Why Employers Like Unemployment

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Jay Gould, via

Matt Yglesias, pivoting off a report showing a rapid collapse of labor’s share of national income, rhapsodizes about how great full employment was back in the 90s:

Look at that huge increase in the labor share from 1996 to 2000 and you’ll see what you really need to know. That’s not a time when Americans grabbed their pitchforks and burned down the mansions of the rich. Indeed, as I recall it the rich were actually doing quite well at the time and the stock market was soaring. But the average wage earner was also enjoying a great run because unemployment was super-low.

It was a crazy time. The way it worked was that if you weren’t happy with your job, you could just quit and find a new one. Which meant that if your boss was earning fat profit margins, you could credibly threaten to quit and get a raise. That was great for people who got raises, but it also had awesome knock-on effects all across American society. Some people, for example, were in industries that were genuinely low margin and couldn’t afford to hand out raises. So experienced workers would quit those jobs, and low wage employers had to invest time and energy in pulling whole new people into the labor market. It was raises for the previously employed, and new labor market opportunities for folks (high school dropouts, ex cons) who’d be considered “unemployable” today.

And it got even better!

In the face of persistent labor shortages and needy demanding workers suddenly it was clear that productivity improvements rather than hard-ass bargaining was the only viable path to higher profitability. And so productivity rose! Rather than endless rounds of givebacks and lockouts, managers were accepting the need to pay people or lose staff and focusing on finding ways to get more output. It was awesome.

All very nice. But this illustrates something that only became clear reading Doug Henwood’s Wall Street; namely that the owner class does not particularly like full employment. Every one of those positive effects Yglesias notes above are a pain in the neck for the bosses, and more importantly, undermines their social position. Bosses don’t like gigantic financial crises a lot more, which is why many of them were shouting quite loudly that we needed stimulus back in 2008-9, but when the crisis was over, the resulting mass unemployment bothered them only a little, or not at all. To quote the best essay I’ve read on this topic, by Michal Kalecki:

Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary measure.’ The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

I do agree that full employment, especially sustained for years, can work wonders. But getting there will be over the sullen opposition of owners and creditors.

@ryanlcooper

Ryan Cooper

Ryan Cooper, a contributing editor of the Washington Monthly, is currently the Washington correspondent for The Week.