The demand for unskilled, low pay labour would be fairly inelastic if per-worker productivity was fixed, because these wages are set by a bargain between the employers and the workers where the employers have the majority of bargaining power.
If per-worker productivity can significantly increased by investing in optimization and automation, then yes, demand for labour becomes more flexible, and increases in labour costs would create more unemployment.
It seems to me that the gains in general efficiency of the economy would compensate for the extra costs of unemployment benefits to more people. After all, the government could always increase corporate taxes to gather the money it need to pay benefits.
In principle it is possible to imagine an hypothetical (utopian? dystopian?) future where the vast majority of people are unemployed and live on unemployment benefits, while the few people who earn an income from a job or investment pay all the taxes.
I haven't considered this scenario in enough detail to say that this scenario would be likely or desirable, but it does seem like an intuitively plausible high-automation scenario.
where the employers have the majority of bargaining power.
Why? Most labor markets aren't monosponies.
If per-worker productivity can significantly increased by investing in optimization and automation, then yes, demand for labour becomes more flexible, and increases in labour costs would create more unemployment.
Or if the workers are doing something that adds some value but isn't strictly necessary, e.g., Wall-Mart greeters.
...It seems to me that the gains in general efficiency of the economy would compensate for the extra costs of unemployment benef
Note: Originally posted in Discussion, edited to take comments there into account.
Yes, politics, boo hiss. In my defense, the topic of this post cuts across usual tribal affiliations (I write it as a liberal criticizing other liberals), and has a couple strong tie-ins with main LessWrong topics:
The issue is this: recently, I've seen a meme going around to the effect that companies like Walmart that have a large number of employees on government benefits are the "real welfare queens" or somesuch, and with the implied message that all companies have a moral obligation to pay their employees enough that they don't need government benefits. (I say mention Walmart because it's the most frequently mentioned villain in this meme, but others, like McDonalds, get mentioned.)
My initial awareness of this meme came from it being all over my Facebook feed, but when I went to Google to track down examples, I found it coming out of the mouths of some fairly prominent congresscritters. For example Alan Grayson:
Or Bernie Sanders:
Now here's why this is weird: consider Grayson's claim that each Walmart employee costs the taxpayers on average $1,000. In what sense is that true? If Walmart fired those employees, it wouldn't save the taxpayers money: if anything, it would increase the strain on public services. Conversely, it's unlikely that cutting benefits would force Walmart to pay higher wages: if anything, it would make people more desperate and willing to work for low wages. (Cf. this this excellent critique of the anti-Walmart meme).
Or consider Sanders' claim that it would be better to raise the minimum wage and spend less on government benefits. He emphasizes that Walmart could take a hit in profits to pay its employees more. It's unclear to what degree that's true (see again previous link), and unclear if there's a practical way for the government to force Walmart to do that, but ignore those issues, it's worth pointing out that you could also just raise taxes on rich people generally to increase benefits for low-wage workers. The idea seems to be that morally, Walmart employees should be primarily Walmart's moral responsibility, and not so much the moral responsibility of the (the more well-off segment of) the population in general.
But the idea that employing someone gives you a general responsibility for their welfare (beyond, say, not tricking them into working for less pay or under worse conditions than you initially promised) is also very odd. It suggests that if you want to be virtuous, you should avoid hiring people, so as to keep your hands clean and avoid the moral contagion that comes with employing low wage workers. Yet such a policy doesn't actually help the people who might want jobs from you. This is not to deny that, plausibly, wealthy onwers of Walmart stock have a moral responsibility to the poor. What's implausible is that non-Walmart stock owners have significantly less responsibility to the poor.
This meme also worries me because I lean towards thinking that the minimum wage isn't a terrible policy but we'd be better off replacing it with guaranteed basic income (or an otherwise more lavish welfare state). And guaranteed basic income could be a really important policy to have as more and more jobs are replaced by automation (again see gwern if that seems crazy to you). I worry that this anti-Walmart meme could lead to an odd left-wing resistance to GBI/more lavish welfare state, since the policy would be branded as a subsidy to Walmart.