairs in which local agencies
instruct their clients in the art of rapid sitting, with "workfare" curmudgeons
threatening to confiscate the crutches of the unsuccessful, while Washington is
busy removing the chairs by deficit slashing.
"
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"As for "voluntary" unemployment, much of this would disappear as demand and
activity increases, and over-qualified workers move up out of low-skill jobs
into the expanding demand for higher skills, leaving more openings for
low-skilled unemployed to fill, and removing the depressing effect of high
unemployment levels on low-skill wages. Wages for low-skill but necessary jobs
would tend to increase, raising them sufficiently above the safety-net level to
mitigate the adverse incentives of the welfare state. Higher wages would raise
the prices of low-skill products, increasing the measured "productivity" of such
jobs and diminishing the stigma attached to them as "low-productivity" or
"dead-end" jobs. Prices of high-skill products may fall to offset this, possibly
as a result of technological advance or economies of scale, but if not there may
be a small one-shot increase in the cost of living. This would still be a small
price to pay for the benefits of full employment. It should not be assumed that
this is the beginning of an inflationary spiral.
"
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