I think that it's impossible to rationally ignore the fact that economies seem to contort to absorb however many workers are available to it. I have yet to hear a totally convincing explanation for this, but it seems to happen.
That's what's supposed to happen. It's called Ricardo's Law of Comparative Advantage. For as long as people's labor has any value whatsoever, they ought to be employed.
Unemployed doesn't mean zero income or zero utility. If the utility you offer them for working is less than the utility they get from being unemployed they won't take the job.
There may be enough labour to keep everyone employed, but not enough of that labour has a high enough value that it's worth while for people to do it, and thus you have unemployment.
I'm not sure that that is exactly Ricardos law. That applies more to trade and specialisation.
The basic laws of supply and demand (price of labour will adjust until all labour is employed) should theoretically be enough to cover it. But I don't find this to be sufficiently explanatory of what we observe in the world.
For one thing, you would expect that the price of labour be extremely volatile, especially at the bottom, in response to technologically driven change. This is not the case. The price of labour tends to be stable and rises slowly across most categories at the bottom (though it does not necessarily keep pace with the economy).
For another, in such a world one would expect the effects of minimum wage on employment levels to be easy to predict (like price restrictions on the consumption of goods and services). They are not. We can play games in the extreme margins (see what happens if you set minimum wage to $1000 p/h), but in the moderate ranges, the effects are usually pretty foggy.
In any case, citing some fundamental economic principle is not what I meant when I said explanation. I meant at least to some idea of how the mechanics of that principle apply in this case.
Labour is different to most inputs in that production of its raw materials is not really sensitive to prices or market forces,. It is, from the market's perspective, arbitrary.
Empirical study is a tad tricky in a field where experimentation would probably be considered wildly unethical and you wouldn't be able to set up a control anyway.
While presence of controls is admirable, it's still reasonable to simply look at countries that implemented a minimum wage and ask, what happened to the unemployment rate?
As a side note, I would be interested if anyone here can give me what they believe is the most convincing explanation. If it's more then can be explained in short (EG, wages fall until everyone is employed) , a link is great.
Not an economist, but I have recently been thinking about it. Probably there are lots of factors, but it seems to me that people are resourceful (if they are unemployed, they'll seek ways to survive/find employment). Also I think they'll tend to only have children when it seems economically viable to do so. As an example, consider coal miners (they've gone out of business in my country). I suspect as long as mining was a viable line of work, they continued having children and producing more coal miners. Now that it has gone away, there are lots of unemployed ex-miners for a while. But I suspect those who fail to find other sources of income won't have that many children, so eventually that "strain" of unemployment will just phase out of society. In the end, only those people with viable jobs survive.
