Unemployment is tragically, stubbornly high — and that’s going to prove devastating not only for the millions of long-term unemployed but also for the USA as a whole, if it continues indefinitely. And it’s not just the Americans without jobs who need a way out: it’s the ones in bad, underpaid service-industry jobs as well.
I wrote about that problem on Wednesday and got some fantastic comments in response. And a lot of other people are making similar points these days. Mark Thoma picked up on the same Richard Florida piece that I did and noted that improving productivity is not certain to help: since the early 1980s, productivity has fed through into improved pay only once, briefly, during the dot-com boom.
Chrystia Freeland has been attending similar discussions in Aspen:
What frightened me most about today's discussion was a possibility endorsed by Ron Brownstein, political director of Atlantic Media, that America's two-speed economy may not be anyone's fault (as [Arianna] Huffington insisted it was) but might, instead, be the inevitable consequence of the twin revolutions of globalization and technological change.
[Allstate CEO Tom] Wilson was certainly right about one thing: one of the great success stories of our age is how dynamically American companies have adapted to globalization and the technology revolution. But, as Huffington pointed out, the political consequences of a two-speed America might not be pretty: "America cannot be America without a middle class "¦ we will become Brazil and all live behind gates to protect our children."
There’s a real risk that American companies will thrive on foreign labor, leaving their home nation to slowly devolve into a land of chronic unemployment and widespread lack of skills.
Andy Grove reckons that the solution is for American companies, at the urging of the government, to become more protectionist, putting up trade barriers to create domestic jobs. Like Reihan Salam, I’m unconvinced. But Reihan isn’t particularly constructive himself, saying only that we need “a wrenching series of labor market and entitlement and tax reforms designed to improve work incentives, most of which will prove far less popular than simply bashing China”, which will somehow both raise taxes and foster lots of new employment at the same time. I’ll believe it when I see it.
Michael Hudson is a bit more inventive: he’d like to see a move away from income taxes and towards property taxes. That would help bring property prices down, making housing more affordable, and leaving more money left over for consumption. But that’s a plan designed to work in Eastern Europe, not in the U.S.
Mohamed El-Erian, meanwhile, has a whole laundry list of things he reckons need to be done with some urgency:
Instead of simply debating the case for further government stimulus, policy makers should also come up with a comprehensive strategy that focuses on improving human capital, particularly through a greater emphasis on education and training; expanding infrastructure and technology investments, in part by creating a more friendly tax system; encouraging a bigger translation of scientific advances into economy-wide productivity gains; and better protecting the most vulnerable segments of society.
This is all well and good, but none of it is likely to bear fruit during the presidency of Barack Obama, even if he gets re-elected. And I think it’s fair to say that if he leaves office with unemployment significantly higher than he inherited it, that will be a major blemish on his administration.
But maybe unemployment is simply a problem to which there is no good medium-term solution, let alone any short-term fix. Certainly the government can’t directly employ the unemployed, and although I’m a big fan of arts subsidies as a way of creating jobs, that kind of thing is only ever going to have a marginal effect.
I do think that my first commenter, Harrington, is right that it’s high time to start giving labor unions more recognition and power. That might seem a bit counterintuitive — unions have never been very good at improving employment numbers, as opposed to improving the plight of the employed. But if workers at places like Wal-Mart start being paid a decent living wage, that is surely a significant improvement on where we are now. And if we raise the minimum wage to a point where employees are less likely to quit and more likely to learn reasonably high-level skills, that will help get us to Richard Florida’s promised land. Without unions and minimum-wage laws, corporations compete on who can pay the least. With them, they compete on who has the best employees and they invest significantly in those employees. Which is exactly what we want, especially since raising the minimum wage is unlikely in and of itself to increase unemployment visibly.
My third commenter, billyjoerob, depressingly reckons that reduced immigration will do the trick. It won’t. But immigration is important: if it’s sensibly structured, it can create more jobs more quickly than just about any other low-cost government intervention. Just allow lots of rich and high-skilled immigrants into the country and they will rapidly create businesses which will employ millions. (One prime example: Andy Grove.)
And Dollared notes another important tack: fixing the national health care system so that employers aren’t burdened with enormous healthcare costs and can concentrate instead on what they do best.
But I like HBC’s comment the best:
The prevailing epidemic of bad jobs (formerly known as careers) American workers are having to get used to can be directly attributed to protracted periods of really awful American management, for which there can be no tolerable excuse.
America invented the concept of management as a profession and course of study and in doing so helped to cement the victory of capital over labor. That works until the workforce becomes so demoralized as to be useless — at which point the jolly capitalists just decide to hire foreign workers instead. This is good for investors in the short term, but it’s very bad for the economy in the long term. And I don’t think that anybody believes that the U.S. stock market can rise steadily if the U.S. economy is in a slow and inexorable decline.
At the same time, however, it’s hard to imagine capital giving up its hard-fought gains and becoming much more paternalistic and generous to its employees, hiring more people and paying them better. Which is one reason why I’m a pessimist when it comes to the long-term employment situation.
Nice post, Felix!
As you say, this is the flip side of making bad jobs better. (If I were snide, I would point out that being unemployed is a REALLY bad job.)
I would like to see greater skilled immigration permitted. In many cases companies face a choice between bringing the employees to the jobs or taking the jobs to the employees. We are better off as a nation if we bring the jobs and the employees HERE.
The other half of my answer is to foster opportunities for entrepreneurs to form and build small businesses. Corporations can take an idea and scale it globally, however small businesses drive innovation and new job growth. Nor are their operations easily offshored, keeping most of the job creation home.
Any ideas on how best to do this? Loans? Tax credits? Support services?
A follow up to the previous comment is to follow a model like we have in Norway where you compress the heck out of wage scales between “bad” jobs and “good”. Unemployment is currently at 3.7% here. Of course, a US$500bn oil fund buffer doesn’t port over as well.
1. The problem is that we live in a globalized world. 2. In this world management skill, having capital, inventing something is a rare commodity. 3. Doing normal work is not, there are 6.5 billion people who can do that. 4. Means higher income for the first group considerably lower for the second (at least in the West, in China etc they are already paying according to world standard). 5. US should imho increase: - education levels especially below - improve business and other infrastructure - stimulate R&D - get as much as possible high potential immigrants All combined may stop this trend or at least slow it down. 6. Rest (like unions, trade barriers) is mostly fighting against market forces, normally not a successful strategy 7. Wages for a Wal-Mart worker may be low and socially difficult to defend. However from a worldwide perspective they are still much too high. 8. Face the facts than you can do something against it, but most people’s remarks are simply what they think is correct or what they would like to see, and have nothing to do with what is actually happening.
Felix,
Living wage? Please define. I know its political value, but I have no idea what you mean from an economic standpoint.
Is it $30,000 a year? $70,000? $100,000?
For a family of one? Two? Six?
Living in Brooklyn? Bronx? Palm Springs?
Please list all expenses/contingencies the living wage would cover. Food? Rent? Clothing? College savings? A weekly movie? Trip to the doctor? A car?
Felix, you talk of a struggle between capital and labor being won by capital. Channeling the great Karl Marx there, eh? Could you be any more obvious?
In reality, the economy had plenty of capitalists who tried domestic production and some who tried Chinese production. Guess who survived and who didn’t? Doesn’t that sound more like Darwin than Marx?
Unions seem to do little more than increase economic rents for insiders at the expense of outsiders. They have been bad just about everywhere we have unions. Yes they would raise wages, but they would also reduce employment in that sector.
I think a better method would be to target economic rents of capitalists. I came across this article on pricing system for medical supplies (http://www.washingtonmonthly.com/featur es/2010/1007.blake.html). I think a lot of supposed capitalists todays are much more politically connected rent seekers we should try to eliminating. Of course this includes TBTF. We should be seeking to remove pricing power by any group whether capital or labor and moving to a freer system. That should lead to a lot of benefits for the lower class. But the history of union seem to have led to failing public schools and a failing auto-industry. And would more likely lead to some unskilled labor being paid better while others see increased unemployment. Wal-Mart may pay poorly but for those that wouldn’t make it into their union they would be unemployed and probably see rising prices at Wal-Mart.
Felix,
I think you need to look at what constitutes an “American Company.” It dosen’t get much more “American” than Coke… and they generate 75% of sales overseas.
Companies are loyal 1st to shareholers, 2nd to customers, 3rd to employees, and then 4th comes “other stakeholders” like the community and the enviroment.
Great companies satisfy all 4 to a large degree by that list of priorities is exactly the way it is and exactly the way it should be.
Please take look at where the United States stands in Math and Science test scores and ask yourslf where would you open your next fab if you were the CEO of Intel… do I pay entry level workers $30,000 us or do I hire smarter entry level workers for $10,000 us.
It’s not a really hard decision… nor is it a hard decision for a world beating company like AAPL to outsource their supply chain and retain mostly just the high level design and marketing functions in-house.
Best hopes for a recommittment to education and workforce flexibility in the US and Europe.
To be blunt, Americans were told that if they k*ssed, sucked, and slobbered on rich b*tt, we would have pie in the sky. America would be one big country club for the rich, and we could join.
And so we did.
Boy, the joke was on us.
I think the timing here is crucial. How long do the American people take to get over their misplaced faith in ‘bizness knows what’s best for us’? Is there time for American corporations to remove themselves to other lands, before the extent of the betrayal becomes brutally clear? Can Americans even overcome their own gullibility to take action? Is political action – riots, even – in reaction to the onrushing train of poverty possible for Americans in the WalMart generation?
It does twist my stomach up in knots to think of America like Brazil.
Or maybe Mexico. Maybe the future of the jobloss generation is in drug gangs.
In case it wasn’t obvious, I think America should start a trade war.
The global trading system: Break it, then mend it.
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