Thread by @JWMason1

I don't love this framing.

This one is more sensible. Does anyone want to make the case that "559,000 more Americans chose to work in May" would be equally reasonable? If not, can we dispense with the idea that labor market outcomes are determined symmetrically by labor supply and demand?

The point that **employment levels are chosen by employers** is so banal and obvious there would be no reason to even mention it, if we weren't hearing so much nonsense about employment being held back by "labor supply constraints".

Anyone who's seen a hiring process knows how it works: The employer decides on positions to fill, then looks for people to fill them. There aren't quite zero cases where they set a wage and then see how many people show up, but they're so few and marginal there might as well be.

In both product and labor markets, the quantity is chosen by the buyer.

(The difference is that in the labor market the buyer also sets the price, whereas in most product markets other than agriculture and minerals, the price is set by the seller.)

Of course an employer might find it harder than expected to fill a position. but they have lots of margins to adjust on in that case - more effort from existing employees in the short run, and then higher wages, more recruitment effort, relaxing job requirements, etc.

To the extent these steps raise costs which eventually get passed on to prices or result in longer delivery times, that might in turn reduce sales; but directly reducing output and turning away customers as a result of insufficient labor is not something that normally happens.

On the other hand, a business that sees a big fall in sales is almost always going to reduce employment. Not in strict proportion, at least in the short run. But almost always to some extent. It's a far more direct and reliable link than the one going the other way.

At the macro level, real world capitalist economies are not usefully described in terms of sloping supply and demand curves. Rather, there is a one way set of causal links, from demand --> output --> employment.

This does not mean that labor supply is irrelevant - modern economies don't generally exist in a Lewisian situation of unlimited surplus labor. But the direct effect of what gets called labor supply is on wages and working conditions, not the level of employment.

And in general, there is no reason to expect higher wages to lead to lower demand -- thinking in terms of supply and demand curves just gives you a bad intuition here.

Higher wages lead to lower employment only insofar as they lead to lower aggregate demand. Which will happen only if policymakers deliberately move to reduce total spending in response to higher wages, or if business investment is very sensitive to the profit share.

On one level, all of this is obvious. But I think it's important to spell it out, in hope of avoiding the confused thinking that results when people think of aggregate employment as if it were just a generic market outcome from Econ 101.

There is no reason to expect higher wages to lead to lower *employment*, I should have written. And emphasize this is on the macro level. If you somehow arbitrarily raised wages for one small group of workers or businesses, that would be a different story.