Simple Truths About the Politics of Unemployment
Nowotny, Thomas
Unemployment is not only an economic issue; it is also a political one. No government can afford to ignore it. A flourishing economy and ample jobs give governments legitimacy. They lose...
...Invariably, the former strategy is chosen, although the latter has much to recommend it, especially as it implies the long-term increase of overall wealth...
...Yet in recent times there has been a slowdown or even a reversal of this trend...
...At first sight, the 250 • DISSENT Politics of Unemployment idea seems logical...
...In some cases this might be so...
...Is it caused by too much government meddling...
...Funny —the same thing is never argued with regard to labor...
...It would be very surprising if they were to become mutually exclusive in the future...
...Some conservative governments have indeed followed this strategy...
...They can claim that it exists and grows only because the market has been rendered imperfect by political interventions...
...This example should warn us against the claims of economists to explain the economy and their readiness to substitute themselves for politicians...
...Wages, too, have more than an economic function...
...People make their choice...
...Their ideology leads them to believe that they cannot do better than the market...
...Does this expansion of the public sector produce economic rigidities and dysfunctions...
...Politicians who do not bow—or seem to bow—to this public pressure risk losing their mandates...
...But the market economy can very well adapt to different social systems and politically determined settings...
...It even has found its way into the basic documents of international organizations and the pronouncements of summit conferences...
...Industrialists tend to understand that increasing personal security increases also the worker's flexibility and readiness to adapt to changing circumstances...
...Some of these choices are: • How should potential work be distributed between the employed and the unemployed...
...It determines one's place in the social pecking order...
...In any case, and even if a few more jobs were created by a further depression of minimum wages, the long-term effects of such a strategy would be disastrous...
...Should production be capital intensive or labor intensive...
...Within reasonable bounds—that is, so long as it is positive—the level of real interest rates does not affect the supply of capital...
...Still, it is claimed that unemployment results if too many citizens opt for public goods too frequently...
...This can be achieved by lowering the age for retirement, extending schooling and vacation time, and cutting the number of hours worked...
...A greater share of the goods and services consumed might be provided by public authorities...
...Reflecting on this, they should now give some thought to their proper—and reduced—place and function in this debate...
...The economy would be locked into a low growth pattern...
...All choices are constrained...
...Not that this focus doesn't have use, but it also has limits...
...Single nations no longer provide an adequate frame for a policy on interest rates...
...But it is equally true that unemployment is lower still in Japan, where the wage spread is limited and even the lower wages are relatively high...
...They can try to convince voters that unemployment is not caused by the autonomous forces of the market...
...Overall wealth would not increase very much, and it would be distributed still more unevenly...
...Opting for high productivity puts the squeeze on sectors of low productivity (the famous-infamous Mcjobs...
...So instead of opting for a low-productivity, low-wage economy, societies could also opt for a highproductivity, high-wage one...
...Cutting back on either of these is certainly no cure for unemployment...
...In the United States, the precipitous decline of the real estate market came on top of the failure of many savings and loan associations...
...The level of remuneration structures society...
...Thus, in many cases, the "social state" has been created with the support of industrialists, and only against the opposition of such declining classes as shopkeepers, craftsmen, petty capitalists, and provincial dignitaries...
...To sum up: the overall level of compensation for work does influence the economy...
...If the public sector is small, nearly all compensation is given directly to the worker in the form of wages...
...Again, objections are to be expected from economists at this point...
...The market economy has been successful in rather poor countries with large income differentials and low wages...
...Thus the twelve-hour day was reduced to eight hours...
...On the contrary, many 252 • DISSENT Politics of Unemployment economists insist that lowering wages would increase the supply of labor...
...They have been especially generous in offering their advice on unemployment—and they have done more harm than good...
...But neither should politicians hide behind economists and use economic argument as a pretext to avoid hard choices...
...Options Capitalism, to use an old fashioned term, is exceedingly flexible...
...In the one-sidedness of the discussion, isn't there a hidden agenda...
...Some aspects of human existence defy economic analysis—as for instance religion, war, and aesthetics...
...They will maintain that these are all allocative decisions, with very different economic consequences...
...The feeling that one is doing well in a job means more than the money income derived from the job...
...later on came free Saturdays and the forty-hour week, and later still, annual vacations became longer...
...As the depression increased the deficits in their budgets, governments also turned to the capital markets...
...They can only do so, of course, if they find customers for the things they produce...
...That, in fact, is what has happened in the past...
...The level of interest rates can be taken as an example...
...Whatever the fantasies of permanent dolce far niente, the truth is very different...
...Paid work is therefore sought as a token of society's approval, as a means for integrating into society...
...q SPRING • 1995 • 253...
...Politics Policy choices in the face of unemployment are political in their nature, rather than economic...
...Vast amounts of capital were tied up both in speculation and as a hedge against it...
...Capital was destroyed on a massive scale...
...Conservatives thus have to choose between political expediency and ideology...
...But is that something really economic...
...Acting jointly, that is on a global level (in a way the International Monetary Fund was originally intended to), governments could decide on what would be an adequate remuneration of capital...
...Society informs them that they are considered useless...
...Similarly, goods and services are not always produced in exchange for wages...
...Much has been said and written, for instance, about the economic consequences of a larger or a smaller public sector...
...Obscuring this fact, economists have hindered effective action, diverting attention to side issues and sustaining hope in miracle cures...
...Finally, it is more normal for humans to be in motion than at rest...
...Economists should not play at politics...
...and this reasoning has been sustained by the London Economist, the Wall Street Journal, and other similarly single-minded but prestigious publications...
...The negative effects of unemployment come less from the loss of revenue than from the impact that this highly visible judgment has on individuals...
...A further essential condition for the success of the high-growth, high-wage option is abundant capital...
...They lose legitimacy if the economy stagnates and good jobs become scarce...
...What if demand growth is nonetheless insufficient to compensate for a rapidly growing productivity...
...Or, inversely, it might suffer in the short run if, because of insufficient wages, overall demand is depressed...
...Acting jointly, the major world economic players (let us say Japan, the United States, and Germany) could set the level of interest rates more or less at their pleasure...
...Economists beware: the labor market cannot be analyzed with the tools of marginal utility expressed in monetary terms...
...The problems of the "working poor" would become insoluble...
...Even some of the riskier jobs, such as firefighting or soldiering, are often assumed because of social and moral obligations, with compensation taking a back seat...
...We must be aware, though, that political constraints often masquerade as economic ones...
...This option is also attractive in view of its impact on external relations...
...Two different strategies can be considered in the fight against unemployment...
...Within the last hundred years, the "social state" has become firmly entrenched in North America and Europe...
...The rising tax burden will depress the economy...
...On the other hand, politicians must be made to face their responsibilities...
...But there are objections...
...Even conservatives have been reluctant to tamper with its essentials, such as old-age pensions and unemployment insurance...
...There is no effective international forum where joint policies can be established and implemented...
...But what if a country were to unilaterally lower interest rates...
...First, evidence is limited that this really will be the case...
...Instead of purchasing a swimming pool for their own backyard, they might prefer that their community build a public pool, using tax money...
...For instance, sexual satisfaction (of the noncommercial variety) or the nurturing of small children is usually provided without financial compensation...
...Logic would dictate that this scarcity and high cost of capital be given due consideration when unemployment is discussed among the world economic powers...
...A massive flight of capital would follow...
...How much of increased productivity should go into higher wages and how much into leisure time...
...This option is therefore not available to any single national government...
...We therefore have to deal with it...
...Would unemployment disappear in more perfect markets...
...Thus an unemployed worker might resent having to take a low-paid job not because it is low paid, but because it implies a lower station in life...
...To what degree should inequalities in incomes be tolerated...
...Yet, strangely enough, this is not the case...
...The competitive advantage of nations results less from the lower cost of their exported products than from the early introduction of new technologies...
...But do these differences really affect economic performance and the level of employment...
...On the other hand, they might prefer to pay private school tuition instead of having their children attend free public schools...
...It will be adversely affected in the long run if too much is consumed and too little invested...
...the two trends supported one another...
...If it is larger, a significant portion is given in the form of governmental transfers or services...
...How should rewards be split between capital and labor...
...These are tough, not because remedies against unemployment are obscure, but because these remedies imply political decisions that will alter the way things are conventionally done and damage quite a few established interests...
...Yet it matters very little how compensation is distributed to workers...
...If the economy modernizes and becomes more productive, fewer people can produce more...
...However, markets might not solve the problem for the simple reason that people do not act only for economic reasons...
...However, the fact that no single nation can effectively rule in this realm does not mean that rates are economically and not politically defined...
...Not only does it adjust to widely differing social systems, it also can succeed with different forms of compensation for work...
...The Japanese real estate and stock market bubble burst...
...In this way, little attention is paid to the fact that the dysfunctional behavior of capital and money markets has discouraged productive investment and thus overall growth...
...Dividing work, for instance, means lower pay for those already employed...
...Part of the growth in productivity was used not to increase wages but rather to cut down on work time...
...The basic decisions to be made are political...
...Wage differentials are often important precisely because of their noneconomic functions...
...By and large, however, the expansion of the public sector has had the opposite effect...
...The World Bank has investigated this proposition and found no connection between economic growth and the level of taxation...
...Markets were efficient in states with a large public sector and many regulations, as well as in places with minimal economic involvement of the state...
...Unemployment benefits cannot compensate for it...
...It only means that those called upon to act do not act jointly...
...And why should it be otherwise...
...The lower the wages, the larger the number of people employed...
...low wages the opposite...
...Those without work are judged most harshly...
...It makes them reject any suggestion that markets might malfunction...
...There is no empirical evidence to support this claim...
...There can be more ample old-age pensions, better public health care...
...The lower the price, the higher the demand for a good...
...With high demand and little supply, and in the absence of any effective governmental action, the price of capital rose...
...The 1991-1993 world economic crisis not only depressed overall demand, it also made capital scarce and expensive...
...This damage is not compensated for by the readiness of citizens to profit from lower taxes and spend more on private consumption...
...and it succeeded when they were included...
...Sufficient employment is dependent upon sufficient overall demand...
...The level of savings is independent of interest rates, much as the willingness to work is independent of wages...
...Paid work is central to one's sense SPRING • 1995 • 249 Politics of Unemployment of identity...
...Decaying roads and bridges, poor schools, crime-ridden streets—in short, the insufficient supply and quality of public goods—damage the economy...
...In one, labor is made cheap and abundant, and capital is kept scarce, thus increasing the rewards of capital and reducing the rewards of labor...
...But, in this case, the absence of politics is politics too...
...Against unemployment, one patent cure is often proposed: that at the lower end of the wage spectrum, wages be further cut—a proposal often described as "wage flexibility," so as to obscure its brutality...
...Even a highly productive economy should not encounter difficulties in finding customers...
...It is true that unemployment is relatively low in the United States—partly as a consequence of the creation of low paying service jobs...
...It does not have an impact on the level of employment if, in addition to direct wages, a greater or smaller share is given via public goods or transfer payments...
...Its freedom to set interest rates is—so it seems—reduced or even annihilated by something that looks economic...
...What if fewer and fewer units of labor are required for the production of everything that is consumed and exported...
...This has to be done on a broad scale...
...Economic growth and the expansion of the public sector have gone hand in hand...
...The alternative is to rely on cheap and abundant capital while augmenting the gains of labor via higher pay and shorter work time...
...If the remuneration were set too low, the supply would dry up...
...Success here spills over from the economic into the political and cultural realms...
...Strong growth and high wages are only feasible with the application of modern technology...
...But there is an obvious way out of this dilemma...
...How big should the nonworking population (supported by transfer payments) be...
...Does that mean that there are absolutely no economic constraints on such political choices...
...Wages function as a sign of societal approval: high wages suggest high approval...
...It has also been successful in more egalitarian and wealthy societies...
...It succeeded when women were largely excluded from the labor market...
...Unemployment need not grow even then, provided that labor is shared...
...Nations differ as to the choices they make But the secular trend has gone in the direction of the public sector...
...There would be fewer incentives to substitute capital for labor...
...this has certainly contributed to unemployment...
...Leading nations of the world (such as Great Britain in the nineteenth century and the United States in the twentieth) are also technological leaders...
...But as most of us are never content with what is available, demand for additional goods and services is virtually unlimited...
...And being highly productive, it also could afford to pay high wages...
...In addition, large debts outstanding to developing and formerly communist countries had to be written off...
...They will maintain that politicians are not at liberty to define the proper remuneration for capital...
...In its recent "employment outlook," the Organization for Economic Cooperation and Development (OECD) found no positive correlation between low labor standards (including low minimum wages) and rapid job creation...
...and finally, lowering the cost of capital would put politicians in conflict with the most powerful interest group of all...
...And, therefore, these choices are preempted by quasi-eternal economic constraints...
...It is to be expected that economists, in defense of their turf, will object to this political approach...
...On the other hand, political expediency demands that they seem concerned about unemployment, seem, in fact, to be doing something about it...
...Almost everybody needs to do something, otherwise life can seem like eternity...
...I suggested above that rates be reduced so as to increase investment and speed economic transformation...
...Instead, most studies concentrate on the so-called "strucSPRING • 1995 • 251 Politics of Unemployment tural" causes of unemployment...
...Evidently, voters refuse to consider unemployment a necessary part of the social order or something governments can do nothing about...
Vol. 42 • April 1995 • No. 2
