Quote from trade4succes:
Many people here seem to fear some kind of scenario where unemployment will have to rise permanently in the West.
Couple of years ago it offshoring was the culprit, now the recession.
Both offshoring and the recession have nothing to do with rising permanent unemployment I will argue here.
The current recession related rising unemployment is because of the boom and bust cycle. The boom was debt related. We consumed too much ahead, so now we have to catch up through a bust (bust means: *temporary* higher unemployment) to get to real consumption levels based on reality.
Offshoring: Let me explain by using a hypothetical scenario.
Imagine a hypothetical closed economy, with a thriving auto industry, employing 5% of workers.
Now suddenly, high quality cars start falling out of the sky permanently and of course, the car industry cannot compete with that, so they go bankrupt. 5% of workers are unemployed now.
Do the 95% who kept their jobs start working less, because they get their cars for free now? No they won´t. Why not? Well, for example because of "the keeping up with the Joneses" effect. The money these 95% of workers save on not having to buy cars, will be used on other consumption goods, to keep up with the Joneses. They are not going to work less.
If these 95% of workers will spend their money on other goods, for example going out to eat at restaurants more often, that´s where the 5% of laid off workers will find new jobs: in restaurants.
The only reason why there would be higher permanent employment, could be through government related actions, like higher handouts for the unemployed (why would you go to work for $900 per month, if you get $1,000 for free from the government), or introducing rules making it more difficult (and therefore costing more time) for laid off people to get new jobs (job protection laws, or difficulty opening new businesses).
I challenge anyone to prick holes in this theory, but I bet it´s impossible ;-)
