The great race for jobs
The financial markets rejoiced last week because the U.S. unemployment rate fell to 8.3 percent in January, 0.8 percentage points lower than a year earlier. Back in the real world, the gain looks less impressive. The proportion of the adult American population with a job has hardly changed since January 2011 – it is up from 58.4 to 58.5 percent. That number peaked in 2000 at 64.4 percent.
The decline in American so-called “participation rate” is a serious economic problem. Many blame the cyclical downturn or inadequate GDP growth, but they are too focussed on output. The real issue is input: the supply and the need for labour. This is not just an issue for the United States. But the current shortage of jobs in most rich countries is the latest leg of a long race between technological forces that lead to job destruction and socio-economic forces which provide new kinds of employment.
Over the last two centuries, the contest has been fairly even. The labour savings in field, factory and home have been nothing short of amazing. Imagine that today’s technology and labour skills were available when Adam Smith wrote The Wealth of Nations in 1776. If people today worked as many hours a week as they did then, and for as many years of their lives, and if they consumed roughly the same quantity of goods and services, the unemployment rate would more like 70 than 8 percent.
But the forces of job creation have been equally amazing. The work has been spread out. People work less – they have weekends and holidays off, and more years of education and retirement. They also consume much more, and this creates employment. And although rampant consumerism raises some ethical questions, increased leisure and consumption constitutes basically good news.
There have been periods both of labour shortages and excess unemployment, but up to now balance has always been restored. We are now in a new period of imbalance in rich countries. The job-destructive forces of technology have pulled ahead of the rebalancing mechanisms. That should be interpreted as a call for action on jobs.
Luddite calls to stop or reverse technological progress provide no answer. Even if mobile phones and the Internet destroy more jobs than they create – no one really knows – they certainly do much more good than harm. And every job lost in a dangerous mine or on a boring assembly line is a gain for humanity.
But many jobs could be created if the economic arrangements were more favourable. For example, the United States has dilapidated highways and an army of unemployed construction workers, but it has not been able to match the two. Such stalemates in the labour system can be broken, although rarely without changes in taxes, benefits, wage laws and training arrangements. But it worked for Germany. Thanks largely to some tinkering with the unemployment rules, its participation rate is higher now than in 2000.
Tinkering may be enough to get employment back in balance, but jobs could also be created in areas long seen to be of marginal importance, or no importance at all. This idea goes against the professional grain of most economists. Adam Smith wrote disapprovingly of “unproductive” labour and his followers have cheered whenever workers use less effort to produce more.
But economists have an inadequate understanding of what is really productive. They ignore the reality that many jobs in a modern economy are useless – or close to it. The vast bureaucracies of government, finance, and marketing employ many people who add to GDP but whose work does little or nothing to make life better.
Pointless jobs could be created by making the tax code more complicated, by requiring teachers to do more paperwork, by developing new financial instruments. The possibilities are endless. If these ideas fail, we could emulate some of the bad habits of the past masters of full employment, Soviet-style communists. They excelled at wasted effort.
But there is a better way. And that is to rethink the value of jobs that economists have traditionally considered useless. Take a look at Smith’s collection of “frivolous professions”. He includes “churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers and opera-dancers”.
Arguably, most of these bring spiritual richness to life while lawyers – in theory at least – make the world a fairer place. So let’s have more of them (well, maybe not more lawyers), and more employment in similar professions. Let’s have more people in the caring professions too, improving the lives of children, the old and the troubled.
A desirable shift in employment needs change in social attitudes and some technical ingenuity. But the recent fall in participation rates should be considered an opportunity. We could make the economy more genuinely productive and society more humane.