Behind Europe’s employment figures

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

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

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?

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’

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

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

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.

Employment Math, or How to Make Prejudice Look Scientific

In lieu of our own long post we highly recommend this excellent take-down of Narayana Kocherlakota over at Rortybomb. Who is Kocherlakota? The President of the Minneapolis Fed, and one of three who dissented from the Fed’s decision to keep rates low until 2013. Rortybomb shows that, among other things, Kocherlakota plugs some really screwy ‘gut assumptions’ into a crappy and heavily criticized Nobel Prize winning formula for explaining unemployment rates. This formula backs up the bullshit position that the spike in unemployment is more or less because lazy workers prefer to collect unemployment insurance than go get all of those great jobs on offer there (and because employers are scared of tax raises!). One of the nice things about the post is that it shows that both the formula and the empirical assumptions plugged in are equally distant from reality.

It’s as if the biggest problem in the economy were that we were not exerting enough pressure on the jobless to go back to work, rather than on investors to create jobs. That’s even more ass backwards than Tea Party attitudes about the debt-ceiling.

Stimulus, jobs and finance

A recent article in Economist Voices by two economist from Santa Cruz, Joshua Aizenman and Gurnain Pasricha, points out that the total fiscal stimulus has been decidedly less than we might think (the EV article is paywalled, an earlier working paper version availablehere). In fact, the results of their study show “that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009″ and that the US “ranked at the bottom third in terms of the rate of expansion of the consolidated government consumption and investment of the 28 countries we studied.” The clue is in the first quote – while the national government engaged in a major stimulus, the state governments contracted, leaving overall stimulus just above zero. This should give anyone pause who thinks the fiscal stimulus strategy was tried and failed. And it reminds me of a favorite point from Daniel Lazare’s Frozen Republic, which is that the complexity of the American federal constitution makes national coordination of joint efforts too confusing. This is a democratic problem – if you can’t actually tell what’s going on, and who is responsible for what, power remains obscure, and holding politicians to account is a more difficult task. After all, one could be excused for having thought theUS undertook a major fiscal stimulus – and for the most part, the effect of state and local level contraction has gone under the radar.

But what if there had been a more serious fiscal stimulus? While we have defended some of the virtues of, say, a jobs program against those who think monetary strategies would work better, there are some significant questions to raise about them that speak to the underlying organization of the American economy, and its place in the global economy. In a recent attack on Obama and the Democrats, James Galbraith argues the stimulus failed to restart the economy because of “the complete collapse of the financial sector.” (h/t Art Goldhammer) Now the statistics cited above might suggest that financial collapse isn’t the only reason – there wasn’t nearly the stimulus one might think. But Galbraith points to what is surely an important issue “the for profit job-creation model – the ‘Great American Jobs Machine’ which was predicated on bank credit and venture capital – is moribund.” At the very least, the financial model of the American economy is not just in crisis but in what is increasingly looking like long-term stagnation. Democrats have punted on this issue - sitting around praying that private investors will soon start investing more is just political thumbsucking.

On Galbraith’s account, the only solution would be what is now politically impossible – government jobs programs. Curmudgeon that he is, Galbraith doesn’t go for a classic infrastructure project, crankily suggesting that the “pampered and educated children” of the middle classes “would not take the work and would not do it well if they did.” Instead, Galbraith holds out “state and local government public service” and the “non-profit sector, funded indirectly by the public” as growth areas. If this isn’t a failure to take the bull by the horns I don’t know what is. Having declared the financial model of jobs creation moribund, Galbraith seems to think the US economy could possibly get along without producing anything. If the financial model is indeed in crisis, then that is a deeper structural problem with the American economy than an increase in public service employment could address – how, eventually, would the debt get paid back if all the money were going into activities that produce no foreign exchange? Are we seriously going to soak up ten percent unemployment with more policemen, firemen and health workers?

Put another way, there is no getting around the collapse of American manufacturing, and the problems with the United States having become the world’s banker. Re-orienting the American economy means changing not just its domestic priorities but its international position as well, including addressing the global imbalances that have underwritten the American financial industry. We have no clear idea of what the right answers are to this problem, but it does not help to sweep them under the rug. And it is a further reminder that significant change, nevermind improvement, is more than a technical fix or two away.

 

 

Jobs and Power

When we were back in college, we were told that 5% unemployment was roughly the ideal rate for fully developed economy. (It was called the ‘non-accelerating inflation rate of unemployment,’ or rate of unemployment below which inflation would start rising. To our minds, it was something of a fudge term invented by mainstream economics to redefine full employment, but nevermind.) It so happens that before the crash of 2007-8, the United States was just below 5% unemployment. However, according to a post over at the Wall Street Journal’s Real Economics, if we set ourselves the low expectation-goal of returning to pre-crash unemployment, we would not reach that level until December 2024. That calculation is based on assuming that jobs and the labor force grow at the rate they have for the past six months. Those are, needless to say, dismal prospects.

Anemic job growth is bad news not just for the unemployed, but for the currently employed too. A large, and desperate, reserve army of labor weakens the bargaining power of existing workers, a point that another recent Real Economics post made clear. According to a survey of 600 employers, paid family leave is down from 33% in 2007 to 25% now: ”Other casualties include assistance with adoption expenses, which tumbled to 8% from 20% in 2007; elder-care referral services, down to 9% from 22% in 2007; and mentoring programs, which fell to 17% from 26% in 2007.” The same goes for wages. In the US, families may be making more, but it is not because wages are higher, but because they are worker longer hours – “In 2009, for instance, the typical two-parent family worked 26 percent longer than the typical family in 1975.” This is a “jobless and wageless” recovery.

This news goes to the heart of a recent debate over the use of fiscal or monetary policy – ie jobs programs and payroll tax cuts or higher inflation targets. This debate began between Matthew Yglesias, who argued for higher inflation targets, and Corey Robin and Doug Henwood, who argued for jobs programs and against the effectiveness of monetary strategies. The debate soon ballooned outwards, getting picked up, at least thematically, by Paul Krugman and Brad Delong. Henwood’s ‘the limits of easy money‘ is the best (and seemingly final) summary and statement of the stakes of this debate, as is this post by Corey Robin (which also contains the links to the earlier posts, for those who want to follow all the ins and outs). There is an important point from this debate that bears directly on recent job market news regarding declining benefits and stagnant wages. One thing that both Henwood and Robin point out is that a jobs program isn’t just a good form of economic stimulus – especially when current monetary strategies haven’t done much – it is also a good way of increasing the economic power of those who don’t have much:

Henwood – “[a jobs program] would put a floor under employment, making workers more confident and less likely to do what the boss says, and less dependent on private employers for a paycheck. It would increase the power of labor relative to capital.”

Robin – “what a government jobs program would mean to us…greater chances of unionization; better options (often) for pay and benefits; greater options for exit from bad private-sector work and thus, in the long run, better options for voice and power at that work.”

A jobs program is no silver bullet, there are undoubtedly some downsides. But this point, especially in the current moment, is an important one to make. Different strategies for stimulating the economy are never just a matter of which technical fix is the most appropriate. They are also a matter of how power is distributed in the economy, and thus human freedom. There is often a tendency in public debates to argue over the ‘right’ answer, as if this can easily be determined independent of political questions about whose interests are served best, and how this shapes the lines of power in society. But, as we have tried to argue previously regarding financial regulation, expert knowledge and narrow policy concerns are not so easily extricated from questions of power and values. That is why unemployment is a problem for everyone, not just the unemployed – it’s not just a matter of people’s ability to survive, but to exercise power in and over their daily lives.

Of course, as we have stressed in previous posts, we can also see here some of the underlying political economy of certain economic proposals. Employers know quite well the dangers of a more assertive labor force. That is why a something like a jobs program would require more self-assertion amongst workers, and a greater willingness to make openly class based appeals by political leadership. Even more minimally, it would require political leaders  to be more willing to accept and make explicit that, in choosing between forms of stimulus and budget deals, some interests have to be sacrificed to others, no matter which policies they end up choosing. In the conservative, tax-cutting and benefits-slashing climate of the debt-talks, honesty on these issues is in even shorter supply than jobs.