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The Washington Post recently published a
story revealing that if the hidden jobless were included in the unemployment
rate it would jump to 10.5 per cent. (Hidden workforce challenges
domestic economic recovery) This is a damning indictment of
Obama’s economic policies and Bernanke’s monetary mismanagement.
Even more damning is the fact that Obama appears completely unfazed by the
situation. Now he did not create this recession any more than Bush created
the 2000 recession — irrespective of what America’s utterly corrupt
media assert — but his policies are responsible for making it worse. To
say that America is in an even more frightful mess than would otherwise be
the case because of this man’s dogmatic leftism and mindless hostility
to free markets would be a severe understatement. However, recriminations
— no matter how well deserved — will not alleviate the situation.
The Post’s article contained an
interesting observation by Columbia University economist Till von Wachter who found that there was a 20 per cent difference
in the wages of those laid off in 1982 recession with those who face the same
situation today. In other words, today’s unemployment and wage
situation is much worse. In fact, it’s far worse than this figure
suggests.
The pattern of employment paints a dismal picture
for males. Since 2000 there has been a net loss of more than 3 million jobs
for men while during the same period net jobs for women rose by nearly a
million. In addition, the average unemployment rate for men older than 25
rose to about 9 per cent from the 4.2 per cent that prevailed from 1960 to
2008, an increase of more than 100 per cent compared with 52 per cent for
women.
It’s easy to conclude from these figures that
increased female participation in the workforce has driven down wages while
raising the unemployment rate for men. Easy and very wrong. What we need to
do is look at the previous pattern of employment. The average male worker got
paid more than the female worker because he was employed in
higher-productivity jobs. As a rule the physical nature of these jobs made it
virtually impossible for any female to do them as effectively as men.
As you have probably gathered, most of these jobs
were in manufacturing. For some years now manufacturing jobs have been
shrinking with nearly 5 million being lost since 2000. Then there were the
1.5 million jobs or so that disappeared in the building trade. So where did
all the jobs for females come from? About 3.5 million jobs were created in
health and education with the remaining jobs appearing in retailing and other
services.
A pattern now seems to be emerged where women are
becoming dominant in the workforce. Now some free marketeers
assure the public that there is nothing to worry about because the reduction
in the manufacturing sector is only to be expected as the economy matures and
the demand for services expand. In an effort to
reassure a doubting public they sometimes refer to the experience of
agriculture during the industrial revolution as evidence that there is
nothing to fear.
Three points:
1. There is no economic law that says the absolute
number of manufacturing jobs must fall as an economy grows over time.
Economics is supposed to explain the situation, not rationalise
it.
2. There is no such thing as a mature economy. This argument
was used by some in the 1930s to try and explain the Great Depression. It was
wrong then and it is wrong now.
3. These people do not know their economic history.
They certainly do not really know anything about the Industrial Revolution.
When England was on the threshold of the industrial
revolution about 75 per cent of the labour force
was employed in agriculture. Two things should be self-evident here. So many
are working in farming because agricultural productivity is very low. This
means that 75 of the work force was also employed in largely growing food for
itself. Agricultural employment didn’t shrink because manufacturing
expanded. It eventually shrank because productivity grew. What manufacturing
did was to rapidly expand the capital stock which in turn gave the country a
continual rise in real wages. So what we had was a progressing economy, in
which the rate of accumulation grew at a faster rate than the population.
In 1982 approximately 3 per cent of the US workforce were directly engaged in agriculture, which
seems to confirm the optimists’ case. Yet a 1982 US Department of
Agriculture report calculated that the food production structure employed a
total of 28.4 million people. Just as the mass of manufacturing workers
produce entirely for others — instead of for 25 per cent of the
population — agricultural workers are doing likewise. But in order to
achieve this miracle they require a highly complex manufacturing structure.
This throws an entirely different light on the
optimists’ belief that the growth of services will absorb factory
workers and at the same wage rates if not higher. But for this to happen net investment must be growing faster than the
population. This is not the case at the moment. The classical economists had
a thorough understanding of this process and that is why they understood that
the “increased demand for commodities [consumer goods] does not
constitute demand for labor.”(John Stuart Mill, Principles of
Political Economy, University of Toronto Press, Routledge
& Kegan Paul, 1965, p. 80).
In other words, economic activities that directly
serve the public (the Austrian school of economics would call these
activities the lowest stage of production because they are at the point of
consumption) do nothing to raise productivity and hence real wage rates. This
returns us to the millions of recently created jobs for women: nearly all of
them are at the consumption end of the production structure. They do
absolutely nothing to raise the value of the marginal product of labour. On the other hand, most of the men who lost their
jobs worked in the higher states of production, those regions totally alien
to politicians and bureaucrats that actually raise the general level of
productivity and in doing so raise the wages of everyone.
So how does a situation like this come about?
Several factors: monetary policy that skews investment to shorter production
periods; a currency that has been overvalued for a lengthy period of time
resulting in more and more manufacturing processes becoming unprofitable,
perhaps even leaving the country; fiscal policies that encourage consumption
at the expense of investment; levels of government borrowing, taxation and
spending that reduces the supply of capital. These are the things that can
put a brake on wages growth. If left unchecked, they would eventually force
real wages down
I don’t know whether America is facing a
period of capital consumption or not. What I do know is that the current rate
of net capital accumulation is not sufficient to create a significant upward
trend in real wages.
On a final note:
I have noticed the number of billionaires who donate
heavily to the Democratic Party. (A misnomer if there was ever one.) Buffet
and Bill Gross spring to mind. Both believe in more interventionism and
higher taxes, with Gross even arguing that corporate taxes should be raised.
As far as I know, all of these billionaires have one thing in common: they
made their money in finance. None of them were ever directly engaged in
manufacturing, unlike the Koch brothers. This suggest
to me that they have no understanding of the difficulties that American
manufacturers face. Readers could point to Steve Jobs as an exception. But
last I heard he has Apple’s products manufactured in China.
I learnt a long time ago that very smart people are
capable of believing the most stupid things. If it were otherwise I would
have to accuse these billionaires of being a bunch of malicious
America-haters.
Gerard Jackson
Brookesnews.com
Gerard Jackson is Brookesnews Economics Editor
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