Unemployment

It is reported that 200 million people are unemployed globally. In developed countries they are disproportionally young people. Yet in the UK we work absurdly long hours if we happen to have a job.

If it is considered that we are becoming more "efficient" and can make stuff with less labour than in the past I do not see why unemployment should be a problem. What is the point of employment? At bottom I would say it is to make stuff. So if we are making the same amount of stuff with fewer man hours I do not see why anyone's wages should have to fall if they do fewer hours. So it occurred to me to wonder why income is related so directly to employment. What do you think?

The solution to unemployment which is proposed by the neoliberal position, embodied by the IMF and others, is a more "flexible labour market". It is not that they suggest that alone will work: but it is an integral part of their analysis of the problem and it is imposed very widely, as already discussed in the "dont' do as I do thread".

I was discussing this recently on another board and a poster there laid out the thinking behind this quite succinctly:


That is my understanding of the theory behind this policy too. It bears on the question I have asked above, because, as the quote points out, the notion is that it is not possible to provide secure jobs in an economic downturn if employers incur costs for social provision and are unable to hire and fire with ease.

The problem with that is the fact that they do not provide secure jobs in times of economic boom either: the high unemployment in this country since 1980 testifies to that. It is true that the rate of unemployment fell during the so called boom: but that was at least partly artificial because of the changes in entitlement and the changes in the way the count was calculated. The fact is that employers will always want complete freedom to hire and fire at whim: those states in America which have no worker protection at all are the ultimate aim, I suggest.

Once those rights are lost it will be the devil's own job to get them back. But what is the consequence of casualisation of the work force? Insecure workers accept lower wages, and live with periods of unemployment. It follows that they cannot consume as much, and that will reduce demand and thus prosperity. Of course one can say that a reduction in demand is a good thing, on green grounds,for example. But that is a completely separate issue and not at all what mainstream economics proposes as a route to prosperity.

To me this is an opportunistic attempt to strengthen the power of the wealthy by taking advantage of desperation: it is clear that the race to the bottom suits, and it goes hand in hand with the story that the problem is that we cannot compete with low paid workers in other countries, which I have discussed before. One cannot accept that analysis unless one accepts all the underlying assumptions about human nature and economic "laws" which underpin it. But at the same time one has to reject some of those same assumptions in order to get to the conclusion: and that is a sign of a dishonest argument, IMO.

According to neoliberals, a firm will continue to employ people until the return on doing so equals the cost of doing so. That is how they are supposed to maximise profit: and it follows that they will employ fewer people if the costs of doing that are higher. Thus better benefits mean less employment, on this thinking

Steve Keen purports to have shown that this is not true: and I find his exposition difficult to follow, but if I have understood him correctly he is persuasive. His critique rests on one obvious fact: a market does not comprise one firm and the output of each firm affects every other firm in competition with it. In order to get to the conclusion that supply will increase until there are diminishing returns you have to assume unlimited demand. But there is no unlimited demand and so this is unlikely on the face of it. Thus the constraint on production is not about cost: it is about demand.

Poorly paid and insecure workers do not optimise demand. If that is accepted as a real world observation then a more "flexible" labour force necessarily reduces output in the long run: which is the opposite of what the theory predicts. But it appears to be the case, because wherever this policy is pursued the expectations of growth are found to be optimistic and the whole cycle starts again. We have seen this in Greece and in many other countries where IMF prescriptions have been followed. We saw it in the 1930's as well.

The tidy models which underpin this notion do not pass the test of empirical experience, so far as I can tell.

Hi Fiona,
since you're quoting me, I'll add a little bit of further information.

This quote was in regard to the rationale behind the[ agenda 2010 labour market reforms. These were, in fact, carried out by a left-of-centre (SPD/Green) government, and followed several years of unsuccessfully attempting to reduce unemployment via "job summits" between employers and trade unions.

since I can't get the URL button to work withi this forum software, simply google "agenda 2010 dw" to get a good english-langage background on the reforms from deutsche welle.

I don't think either the SPD or Greens would consider them selves "neo-liberal" - although certainly, the Left (die Linke) party in germany would make that charge, precisely because of these reforms.

www.dw.de/dw/article/0,,988374,00.html

That is the link you want ballymichael. This forum does not let you link till you have 5 posts I am sorry to say.

I am not surprised by the provisions: it is the same old non answer to the wrong problem.

As to whether the SPD and the greens would describe themselves as neoliberal: I have no idea. I know the uk labour party wouldn't. But they are definitely ducks

http://www.guardian.co.uk/society/2012/jul...omment-17423359

Our government is now going to make the long term unemployed work for no money, or lose their benefits. Yet another punitive policy demonising the poor and adversely affecting the rest. What do they think the effect on real jobs is going to be? On wages?

They are not so stupid: that is what they intend.

I am coming back to this topic because it seems to me that the more I think about it the more there appears to be a muddle at the heart of the analysis of unemployment: and that muddle is used to skip about between different notions of the causes of unemployment which are, as usual, not made explicit. Such obfuscation serves ideological agendas and without teasing them out we cannot see the premises which underly various policy prescriptions: nor the implications of those prescriptions for the people most concerned.

The first thing to notice is that most people agree that there is an irreducible level of unemployment no matter what we do. This arises because there is a lag when people change job. For example, if there is full employment it is still the case that a worker who is laid off will take some time to find a new job, and during that period she will be unemployed. Similarly when a person leaves full time education there will be a gap between the last day of school and the first day of employment, most likely. In that gap that person will also be unemployed.

This kind of unemployment is not really a problem, and it is normally assumed it will be about 1-2% of the workforce. None of the people who experience this kind of unemployment will be in that position for long: and it is likely, I think, that the irreducible minimum partly reflects the fact that in times of full employment workers will more willingly leave a job where they are not treated with respect; or where the wages offered are less than they could get elsewhere.

During the post war period up until the late 1970's some parts of this country (notably London) were in precisely that position. This was because economic policy aimed to achieve full employment, and it was largely successful over the piece.

There were a number of consequences which followed from that: for example during that period the workforce enjoyed a greater share of the wealth produced than they had before or after. That is now depicted as a bad thing, and we are told stories of the unions "holding the country to ransom" etc. But that is a frankly silly. The workforce did get a greater share and the wealthy a lower share. There is no theoretical nor scientific basis for any particular share being "right": it is largely a matter of what you can negotiate and there are various ways of doing that. In this country there is little cooperation between people whose interests are obviously opposed: in other countries I understand that there is more recognition of the issues, and so you have things like workforce representation on company boards. Sometimes we are told that works well: some say it leads to "capture" of those representatives such that they then "change sides". But however you go about allocating this wealth between profit and wages and investment for the future it is obvious that there are different interests and that the resolution will be the outcome of negotiation. The relative power in those negotiations is inevitably impacted by the level of unemployment outside the particular firm or industry. Everybody knows that. What does not seem to be acknowledged is that mass unemployment is actually desirable from the perspective of the wealthy, for that very reason.

In my family this was known. We did not buy the various stories which supported the case for a shift away from full employment policies. We listened to the stories of "over mighty unions" and we looked in vain for instances of shop stewards sacking executives for poor performance or for misconduct. We could not find the cases where executives had to "clock in", on pain of sacking. It seemed to us the power lay just where it had always lain: with the money.

When there was full employment workers did have more power: but note that power lay in the ability to resign and seek work elsewhere. It is not much: but it is enough to ensure you do not have to eat all the toads they serve you.

The story told was that workers were entirely reckless, using trade union power to demand wages and conditions which would drive the firm out of business: in short they were infantile and did not recognise their common interest with the employer to keep the business going. That is arrant nonsense. If you faced a person with power and no appreciation of their own interest in that way, you would open the books and show that there is no scope to meet such demands without attendant bankruptcy. That may well be the situation in countries where worker representation on the board is common place: we are told that industrial relations in such countries are better and Germany is often cited. Some of the worker representatives may be "captured" (quite likely) and some may not understand the information presented (again quite likely for it will be spun in particular ways): but if the process is honest then it is extremely unlikely that workers will destroy their jobs even if there is alternative work available. We have great deal of inertia: we have kids at school and rents/mortgages to pay. Most folk prefer to stay where they are. especially if their conditions are fair and they can see why they are as they are. If they choose to leave a job they have private reasons: they most certainly do not wish to do so in circumstances where the pursuit of alternate employment means competition with all of their erstwhile colleagues.

In this country it seems that the employers would not take a cut in their share, readily. They preferred to reduce investment and so workers got a greater share: and employers got a bigger share than would otherwise have been the case if they had invested more of the profit in capital equipment. Over that period there were continual complaints about low productivity: and this was blamed on lazy workers. In reality it was usually an outcome of lower investment than was seen abroad: and in the long term that was destructive. Somehow that whole history has been rewritten.

But the kind of unemployment you get when a full employment agenda is leading policy is not the kind of unemployment we see now. It is a very long time since 1-2% has been the norm or even an aspiration. Yet we continue to talk about unemployment as a "lifestyle choice". There is a sense in which that irreducible level of unemployment I have been discussing is in fact such a choice: but that is nothing to do with the forced unemployment which we see when there are not enough jobs. The narrative depends on clouding the difference and that has been very effectively done

In the last post I was talking about one kind of unemployment: and it is normally called "frictional unemployment". There are others with names as well and so now I turn to what is called "structural unemployment".

This kind of unemployment arises when there are enough jobs for the number of people who form the workforce: but they are in the wrong places or they need skills the actual unemployed don't have. If we accept the conventional story this is bound to cause more long term unemployment than "frictional unemployment" because it takes time to retrain or to relocate. But that bears thinking about, and it does not seem to me to be true at all.

If we consider a mismatch between the skills of the unemployed and those required by a company. They cannot recruit a trained workforce for there is not one. So it seems to me that what they can do is recruit people and train them. I cannot see anything wrong with that. But as I have noted before, private business has exported the costs of training on to the public purse and it whines that the state is not providing the kinds of skills it needs. Why the hell should it? This is corporate welfare writ large. Moreover, having exported those costs they guarantee no return whatsoever for that privilege: they do not guarantee the jobs of those who we have paid to train for their convenience. Instead they simultaneously demand a more "flexible" (read insecure) workforce and a right to hire and fire at will. And every time they do this they demand that we again provide fresh training for those unemployed people. In short the "structural unemployment" which is based on a skills imbalance is nothing of the sort: it is a "lifestyle choice" for the employer who takes and gives nothing back.

You can see that quite clearly in the skills demanded for particular jobs: so now we have to have "training" for shop workers which is so extensive that it requires the unemployed to work for nothing while doing that training: sometimes for weeks. This is lies, clearly. But it does mean that graduates stack shelves and shelf stackers are on the broo: and it is their fault for not having the "skills" to stack shelves. When did that become so complicated? And how did it come about that it is now not only unreasonable to expect the employer to provide the training:but if he does magnanimously do that he has to make a profit out of it?

Similarly: the jobs are in the wrong place? How did that happen? By what logic is the workforce to move and the business stay put? It seems to me that it is a particularly stupid and incompetent employer who sets up in a place where there are no workers. Shouldn't the much vaunted market forces correct that automatically?

A third form of unemployment is called "cyclical unemployment". This is a hard concept to understand, but it is the source of mass unemployment and so we have to get to grips with it. At bottom we are asked to accept that there is a business cycle and that at some points in that cycle there won't be enough jobs for everyone who wants one: at least not at the wages they are prepared to accept. That second qualification is not primary, so far as I can tell. So first we have to consider why there should be a cycle at all. I am not sure why: I cannot find a convincing explanation.

On the face of it, we ought to have a community which wants certain goods and so sets out to make those things. If we imagine a village then let us suppose for the sake of simplicity that they want wheat; meat; furniture and metal goods. At the outset everybody in that village is self sufficient. They are subsistence farmers and they have some skills in woodwork and in metal work: they have fields and trees and they have a wee iron mine. In this situation it is literally not possible for anyone to be unemployed, so far as I can see. Every year everybody makes what they need and they work whatever hours it takes for them to do that. If they have a surplus of something they can trade: perhaps they can swap some wheat for some fish from a village on the sea, for example.

Some people will not be able to work: but they will be ill or old or young or pregnant: they are not unemployed. Rather they are people who are not able to contribute at present and ideally the community will support them in those periods. I believe that is what happens in subsistence economies, one way or another. It takes famine or some other natural disaster to get to a state where some are allowed to starve: and that tends to hit the whole community, not selected unfavoured individuals. The impact may not be equal: but it is not at all easy to predict how any given community will respond to scarcity and I think it is at least as likely they will share what they have: for they know each other. It is really not easy to watch Mrs McGubligan starve to death while you have food. Not when she used to bring you pies and babysat your children at need. There is always "Buddy can you spare a dime", but that was indeed a community wide disaster, and it was in the context of urban living where it is easy to hide from the people you impoverish.

So how do we get from that to mass unemployment predicated on a business cycle? You would think that once we moved into industrial production and greater surplus the same process would apply. The community still needs stuff: we produce it in a different way through specialisation and greater use of technology: but we need the same amount of stuff (or, given notions of unlimited wants, more stuff) every year. So why do we have a cycle?

Marx would say because of over production, I think. We make too much stuff in year one so we need to make less stuff in year two: and that means we need fewer workers in year two and so we get unemployment. That doesn' t make a lot of sense to me, if it is really how we behave. I thought this private enterprise malarky was supposed to be efficient.

http://www.aeonmagazine.com/living-togethe...esian-utopiav1/

This is a link to an essay about the final question in the post I have quoted. It is a more optimistic view than the ones I normally post, but hey, it is New Year! I still think the question raised is important and I do not believe we have to live in the kind of miserable society we have created. This says how and why

www.imf.org/external/pubs/ft/wp/2013/wp1310.pdf

The link is to an IMF working paper and I find it interesting.

The subject is something called Okun's Law. This is a "law" in macroeconomics:and that means that it is not a "law" at all, arguably. It is an observation, however, and it was first posited in the early 1960's. At that time macroeconomics still bore some relation to the real world, and so observations generated data which then led to hypotheses. That is no longer the case, too often.

The paper sets out to examine whether Okun's law still holds and it concludes that it does.

Okun's law states that there is a regular relationship between output and unemployment, such that a fall in output produces a rise in unemployment, and vice versa. That matters because it means that unemployment can be reduced by measures to increase output: and output can only be encouraged if there is demand for it. So it follows that measures to increase demand will have the effect of reducing unemployment. As I understand it this is a fairly short run effect and what happens in a longer time period is not addressed in this paper, nor, I think, in Okun's proposition itself.

Neoliberals deny this relationship. We have had the very silly notion of "jobless recoveries" for quite some time now, and it is taken seriously, for some reason. I am not going to get into that because it makes my blood boil.

The authors investigate the claims that the law no longer holds, by examining data for the US from 1948, and for 20 other advanced countries from 1980. They find that the law is robust in explaining short run unemployment patterns: unemployment is caused by shifts in demand,in line with prediction if the law holds. They also note that the size of the relationship varies between countries due to particular features of the labour markets in those countries, certainly. They tried to find a reason for those variations but were not particularly successful: but interestingly they were able to rule out the effects of employment protection legislation as an explanatory variable.

As ever the paper is full of sums. I cannot judge them. I note that there are many assumptions which they say are difficult to prove: for example they assume there is a "natural" rate of unemployment which seems to equate to the "frictional unemployment" I referred to in an earlier post.

They also acknowledge the difficulty in establishing a figure for "potential" output, and that matters because of the importance of "slack" in the economy for GDP. Indeed that is one of the main points of difference between different views of why we are where we are: the policy prescriptions are different if you believe that all the factors of production are being used to optimum effect (that is there is no output gap) than if you don't. Neolibs (and neo keynesians) assume that it is always the case that we are either in that position (no output gap) or moving towards it ( assuming no government or other outside intereference in the market): others don't.

I am not in a position to judge whether their approach to estimating those factors is valid or not, but it is not ignored and they use a variety of different methods to make those estimations. Apparently those methods are widely accepted: I can only take their word for that. At any rate they note that the simple assumption of a constant rate of natural unemployment and a constant rate of increase in potential output is not warranted and although they do the sums that way they also adopt a different method where those assumptions are not made. The outcome in both cases fit the data, with the second being a better fit, apparently

They go on to consider why some analysts have concluded that Okun's law has broken down, and why they consider there is a phenomenon called a "jobless recovery" which needs to be explained. Since they find that the law has not broken down they do not accept that there is a problem in need of an explanation. What they find is that after previous recessions output exceeded the long term trend: effectively closing the output gap which the recession produced: that is what has changed

If this paper is correct then a fall in demand causes unemployment to rise in the short term: and the corollary is that a rise in unemployment causes a fall in demand.

Austerity sucks as a policy, on this basis

When do you think that was written?




http://mrzine.monthlyreview.org/2010/kalecki220510.html

http://www.ad.nl/ad/nl/1014/Bizar/article/...ten-vegen.dhtml

This is in dutch. I got the gist from the translate tab, and I gather

1. Man worked as a street sweeper in the Hague
2. City made cuts and he lost his job
3. He claimed benefits
4. He has to sweep the streets in the Hague as a condition of getting benefits which are 400 euros a month less than the wages he used to get for doing exactly the same thing
5. This is obviously good for him, because he needs to gain experience and good work habits.

If anybody doubts that the plutocratic story is a lie this should sort that out for you