The Solution to the Economy: Raise Social Standards and Social Efficiency
Guest post by Edward Lambert as taken from his Blog Effective Demand
Yes, the economy is a concern. There are problems to sort out. The problems run deep. What is the solution?
The solution to the problems of the economy will be found through “Social Efficiency” and raising the social standards that have been declining through the years. I will present 3 examples of lowered social efficiency, grade inflation in schools, the minimum wage and finally low interest rates. My purpose is to show that nominal interest rates need to rise, but that real wages must rise in unison too.
Grade Inflation at Yale University
Let’s go to Yale University and see an example. Yale is currently working on a solution to its grade inflation. Grade inflation is when more students get A’s than before.
“…a full 62 percent — nearly two-thirds — of grades awarded in Yale College, the university’s undergraduate school, are A or A-. (That wasn’t case four decades ago, when just 1 out of 10 grades awarded fell in the A range.)”
This quote is taken from an article about the problem of grade inflation at Yale. There is a comment below that article by Adam Glover. . .
“What do they call the person who graduates first in their medical class? Doctor
What do they call the person who graduates last in their medical class? Doctor
Rather than worrying about grades, I’m more concerned that students are sacrificing real learning for a better GPA.”
The problem is that standards, and more importantly, Social Standards of quality have been lowered. The issue of grade inflation at Yale is just one isolated example of declining Social Standards around the world. Just this week we see cheating in the schools of China is rampant, even as parents try to bribe teachers so their children get better grades.
Low Social Standards with Low Minimum Wage
Let’s now search for declining social standards in the economy. One example is the minimum wage, which has been declining in relative worth for decades. Many economists feel that a lower minimum wage makes it easier for businesses to compete and survive. However, the problem is that a lower minimum wage is a lower social standard, and as a result, many businesses that are not socially efficient are able to survive, just like an incompetent doctor who graduated because of grade inflation at his school.
When it comes to understanding the social efficiency of the minimum wage, I go to Bruce Kaufman, and in particular his paper entitled, Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate. He writes about the social cost of labor, which is more than the private costs of each laborer combined. Social costs include education, health care and even more time for parents to spend with their families.
Think of the doctor who graduated last in his class, but still became a doctor. The school covered its own private costs by graduating the student and increasing its market share of alumni who can donate money in the future. The student covered his private cost by graduating. However, there will be a social cost to society by having a sub-par doctor. The school has a responsibility to cover that social cost by not graduating poor students. But since standards are lower, social costs rise.
I will present 2 points that Bruce Kaufman makes.
First, wages need to cover the social costs of labor. If wages do not cover the social costs, the quality of people’s lives suffers, while business profits more. The market failure is corrected by raising the minimum wage.
“…the minimum wage reduces or eliminates the externality-like gap between the private and social cost of labor and thus improves economic efficiency. The effect is analogous to placing a tax on a paper mill that dumps pollutants into a river. The higher cost causes the firm to reduce production and cut employment, but economic welfare is improved—not hurt—because the tax corrects a market failure (a missing property right) that allows the firm to use a valuable social resource (the river) without paying the cost. A minimum wage is also, in effect, a tax on firms, but these firms—like the paper mill—are using a resource to make profit without paying the full social cost.”
Second, Bruce Kaufman distinguishes between “high road” and “low road” firms. The basic difference is that high road firms invest in communities for the long-term. They are committed to meeting social costs in order to have a socially responsible business in that community. Society should appreciate these types of business.
On the other hand, low road firms seek to cut costs in order to raise profits. These firms pay their workers as little as possible with little concern for the social costs of their business upon society. We know these types of firms are growing in numbers, because more working people are receiving food stamps.
“Minimum wage laws may enhance efficiency in another way as well, by protecting not only workers but also “high road” employers who make long-term investments in human capital, physical capital, and R&D. Research shows that productivity is higher at firms using a high performance work system (HPWS) with self-managed work teams, job security provisions, extensive training, employee involvement methods, and formal dispute resolution programs (Appelbaum, Berg, Kalleberg, Bailey 2000). These kinds of organizational investments are crucial for long-run growth but may be seriously impeded by the instability and hyper short-term competition found in competitive markets. A minimum wage law can protect and encourage new forms of work organization, such as HPWS, by putting a floor under competition so “low road” firms are not able to undercut and drive out high road firms.”
The point Kaufman is making is that a higher minimum wage protects the high road firms that are socially more efficient. Lowering the minimum wage is like lowering the standards of social quality. The result is that we find more businesses surviving that are not socially desirable, because they do not pay the proper social costs.
Low Social Standards with Low Interest Rates
Now we come to interest rates. We all know interest rates are low because the Federal Reserve keeps the Fed rate at the zero lower bound. It is assumed that the economy is depressed. Thus low interest rates make money cheaper so as to entice businesses to invest and create jobs. Nonetheless, low interest rates lower social efficiency, just like grade inflation at the schools and a lower minimum wage.
With low interest rates, low road firms find it easier to survive. Low interest rates encourage businesses with lower standards for social efficiency. Thus social costs continue to rise.
Bruce Bartlett today makes a case that low interest rates lower the cost of capital. He mentions two results… 1. capital is substituted for labor in production and 2. labor’s share of income declines. His main point is that if you raise the cost of capital, labor will be more valuable and the declining labor share will reverse its downward trend. I agree. But for the reasons of social efficiency.
Bruce Bartlett says we need to raise the cost of capital. However, we must also raise the cost of labor, so that labor has more money to demand products. Thus, it is doubly true that we need to raise the cost of capital by raising interest rates or at least scaling back loose monetary policy. Why? If we were to raise the cost of labor (which must be done), while keeping capital cheap, labor is put at a further disadvantage. In essence, we will have to raise the cost of both… labor and capital. The result will be a balanced foundation for socially efficient economic growth.
We have seen in the past week that investors around the world reacted strongly to the idea that the cheap money from quantitative easing by the Fed may start to decline. Investors behaved just the like the students at Yale who recognize that grade inflation exists, but do not want to change the grading system. People depend upon socially inefficient standards for their own self-interest, while society suffers for it.
Raising interest would lead to a temporary hit of effective demand, but as wages improve and social efficiency improves, effective demand will begin to rebound in a socially better way. The Chinese are raising interest rates to clean out inefficient investing, which is accumulating and will hurt them in the future. The same logic applies to the West, where increasing “social” inefficiency of the economy is suppressing demand on a permanent basis due to accumulating social costs. Raising interest rates and wages will temporarily hurt demand but open the door to a long-term healthier demand. I think this is understood in China.
Michael Pettis, who has been warning of inefficient investing in China, talks about the ability of social capital to absorb capital investment. Social capital refers to the institutions of business and society, as well as the purchasing power of society. When social capital is well-developed, capital investment is supported. He puts forth an argument with the implication that expansionary monetary policy designed to bolster investment will be ineffective when social capital is weak.
“…if social capital is too low or, to put it another way, if capital stock exceeds the ability of an economy to absorb it efficiently, then the best way to achieve growth may be to focus not on increasing inputs, which may end up being wasted and so may actually reduce wealth, but in improving the ability of the economy to absorb the existing inputs.”
In many ways social capital in the United States is weak. Labor income has fallen. Communities are more fragmented. The scope of small business start-ups are more limited. Corporations leave less room for grassroots business. As Michael Pettis says, it is important to have institutions that transfer resources to businesses that increase social capital.
“I would argue, however, that economies are much better at absorbing and exploiting capital if they operate under an institutional framework that creates incentives and rewards for managerial or technological innovation (which probably must include clear and enforceable legal and property rights), encourages the creation of new businesses and penalizes less efficient businesses, perhaps at least in part by institutionalizing methods by which capital can quickly be transferred from less efficient to more efficient businesses…”
Bruce Kaufman made this same point above in terms of how a higher minimum wage supports high road firms that are socially efficient.
Michael Pettis gives a basic argument implying that if monetary policy is ineffective, it would be better to improve social capital first, which includes supporting small business innovation, increasing wages and raising household income. He sums up his arguments…
“What Beijing must do, in this case, is to ignore GDP growth rates and focus on household income growth rates, which anyway are what should really matter. Rather than continue to increase investment in manufacturing capacity, infrastructure, and real estate, Beijing should find ways to curtail investment growth sharply and to allocate what capital is invested to small and medium enterprises, to service industries, and to the agricultural sector, all of which are sectors whose growth at the expense of the current beneficiaries of high investment growth (SOEs, local and municipal governments, national champions, etc.) are likely to imply improvement in China’s social capital. Doing this will also require significant changes in the legal, social, financial and political institutions that constrain China’s ability to absorb capital efficiently.”
Low Labor Share Constrains Demand for Production
In the United States, labor income needs to rise in order for capital growth (investment) to be absorbed efficiently. In effect, expansionary monetary policy is made ineffective when there is weak social capital.
Ultimately, low real wages and low labor share of income mean less demand for finished products. Thus production is limited. Even if capital is cheap, there is less effective demand to warrant investment in capital. With cheap labor, business has limited its own production, even while raising profit margins. Cheap labor is limiting economic growth through less effective demand. The answer is to raise labor income.
Conclusion
The standards of social efficiency have fallen in the economy.
Real wages are stagnant, while businesses record record profits. Businesses defend a low minimum wage in the name of economic efficiency, so that firms can compete better. However, a low minimum wage creates an environment where socially undesirable firms can compete with socially desirable firms, who would be willing to pay the social costs of their production. The result is that high road firms lower their standards to compete causing social costs to grow and accumulate. Eventually economic growth is suffocated by the accumulated social costs.
Low interest rates are defended because they allow any and all firms to survive, even the socially undesirable ones, in the name of “economic recovery”. I say that the true economic recovery is the recovery of higher standards of social efficiency. Until these higher standards are brought back, social costs will grow and accumulate putting a weight on economic growth. Low interest rates increase the accumulation of social costs.
There are socially unproductive standards rampant in society and the economy. And just like at most universities, where the grading curve goes lower and lower and lower, the economy too is lowering its standards. The result is a sub-par economy.
We need to start raising the curve, so that the chaff is separated from the wheat… so that socially inefficient wages are separated from the socially efficient ones… so that the low road firms are separated from the high road firms… so that flighty investors are separated from the investors who want to commit to the long-term growth of a community.
We need to raise the social quality of the economy once again. The solution is to raise real wages and to unwind expansionary monetary policy… steadily and carefully.
Cited Sources
Bartlett, Bruce. Labor’s Declining Share is an International Problem. Economix blog, The New York Times, 6/25/2013, Web link
Kaufman, Bruce. Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy debate, Cornell University, ILR school, ILRReview volume 63, article 4, number 3, 2010. Web link
Moore, Malcom. Riot after Chinese teachers try to stop pupils cheating, The Telegraph, 6/20/2013, Web link
Pettis, Michael. How much investment is optimal?, Michael Pettis’ China Financial Markets, 6/10/2013, Web link
Trotter, J.K. Yale Averts Grading Curve Apcalypse, The Atlantic Wire, 6/25/2013, Web link
Devil’s advocate on grade inflation – someone has to be first in a class and someone has to be last in a class, but just because one is last doesn’t necessarily mean that particular student has failed to demonstrate competency in the subject.
Well
Custer graduated last in his class, and Robert E Lee graduated first in his. But Custer arguably won the Civil War by beating off JEB Stuarts cavalry which would otherwise have appeared behind Union lines during Pickets charge.
and Grant… somewhere near last in his class… unarguably won the Civil War by beating Lee. (period.)
And this is the nicest way I can put it. Saving the country by ending grade inflation is about as stupid as thinking you will “cost jobs” by laws against polluting rivers.
As far as I can tell interest rates ought to reflect the “market” demand and supply for “money.”
And also as far as I can tell from here, if “the poor” are not increasing their wages, they may not be increasing their production.
Or possibly not… but it’s an issue that needs to be thought about, not simply assumed that the “poor” as well as the “rich” have a god given right to ever increasing consumption.
The one thing here I tend to agree with is that the wages of the very poor are held down not by their productivity but by their lack of relative power at the bargaining table, and a minimum wage that was adequate to meet reasonable standards of decency… including allowing them to pay for their own retirement and health insurance, as well as decent housing, and employment that is reasonably meaningful and secure… would be worth mandating if we can’t think of any other way.
Run: great job bringing this here.
Edward: great post!
Dale, I read Paul Krugman’s column and blog posts often enough to know that workers’ productivity has increased tremendously in the last few decades—the period when wages have stagnated or declined. That, I believe, is one reason why corporate profits are so high now.
And, I second what Steve said.
Beverly
I am not convinced about the productivity gains being made by the workers in question. If i bring in a machine that increases the product one worker can produce by tenfold, has that worker increased his productivity… i think that’s what an economist would say… or has the machine (capital) increased “my” productivity?
I don’t know. I was trying to suggest a more modest idea: i don’t think we are building much of anything truly useful today more than we were 20 years ago. doesn’t mean we don’t find ways to make more money out of them. but i don’t see any a priori value in just claiming that that extra productivity belongs to “workers” as a class.
I am, as i keep trying to say, very interested in finding ways for all workers to make enough to afford a decent life… probably more decent than the life of the average yuppie… you know, work work work spend spend spend borrow borrow borrow. or maybe that’s what life is for and i’ve been fooled all this time. and when we run out of air and water, why , at least we’ll have money.
i guess what i object to is looking at meaningless abstractions and them jumping to the conclusions that make us feel wise and kind without ever coming close to identifying the real problems or how we would even accomplish our own magical solutions.
you know: just take money from the rich and give it to the poor and then everything will work for the best.
the problem is not “concentration of wealth”; the problem is concentration of power. and no they are not the same thing. and yes the problem can be solved, but not if you aren’t looking in the right place. and not by ending grade inflation at Yale.
i should not have brought in “capital.” a can of worms. enough to say “the workers who designed and built the machine.”
a decent “minimum” wage, and eliminating the profits from fraud would go a long way to “equality”
and, i am not sure just how “productive” the unemployed are, but i’d rather see the government employ them… creatively… than just put them on welfare and forget them except for the quarterly exam to be sure they are not hiding their assets.
I think it may be good for the minimum wage to rise, but not only the minimum wage should be a concern. We rather should worry about the median wage. Suppose we impose only one linit on the wage – the floor. Businesses will adjust by accepting the limit, but then they will lay off anyone who is paid more then minimum wage and rehire them at minimum wage. Such practice will not increase labor share and will npt reduce social costs. The truth is, some jobs pay little for a reason. They either do not require much skill or they do not require much to do. If we start paying more to people doing such jobs, but then we start paying less to people doing more advanced and difficult jobs that could even increase the social costs even more. Now labor will be not motivated ylto acquire skills, get knowledge or work better, because labor will know it will be paid the same minimum wage anyway. This is why I think we should be talking about rising median, not only minimum wage.
As for the rising interest rates, IDK. I think higher interest rates at this time of high leverages will give a huge sock to economy and may result in a lot of bankruptcies and financial market turmoil. I think at the times of inequality low interest rares are an effective redistribution tool from haves to have nots. Low interest rates also favor long-term investment vs. Short-term lending and I think it does the economy some good, especially in the current fragile condition.
Coberly … Beverly,
If you raise real wages to a level where the wage covers the social cost of workers in general, there is a good chance you will lose some of the jobs that were below that level of productivity. But think it through… some workers will be paid more. They will spend more. Then some of those jobs that weren’t productive before increase in productivity because there is more demand for their production.
The problem is when some workers lose wages, other workers will be affected by lack of demand.
When unions bargained for higher wages, even non-union workers saw their wages increase. Part of the reason was competition with the union wage, part of the reason was more money in the hands of some consumers.
Overall jobs become more productive. and some of tthe firms with socially unproductive jobs get weeded out.
The issue now is the low cost of capital, since interest have been sliding downward for 30 years.
Edward
not sure why you think i disagree with that.
as for the low cost of capital.. i would think that would tend to encourage investment, which should raise productivity. or, if nothing else, provide jobs for those people building the machines.
on the other hand, it is my guess that none of these economic “shoulds” turn out to actually work in the real world, which is always more complicated than economists “assume.”
Coberly:
Maybe a different scenario may explain it better. When taxes are higher, it makes sense to leave earnings within the company and reinvest. When taxes are lower, many owners, etc. pull money out of companies. Make sense? Higher cost of capital vs low cost of capital.
nina
i know from personal experience that at the minimum wage you frequently can’t find employees who can or will do the work. you have to pay better than minimum to get the people you need.
i also know from personal experience that the “lazy employee” model that you envision, and that is pretty much how “the right” views all labor, simply does not describe normal human beings, though it may describe people who have been cheated and abused and have no hope of a better job.
the best way i can think of to raise “median wages” is to encourage unions, discourage offshoring, and provide government jobs at decent wages.
but we need to raise the minimum wage because otherwise some employers will feel they have to keep wages lower in order to be “competitive.” if their competitors have to raise wages, then they will not be at a competitive disadvantage by raising theirs.
i think this will still leave us with two problems… those workers who really are not worth the minimum wage… and the very real possibility that we ARE in an economy where the wages of average workers cannot rise because there is no “demand” for more production of the kind that average workers do.
i don’t think i have explained this very well… here’s another try. suppose you had an economy where food was grown by average workers and medical care was provided by very very smart people… and these were they only two ways to make money. suppose that enough food is grown to feed everyone. and suppose that “medical science” keeps improving so that the people who can afford the medical care live longer healthier lives.
now, how are you going to adjust “wages” or “equality” in such a society. and do try to imagine all the complaints of unfairness that might arise.
i don’t think we are in that kind of society yet… we could go a long way by providing fair wages and reducing the compensation to fraud… but there is an element of that in the “inequality” that everyone is complaining about, and the solution they propose… “just tax the rich”
will not work.
@Nina: “I think it may be good for the minimum wage to rise, but not only the minimum wage should be a concern. We rather should worry about the median wage.”
Both. A higher minimum wage and much-expanded EITC are 1. complementary, and 2. serve to resolve problems inherent in each.
http://www.cepr.net/index.php/blogs/cepr-blog/having-your-minimum-wage-and-eitc-too
Steve
i’m with you on the min wage… i think, there are always details.
But I think the EITC is counterproductive to that. If you are paying a decent min wage there is no need for EITC. In any case it’s hard to see why the taxpayers should subsidize employers who pay too little.
Hi Coberly, I was just greeting you in the conversation you were having.
You are right… low cost of capital should encourage investment, but here is what I see…
From the view of weak social capital, the optimal level of investment has already been passed in the US. So even if capital is cheap, there is not much to invest in anymore.
Social capital has declined mostly from labor income declining. As labor income declined, aggregate demand declined, and so too declined the optimal level of investment. And now we have an economy with little inventive for investment, even in the face of very loose monetary policy.
Edward
that sounds about right to me.
Run
i got lost in the transition from taxes to capital. I suspect higher taxes did lead to more money being retained in the business. I remain unconvinced that the cost of capital (interest) should depend on anything other than the supply and demand for investment money. and try to understand i have nothing against higher taxes, i just think a policy of just “tax the rich” will not succeed politically, and unless it is backed by some serious thinking about what to do with the money, it won’t help the poor either.
i think the point that Kimel made about higher taxes not leading to less growth.. perhaps because of the decision making you cite.. is a good reason not to be snowed by the R’s always saying that higher taxes will kill the economy, but it is not in itself sufficient reason to raise taxes. I really think that depends on what you intend to do with the money. and simple welfare is not a good enough reason except when there is a great need and no options.
Nina,
My latest screed on the minimum wage — it is a bit long for a comment but (that never shamed me out of it before)…
Doubling upper 50 percentile wages would send prices up but not as much as upper 50 incomes. Only 88 percent of overall income goes to them so it would lead to some lowering of prices relative to their incomes.
Businesses catering more to upper 50 earners likely hire more upper 50s employees – higher prices reflecting higher wages. Shifting a small slice of overall income to upper 50s (from lower 50s – via inflation) likely shifts a small bit more demand toward more upper 50 catering/hiring firms – which could actually lead to upward pressure on wages in some firms!
Since lower 50s represent(ed) only 12% of overall income, businesses catering more to lower 50s could suffer in proportion to their customers investigating haircut, but the downturn might be moderate for most (much or most of their demand possibly coming from upper 50s). Lower 50 consumers would suffer horrendously — lower 50 earners would face more unemployment.
* * * * * *
We can usefully imagine boosting lower 50 wages by half – on the average. Today’s minimum wage ($7.25 an hour) being half today’s median wage ($15 an hour) we can just raise the minimum to the median. Above 50 percentile wages would then feel upward pressure but not necessarily that much – LBJ’s median was only 20% higher than his minimum.
Adding half again to lower 50 percentile wages would raise prices only a little compared to their hefty income increases — because only 12 percent of overall income goes to bottom half earners. As incomes make up only 2/3 of the cost of GDP output, figure that half again of 8 percent (2/3 of 12%) = 4% added to prices (not counting other wage push ups).
Reality check: an average $8,000 yearly raise for 70 million employees = $560 billion. Divide that by $15.8 trillion GDP and we get 3.6% direct inflation.
Businesses catering more to lower 50s tend to hire more lower 50s – lower prices generally reflecting lower wages. Shifting a small slice of overall income to lower 50s (from upper 50s – via inflation) means shifting extra demand to lower 50 catering/hiring firms – which could actually lead to upward pressure on wages in some cases!
Since upper 50s represent(ed) 88% of overall income, businesses catering more to upper 50s would suffer only in proportion to their customers very moderate shave, but even that marginal downturn might be partially filled in by newly affluent lower 50 consumers. Upper 50 consumers would feel a small pinch (as my doctor says, needle in hand). Upper 50 earners could face a similar pinch in unemployment.
Reality check: if LBJ’s federal minimum wage of $10.69 an hour had kept pace with both inflation and per capita income growth (click on the first link: “All Races”) it would have reached $14.11 an hour by 1978 – when per capita income was only 2/3 of what it is today!
btw
it doesn’t matter what “I” think. I could easily be wrong. And I am on your side in what really matters. Just offering my thoughts in case they are helpful.
One problem is how “capital” is defined in NIPAs and FOFAs and in general discussion: fixed capital, which includes only hardware (equipment), software, and structures. What about human capacity, knowledge, skills, processes and (probably the biggest single category) organizational capital (processes, procedures, institutional structures, etc.), built through education, training, health care, and just plain the process of doing sh*t together? Impossible to measure, but ridiculous to ignore.
That unmeasurable stuff is, roughly, “social capital.” I don’t know how economics can encompass it, in empirical terms. But we have to give it cred anyway, or we’re idiots.
Steve
i tend to think that when it starts to all depend on how we define it, we are no longer talking about the real world but about some abstraction that won’t get us anywhere.
one thing that seems to me to get lost in these discussions is that “capital” or at least spending on capital is in fact spending on labor…paying the people who build the machines. that is a bit different from thinking about it only as “some money the boss scrapes together so he can exploit the workers.” it is also very different, i think, from money that gets “invested” in what are essentially non-productive gambling schemes…. even if i do sometimes try to force people to examine why investing in roulette wheels or hiring croupiers and the ladies who encourage you to place another bet is “more productive” than buy stocks in Bank of America.
I think we have an economy that has drifted toward gambling and criminal fraud as ways of making money, but we have only ourselves to blame… because we are in fact idiots.
@Coberly: “because we are in fact idiots”
Uh… YEAH!!!
As I like to say, “it obviously wasn’t a very intelligent designer.”
Coberly, Dennis and Steve! Thanks for your answers. I agree.
I think we need to praise this article for two important things
1. Making a disctinction between high riad and low road companies and showing how competition sonetimes does not do only good. This realisation is an important one to the New Economic Thinking.
2.The second realizationis that labor and unemployment has social costs. It takes almost half a milliin dollars to raise a human being to working age. Some of it parents pay, some of it the government pays and if we include all the unpaid work that parents put into raising a kid at even the minimum hourly rate then the total cost would go up to a million. If employer uses a machine that costed one million dollars to make he would have to actually pay that million dollars upfront, before even he started to use the machine. Then he would have to pay operating expenses once he started using the machine. But in case of employees employer only pays operating expenses. A salary that today bearly covers food, transportation and a decent dwelling for an employee. He is not aware and does not appreciate the fact that his employee is a sophisticated factor of production that costed a million dollars to produce, but is given to him free. I think in exchange for this huge give away society has to at least require that employer treats this expensive and valyable resource in a responsible way.
Employer may think that cutting wages or refucing headcounts is a good way to keep down costs. Provably he is right, if we talk only about HIS costs. The reality is such though, tgat terminated employee still has to eat, pay his mortgage or rent, pay other basic expenses and support his dependents. If employer is no longer paying him somebody else has to pay, be it the government, friends and family, raxpayer etc…or society as a whole.The terninated employee will still eat, drink, rent a place and cobsume goods. He just won’t pay for it by doing something productive. The society will. And that society will include his former employer, whi thought it was so orofitable to cur costs by putting as many people as possible our of work, but at tge end, if he is tge one with money he will be eesponsible for picking up the bills for his and others’ terminated employees. But if in the past he could at least require those workers to work for him, now he can not get anything in return. And this is only one of the social costs of the unemployment. The others may include crime, disqualification, social and political unrest etc.