Saturday, December 31, 2011

Unproductive employees.

As unemployment declines, the suitability of each succeeding person hired for vacancies also declines. That is because the fewer the unemployed, the less the likelihood of finding someone suited to any given vacancy.

In other words, as unemployment declines the marginal product of labour also declines.

When “suitability” declines to the point where the output of those hired does not cover the minimum wage / union wage / going wage, etc etc, employers tend to resort to consciously or unconsciously poaching each other’s staff. The result is that the price of labour is bid upwards, and inflation kicks in.

The latter problem could be ameliorated by inducing employers to take on relatively unsuitable staff with the assistance of a subsidy.

As to how to identify the “unsuitable”, that is not too difficult. Just let employers claim the subsidy in respect of any employee/s they like, but for a limited period. On expiration of the subsidy for any specific individual, if the employee is GENUINELY unsuitable, the employer will be happy to let them go. In contrast, if the allegedly unsuitable employee is in fact relatively productive, the employer will keep the employee and will be bluffed into paying the full wage.

There are numerous ways employers could game that system, but its not too difficult to think of anti-gaming rules to counteract the gaming.

P.S. 15th Feb. More discussion of the above idea here.


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