Mises Daily Articles
Pseudo Idleness in Labor
[The Theory of Idle Resources (2011)]
Pseudo idleness is a condition which is common and has many forms; and it constitutes a phenomenon of the greatest importance in any study of unemployment of labor or “surplus capacity” in material resources.
Pseudo idleness exists when the capital value of resources is greater than their scrap value, while their net hire value is nil.
One of the most common forms of “pseudo-idleness” is that which exists when resources are being retained in their specialized form (i.e., not being scrapped) because the productive service of carrying them through time is being performed. This condition exists when their capital value is greater than their net positive scrap value, while their immediate hire value is nil.
This last phrase may require some explanation. Resources must be reckoned as of “no hire value” even if they can be hired out but (a) the price obtainable is insufficient to cover depreciation and loss of specialization, and (b) there is a greater consequent loss or a smaller consequent gain to capital value. That is, we must conceive of a net hire value equal to gross hire value minus depreciation. For when depreciation is not covered, the supposed hire price in part covers the realization of resources as scrap.
Thus, suppose expectations concerning the revival of demand to remain unchanged, then, for a piece of equipment to be in “pseudo-idleness,” it is necessary that an entrepreneur should be unable to utilize it profitably while maintaining its physical efficiency. The proceeds of the complementary use must be insufficient to finance depreciation in order to bring it into the socially productive category which we call “pseudo idleness."
(1) As skill once acquired is seldom lost, pseudo idleness in labor due to feared loss of specialized skill is rare.
"Pseudo idleness" in labor is important. But its manifestation differs from that in other resources because it arises very seldom from the existence of specialized skill. Moreover, it is not easy to apply the criterion which is so clear in the case of equipment, namely, that the capital value of the workers shall be greater than their positive net scrap value, while their immediate net hire value is nil.
There is no such thing as the scrapping of a human being's powers, and hence no conception analogous to scrap value in respect of skill. The improvement and specialization of a person do not resemble the specialization physically embodied in a machine. They are the result of environment and upbringing in which deliberate training and education are important. What has once been learned may often be remembered for life. An individual's specialization may be unutilized and may deteriorate (as a machine may depreciate) but it is never purposely destroyed.
For most types of skill, there is no reason to suppose that work in another job will cause the loss of skill or loss of adaptation to the main occupation faster than idleness. Nor can it often be necessary to destroy one skill in order to supplant another. In general, the skilled worker whose services are dispensed with is free to employ his acquired talents again, if circumstances should be once more propitious. Thus, when an unemployed linotype operator becomes a shop assistant, it is evidence of a much smaller loss of capital than is indicated when a linotype machine is completely scrapped and the steel turned into shop fittings. We cannot say that the specialization of a linotype operator is as good as "scrapped" because his wage rate in that trade has fallen below what he can earn as a shop assistant (without special training). He leaves the printing works for the counter; but if it is expected that the demand for printing will revive, there is nothing in his temporary shop employment which will prevent his specialization from being utilized later on. Labor is, therefore, usually in a very different position from plant and equipment.
(2) The destruction of skill.
But although rare, the acquisition of a new skill does sometimes happen to weaken one which already exists. To take an extreme case, displaced musicians employed on road making may have subtlety of touch destroyed. Where such loss of specialization is important, "pseudo idleness" may arise through it. The individual may refuse available temporary work because to accept it will cause him to lose skill or his adaptation to the tasks of his main profession faster than physical idleness. His condition ought, therefore, to be thought of as "pseudo idleness." He is paid for the condition, although his remuneration for the service of preserving his specialization from destruction is postponed until an opening for his special powers has been found in the labor market.
(3) Important cases of pseudo idleness arise when supplementary employments will destroy simple availability for more profitable employments.
There is, however, a very important form in which "pseudo idleness" in labor occurs. Its presence may sometimes be manifested in the "casual-labor" condition, and it will be best if we consider it in connection with that problem. The essence of the idleness is again availability, in spite of specialized powers as usually understood not being a factor in the situation. "Labor reserves" exist because those forming them have no immediate hire value, this last phrase being interpreted in a rather special sense. The acceptance of supplementary employment will cause a more than countervailing decline in long-run expectations of earnings through the loss of availability for relatively more profitable employments. Availability is, as we have said, a form of specialization.
(4) Workers in pseudo idleness are paid to keep themselves attached to a trade.
To consider the "reserve of labor" (as it has been called) which tends to become attached to certain occupations, let us for the moment ignore the possibilities: (a) of the labor reserve being the product of a wage rate fixed at above the true market rate; and (b) of casual work being preferred (in any sense) to regular employment by those engaged in it. If the reserve then exists, the idle workers are, in fact, paid to keep themselves attached to the trade. To the extent that any trade is known to be risky from the point of view of continuity of employment, so must an increment to compensate the workers for such idleness as is liable to be experienced be reckoned as forming part of the remuneration. This has been a commonplace of labor theory at least since the time of Adam Smith. But its significance requires further discussion.
(5) The payment for pseudo idleness in labor is not a retaining fee, but favorable "expectation of earnings."
To think realistically of a "reserve" of labor attached to any occupation, we must envisage this service of availability. In the case of a true labor "reserve" it is advantageous to pay for it during actual employment through the ruling wage rates. The irksomeness and cost of attracting labor from temporary occupations when it is wanted makes some payment for continuous availability economical. Under casual labor the increment is received by the workers, not in the form of a retaining fee as compensation for the value of their chance of temporary earnings elsewhere, but through the net estimated advantageousness to them of being attached to the occupation being more than they could command in other occupations. The equilibrium is determined by equality of "expectation of earnings," which may be defined as the "wage rate multiplied by the chance of employment." From the workers' point of view, they remain "attached to" the casual trade (and in the extreme case refuse other casual work) because immediate availability at all times is a condition of their employment in their principal trade, owing to the methods of recruitment believed to be most economical in practice.
(6) If "floating labor," unattached to a particular trade, is a necessary consequence of productive technique, it is in pseudo idleness and remunerated through "expectation of earnings."
"Labor reserves" based on such availability are of even greater importance, however, than the last paragraph would suggest. There are general as well as special (i.e., attached to particular trades) reserves. Exactly the same considerations apply to those who are "out of work" owing to what are usually called the "inevitable delays" met with in changing from one job to another — the class who, when idle, are not specially attached to any trade at all. The workers affected may be induced not to hide themselves in inferior occupations which might prevent them from being available for more valuable employments which the chance workings of a dynamic society will disclose sooner or later. And the element which remunerates them for this is the extra value of their services in the employments which they expect to find.
Perhaps the best example of the situation is that of the "floating labor" in the prewar United States which was unattached to any particular job. This could conceivably have been regarded as falling in part into the "pseudo idleness" category. The quantity of such idleness is likely to be least, in any given set of technical institutions, where competition can be most effectively secured. As Sir Sydney Chapman wrote in 1908, "to augment the quantity of displacement (of labor) is not to augment the quantity of lengthy unemployment, for the very forces which create the additional displacements induce the re-absorption of the labor displaced. And it is hardly likely that more competition will bring about a better disposition of the old percentage of the population normally employed without increasing it."
But insofar as "floating labor" is a necessary consequence of modern technique it is a definitely productive condition and subject to remuneration. The "reserve" represents that disposition of resources which, given any set of labor market institutions, is the most productive employment. And for this reason the accompanying "reserve" must be regarded as a case of "pseudo idleness."
(7) The reality of remuneration for pseudo idleness may be simply demonstrated.
To suggest that these "inevitable delays" are "paid for" may at first seem most unrealistic; and a careless reader may well be indignant at such a suggestion. But its truth may be simply demonstrated. Improved institutions which reduced the delays of labor transference (commercially run employment exchanges, for instance) would undoubtedly cheapen labor. That is, the amount of productive effort obtainable from a given expenditure on wages would be greater. The saving achieved would represent an economy on the former payment for the availability (not the use in other senses) of a greater quantity. Reserves of labor in certain fields, or completely generalized reserves would be economized. The average period of actual employment for each worker would be longer; and in the light of the principle of equality of expectation of earnings, wage rates would not have to be so high in order to attract a given number of actual workers to any trade which needed their efforts.
(8) The typical poverty of casual workers does not affect the issue.
Misconceptions are, however, still likely to arouse indignation when the reader considers the casual-labor question, for the workers concerned may in this case be desperately poor. But the fact that their average earnings in casual employment are often pitifully low must not be allowed to distort our judgment on this point. The poverty typical of such workers is due to other causes. Casual labor simply happens to have been the haven into which those debarred or ousted from other trades by labor monopoly have found a permanent or temporary refuge. In spite of its containing only the dregs of employment opportunities, it has provided the sole considerable palliative to social injustice.
Immigrant workers from countries in which opportunities of employment are still less favorable may nevertheless have their inertia overcome by the relatively high earnings obtainable even in the worst labor markets of more favorably situated countries; and their competition may further depress rates of earnings of unskilled and casual labor. In books on the unemployment of labor there seems to have been a curious and perhaps significant reluctance even to mention, let alone bring into discussion, this very crucial fact. But occasionally it has been remarked upon. Thus, the Charity Organization Society Committee on Unskilled Labor pointed out in 1908 that "the skilled unions have limited the labor market in their trade. The inevitable result has been to maintain a continual glut in the low-skilled labor market." It is usually held, however, that there is an obvious injustice in the casual-labor system.
(9) "Labor reserves" are purchased through wage rates, and cannot be "forced" unless employers' monopoly can destroy labor mobility.
Yet "the requirement in each trade of reserves of labor to meet the fluctuations incidental even to years of prosperity" is often regarded as an evil in itself. Some of the discussions of this question have even written in tones which imply that instead of being paid to be thus available, the workers are forced by "the employers" into a soul-destroying, cruel, and wasteful idleness.
But unless that section of capitalists which benefits from the maintenance of "reserves" has some means others than payment of preventing the workers attached to the trade from obtaining alternative employment, we cannot see how it could be. No one has ever argued, as far as we know, that such a power has existed or been exploited. The "reserves" of labor under casual employment are, in fact, paid for and to the interest of those workers who form them. The labor supplied is often necessarily cheap labor; and that being so, it may often pay to employ it extensively rather than intensively.
But if the standards of living which earnings can command from this field are deplorably low, it is the causes of the cheapness of the labor and not the methods by which it pays to utilize it which must be blamed. And the labor is cheap because other opportunities of employment are barred to those who provide it.
 Adam Smith brought in an additional suggestion to explain an element in the remuneration of casual employment. "What he earns," wrote Smith, "while he is employed, must not only maintain him while he is idle, but make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion" (Wealth of Nations, Cannan Edition, vol. I, p. 105. Italics added.). This is obviously an important factor determining the "net advantageousness" among those with a certain psychology and tradition. But among the poorest classes, the anxieties are probably more than countervailed by the "benefits" of recurrent "leisure" of the type discussed in chap. v, paras. 6 and 7. If Adam Smith's classical assertion concerning the influence of the risk burden does happen to be true of this class also, it does not in any way invalidate the analysis in the text.
 L. Brassey and S.J. Chapman, Work and Wages (London: Longmans, Green, 1904), vol. 11, p. 349.
 No one objects to casual work in a well-paid occupation like, say, that of barristers.
 Quoted in P. Alden and E. Hayward, The Unemployable and the Unemployed (London: Headley Brother, 1907), p. 78.
 W.H. Beveridge, Unemployment: A Problem of Industry (London: Longmans, Green, 1909), p. 13.
 J.S. Poyntz says (in Seasonal Trades, edited by S. Webb and A. Freeman [London: Constable, 1912], p. 60): "There are many trades where the employer undoubtedly finds it to his advantage to keep a large fringe of superfluous labor attached to his business in case of extra demand." But as this phenomenon is supposed to be specially prominent in the "sweated industries" where "employers" are notoriously uncombined, the allegation is obviously misconceived. "The army of men and women standing at (the employers') beck and call," says the same writer, "cost him nothing except for the actual hours that they are at work" (p. 7). This sort of confusion has probably been responsible for an immense amount of avoidable poverty.