Debating the industrial reserve army

Posted: 22 May 2014 in Uncategorized
Tags: , , , , , ,

krueger_cramer_01rev2

source

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.”

Comments
  1. […] 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 moral 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 …read more […]

  2. […] couple of weeks back I wrote that, when mainstream economists debate the causes of inflation, they focus only on labor costs […]

  3. […] couple of weeks back I wrote that, when mainstream economists debate the causes of inflation, they focus only on labor costs […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s