Posts Tagged ‘unemployment’

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Right now, almost five years into the U.S. economic “recovery,” there are about 9.7 million workers who are officially (U3) unemployed, 3.5 million of whom have been without a job for 27 weeks or more (according to the Bureau of Labor Statistics).

For most Americans, the plight of the millions of their fellow citizens who have lost their jobs and have had a great deal of difficulty finding another one is a pressing political problem and social disaster—an indictment of current economic arrangements, which simply haven’t been able to provide an adequate number of jobs for those who are willing and able to work. There’s simply not much to debate: current economic institutions and policies have failed to generate the appropriate level of employment or path to employment, especially for the millions of workers who have been rendered superfluous and remain so after months and sometimes years of looking for another job.

But for mainstream economists and policymakers there is a debate to be had: are the long-term unemployed actually part of the labor force, and do they serve to dampen increases in wages and therefore to slow inflation? For Alan Krueger, Judd Cramer, and David Cho, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor-force withdrawal rates, and as a result they exert little pressure on wage growth or inflation. Therefore, it is the short-term unemployment rate that is a much stronger predictor of inflation and real-wage growth than the overall unemployment rate in the United States. William C. Dudley, however, sees things differently: the long-term are “simply unlucky,” having been rendered jobless during a particularly difficult time. But, as the short-term unemployed pool becomes depleted, the long-term unemployed will become more relevant to the labor market supply. So, their impact on wages and the labor market will likely increase as the labor market tightens.

As it turns out, what is interesting is not the different conclusions of the participants in this debate but, instead, the shared terms of the debate. First, both sides of the debate presume that the line of causality runs from wages to inflation. Neither side is willing to admit that the profit rate, the return on capital, plays any role in determining the level of prices. It’s as if the only cost of production is the price of labor, and the price of capital is entirely irrelevant. Therefore, if and when wages rise, they expect the overall level of prices to go up. In other words, the presumption is that capital will get its “normal” rate of return, which can only be safeguarded from wage increases by raising the price of output.

But the second shared term of debate is perhaps even more interesting: both sides presume that the number of unemployed workers determines the wage rate. This runs counter to the usual neoclassical model according to which it’s the level of wages that determines the amount of unemployment. The shared presumption of both Krueger et al. and Dudley is that causality runs in the opposite direction: from unemployment to wages. For them, the size of the relative surplus population or reserve army of labor determines the ability of workers to command higher wages. The only remaining point of debate, then, is whether the long-term unemployed will remain unemployed (and therefore exert no influence on the wages of employed workers) or if they will return from the margins, overcome their “unlucky” status, and become part of the active labor force.

What is missing, of course, is an analysis of where the reserve army of labor itself comes from. But, for that, we need to move beyond the discussion of the relationship among unemployment, inflation, and job openings (and therefore of Phillips and Beveridge curves) and conduct an investigation of how the accumulation of capital operates on both sides of the labor market. We would then understand, as that trenchant critic of political economy did almost 150 years ago, that the entire reserve army of labor—including both short-term and long-term unemployed workers—”belongs to capital quite as absolutely as if the latter had bred it at its own cost.”

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Jeff Koterba color cartoon for 7/8/2011 "Tweet Obama" LoweC20140502_low

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A persistent topic of discussion with my once-a-week lunch partner is whether or not the elite is aware of economic inequality. Are they aware of inequality and choose to do nothing about it, or are they so sheltered they don’t even see the grotesque levels of inequality the current economic and social system has produced?

Well, to judge by the latest Global Risks report from the World Economic Forum (pdf), economic inequality has appeared from nowhere and has jumped to the head of queue for the last three years. (And it’s now joined, in third position, by unemployment and underemployment.)

However, as you can see from the chart below, inequality doesn’t even figure in terms of the significance of the impact, with the highest spot occupied by fiscal crises, after many years of focus on financial crises.

global risks-impact

One interpretation of this disjuncture between the high likelihood but low impact of inequality is that the members of the global elite are well aware of the growing gap between the tiny group at the top and everyone else but it’s not really a pressing problem. It’s simply their reward of how the economic and social system is currently organized.

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In a recent speech, Fed Chair Janet Yellen admitted that “the recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics.”

Some of those statistics are contained in the just-released Job Openings and Labor Turnover Survey (JOLTS). While there may have been 4.2 million new job postings in February, 300,000 more than in January, many of these are low-wage jobs (temp jobs in business services, food-service jobs, jobs in retail trade, and so on), many of them at or just above the minimum wage. And, even though they’re less-then-desirable jobs at less-than-desirable wages, there were still 2.5 unemployed workers for every job posting. So, given that reserve army of labor, employers have absolutely no reason to offer higher wages. Which is why the so-called quits rate—the number of job quits divided by total employment, a measure of the willingness of workers to leave their current jobs in search of new, better, higher-paying jobs—remained at 1.7, virtually unchanged over the last 4 years.

The economic statistics are thus clear: American workers have been jolted and they’re still waiting for their recovery.

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Let’s leave aside for a moment whether the participants were the right ones to call on (I would have turned to plenty of better commentators, who have read both Marx and contemporary scholarship on Marxist theory, to offer their opinions) or even whether they get Marx right (very little, as it turns out).

What’s perhaps most interesting is that the New York Times felt the need at this point in time to host a debate on the question “was Marx right?” and, then, that most of the participants admit that Marx did in fact get a great deal right.

The problem is, of course, that at this point in time mainstream economics (in either its neoclassical or Keynesian varieties) is not a particularly good guide for analyzing or proposing solutions to the key economic problems of soaring inequality, massive unemployment, and generalized insecurity of a broad mass of the population in the United States and in other high-income countries. So, I suppose it’s not surprising people continue to turn to Marx for ideas about how to make sense of the economic contradictions that caused the Second Great Depression and the new contradictions that right now are preventing a full recovery of capitalism.

In the end, what is key to Marx is not this or that prediction (of which, as it turns out, there is very little in the texts, although there certainly are lots of tendencies that critics are hard put to ignore or effectively counter) but, instead, the idea of critique. Because what Marx set out to do over the course of the three published volumes of Capital was provide the cornerstones for a far-reaching critique of political economy. And the method of that critique—a two-fold critique, of mainstream economic theory and of capitalism as a system—is what endures, precisely as a challenge to what passes for serious economic analysis today.

Marx, then, was surely right about one thing:

if constructing the future and settling everything for all times are not our affair, it is all the more clear what we have to accomplish at present: I am referring to ruthless criticism of all that exists, ruthless both in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.