Posts Tagged ‘unemployment’

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Apparently, “late capitalism” is the term that is being widely used to capture and make sense of the irrational and increasingly grotesque features of contemporary economy and society. There’s even a recent novel, A Young Man’s Guide to Late Capitalism, by Peter Mountford.

A reader [ht: ra] wrote in wanting to know what I thought about the label, which is admirably surveyed and discussed in a recent Atlantic article by Anne Lowrey.

I’ll admit, I’m suspicious of “late capitalism” (like other such catchall phrases), for two main reasons. First, it presumes and invokes a stage theory of development, which relies on identifying certain “laws of motion” of capitalist history. That’s certainly the way Ernest Mandel understood and developed the term—as the latest in a series of necessary stages of capitalist development. For me, the history of capitalism is too contingent and unpredictable to obey such law-like regularity. Second, “late capitalism” is meant to characterize all of a certain stage of economy and society, thereby invoking a notion of totality. Like other such phrases—I’m thinking, in particular, of “globalization,” “empire,” and “neoliberalism”—the idea is that the entire world, or at least what are considered to be its essential elements, can be captured by the term. As I see it, capitalism exists only in some parts of the world, some but certainly not all economic and social spaces, and, even when and where it does exist, it assumes distinct forms and operates in different modalities. Using a term like “late capitalism” tends to iron out all those differences.

So, I’m wary of the notion of “late capitalism,” which for both reasons may lead us astray in terms of making sense of and responding to what is going on in the world today.

At the same time, I remain sympathetic to the idea that “late capitalism” effectively captures at least some dimensions of contemporary economic and social reality. Here in the United States, there’s clearly something late—both exhausted and exhausting—about contemporary capitalism. In the wake of the worst crises since the first Great Depression, growth rates remains low, leaving millions of workers either unemployed or underemployed. Wages continue to stagnate, even as corporate profits and the stock market soar. And the unequal distribution of income and wealth, having become increasingly obscene in recent decades, has ushered in a new Gilded Age.

As Lowrey explains,

“Late capitalism” became a catchall for incidents that capture the tragicomic inanity and inequity of contemporary capitalism. Nordstrom selling jeans with fake mud on them for $425. Prisoners’ phone calls costing $14 a minute. Starbucks forcing baristas to write “Come Together” on cups due to the fiscal-cliff showdown.

And, of course, the election of Donald Trump.

What is less clear is if “late capitalism” carries with it a hint of revolution, whether it contains something akin to the idea that the contradictions of capitalism create the possibility of a radical alternative. Even if contemporary capitalism is exhausted and we, witnessing and being subjected to its absurdities and indignities, are being exhausted by it—that doesn’t mean “late capitalism” will generate the political forces required for its being replaced by a radically different way of organizing economic and social life.

But perhaps that’s asking too much of the concept. If it merely serves to galvanize new ways of thinking, to recommit us to the task of a “ruthless criticism of everything existing,” then we’ll be moving in the right direction.

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Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

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And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

Apparently, mainstream economists are trying to shrug off the label of the “dismal science.”

On this side of the Atlantic, we have the spectacle of Martin Feldstein asserting that GDP statistics are deceptive and the economic situation in the United States really is better than it appears.

And then, across the pond, there’s Valdis Dombrovskis, the European Commission’s vice president for the euro, arguing things in Greece are just fine. In his view, the Germany-sponsored rescue program “itself is on track. The Greek economy is recovering.”

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It just so happens Dombrovskis was the Prime Minister of Latvia, from 2009 to 2014, who led the imposition of the Draconian austerity program in his home country.

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Meanwhile, unemployment in Greece remains at 23 percent, well above the Eurozone average. And the IMF and European institutions are demanding further austerity measures (equivalent to 2 percent of gross domestic product) before agreeing on a new deal to aid Greece.

It’s as if nothing has been learned in the past eight years—which means the outlook for Greek workers, like those in the United States and Latvia, can only be described as dismal.

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Special mention

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Readers know the old adage: in this world nothing can be said to be certain, except death and taxes.

And, we should add, employers complaining they can’t find enough good workers.

The fact is, if workers were really scarce, their wages would be rising dramatically. That’s how things works in a capitalist labor market: employers who want to hire workers offer higher wages.

But, according to the latest report from the Bureau of Labor Statistics, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.84—and weekly earnings by $1.34. That’s an annual rate of just 2.1 percent, the same as the rate of inflation.

Workers’ wages continue to increase at a very slow rate because the situation is exactly the opposite of what employers claim: workers are not scarce, they’re abundant.

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While the official unemployment rate (the red line in the chart above) was 4.8 percent in January, the expanded (or U6) rate—which includes marginally attached workers and those who are employed part-time but prefer full-time jobs (the green line in the chart)—was a much higher 9.4 percent.

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Meanwhile, the civilian employment-population rate (the ratio of total civilian employment to the civilian noninstitutional population or, more simply, the portion of the adult population 16 years and older that is employed) was still below 60 percent—and thus far less than its pre-crash peak (in December 2006) of 63.4 percent.

There are in fact plenty of potential workers out there—in the labor force and in the larger working-age population. But employers would rather complain than pay higher wages to hire them.

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As regular readers know, I’ve been warning for years that growing economic inequality puts the existing order—both economy and society—at risk.

Well, as it turns out, the 700 or so “experts” surveyed by the World Economic Forum have finally woken up to that fact.*

According to the Global Risks Report 2017 (pdf),

“Growing income and wealth disparity” is seen by respondents as the trend most likely to determine global developments over the next 10 years, and when asked to identify interconnections between risks, the most frequently mentioned pairing was that of unemployment and social instability. . .

The slow pace of economic recovery since 2008 has intensified local income disparities, with a more dramatic impact on many households than aggregate national income data would suggest. This has contributed to anti- establishment sentiment in advanced economies, and although emerging markets have seen poverty fall at record speed, they have not been immune to rising public discontent – evident, for example, in large demonstrations against corruption across Latin America.

I think they’re right: high and still-rising inequality creates the conditions for growing unemployment and and profound social instability.

But that’s where the agreement ends. Clearly, the view of the Davos folk is that “their” order is put at risk by growing inequality. The Brexit vote and Donald Trump’s election—not to mention the unexpected success of Bernie Sanders’s campaign and the rise of “fringe,” anti-mainstream political movements around the world—are threatening to upend existing economic and social institutions.

For the rest of us, the “risks” posed by growing inequality actually represent an opportunity—to imagine and enact alternative institutions and thus a radically different economic and social order.

 

*Although the Davos understanding of the problem of inequality is more than a bit strange. One of the so-called experts in a session on inequality, “Squeezed and Angry: How to Fix the Middle-Class Crisis,” is none other than hedge-fund billionaire Ray Dalio.

 

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We all know that the recovery since the Great Recession has been highly skewed. But has it hurt whites more than blacks and Hispanics, thereby explaining Donald Trump’s victory in the presidential election?

That’s the story being told by Eduardo Porter (here and here), relying on data from the Economic Cycle Research Institute (pdf). Their basic argument is that, of the millions of net new jobs created since the pre-recession highwater mark of November 2007, most of them went to black and Hispanic (and Asian) workers, not to white workers (who make up the majority of the workforce).

The numbers are correct—but their analysis is seriously incomplete.

According to the numbers that serve as the basis of ECRI analysis (and which are represented in the chart above), about 5.5 million more workers are employed now compared to nine years ago (the purple line)—including 4.9 million more Hispanic (green line) and 2.3 million more African American (blue line) workers but 722 thousand fewer white (red line) workers.*

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It comes as no surprise that those different job trajectories are reflected in the different trajectories of the employment-population ratio. Whereas the overall ratio and the ratio for whites have barely changed (at 59 and 60 percent, respectively) since the recession ended, the other ratios have in fact changed—rising for both Hispanics (from 59.3 to 62.2) and blacks (from 52.9 to 56.6).

So, there are differences in job growth, a large part of which can be accounted for by different regional growth patterns (large cities vs. small towns and rural areas), sectoral shifts (services vs. industrial production), and demographic profiles (both the proportion of the working-age population and retirement rates).

However, in every other way, the different groups within the American working-class have moved in tandem.

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For example, the labor-force-participation rate has declined over the past nine years—in general and for each subgroup, white, black, and Hispanic—and remains now just above record lows.

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Unemployment rates have also moved in the same direction—first rising dramatically after the crash and then falling during the recovery (but still remaining above what they were before the crash).

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Meanwhile, workers’ wages have barely budged—overall and for whites, blacks, and Hispanics—between the fourth quarter of 2007 and the third quarter of 2016.

The folks at the Center for Economic and Policy Research get it:

Porter is right in seeing support for Trump as being to a substantial extent a response to bad economic prospects. But the economic prospects of working class whites in the last decade were not notably worse than the prospects of working class blacks.

And, I would add, all the other groups that make up the American working-class.

The fact is, all members of the working-class—white, black, and Hispanic—have been victimized during the Second Great Depression. As I have shown elsewhere (e.g., here and here), as a class, they’ve fallen further and further behind the tiny group of employers and wealthy individuals at the top. That’s the real skewed nature of the economic recovery.

As I see it, the difference in their political allegiances and voting patterns cannot then be explained by white workers losing out to black and Hispanic workers. It’s due, instead, to the fact that one group that has been left behind (working-class whites) threw in their lot with one candidate (right-wing,  white-nationalist Trump)—while other members of the working-class (blacks and Hispanics), who have been equally left behind, simply could not.

And, soon, all of them will discover Trump’s promises were no more than dog-whistle politics and his economic program will leave them even further behind.

 

*The numbers don’t sum correctly (even without including Asian workers) because white Hispanics may be double-counted as both white and Hispanic, and black Hispanics may be double-counted as both black and Hispanic.