Causes of Unemployment - Obson/MicroSim-GUI GitHub Wiki

Abstract

We can see that in an (enclosed) economy with a significant government sector, full employment is easy to maintain. Yet unemployment has become the norm in economies like the UK and the US. Why?

Given sufficient demand a business will tend to expand, simply because it will have to do something with the funds it receives from sales. If it does not it will have to find an alternative outlet for those funds. Dividends, bonuses (selective or otherwise), and extremely high salaries for directors provide ways of utilising funds without taking on more staff.

When the labour market is fully employed businesses will have no alternative but to adopt such tactics (non-selective bonuses being the most equitable), but if they are followed when unemployment is higher they are in effect being used to maintain unemployment — while, incidentally, enriching the owners of capital.