Job Insurance in Global Context (Part 13)

In Economic Planning, Economics, Financial Crisis, Full Employment, History and Politics, Living Wage, New Deal, Politics of Policy, Poverty, Public Policy, Public Sector, Social Democracy, Social Policy, Welfare State, WPA on November 28, 2009 at 11:31 am

Introduction:

(see here for previous parts in the series)

In my series on Job Insurance, I’ve largely focused on how the different elements of the program would function domestically, in part because the major impact of the program (the lowering of unemployment rates) would have its most immediate and visible impact on the American labor market. However, it is also the case that in an economic context where global capital flows are largely unregulated, and where the United States functions as the world’s #1 consumer (other countries don’t buy U.S Treasury Bills for the sake of our health, after all), a Job Insurance program would have a substantial and largely positive effect on the world economy.

Moreover, I will argue that a Job Insurance system has the capacity to help the U.S deal both with domestic and international economic problems.

Domestic Economy – Jobs and Wages:

In the wake of both Pelosi and Reid pushing a jobs bill to the front of the agenda, giving Obama’s jobs summit more of a practical reality than otherwise would have been, there’s been some tension within progressive circles between those emphasizing the need for immediate relief and those emphasizing the necessity of systemic reform. Those favoring relief have pointed to the fact that current levels of unemployment are so painful that they threaten to leave entire generations behind and that it will be impossible to pass systemic reforms if we lose our Congressional majorities due to inaction on unemployment; those favoring reform have argued that trying to increase current unemployment without reform is essentially trying to bail water with a bucket full of holes.

However, I would argue that given the structure of the American economy, there isn’t necessarily a tradeoff between systemic repair and immediate relief, if constructed properly. If we look at the U.S economy as a jobs-producing engine over the last half-century, then it becomes clear that the U.S economy has really never produced enough jobs to create full employment (taking William Beveridge’s classical definition of about 3% unemployment), with three exceptions: the early 1950s, the mid-to-late 1960s, and a close miss in 1999. Moreover, if we think in terms of living wage jobs, the picture becomes even more bleak: the proportion of working poor people in the labor market has averaged about 5.5% of the workforce for the last twenty years, despite a brief dip below 5% in 1999. In other words, the U.S labor market is structurally flawed – this goes way beyond cyclical crises caused by recessions.

The weakness of the U.S labor market, although cushioned at times by various bubbles and hidden beneath cheap credit, has made the wider economy less robust and arguably more prone to recessions. When you combine less than full employment with declining worker bargaining power, one of the things that results is stagnant and declining wages – which increasingly has become the case even in recovery periods, as productivity completely diverges from compensation. Over the long-term, what this means is that the U.S economy has been trying to support ever-increasing production with a static or even shrinking consumer purchasing power, one that increasingly requires debt to maintain current living standards.

Where this gets us in terms of relief and reform is that we need to create jobs directly, both now, and in the future as well, in order to accelerate the recovery process and to maintain unemployment rates that are closer to full employment during future periods of economic growth. To that end, a jobs program established as social insurance is uniquely suited both to relief and reform. On the one hand, a Job Insurance system, because it could use its independent financing in conjunction with loans from the Fed, could act very quickly in the current crisis to create large numbers of jobs, potentially as much as ten or twenty million, and still be able to pay off its debts within a few years.  On the other hand, establishing the program as social insurance has two consequences for long-term reform: in the first place, independent financing means that a Job Insurance system would not be reliant on a Congressional working majority to function; in the second place, social insurance creates a politically potent “earned” right to a job that would cement the program as part of the permanent welfare state.

In domestic economic terms, maintaining a lower unemployment rate at all times means several things: more people will be consuming and producing, which means that average economic growth rates should be a point or so higher than they would be otherwise. At the same time, with lower unemployment rates, there will be less competition for jobs, which will increase the pressure on wages, making consumption more wage-based than debt-based, which is much healthier and less vulnerable to financial crises.  All of this also has an international impact.

Global Economy – Recreating an Internal Economy:

At a basic level, making the U.S economy stronger would generally benefit most other countries, given the U.S’ economic position as the world’s consumer base. However, it has been recognized that this model is problematic: it requires other countries to loan the U.S large amounts of money to afford to buy their products, it makes the world economy incredibly vulnerable to American economic crises, and it generally involves distorting effects like China’s pegging of their currency that also affects the E.U and other areas as well as the United States.At the same time, it’s unclear that making the U.S into a net exporter is necessarily the solution we need. After all, in many areas of manufacturing, like automobiles for example, it’s unclear whether there is enough demand to buy an increased volume of product without a major fall in prices.

The U.S’ economic history points in a potential third direction: throughout America’s industrialization in the 19th century, the U.S was not a major exporter or a major importer. From 1870 to 1920, when the U.S underwent its first two major industrial revolutions, imports and exports together averaged less than 13% of GDP. The strength of the U.S was its internal economy: the growth of American manufacturing was largely fed by American consumers. This is something of a unique pattern compared to older economies like Britain’s (which was always an exporting economy) and newer economies like China’s or India’s, which have both focused on export-manufacturing.

This suggests that the path forward for the U.S is to cultivate its internal economy – however, this is not an argument for autarky. The U.S will in all likelihood continue to be a mass consumer of imported goods, but there’s an important point in the debate over trade that needs to be addressed: production is not the same thing as employment. The U.S’s manufacturing sector still produces a huge amount of goods, but the process of automation (even leaving aside offshoring and outsourcing for the moment) means that it requires fewer workers to do so. This, by the way, is one of the reasons why I think that the progressive movement’s faith in a green economy is somewhat misplaced. It’s not that green industries and green jobs, and in general sustainable methods of production, distribution, and so on, aren’t important – however, we must remember that it’s the employment that matters. Green industry can automize, offshore, and outsource almost as easily as regular industry can (with caveats given in regards to construction, maintenance, and the like).

This is also why I think that trying to revive manufacturing (which is often referred to, somewhat uncharitably, as protectionism) isn’t the right strategy. It’s a corporation-based, rather than employment-based effort – trying to keep certain kinds of firms within the United States, without factoring in the level of employment those corporations actually provide. Moreover, even if we were successful in keeping manufacturing within the United States and out of the Global South, we’d still have the problem of our internal South. If employers can still move factories out of the high-wage unionized North and into a low-wage non-union South, there is still going to be an underlying problem of declining wages and low worker bargaining power.

Conclusion:

In the end, the separation of production and employment should remind us that there is nothing so inherently worthy about an industry that makes it better than any other. Before the advent of unionization, industrial labor was as low-paid and low-status as the service sector is today. At the same time, there is no reason why the U.S economy shouldn’t evolve into a model where the public sector workforce is more like the European average, and where we produce more in internal public goods and services than export manufacturing.

The larger point here is that when it comes to the economy, we need to distinguish between its production function and its employment function. The “global free market” is really good at producing more widgets at a lower cost, whether it’s t-shirts, automobiles, or bananas. What it’s not very good at is producing full employment and economic security. Separating these two functions, and empowering the public sector to provide full employment and economic security, is beneficial to all workers, both as consumers who want higher standards of living and as wage-earners who need to be employed to do so.

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