Story of Inflation: An orphaned child

Where is my job?

Every economy is required to maintain the full employment level of resources but very often economies fail to achieve it. The most common reasons are policy lacunae from Government. But what is unheard off is that irrational choices is the number one reason to name.This seems ridiculous at first site because economists assume rationality to prevail everywhere. But just think off a bureaucrat who lacks formal training in economics but is always tasked with preparing the draft of Government's proposed legislation/policy framework on creating employment in economy. The bureaucrat's lack of knowledge often reflects in the policy lacunae that governments make. The first one is that bureaucrat does not believe in power of market to allocate resources, including human capital, to various sectors/activities in efficient way and rather has firm belief that government's bureaucratic mechanism is the most efficient one for such task. This irrational belief is reflected in the choice of bureaucrat who remains suspicious of markets and private players and therefore chooses to set target for various government agencies to create employment. But this is not the way to create employment. 

         Had bureaucrat believed in power of markets then he/she could have taken steps to make market work efficiency by removing constraints and barriers on markets. This will help in better matching of talent across employers and will reduce friction in job market. This will further help in reducing hiring cost and will have a multiplier effect which will further increase the employment by private sector. Thus, markets can be used to create employment. This is not the only thing to discuss. 

          It is very often observed that unpaid labor is very common practice in offices across country. For example, lots of interns and trainees work for lower or zero wages which reduces the hiring by private sector firms. The choice of interns and trainees here can be termed as irrational in some sense. This is because if it is rational for interns and trainees to join apprenticeship to acquaint themselves with knowledge and skills of prospective job or profession but this trend will harm them when they enter job market later on and some other intern or trainee, like they used to be, works for lower or zero wages.  Therefore, a bureaucrat is required to set employment policy to direct the agency providing apprenticeship opportunity for students to pay wages equal to the sum paid in the market for that work. This will reduce the externalities resulting from apprenticeship at lower or zero wages. 

        The other instance where unpaid labor is very much observed is in case of exploitation. The employees who are keen to get promotion early on are always ready to work extra hours in office for free. This reduces the amount of labor hours needed by the employers to complete task and eventually reducing the demand for labor. Although, there exists no estimate for number of hours reduced by such irrational behavior but certainly quantum of damage to job seekers is huge. This behavior is termed irrational because such a favor to employer is unlikely to create demand for new recruitment for higher positions. Certainly, an employer who receives such a monetary favour would feel that less number of positions are required at lower levels to complete task and therefore, less number of supervisors at higher position. In developing countries, this behavior is equally apparent in Universities where Head of the Division reports lower demand for technical staff to Dean of the College, just because professors can make their students work in place of technical staff for free. 

      In some countries, Minimum Wage Act also serves as hurdle because operation of this legislation requires the minimum wage be paid at all times to the laborer. But this artificially set minimum wage creates trouble for market to balance demand and supply, consequently equilibrium does not sets in labor market.
     Another irrational behavior is observed in many developed as well as developing countries is populist measures to garner votes. To some readers, it may seem new but the truth is that every pie or dollar spent on populist measures by politicians in power is reduction in investment on public goods like roads, dams etc. which are needed to help private sector increase output; private sector in turn would increase employment to meet increased production target in long run. These populist measures also puts pressure on exchequer to meet their private need to garner votes. Populism also hurts economy and in turn employment by creating an inflationary spiral in economy. The inflationary pressure hurts investment sentiments and forces firms to reduce output in response to falling aggregate demand. Thus populism also hurts employment indirectly. 

        Another big hurdle for job growth presence of cancerous corruption which reduces investment sentiments and diverts the investment funds towards spending on luxury.