Tag Archives: jobs

The meaning of Merkel’s victory

2 Oct

Originally published in the October issue of Le Monde Diplomatique

Angela Merkel and her Christian Democrat party (CDU/CSU) have won a resounding victory in Germany’s general election. Merkel has broken what had become an established rule of European politics since the beginning of the crisis: incumbents don’t get re-elected.

Merkel had seen this at first hand as close working relationships with other European politicians were felled by electoral fortunes. The peculiar alliance of France and Germany (“Merkozy” to the European press) was undone as Nicolas Sarkozy lost out in the 2012 French presidential election to his Socialist challenger, François Hollande. Mario Monti, another favourite partner of Merkel, was routed in Italy’s election earlier this year by the comedian-cum-blogger Beppe Grillo and his Five Star movement. Incumbents have lost out across southern Europe — Spain, Greece, Portugal — as voters hope that a change in government might mean a change in fortunes. There has been no decisive shift left or right, just a broad and sweeping dissatisfaction with existing governments. Apart from Germany.

Merkel’s re-election doesn’t mean that nothing has changed in Germany or that it has been blissfully untouched by the Eurozone crisis. Looking at the substance rather than at the party labels, we see shifts. The more dogmatically free-market FDP, Merkel’s coalition partner in the outgoing government, failed to secure any parliamentary representation at all. The Left Party, Die Linke, a persona non grata for mainstream German politicians because of its roots in East German Stalinism and its opposition to NATO, now has more parliamentary seats than the German Greens. If the Social Democrats (SDP) enter into a coalition with Merkel’s party, then Die Linke will lead the opposition within the Bundestag.

The policies of Merkel herself have steadily drifted leftwards as she has taken on ideas first floated by the SDP. From military conscription to a minimum wage and rent controls, Merkel has adopted policies that first came from the left. This had the effect of emptying much of the campaign of any traditional ideological conflict. German voters have not been divided by the politics of left and right, given the vastly similar programmes adopted by the main parties. Merkel has even given up on nuclear power, in a move that pulled out from under the feet of the Green Party their most distinctive policy position. Instead, the campaign was fought around the language of risk and of personality. Germans preferred Merkel’s low-key, homely aspect to Steinbrück’s debonair image and, seeking reassurance in the widespread depoliticisation, voted for Merkel’s motherly, risk-averse approach.

Political stability in Germany reflects its unique position in Europe as the country that has survived the crisis. Not unscathed, as the leftwards shift suggests, but markedly better off than any other country. Having reformed itself in the early 2000s, German industry rode an export-led boom that continues today. As trading partners in Europe — from Eastern Europe through to southern Mediterranean economies — crashed and burned from 2009 onwards, Germany compensated by expanding sales in non-European export markets. What it lost by way of demand in Europe it has gained in emerging markets, especially in Asia. Germany’s current account surplus, at $246bn over the last year (6.6% of GDP), is greater than China’s. Along with a more flexible labour market that is keeping unemployment low (but part-time employment high), we have the material foundation for Merkel’s victory. But though this foundation is solid, Germany is not booming. Since the early 2000s, German wage growth has been very limited. Moreover, few Germans own their own homes, meaning that they have not experienced the same wealth effects of rising house prices felt by a chunk of the British middle- and upper-middle class, the Dutch, Italians and Spaniards. They have been saved from the effects of collapsing property prices but have not known the heady days of year-on-year price rises. Merkel’s cautious optimism reflects the attitude of a large part of the German working and middle class who feel that their relative prosperity is precarious and needs to be closely guarded.

The meaning of Merkel’s victory for the rest of Europe is mixed. It is possible that Merkel will soften her stance to some extent now the election is over, though we should not expect any sudden U-turns on something like Eurobonds. A slow recalibration of the Eurozone economy is more likely, as crisis-hit countries like Spain and Ireland regain some competitiveness via internal adjustments to wages and prices. Where Merkel may compromise is on measures to boost domestic demand. If Germans were to consume a little more rather than save so much, that would help pull other Eurozone economies out of their deep depression. Though something like this may happen, any recalibration will still occur within the context of a Eurozone marked by massive disparities in wealth and spatially organised around a clear logic of centre and periphery.

The Future of Work

20 Jun

TCM editor, Alex Gourevitch, will be speaking with Kathi Weeks, author of The Problem With Work, about ‘The Future of Work‘ this Sunday at PS1. It is part of Triple Canopy’s ‘Speculations on the Future‘ program. In advance of this event, we thought it worth laying out a few facts relevant to the discussion. While we have spoken about some of the political questions at stake in the work/anti work debate (here, here, and here), those were relatively fact free speculations. And necessarily so. The issue at stake was hopes and desires for the future, and the organizing aspirations for a possible left. These discussions, however, can always do with a small dose of vulgar empiricism. A brief look at some relevant facts suggests that the most likely, if not most desirable, future of work is roughly that of increasing dependence on the labor market and lower quality work for most people. One word of caution: the data is limited to the US and Europe, entirely because that is our area of expertise and where the data is most readily available.

Although every so often there are breathless declarations of the end of workthe collapse of work, and that technology is leading to a world without work, the historical trend is the opposite. Ever since the 1970s, an increasing share of the population has been working. For instance, the graph below shows the employment to population ratio in the United States. Notably, even after the dramatic post-2008 decline, a higher percentage of Americans still work in the formal labor market than anytime before the mid 1970s. Slide1Similar survey data from Eurostat of all people between ages 15 and 64 shows, wherever data is available, that there have been dramatic or gradual declines in ‘inactivity‘ or non-participation in the labor market. In Germany, 35.9% of 15 to 64 year olds were inactive in 1983 while in 2012 that number had sunk to 22.9%. In Spain the drop was from 44.1% in 1986 to 25.9% in 2012. For France, 31.6% (1983) to 29% (2012), and the UK 29.1% (1983) to 23.7% (2012). The Netherlands saw the largest decline from 1983 to 2012, from 41.4% to 20.7%. The most likely future of work in the US and Europe is that more people will be working for wages or salaries than ever before, as absolute numbers and as a percentage of the population.

Three recent changes to the political economy suggest not only increased participation in, but greater dependence on, wage-labor, especially by those on the bottom end of the labor market. These are a) stagnation or reduction of welfare benefits, b) stagnation or decline of wealth and c) stagnant wages and precarious employment. Welfare and wealth are alternatives to wages as sources of consumption; lower wages and precarious employment increases insecurity of and need for employment.

For instance, in the case of welfare, the stagnation or reduction of welfare benefits means that states offer the same or worse benefits to those who cannot find or live off a job. This is consistent with increased numbers taking advantage of these benefits. For instance, recent reports made much of the 70% increase in Americans using food stamps, which represents a doubling of the amount spent on food stamps, since 2008. But food stamps alone are hardly enough to live off, and their increased use reflects the increase in unemployment. More broadly, American welfare benefits are not enough for most people to live off, many states recently cut benefits, and the welfare system is famously designed to spur labor market participation, not provide an alternative to it. Moreover, in Europe, where welfare benefits are more generous and less conditional, the consequence of austerity policies is, at best, to limit the growth of any such programs and in various countries to reduce or even eliminate them. Cuts to public employment and hiring freezes, increases in retirement age, and other measures mean the reserve army of labor will be larger, and most people will have fewer/poorer state provided alternatives to finding a job.

Finally, the increase in part-time, low-wage work, alongside stagnant or declining wealth at the bottom, further entrenches labor market dependence. We were unable to find longitudinal wealth data on Europe, but in the United States we have seen net declines in wealth for the bottom 60% of the population.

Share Total Wealth 1983-2009

Since wealth assets are not only an alternative source of income, but also, in the US especially a source of retirement income, this means greater dependence on the labor market for the working age population, as well as postponement of retirement, further swelling the ranks of the labor market. On top of which, wages remain stagnant and full-time work harder to find. Jobs are low-paying, part-time, and insecure and once one starts looking not at median but bottom quintiles, the situation is only worse. These trends are equally evident in Europe, where part-time, less secure employment has increased in places like the UK and Netherlands, alongside the more often commented increases in unemployment in places like Greece, Spain and Portugal.

In all, then, we can say that alternatives to employment have gotten worse or disappeared for the majority of people in the US and Europe, while the available jobs pay, on average, less than they used to and offer less security. There is every reason to think that the most likely near future of work will give us strong reasons to think about a different way of organizing work – about a better, if less likely, future.

It’s all about wages

29 May

The FT is running this week a series of articles (here but behind a firewall) on European manufacturing and how it is surviving the crisis. In an article on French industry, it suggests that focusing on the grim facts of deindustrialisation and declining competiveness in the North-East of the country risks missing much of what makes French industry successful. It argues that in some sectors France is following the German recipe of success: focus on cutting edge industries, invest heavily in research and development, and make the best use of a highly skilled (though albeit expensive) labour force in order to produce high-quality manufacturing products. The example it gives is of passenger jet engine-maker, Safran, and its more specialised companies like Turbomeca that make helicopter engines.

The article has some arresting facts and figures. Turbomeca is recruiting 200 new engineers this year, a reflection of its status as the world’s largest helicopter engine maker by volume. Safran, its parent company, is recruiting up to 7,000 new engineers, half of which will be employed in France. Its strategy has been to focus on R&D: 12% of its sales revenue was reinvested last year into research. On the Hollande government’s 20 billion Euros tax credit aimed at boosting competitiveness, the article cites the Peugot-Citroen CEO as saying that it will only bring down the company’s 4 billion Euros labour cost bill by 2.5%.

The article itself suggests high labour costs can be offset by investment strategies that focus on innovation and research. But the figures it gives all go to show that what matters is the ability to bring down the wages bill: either via internal adjustment or through outsourcing. Internal adjustment is what Southern European countries have been experiencing, with a positive impact on some export sectors. In France, Safran’s success comes from outsourcing 70% of its engine components. Much of the lower end manufacturing is done in countries with lower wages, a move that also matches German businesses. Another arresting fact: according to McKinsey, in 2009 the average hourly cost of a French factory worker was 32 Euros and in Germany it was 29 Euros. But taking into account the contribution of component suppliers from Eastern Europe, where wages are lower, the real cost of German labour was 25 Euros an hour.  In discussions of Germany’s current competitiveness, much is made of Schroder’s labour market reforms and the discipline shown by the country’s labour force. Less attention is given to the role played by this out-sourcing strategy. The FT article concludes with the suggestion that North Africa should become France’s low wage periphery in the way that Eastern Europe has become Germany’s, something Renault has already done by relocating some of its car production to Morocco.

There has been much debate about how France can regain some of its competitiveness. Some suggest a strategic reorientation away from traditional manufacturing towards more hi-tech activities. What seems obvious is that lowering wages is still the strategy overwhelmingly favoured by businesses. Given how unlikely it is that this occurs via internal adjustment in France, the most probable outcome is that French companies continue to exploit outsourcing opportunities.

Behind Europe’s employment figures

6 Jan

Recent unemployment figures released by the German and Spanish governments have bolstered the idea of a two-speed Europe. In Germany, unemployment has fallen to a 20 year low whereas in Spain it has risen relentlessly for the fifth month in a row. In Germany, there are 2.976 million people actively seeking work. In Spain, the number of jobseekers has risen to 4.42 million. Spain’s population, at 46 million, is only a little over half that of Germany’s 81 million. And yet there are almost twice as many unemployed in Spain. As a proportion of the population, German unemployment stands at 6.8% where as in Spain the rate is just below 23%.

As with the trade figures, where repeated deficits and surpluses consistently divided the Eurozone area, unemployment figures seem to tell a similar story. Those economies with the lowest levels are Germany, Austria, Luxembourg and the Netherlands. The so-called PIGS – Portugal, Ireland, Greece and Spain – have some of the highest unemployment rates.

These figures have bolstered those claiming that tough labour market reforms are the best route out of the Eurozone’s doldrums.This claim is misguided for two reasons.

The first is that the nature of the economic difficulties faced by the German and the Spanish economies are fundamentally different. They may share the same currency but they live in different worlds. For Germany, a more challenging export environment has pushed businesses to make savings in an attempt at managing the downturn. These incremendal responses are evident in the way some employers have exploited the flexible labour market, by making some workers temporarily part-time. In Spain, the experience has been one of a massive bubble followed by a crash. This has been most heavily felt in the construction industry, where a house-building boom has given way to empty, half-finished building projects. Much like in Ireland, there is no soft way out of such a crash. Without the demand for homes, construction workers are laid off. Spanish and German unemployment figures reflect not just different regulatory environments for labour but also fundamentally different national economies.

Secondly, it is far from clear, as already commented upon by The Current Moment, that Germany’s labour market reforms are the best way forward for Spain. Whilst unemployment may be low in these Northern European economies, this is because of much greater flexibility enjoyed by employers. Both Germany and the Netherlands have a very high proportion of contracted workers i.e. workers on fixed contracts that have to be renewed every 6 or 12 months. German businesses have also used various strategies – such as a reduction in working hours agreed upon by managers and workers, known as the Kurzarbeit scheme – aimed at maintaining employment levels whilst introducing savings on labour costs for businesses.

Rather than reinforcing stereotypes about successful Northern European economies and failed Southern Mediterranean economies, these figures should push to think about our goals are when we speak about employment. Is it better to maintain employment levels at all costs or should we also think about the quality of the job and the nature of the employment contract? To rely on contracted workers may provide employers with the flexility to cut working hours or shed labour when necessary and helps them escape costly social charges associated with granting indefinite contracts to workers. But if the value of work is to be judged by its connection to an idea of individual self-realisation, then the nature of the job matters enormously. The reliance on contracted labour reduces the incentive for the employer to invest in its staff. The subjective experience of overcoming difficulties, improving oneself and acquiring new skills – all of what produces the connection between work and an individual sense of freedom – is limited by more flexible kinds of working contract.

For employers, there is a downside to individuals realizing themselves through work. More confident and assertive workers are likely to be more militant and more likely to contest the authority of employers and seek better conditions and higher wages. As we have noted before, this fact help explains why jobs programmes as a way of boosting a recession-hit economy are not popular amongst many businesses and politicians. The nature of employment is therefore also a political matter, one that mediates the relationship between workers and business and that – over the medium to long term – goes a long way to shape the kind of society we live in. In the discussion about employment levels in Europe and beyond, what is important is not just jobs for all but also the kind of work that maintains a relationship between labour and freedom.

How the Other 80% Live

20 Sep

Class war is in the air! Well, not if Obama can help it. Apparently taxes and social policy are about ‘math.’ Nice one, Mr. President. Way to shed your image as an educated liberal, trying rise above the uneducated riff-raff – imply that your opponents don’t know how to do math. But of course, despite the new populist tone to Obama’s proposals, conflict and confrontation just don’t come naturally to this politician. The President’s willingness to invoke class differences might reach a temperature just shy of tepid before he overheats. For any serious discussion of class, it’s best to hit mute on the noise machine and think for ourselves.

At the broadest level, we can represent class in a single graphic. We’ve posted it before, and it’s based on pre-crisis numbers, but that only underestimates the divide:

The reason we like this graphic is that it captures a central feature of class: who has to work to live, and who does not. There are many ways of calculating out or measuring that dividing line, and there will always be people on the margin. But this graph gets at the important distinction. The wealth of the lower 80%, is pretty much all tied up in homes and pension plans, which have to be lived in or saved. Therefore, their wealth is not liquid, or at best, could last only a few months. They have no other reasonable option besides getting a job. The upper 20% not only possesses 85% of the wealth, but also takes in 61% of the income – income easily converted into more wealth (i.e. saved). No doubt those at the lower end of the top 20% could not consume their savings for all that long, at least not at their current rates of consumption, but they could if they lowered their consumption. And the rest could live on their savings – they have a reasonable alternative to working. So as a very rough cut, the 80/20 divide is one take on class. And, as the next graph from Mother Jones shows, it just so happens that the top 20% are the ones who have seen their fortunes improve relative to the rest (see esp. chart on right):

While there is plenty of commentary on the difference between the upper 20% and the upper 1%, and the difference between the upper 1% and the upper 0.1%, and so on, there is less of the bottom 80%. In fact, we led with the bottom 80% to emphasize a point we made last week: while mainstream debates about jobs and stimulus have focused on the unemployed, there are common challenges faced by that ‘bottom’ 80%, even if they are never, or rarely, seen for what they are, a working class.

Of course, there are reasons why it is hard to see that 80% as sharing common interests. They are economically divided, politically fragmented, socially dispersed – and thus easily pitted against each other. Consider the following:

The unemployed

It is reasonable to start with the unemployed, especially the increase in the unemployed. First, it is evident that lion’s share of this rise in unemployment is neither just structural, nor a product of over-generous unemployment benefits. As this BLS graph shows, the ratio of job seekers to job openings, though down from the crisis peak of 7:1, is still at 4:1:

Moreover, as Delong noted a while back, the civilian employment to population ratio has decreased by about 5% since the crisis.

The civilian-to-employment ratio measures the employed civilians relative to overall population. It is a ratio that can help indicate how many people dropped out of the job market altogether. If you add the 4:1 ratio of just those looking for work, and add in the difficult to measure, but clearly increased level, of those who have simply given up, you have severe unemployment. A severity undermeasured by an unemployment rate of 9%.

So what we have, first, is that the unemployed are in their condition not because they are lazy, or spending government hand-outs while they wait for something better, but because there are way too few jobs relative to job seekers. Moreover, second, the official stats very likely undercount the unemployed dramatically. Depending on the calculations one uses to include those who have given up, underemployment is around 12-15% (calculations by Allegretto put it as high as 16.5%). So far, then, something like the bottom 15% of workers are…not even working.

The employed, but poorly paid

Mass unemployment is not just bad for the unemployed. For fear of losing their job, coupled with the already weak bargaining power of labor in the United States, workers accept pay and benefits cuts, or simply don’t make new demands even as prices rise. Anyone who reads the news has seen some version of the statistics. This summer’s Hamilton Project report provided the most direct picture:

The Census Bureau’s recently released Income, Poverty, and Health Insurance Coverage report similarly showed a 6.4% decline in median household income since the recession began in 2007. The median income is now $49,445 (pre-tax), barely double the extremely stingy official American poverty threshold for a family of four of $22,314 (post-tax).

We have not yet found a single, clear graph on the overall decline in benefits. But reports over the past months have documented significant declines in retirement benefits, health coverage, family and medical leave and other benefits, for average workers.

The point of all this math is just to point out that it’s…more than just math. The fates of the employed and the unemployed are linked by their dependence on the labor market, and at the moment, by the weakness of their bargaining power. There is a serious discussion to be had about class, even if the so-called political class doesn’t want to have it.

Jobs and Benefits, Short and Long Term

13 Sep

Two separate points, both on problems with Obama’s jobs bill – as it stands in its yet untrimmed, ‘uncompromised’ form.

First, defenders of Obama’s jobs program are touting this report by Macroeconomic Advisors that the bill is predicted to create 2.1 million jobs over the next two years, 1.3 in the first year alone. Possibly more. That’s better than nothing. Or is it? In the short-term, it’s undoubtedly a good thing (making the bad assumption here that the bill as presented is the one that gets passed.) However, there is the question of paying for it. Obama has promised slightly higher taxes on the wealthiest, but he also called, in his speech, for “making modest adjustments to health care programs like Medicare and Medicaid.” Whether the final bill makes modest or more serious adjustments, Obama is saying he wants to trade lasting cuts to an important entitlement for a middling jobs bill that will only have short-term benefits. As the same Macroeconomic Advisors report points out, since the different bits of the jobs plan will expire by the end of 2012, “GDP and employment effects are expected to be temporary.” So a short-term bump to employment – and Obama’s electoral fortunes – facilitates an attack on a more enduring, long-term benefit. A problem that could be amplified once Republicans get down with their subtractions to the bill. One step forward two steps back?

Second, in previous posts we suggested that a problem with the jobs bill is that it will treat unemployed as a distinct interested group from the employed. More generally our point was that people who have interests in common – unemployed and the employed, low-wage work and higher-wage work, underemployed and those with two jobs – are not addressed or mobilized as if they have shared interests. We were accused in comments of focusing only on ‘labels’ or discourse, rather than actual policy. So it’s worth pointing out that some of the actual policy is more or less in line with our initial worry – dividing up the interests of the working classes.

The usually Obama-boosting Wonkblog observes that there is a potential problem with a work-sharing provision in the jobs bill. This work-sharing system, borrowed from the Germans and already picked up by some states, is a system whereby the state subsidizes an employer’s decision to keep workers on at reduced hours, rather than fire some and keep the rest on. What Wonkblog observes is that this tends to work best before workers have already been fired – ie where we are now – and what’s more, it may have “positive effect on full-time employment but doesn’t help temporary employment, which could make it harder for those who are unemployed to reenter the workplace.” This worry is taken from another paper, by Cahuc and Carillo, who point out that

“But short-time compensation programmes are no panacea. They can induce inefficient reductions in working hours. Moreover, workers in permanent jobs have incentives to support such schemes in recessions in order to protect their jobs. Employers also have incentives to support short-time compensation programmes in countries where stringent job protection induces high firing costs. Therefore, there is a risk attached with using these programmes too intensively. The benefits of insiders can be at the expense of the outsiders whose entry into employment is made even more difficult.” (our underline)

So not only might this produce an inefficient allocation of labor, but it helps protect the jobs of those who have them more than helps those who don’t have them in the first place – a double whammy, since inefficient allocation of labor will also hold down growth, which also suppresses employment. Of course, the effects, given the small size of the proposed program, are likely to be very small or unobservable, at least at first. But this does create a division of interests – the full-time employed, committed to a new program that holds their jobs in place, and which is really unconnected to serious efforts at creating jobs for those who don’t have them. Somewhere down the line, one can imagine one or the other being on the chopping block, or some trade-off needing to be made, and two segments of a group that ought to be on the same side would be put in competition with each other.

 

Who are they?

9 Sep

After Obama’s speech last night, Corey Robin pointed us to this article by Katha Pollit, which argues that, for the most part, liberals have given up talking about the poor. Pollit has a point. Relative to almost no discussion of poverty and unemployment, Obama’s speech said something. But it took the minimal approach of addressing the fate of the unemployed, rather than the overall structure of options available in the economy. And it is indeed noticeable that the old, diseased welfare-state liberalism has been feeble, especially relative to the politically ascendant progessive-neoliberalism of the Democratic leadership.

However, we’re not so sure ‘the poor’ is a better way talking about the relevant constituency. For one, ‘the poor’ are still a minority – a somewhat different one from the unemployed, it is true – but they are 14%. (Well, according to the official measure, which considerably undermeasures poverty). As such, it is not clear to us that talking about ‘the poor’ escapes any of the political problems we discussed in our post Tuesday. It creates a separate minority, with distinct interests from the many who might not be poor, but who ultimately would also benefit from a different economic order than this one. Why carve up an already fragmented electorate that ought to be organized on the basis of shared, majority interests? Why isolate the interests of the poor from those of the middle?

The other problem is that ‘the poor’ is a fairly passive category. To be sure, there are ‘poor people’s movements’ – though they seem pretty weak in the US. And there are those who use the category poor not because they seem as the objects of charity, but as groups that should or could act to help themselves. But for the most part, it is still a category connected to liberal charity and philanthropy. ‘They need our help.’

Why not say working class instead? It covers the unemployed, the poor, and many of those in the ‘middle’ who have a decent, if fragile and often debt-financed, standard of living. The working class is potentially a majority, not one amongst a number of minorities struggling for recognition of its interests. It is, moreover, an active political and social agent, at least in theory.

Of course, the background problem is that, no matter the category pundits use, the relevant group is more talked about – ‘the unemployed’ ‘the poor’ ‘the working class’ – than making its own claims. ‘They’ have only sporadically (i.e. Wisconsin) made their own claims – and for the most part seem to lose when they do. That real political problem is reflected in the way ‘they’ get talked about – fluid categories, specious identification of interests, and political half-measures as bribes for votes.

In advance of ‘the speech’

8 Sep

We plan to post tomorrow in response to Obama’s speech today. But in the meantime, we wanted to flag three small items. The first is just a statistic. Over the past three years, public employment at the state and local level has contracted by 671,000. This is further evidence for an argument we pointed to earlier: state and local level fiscal policy has worked against national policy, leaving stimulus nearly a wash. And the background political point is that federalism makes even knowing what the heck is going on in the US more obscure than it ought to be.

Second, in honor of (America’s weirdly timed) Labor Day, Mike Konczal over at Rortybomb had a very interesting discussion of the rise of free labor (second post here), including some fascinating comments by Corey Robin. The discussion was a reminder to us that the jobs issue is not just about consumption but power. A further piece of evidence for that point is that, as unemployment has risen, equally has the bargaining power of the employed fallen: the EPI briefing paper we cited earlier in the week found that 38% have seen a decline in wages, benefits or hours, and 24% lost health insurance.

Finally, we enjoyed Matt Taibbi’s entertaining account of his Sophie’s choice between screaming children and Obama’s speech Sunday, but were left with only one question: why did you ever believe Obama in the first place?

The Jobs Problem

6 Sep

In his wind-up for Thursday’s speech, Obama has made unemployment his theme. “Let’s put America back to work,” Obama said to union leaders. Ever the careful politician, Obama has not released details of what he will say, though it is hard to see how he can propose much given the budgetary concessions he has already made. It is tempting to prepare in advance a critique of the inevitable half-measures and technocratic manipulations that have been part-and-parcel of mainstream Democratic strategy for decades now.

However, there is a deeper problem. The problem is not with the inevitable inadequacy of what Obama will propose, but with how Obama wants to define the problem that needs to be addressed. The problem, as Obama wants to define it, is unemployment – ‘put America back to work.’ And of course, unemployment is a big problem. More specifically, persistently high levels of unemployment next to anemic job growth. (See Konczal at Rortybomb for a discussion of the recent unemployment numbers.) But so too is underemployment, crappy jobs, stagnating wages, and declining compensation figures. That is to say, what needs to be rejected is the attempt to present unemployment in isolation, as a distinct problem that can and should be addressed independent of these other economic problems.

The exclusive emphasis on unemployment lets the financial crisis, and the background growth model that produced it, off the hook. Indeed, it is a way of trying to address unemployment while leaving the background structure of society relatively untouched. Obama’s strategy also misrepresents the groups of people that have an interest in a new way of organizing the economy. It is therefore not just analytically but politically problematic, as it carves up the unemployed, the underemployed, the working poor, and everyone else struggling to get by, into different interest groups. This might make problems appear manageable, but it undermines the formation of effective and powerful political coalitions that might actually be able to change things.

Consider, for instance, the way focusing on unemployment lets the financial crisis, and the background, highly financialized, growth model of the last four decades, off the hook. One effect of this economic model was to produce a series of asset-bubbles and debt-financed consumption that, when it all burst, produced persistent and deep unemployment at all levels of society. As an EPI briefing paper points out, unemployment has risen for every skills class, and the ratio of jobs to workers seeking jobs is about 4:1 – this isn’t just some structural unemployment, or mismatch between skills and available jobs, working itself out. The following chart is clear:

The jobs problem is deep and structural. It springs from the structure of ownership, the post-bubble indebtedness, the flight to T-bills instead of productive investment. A real jobs program would have to address these issues, not just send some surplus construction works out to fix schools and highways. But connecting the current jobs problem with the financial crisis, financialization, and the structure of ownership is unimaginable to current leadership.

Moreover, any serious thinking about the economic development preceding and following the crisis, would have to admit that persistent unemployment was not the only consequence. A lot of the jobs have been pretty crappy, and nearly all of the benefits of the past decades of growth have gone to small segments of society. The EPI briefing paper is a rich source of information on these familiar trends (h/t Art Goldhammer). Consider income first. In the last ten years, real median income has declined by about $5,000:

Wage growth has been slower in the past two years than the previous thirty, and, as we have pointed out before, the previous thirty years have been pretty stagnant. If one adds in other forms of compensation, things have not been dramatically better. According to EPI, since the crahs 38% of families have been directly affected by wage, benefit, or hours reduction and 24% by loss of health insurance.

As for wealth, the top 5% took home 81.8% of all the wealth gains between 1983 and 2009, and the bottom 60% saw net declines in wealth:

A -1.7% decline in wealth for the bottom 80% of all Americans. Clearly, the problem in the United States with the economic development of the past decades, and with the post-crisis ‘recovery,’ is not just persistently high levels of unemployment. It is with the broader structure of the jobs created, their associated levels of income, overall compensation, and wealth. The jobs problem is one amongst a series of problematic features with the way jobs are and are not created. But these are not even issues Obama has wanted to mention, let alone address, in any consistent way.

Focusing on what has happened to the employed, not just the unemployed, matters not just in ‘policy’ but also ‘political’ terms. As a matter of policy, it suggests that more expansive thinking is needed than just a works program that might mop up some of the worst excess of recent events. But as a matter of politics it matters because presents a decidedly different way of thinking about the interests at stake than Obama’s focus on the unemployed. At the moment, Obama seems to be reproducing the political failure of the health care debate – where he focused on the 20% uninsured rather than the majority of the population who could benefit from a different system altogether. The more Obama appealed to the worst off, the more the rest believed – not so illegitimately – that their interests were not seriously under consideration. One just cannot build adequately strong political support for significant economic policies that way. In one sense folding a jobs program into a broader argument for improving the conditions of the already working classes might seem more of stretch, because it is more radical as an appeal. On the other hand, it appeals to shared interests of a majority of citizens – indeed, by some measures, to roughly 80% who have seen stagnating incomes and declining wealth. In that sense, it is just as viable a political strategy.

Policy and politics, interest and action, go together. One kind of politics – the appeal to the interests of unemployed and employed alike – implies a different set of policies. It is a more transformative approach. Another kind of politics, the one Obama prefers, is the strategy of division, isolation and containment. Deal with the unemployed separately from the underemployed, the uninsured separately from the underinsured, the poor separate from the middle, and so on and so forth. This suits a technocratic mindset – one lacking both a program and political imagination. It should be resisted all the more for that. The problem, in other words, is not just the ways Obama’s jobs program won’t work, but also with the ways it very well might work. It might work to even more deeply divide an already fragmented and confused body of citizens – a body whose shared interests are usually sacrificed at the altar of moderation and technocracy.

Wage moderation in Europe

15 Aug

Guardian journalist, Aditya Chakrabortty, recently picked up on a paper by Keynesian economist, Engelbert Stockhammer. Chakrabortty’s aim was to show how behind the curve the British Labour Party is: one of its leader’s intellectual gurus, Maurice Glasman, had been recently vaunting the merits of Germany’s social market economy, suggesting the Labour Party should look to the German experience in formulating its own growth agenda. Chakrabortty cited Stockhammer’s paper, and particularly its mention of the role played by low wages in Germany in the wider Eurozone crisis, as evidence that Germany is “the number 1 problem economy in Europe” and that Ed Milliband should look elsewhere for inspiration.

The phenomenon of wage moderation in Germany is a point that has been made before on The Current Moment. It lies behind Germany’s export-led growth model and is the result both of the government’s ability to secure wage deals with key unions and the downward pressure on wages generated by low wage competition from Central and Eastern Europe. It is misleading, however, to present this as a particularly German phenomenon. By presenting his analysis in terms of strict accounting identities, Stockhammer is able to argue in his paper that higher wages in Germany would automatically provide an alternative way out of the crisis to that of austerity and wage cuts in the Eurozone periphery.

This focus on Germany is only part of the story. Wage moderation is a European-wide phenomenon, as are flexible labour markets. Wage moderation has been institutionalized in the Netherlands as a core part of its famous “Polder model”. The Dutch approach as been to secure wage moderation both through negotiations and via the pressure of an increasingly flexible labour market. 18.5% of the total number of employees in the Netherlands are on fixed-term contracts. The figure for Germany is 14.7%. The Eurozone average is 15.6% and the figure for the UK is only 6.1% (figures from FT here – graphs are below).

Beyond the Netherlands and Germany, neo-corporatist negotiations between labour and governments in the form of social pacts have generally served to keep wages down. Stockhammer notes in his paper that no less than 29 social pacts have been made in Europe since the early 1980s, all aiming to contain the growth of wages in the interest of boosting national competitiveness.

Wage moderation has been institutionalized as a feature of European economies since the early 1980s. The pattern of European integration since then reflects this development. The terms of European monetary union, for instance, contains rules on monetary and fiscal policies, meaning that the bulk of adjustment is placed on labour markets. What we are seeing in the current crisis, particularly in the terms of the bail-out packages, is an attempt to force labour markets in peripheral Eurozone countries to shoulder the burden of adjustment, as required by the terms of EMU. Responding to these attempts requires an analysis that goes beyond Germany and looks at the trajectory taken by European societies over the last 20 years.

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