Who Cares About Unemployment?

By Paddy Quick

Obviously the people who are unemployed care about this a lot. But it seems as though everyone cares, particularly when unemployment is high. Thus today a reduction in the rate of unemployment, whether in the US or the EU, is generally greeted with expressions of delight in the media’s report of the opinions of both business and government spokespeople. Have the capitalist class and its policy makers suddenly discovered how much they care for the poor workers?

In fact the attention paid to the data on unemployment is because it serves as an index of the unemployment of capital, and it is the unemployment of capital that bothers our policy makers, rather than the misery of unemployed workers.

The ways in which economic policy are articulated refer frequently to the recorded level of unemployment. In the United States, the Federal Reserve explicitly aims to maintain not only a low level of inflation but also a low level of unemployment – it has what is known as a “dual mandate.” Although there is disagreement about how low is too low, there does not appear to be any disagreement that it should not be too high. In the European Union, the European Central Bank (ECB) has the single mandate, to keep inflation low, but at the insistence of most member states, the name of the “Pact” to enforce ECB goals was changed from the “Stability Pact” to the “Growth and Stability Pact” in order, it was said, to recognize the importance of keeping unemployment low. It is obvious that no politician would care to be seen as advocating more unemployment.

Considerable resources are devoted to collecting data on unemployment, and the monthly reports on this this are described as “market movers” because the “markets” pay such close attention to them. The Federal Reserve and the European Central Bank go far beyond consideration of the simple “rate of unemployment” and examine the far more detailed information provided by the surveys. Even a cursory review of their publications reveals their interest in the labor force participation rate, and, more recently, the distinction between those who have ”lost jobs” compared with those who have “left jobs.”

Workers may be excused for being suspicious about this seeming universal “concern” for their well-being by people and institutions that are generally antagonistic to their needs. Do they really care about the unemployed?

The answer is no. What they care about is not the unemployment of people, but the “unemployment” of capital, of the resources owned by capitalists. For them the unemployment rate is an extremely useful indicator of the extent to which those resources are not being fully used. The unemployment rate is, in other words, an indicator of the rate of “capacity utilization” i.e. the extent to which capital, in its physical form, is fully used.

The concept of “capacity utilization” of capital is not a difficult one. The profitability of airlines, for example, depends crucially on the extent to which seats are filled. For hotels, the vacancy rate is similarly important. Shopping malls that have unfilled stores are “underutilizing” capital. and stores that are open may be only “partly empty” in bad times. The plant and equipment in factories that have employment for only one shift rather than two are therefore idle for much of the time. Utility companies measure the rate of usage of capacity by the minute. But there is no simple way of aggregating this information that is of great importance to capital, namely the extent to which the functioning of the economy is resulting in the under-utilization of capitals’ physical resources. It is far easier to measure the extent of under-utilization of the labor force as a whole.

Understanding this simple fact makes it easier to address the policy recommendation that supposedly address the problem of “unemployment.” These often focus on the “lack of motivation” and “inadequate skills” of unemployed workers. How “lazy” are the businesses that choose not to rent vacant buildings, or take on contracts in shopping malls with open stores? Is it the lack of motivation of corporate executives that results in auto-manufacturers choosing to keep some of their physical plant idle by refusing to keep factory workers on short time and deciding not to employ a second shift?

Unemployment, of both workers and capitalist-owned physical means of production, is a permanent feature of capitalism. and a continuing demonstration of its irrationality and instability. But by characterizing it as consisting only of the unemployment of workers, we may, without intending to, attribute to our ruling class a care for our well-being.

Nothing is further from the minds of those acting on behalf of the capitalist class than alleviating the hardship of unemployed workers. The capitalist class is indeed concerned about the under-utilization of its resources. At the same time, it sees in the hardship of the unemployment of workers a very real possibility of reducing the wages that it pays to those that they choose to employ. This indeed poses a dilemma: on the one hand they indeed want to utilize their physical capital, but on the other hand, their profits depend on their ability to reduce the share of wages in total production. Right now, their major concern seems to be to address the problem of the unemployment of physical capital, but they are ever-mindful of the “danger” of an increase in wages that is at least possible if unemployment of workers should get “too low.”

It is, thus, ironic that the limitations of the data collected on the situation of workers to reveal the extent of under-utilization of capital is such that the Federal Reserve finds itself looking, perhaps for the first time, at the rate of changes in real wages as perhaps more reliable index. A less class-conscious observer might even be mistaken for thinking that the Federal Reserve is actually adopting as a goal an increase in real wages!

Thus while “all of us” are suffering from the inability of the capitalist system to make full use of the workers and physical means of production, it is the latter, and not the former that motivates policy makers. The attention paid to the data on the unemployment of workers shows only the usefulness of this information for the capitalists and should not be mistaken for concern about the workers.

December 14, 2014

Graph Table of the Week: Epidemiological Transition

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The graph (from Angus Deaton’s The Great Escape, a review here) shows the relation between GDP per capita and life expectancy at birth. It is a positive correlation, but the curve flattens out at an upper middle income level (by World Bank definition), which in this case is more or less around China (the big circle represents size of population). Basically the epidemiological break, the point at which the curve becomes flat, is the level of income at which child mortality goes down. In other words, the point at which spending in sanitation, and health prevention that reduces deaths from transmissible diseases. Not only income, but also rates of urbanization would be correlated with lower infant mortality, since in cities it’s often easier to have access to education (necessary to lead to treatment), hospitals and, hence, pre-natal care and vaccination, and more sources of treated water. From that point on most deaths are associated with chronic diseases, meaning cardiovascular ones.

PS: AIDS, in the case of some African countries, and the transition to the market, in Russia and some Soviet republics, explains why some are off the curve, so to speak.