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Can the private sector generate enough jobs to return the United States to full employment? Or must government play a much greater supporting role in job creation?

That question, once hotly debated, is barely mentioned today. It should be. For 30 years, the assumption has been that the private sector would generate full employment on its own. It has not, except for a five-year stretch in the late 1990's. Now the situation has become worse. Despite robust economic growth, the private sector is generating fewer jobs than ever in a recovery.

Never mind that private employers added 277,000 jobs in March. It was the biggest one-month gain in the two and a half years since the last recession. It was also somewhat of a mirage. Most of the 277,000 jobs were canceled out by a decline in total hours worked and total weekly pay.

"The normal rule of thumb by which a certain increase in the gross domestic product would produce a concomitant increase in jobs does not appear to apply,'' Representative Barney Frank, a Massachusetts Democrat, declared in a speech before the House last month.

The situation cries out for government job creation, Mr. Frank said in an interview last week. But public pressure is lacking. "People have so attacked government,'' he said, "that now when there is a need for it to help create jobs, they cannot recognize a positive role for government.''

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[E]mployment in the US (and Canada) has increased at a much more rapid rate than that of the working-population. In the US, the average growth rate of the working-age population in the US was 1.77% over the period 1948-2003. The average growth rate of employment was 1.95%. In the 1950s, between 56 and 57% of the working-age population had a job; in the 1990s, this ratio was between 62 and 64%.

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Here are the actual data on the percentage of working-age Americans who were employed:

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 YEAR        EMPLOYMENT RATE (%)
1948        56.6
1949        55.5
1950        56.1
1951        57.3
1952        57.3
1953        57.2
1954        55.5
1955        56.6
1956        57.5
1957        57.1
1958        55.4
1959        56.0
1960        56.1
1961        55.4
1962        55.5
1963        55.3
1964        55.7
1965        56.2
1966        56.9
1967        57.3
1968        57.5
1969        58.0
1970        57.4
1971        56.6
1972        57.0
1973        57.8
1974        57.8
1975        56.1
1976        56.8
1977        57.9
1978        59.3
1979        59.9
1980        59.2
1981        59.0
1982        57.8
1983        57.9
1984        59.5
1985        60.1
1986        60.7
1987        61.5
1988        62.3
1989        62.9
1990        62.8
1991        61.7
1992        61.5
1993        61.7
1994        62.5
1995        62.9
1996        63.2
1997        63.8
1998        64.1
1999        64.3
2000        64.4
2001        63.7
2002        62.7
2003        62.3
 

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it's clear that the recession has brought the employment rate down since its peak, it's still well above the glory days of the 50s and 60s.

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Does this have anything to do with the fact that, laudibly, women and other historically excluded groups are now much more free to participate in the labor force?

While I think that most babblers would consider it progress that more women are able to work, I think they might be troubled by the following:

(1) the end of the "breadwinner" myth has helped allow male wages to stagnate, requiring their female partners to enter the labor force not out of choice or opportunity to advance themselves, but rather just to hold on to the same economic status for their families that they used to have before with just one partner working;

(2) The entry of women and other excluded groups into the labor force has been coupled with widespread processes of de-skilling, automation and globalization of production, ultimately decreasing the number of "good" jobs in in "prime" labor market sectors, eroding their sheltered status (originally carved out under the New Deal) at the same time as increasing the number of people fighting for a diminishing set of opportunities.

(3)Increased labor market competition (the consequences of #1 and #2), coupled with a decline in social supports outside of the labor market for non-workers (caused by a two-decade attack on the welfare state by neoliberals like you, OC), has served to bid wages down and redistribute a greater share of the "fruits" of economic production from people who work for a living and are compensated around or below the average wage, to either a small elite group of highly skilled, highly compensated technical and managerial workers, or to capital-owners.

IMO, this is the best argument for a "new New Deal." We can dispatch with the sexist and racist labour market assumptions in the old one, ensuring instead that now economic opportunities are more fairly distributed both by race and gender (and perhaps also globally). At the same time, we can also leverage the power of government to re-allocate a greater income share from capitalists back to average workers.

[ 14 April 2004: Message edited by: robbie_dee ]

[ 14 April 2004: Message edited by: robbie_dee ]

30 years ago, the employment rates of women in their 40s was around 40%, and 85% for men. These days, roughly 75% of women in that age group have a job, compared with just over 80% for men. The employment rates of younger cohorts are pretty much the same; the only major differences are for people in their 50s and older. One might expect that those differences will also disappear if women who currently have a job decide to keep them.

The way I see it, we've seen a huge increase in the supply of labour, and the demand side has been only slightly outpaced. This might also explain why wages have been rising so slowly, notwithstanding increases in productivity.

In the 1950s it was worked out that just to keep pace with population growth the US would need to add a million new jobs a year.

Scaling that back to account for lower population growth would probably still make that somewhere around 500,000 jobs a year. Scaling further for Canada's situation means somewhere between 50,000 and 100,000 new jobs a year. (I believe our populationm growth is somewhat higher partly due to higher immigration)

The increase in the supply of labor (that is, women entering the workforce) has, quite simply, driven down the real wage which is a cruel joke on women who want to be valued for their work (notwithstanding the fact that womens' wages in the aggregate are increasing over time; this has occurred due to a stall-out in mens' wages, and equality still has not been reached as female wages are, apparently, still about 80% or so the level of male wages). After all, same demand for labor, higher supply, real wage drops.

Furthermore, while it has been stated that wages and productivity are most inextricably linked, why is it that the real family income has stagnated in Canada and the USA while productivity continues to grow? This is creating an increasing gap between wages and productivity that clearly means that greater returns are going to capital than to labor.

(and look what they went and did with it. Gambled it all away in the stock market and then told workers to tighten their belts. Yee-haw. )

And finally, this travesty of 7% unemployment being considered "full" employment.

DrC: Why has it taken 25 years? Because the transition isn't over yet. It'll take at least 40 years until the 20-year-old woman who decided to break tradition and work outside the home in the 1970's hits retirement age. So it'll probably take closer to 50 years until the female employment rates in all age groups level off.

Greater returns to capital? I seem to recall that you made the point in another thread (sorry, can't find it, so I'll withdraw that claim if you object) that the real interest rate - that is, the rate of return on capital - has no secular trend. I'd agree. Another way of showing that is by noting that profits' share of GDP has no noticeable trend, either. Here is how the profits/GDP ratio has evolved since 1961:

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 YEAR        PROFITS/GDP (%)
1961        10.1
1962        10.4
1963        10.8
1964        11.4
1965        11.3
1966        10.9
1967        10.3
1968        10.6
1969        10.2
1970         9.0
1971         9.2
1972        10.2
1973        12.3
1974        13.5
1975        11.6
1976        10.5
1977         9.9
1978        10.8
1979        12.5
1980        12.2
1981        10.0
1982         7.0
1983         8.9
1984        10.2
1985        10.2
1986         8.8
1987        10.3
1988        10.6
1989         9.1
1990         6.6
1991         4.8
1992         4.7
1993         5.6
1994         8.5
1995         9.4
1996         9.6
1997        10.0
1998         9.4
1999        11.3
2000        12.6
2001        11.5
2002        11.5
2003        12.1
 

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Originally posted by Oliver Cromwell:
DrC: Why has it taken 25 years? Because the transition isn't over yet. It'll take at least 40 years until the 20-year-old woman who decided to break tradition and work outside the home in the 1970's hits retirement age. So it'll probably take closer to 50 years until the female employment rates in all age groups level off.

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"In the long run, we're all dead." - John Maynard Keynes.

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Greater returns to capital? I seem to recall that you made the point in another thread (sorry, can't find it, so I'll withdraw that claim if you object) that the real interest rate - that is, the rate of return on capital - has no secular trend. I'd agree. Another way of showing that is by noting that profits' share of GDP has no noticeable trend, either. Here is how the profits/GDP ratio has evolved since 1961:

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So? Business investment as a percentage of GDP hasn't changed much either despite all the hoo-ha over corporate taxes being the big evil bugaboo that keeps good businesspeople from opening the Horn of Cornucopia for all.

And what the hell does profit have to do with the real interest rate? I point out that it seems a bit like you're dodging the point.

Besides, (although you'll nigletize about the source) Jim Stanford points out in Paper Boom that while profitability has in fact declined since 1973, where the money has been going is to the rentiers - in effect, the owners of capital rather than the movers of capital.

Put another way, the real interest rate means that corporations have had to give up more in bond interest and in dividend payouts than in times past.

"No secular trend"? Please to be recalling that the short-term interest rate is fixed at will by the central bank, and long-term rates, absent expectations of future inflation or a sudden rate cut, tend to be well-behaved on an upward-sloping yield curve.

In effect, the Bank of Canada can choose the long-term trend of the distribution of income and assets to a degree by choosing what real interest rate gets charged on any instrument that has an interest rate built into it based on the benchmark rate set by the Bank of Canada.

The classic example, of course, is mortgages, but corporate bonds tend to use the BoC rate as a benchmark, and the stock market's performance tends to be inversely related to the interest rate (that is, when rates are low, it tends to do better since people are not preferring bonds as much).

Full employment is the only unemployment rate. And I don't mean this ridiculous farce of pretending that 7% - that is, wasting the potential of seven percent of the able-bodied men and women who want to put their backs and minds into producing the goods and services people want and need - unemployment is somehow full utilization of this country's resources.

Pierre Fortin and Lars Osberg came up with a very graphic way of putting the waste of human resources into perspective:

Conservatively assume that 7 percent is the full employment rate. Assume further that any surplus unemployed people above that are put to work building a "credibility pyramind" as a monument to the Bank of Canada's stern determination of low or zero inflation. That's an "extra" 450,000 people per year unemployed, by the way.

Get this. Even using the equipment the Egyptians used, on a standard 40-hour workweek, just on the "surplus" unemployed people that were placed on the rolls since 1990, by 1997 they would have built seven pyramids the size of the Great Pyramid in Egypt.

SEVEN!!!!

IN SEVEN YEARS!!!

Is there any better way to show the monumental waste of a monetary policy geared to protecting the rentiers than to show that 450,000 people doing nothing more than building monuments to dead kings could build enough of them for seven dynasties?

Putting those people to work doing real jobs would have an incalculably positive impact on the Canadian standard of living, as their contribution to production, using modern equipment and techniques (instead of sleds, rollers and rope for pyramids) would be only to the benefit of all.

For they would impart additional purchasing power to the consumption of goods and services, which requires high production, which requires high employment, which... I trust you get the picture.

If nothing else, we have hundreds of projects that are crying out for people - people who are currently drawing EI, welfare, or are currently looking at poor job prospects when they leave university or college.

A new maglev train down the St. Lawrence Seaway.
Reforestation of British Columbia.
Environmental remediation of all kinds.

The list goes on and on and on.

Profits = income earned on investment.
Interest rate = (income earned on investment - investment) / investment.

If profits and investment are (roughly) constant fractions of GDP, then the interest rate will be (roughly) constant as well.

I don't understand the distinction between owners and movers of capital. Nor do I understand how payments to owners of capital can go up while profits go down. And who are these 'rentiers'? That's the French word for pensioners. It is indeed the case that pensioners' incomes are more dependent on their investment holdings than those of us who have labour income, but I don't see how that makes them bad people.

The Bank of Canada can influence real interest rates in the short term, but I don't know how they can fix long rates for any length of time.

Those projects you mention are not crying out for *people*, they need *capital*. That is, they need someone who is willing to use their savings to pay workers to carry out those investments in the hope of getting a return. And how sure are you that the people who have the skills required to work on those projects are the same ones who are unemployed?

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Originally posted by Oliver Cromwell:
"And what the hell does profit have to do with the real interest rate?"

Profits = income earned on investment.
Interest rate = (income earned on investment - investment) / investment.

If profits and investment are (roughly) constant fractions of GDP, then the interest rate will be (roughly) constant as well.

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I'm still not sure why you chose to use profits instead of directly addressing my concerns about how the gap between wages and productivity is indicative of greater returns to capital rather than labor, since it seems to me that the real interest rate is a better indicator of who is benefitting.

So: Why has profitability been declining since 1973, while real interest rates have gone up a about four points since 1981?

Clearly, then, if profits have not risen, then someone's getting the rewards from a stagnant real wage and positive productivity growth, and if it's not the retained earnings of businesses, and it's not the corporate income tax (which has declined in importance to government revenues since the 1970s, and whose rates themselves have been cut several times in the 1990s), then clearly it is the owners of those businesses who are benefitting.

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I don't understand the distinction between owners and movers of capital. Nor do I understand how payments to owners of capital can go up while profits go down. And who are these 'rentiers'? That's the French word for pensioners. It is indeed the case that pensioners' incomes are more dependent on their investment holdings than those of us who have labour income, but I don't see how that makes them bad people.

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Left-wing writers have generally used the term rentier class to mean that group of people whose incomes primarily derive from the return on capital. This can include pensioners, but generally refers to stockholders and bondholders, who can be able-bodied, working-age, rich people. (Note: 50% of the Canadian population still has no form of RRSP whatsoever; "peoples' capitalism" is a myth, and if you say "pension fund" one more time-- I've already pointed out that the notion that workers are the Great New Capitalists through their pension funds is laughable. Control over the fund does not rest, except nominally, with the union, and in any case the individual worker contributions cannot be traced to a specific bloc of shares; the moniess are aggregated and the composition of the fund itself can change at the discretion of the delegated fund managers. Ergo, an individual worker's control over his or her pension fund is very limited at best; furthermore the benefit to the worker is not realized for years to come, so the intermediation is even more pronounced)

The owners of capital are those who hold the stocks and own the bonds. The movers of capital are the businesses to which those stocks and bonds are attached, as they "set capital into motion" by taking money or retained earnings (which came from previously invested capital) and putting it into producing goods or services.

As John Kenneth Galbraith observed, there has been a split that has developed since the 1950s wherein the managerial group of a business can have interests quite separate and wholly distinct from the owners of that business.

That is very much in evidence today as those who benefit from the real economy are primarily the movers of capital, who want to see people buy their production. By contrast, those who benefit from the paper economy are primarily the owners of capital - such as the Bronfman family, or the Stronachs, or for that matter other wealthy individuals whose income derives from the revenue stream emanating from their prior "investments".

Those who benefit from the paper economy have taken this to heart:

"Why would you pour a foundation, buy machines, hire employees, if you can make as much money buying bonds?" - Frank Stronach, Magna International, July 1994.

Average ROE, Canadian business (1990-1997) - 5.5%
Average interest rate, long-run Canadian bonds (1990-1997) - 8.5%

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The Bank of Canada can influence real interest rates in the short term, but I don't know how they can fix long rates for any length of time.

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I believe I said that they influence the long bond rates. This is not trivial; you yourself have pointed out that many instruments which bear interest use the BoC interest rate as a benchmark for their basic risk/return profile. The BoC rate, in turn, fixes the government bond rates, and so on down the food chain until you hit the C-rated "junk" bonds.

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Those projects you mention are not crying out for *people*, they need *capital*. That is, they need someone who is willing to use their savings to pay workers to carry out those investments in the hope of getting a return. And how sure are you that the people who have the skills required to work on those projects are the same ones who are unemployed?

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The private sector won't employ the people to undertake those projects because they're too long-term and won't make a profit. The government won't undertake them because of the lack of an ideological consensus that the government should be an employer of more than just our police and firemen.

And all the capital in the world will do nothing if there are no people to work on them, I might add. We need people to work those projects and we need the political will to put the money in those peoples' pockets for their work.

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I'd still like to know what you think full employment means when
- the participation rate varies over time and has been generally increasing over the past generation
- the average duration of unemployment spells is around three or four months
- there are significant regional variations in unemployment rates

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If the participation rate has been increasing over the last generation and the unemployment rate has been going up, then that tells me that (A) job security is declining, and (B) something isn't working. Increasing participation should mean that since more people are being paid for work, that their incomes will then be used to purchase the production from other sectors in the economy.

If they cannot purchase sufficient amounts of that production, then the real wage has not increased, and so it is not too much a mystery to me why unemployment is going up; clearly, companies are willing to rotate workers in and out of the labor pool more frequently than before.

Regional variations in unemployment are clearly due to structural economic factors; Alberta, for example, employs a good fraction of the population in construction, the trades, and the energy industry. The character and composition of the labor market will be different than that of Newfoundland.

However, this ignores the fact that tolerating a 15% unemployment rate in Newfoundland has got to mean that we're paying a helluva lot of people to be on EI, or Newfoundland has a high number of welfare-caseloads.

The NDP for example is arguing that we don't need to pay down the debt as quickly as the Liberals are planning to do and that we can use some of that money to rebuild infrastructure.

If we invest for example in improving mass transit we move people much quicker, more efficiently and don't pollute the environment as much. The big biz folks who complain about so-called "high taxation" would over the long run benefit from such an investment.

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Originally posted by radiorahim:
Although I wouldn't use MagLev trains (except maybe when playing "Railroad Tycoon") the Ontario government did some tests with them back in the 1970's and they couldn't handle a Canadian winter.

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I think Ontario's problem regaring Maglev, is not the winter, but rather the insufficient supply of electricity..do to what may I ask?

Regarding Newfoundland, I would up that unemployment rate by 10% to 25% in most regions, and it varies significantly form season to season do to the high amount of seasonal workers...fishermen, who get EI for 6 months of the year. Before confederation, Newfoundland, had and did everything, for such a thinly populated and spread out island. We had trains, ferries, naval yards, pulp&paper, industry,etc. Now we have EI, welfare, no fish, no railroad, a very rich but small sector of society (which mind you has always existed as the HArvey's, Penny's, etc) but now we have none of the industry and even more of the wealth skewness a la MR. Williams. Not a rap against confederation, but rather a knock at the 'enforced' enslavement, caused by ease of capital movement (used to be you had to invest in Newfoundland, as there was no wear else) and the hightend concentration of existing capital. These are of course just my own observations.

[ 15 April 2004: Message edited by: HalfAnHourLater ]

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When Laurence Meyer was a Federal Reserve governor, he was sometimes criticized for focusing as much, if not more, on employment as on inflation in his efforts to keep the economy strong and sound. Yet his views were well respected within and without the Fed, where he finished a six-year stint in 2002.

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(Italics mine)

Only in the bizarro world of mainstream economics can it be considered "odd" or "unusual" to be concerned with people who work for a living over and above the fall in the value of money, which tends to affect asset-holders first.

But I forget myself. Nothing can be more important than making them who gots, keeps, and them who hasn't gots, don't get to keep.

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I think Ontario's problem regaring Maglev, is not the winter, but rather the insufficient supply of electricity..do to what may I ask?

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