Attacking unemployment

By Felix Salmon
July 9, 2010

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.

40 comments

Comments are closed.