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Aug. 16, 2010, 12:02 a.m. EDT · Recommend (6) · Post:
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Dell paying hefty price for 3Par
By Ken Mayland, ClearView Economics
PEPPER PIKE, Ohio (MarketWatch) -- The summer vacation season is drawing to a close, and soon, people will get back to serious, hard work in the push to finish out the year successfully. But August can be a time to be whimsical.
In that vein, let me put forth the ClearView Economics plan to get the nation quickly back to full employment.
The current unemployment rate is 9.5%. That amounts to 14.6 million persons who want to work that cannot find jobs. But there is also serious underemployment. I don't accept the U-6 unemployment calculation as being fully representative of all the truly unemployed, but let's allow another 3% to account for all the underemployment. That brings the total unemployed to 19.2 million persons.
In an interview with WSJ's Kelly Evans, Gluskin Sheff's Chief Economist David Rosenberg warned that the chances of a double-dip recession are greater than 50-50 and that the recession may not have ended last year at all. He also called for the cutting of corporate taxes to spur job growth.
What is "full employment"? I think the economy could sustain a 4.5% jobless rate without aggravating the inflation rate.
Why not a 0% unemployment target? First, because that would tend to be inflationary. Second, there is always some frictional unemployment: jobs available in Place A and unemployed persons in Place B. Third, there is also seasonal unemployment. And fourth, there is in the American workplace a considerable amount of "churn" -- people leaving one job for another.
So we need to get unemployment down to 4.5%, or 6.9 million persons. Hence, we need to create 12.3 million jobs -- or 8% of the civilian labor force.
So here's the plan.
EVERYBODY -- from the president down to the chambermaid -- takes a 10% cut in compensation! This freed-up compensation expense is then used to re-employ the 8% (12.3 million) of the unemployed. Net-net, the nation's compensation bill has remained unchanged, and the unemployment rate is now 4.5%! Voila!
(Why not cut compensation 8%? I'm allowing for administrative costs of re-hirings and other frictions.) It is as simple as that.
So how realistic is the plan? The first thing to note is that many companies -- from manufacturers to law firms to municipalities -- have already done this through furloughs and pay cuts, to share the burden of unemployment. What has worked on a firm level could work on a macro level.
Second, there is an inherent fairness to this, as we all share the burdens of re-employing our fellow citizens. If he KNEW his small sacrifice would get some family person who otherwise is hopelessly unemployed back working again, what compassionate worker would not opt for this choice? I would.
Third, this plan gets at the fundamental reason for unemployment: sticky wages. In economics, as demands diminish, either prices or quantities can adjust. It is the nature of the U.S. (and other) labor markets that wages remained fixed, so quantities must adjust -- generating unemployment.
With this plan, in one fell swoop, the "economic reset button" is pushed. Prices adjust, so quantities can increase. Think about this issue: who is to say that the level to which wages have risen is the "right" level?
At first blush, this plan would seem to result in a 10% reduction in the standard of living for the 90.5% of the current workers. Again, with the knowledge that this will lift many good persons from the depths of unemployed despair, maybe this would be a reasonable sacrifice.
But wait! With the re-employment of the 8%, the productivity of the American workplace will not drop 8%. It may not drop at all! The re-employment of these workers will increase the supply of goods and services produced (maybe 8%?). Remember Say's Law? Supply creates its own demand. The net: perhaps no major decrease in the standard of living, at all.
Of course, the whimsical part of the plan is getting everybody to buy in to it. Can you imagine union workers acceding to the plan? I have personally and sadly witnessed union members hanging out to dry their less-senior colleagues in order to sustain an unsustainable compensation bill.
But maybe, just maybe, individual firms could consider and enact such a compact company-wide, and begin to make a dent on the tragic and otherwise largely intractable unemployment problem, from the ground up.
Dell Inc. has been buying smaller tech companies in recent months to expand its presence in the corporate data center, but now it is paying a hefty price to offer storage in the cloud, writes Therese Poletti.
13 min ago12:07 p.m. Aug. 16, 2010 | Comments: 2
- signsandportents | 11:19 p.m. Aug. 15, 2010
"Home-builder index slumps to 17-month low http://on.mktw.net/a8F4uo" 9:04 a.m. EDT, Aug. 16, 2010 from MarketWatch
"Stocks stake out early losses as data underscore Wall Street's bearish backdrop http://on.mktw.net/buWnGI" 8:40 a.m. EDT, Aug. 16, 2010 from MarketWatch
"New York Fed's regional manufacturing gauge manages modest rebound for August http://on.mktw.net/aezSpG" 7:34 a.m. EDT, Aug. 16, 2010 from MarketWatch
"Stocks in Europe move tentatively higher Monday with deal news providing some lift http://on.mktw.net/c7IFGD" 2:10 a.m. EDT, Aug. 16, 2010 from MarketWatch
"Illinois bank closed by regulators; tally of U.S. bank failures for 2010 now at 110 http://on.mktw.net/9kzCLP" 7:26 p.m. EDT, Aug. 13, 2010 from MarketWatch
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