Unemployment and Liberty; B. Zycher

276 Unemployment and Liberty by Benjamin Zycher I nVOlU.ntary idlenessis an unpleasant experi· ence, so it may seem absurd to speak of the "benefits" of unemployment. It often wreaks havoc with people's lives, and can impose costs upon its victims from which long-term recovery may at best be difficult. But that is not the whole story.There is a differ ence between the sources and effects of unemploy ment as viewed by an individual on the one hand and by society as a whole on the other. To put it dif ferently, individuals may opt for an economic sys tem with particular kinds of unemployment that yield important benefits over time, not all of which are narrowly economic. Before a quick conclusion is drawn about unemployment, it is useful to con sider its sources in a free market. Consider first someone entering the labor force. This might be a former student looking for a first job, or a homemaker returning to the formal labor market. Should such people accept the first jobs they are offered? Or should they search for more elusive opportunities providing higher pay,greater compatibility or upward mobility, a closer fit with qualifications and interests, or other desirable fea tures? Most people would agree that it is usually best to spend some time considering various options, but many forget that a period of unem ployment may be needed to uncover the ensuing benefits.

Bear in mind also that wages and salaries under capitalism tend to reflect the value of expected productivity in alternative employ ments. Someone looking for a better-paying job is seeking more wealth, but whatever his motivaBenjamin Zycher is Vice President for Research at the Milken Institute for Job and Capital Formation in Sher man Oaks, California. tion, he is searching for a job in which his expect ed productivity-his contribution to the social basket valued by others-is higher. Thus, the period of unemployment increases (the present value of) his stream of contributions to society, as measured by market prices reflecting individual preferences. Again, most would agree· that this outcome is positive, but forget that a period of unemployment may first be needed. These are examples of what economists call "frictional" unemployment. Now,the individuals described above, searching voluntarily for new or better jobs, face conditions very different from those confronting a worker suddenly handed a pink slip on a Friday afternoon.

Yet strictly speaking, the two situations are identi cal in principle, in that the worker facing a layoff possibly could avoid unemployment and the need to search for new employment by offering to accept a pay cut. A refusal to do so, followed by an effort to find a new job, is the same analytically as the refusal of our job seekers above to accept the first available opportunity. However, as a practical matter, not all market adjustments can be both incremental and econom ic. In a world of constant change, the expectations of some people are bound to be disappointed, and important among these are their (prior) decisions about jobs, careers, and training. Tragic as such outcomes are for those affected adversely, it is important to keep in mind the sources .of unex pected change. In a free market, unexpected shifts in consumer preferences can alter the value of the labor that produces various goods and services. Any attempt to blunt the effects on workers, therefore, will implicitly deny consumers the right to express their changed preferences. At a normative level, laid-off workers who previously displayed shifting consumer demands that caused other workers to be laid off are in no position to complain-if we agree as a society to honor individual preferences, we cannot say that they are to be honored for some but not others. Each person risks unemployment in exchange for greater expected wealth. Such eco nomic shifts resulting from changes in relative demands and/or costs yield what economists call "structural" unemployment.