The winner of the presidential election should do something about U.S. unemployment. The current rate of 8 percent is high by America’s historical standards, and that measure does not capture the gravity of the problem – too many people have spent too long out of work or have decided to leave the workforce because jobs are too hard to find. European leaders face an even greater challenge. The EU unemployment rate is 10.4 percent, and during the last decade it has been below 7 percent for only half a year.
What is to be done? Neither Mitt Romney nor Barack Obama has a clear plan. The Federal Reserve has an idea, but it is hard to see how $40 billion a month of newly printed money will actually help create jobs. I have an alternative approach: EAST. It is both an analysis of the problem and a solution.
E is for Efficiency. The industrial economy continually makes more stuff out of less labour. More efficient workers, machines and systems constantly add to consumption, and constantly subtract jobs. The lost labour has mostly been dangerous or tedious, so there is little to regret.
Still, the job drain presents a social challenge. Unemployment is an affront to people’s need to do something meaningful. Fortunately, for more than two centuries advanced economies have more or less managed to compensate for increased efficiency. New jobs have been created to provide consumers with additional goods and services. Labour-intensive bureaucracies have expanded in law, finance and government. The available labour has been shared out over more people, leaving more time for education, leisure and retirement.
A is for Asymmetry in the labour market. Despite the success at keeping people busy, job destruction remains much easier than job creation. Destruction is the natural result of the relentless increase in production efficiency. It also fits in with the productivity mindset; employers are always thinking of ways to cut unproductive headcount.