Hoarding: the solution to our problems
Hoarding is the craze during this pandemic. People are hoarding vegetables, meat, and even toilet paper!
While all of these have disrupted supply chains, led to empty shelves and large losses for some, there is one kind of hoarding governments are (and should be) encouraging.
They should encourage hoarding labour.
Let me explain why in this blog post.
It is going to get better
The nice thing about this upcoming recession is that it should be temporary. The vast majority of the world was doing fine before this. The US had a record 113 months of job creation, China had a trade truce in 2019 with the United States and GDP growth was picking up there. Before COVID 19, the IMF expected world GDP growth to be 3.6% in 2020 compared to 2.5% in 2019.
The story behind the recession is fairly simple. There is a virus infecting a lot of people. People find it unsafe to go out, spend and work. They don’t go out, spend and work. Economic activity declines, companies shut down and people lose their jobs.
The corollary of this is that when it is safe to go out, people will spend and work. They will go to malls, buy clothes and return to their jobs as they were before the pandemic. After all, what is stopping all of us from going to the mall and eating in a fast-food restaurant is the virus.
So when all of this ends people (at least in theory) should go out, spend and work. It all should get better.
Everyone who gets fired should ideally get re-hired
If everything I said made sense to you till now, it follows from it that after the pandemic ends employment should return to a pre-pandemic level. If a company fired someone, when activity picks up that position should get filled again.
But this firing and hiring has costs to the worker. The transition between employed, unemployed and re-employed is very costly.
Image caption: The unemployed wait for food during the Great Depression of the 1930s. A scenario policymakers are looking to avoid now.
If you get fired, you don’t get paid. You still need money to buy food and still have to pay bills. Even if you are 100% confident that you will get a job when the economy recovers, you can’t make your hunger go away by looking at rosy predictions about the economic recovery.
The bank won’t stop asking for the mortgage to be paid [2], or your landlord still will want the rent by the end of the month and so many other bills have to be paid.
While on the unemployment records this might look like things got very bad and then very good, that will absolutely not be the case for people who lost their jobs. Even if (and that is a big if) they get hired again, in the meantime, their lives will get fairly bad. So many people will go hungry, many might be evicted from their homes and they would feel very unhappy.
Labour Hoarding: the solution to our problems
Labour hoarding is when firms retain employees not doing any work currently during an economic downturn. This happens because the firms are confident that demand will pick up in the future, and those employees will deliver value for the firm.
If you understand that the costs to large scale unemployment (even for a few months) are fairly high, the the obvious direction to work towards is to solve it. Labour hoarding should be encouraged right now to ensure that people don’t lose jobs and the terrible consequences of large scale unemployment are reduced.
What is the most efficient way to solve such a problem?
Wait for the next post to find out!
[1]Not too many firms have the luxury of doing that. They are strapped for cash, and need money right now.
[2] Some are trying. In Singapore the top 3 banks are allowing you to suspend your mortgage payments till the end of the year. In India the RBI has nudged banks into proving at the very least an opt-in moratorium on loan payments. But my point still stands that people have fixed costs that they have to pay or else they lose their house and livelihoods.