Wednesday, September 9, 2009

Joblessness by Design

by the Sandwichman

My earlier message on kurzarbeit drew a response from Jon Messenger of the ILO who wrote a policy brief on work sharing for the International Labour Conference in Geneva last June. Following up from Jon's bibliography and subsequent sources it becomes apparent that there is an active discussion going on in Europe about work sharing as a response to the current JOBS CRISIS -- with the OECD, the ILO and the TUC all advocating subsidies for short-time working (or "work-sharing").

This is the kind of thing that Dean Baker was calling for last January but nobody (in the USA) has taken up. After all, employment is a lagging indicator. Right? Wrong. According to the Conference Board, non-farm employment is a coincident indicator. Which is to say, when economists talk about employment being a lagging indicator, they are spouting BS.

The "employment is a lagging indicator" meme is a prescription for doing nothing about unemployment other than waiting for the (initially jobless) "recovery" to eventually restore a tolerable level of employment. Of course if government does nothing about unemployment while expanding credit and investment then employment-as-lagging-indicator becomes a self-fulfilling prophecy. The jobless recovery is jobless BY DESIGN.

Organization for Economic Cooperation and Development: "Short-time working subsidies or reduction in social security contributions will help preserve viable jobs, if they are well-targeted on firms facing a temporary fall in demand and workers who will find it difficult to get another job if made redundant."

International Labour Organization: "In the context of the current global economic recession there has been a growing interest in work sharing as a labour market policy tool aimed at preserving existing jobs."

Trades Union Congress: "We are advocating access to a subsidy package for private sector employers who make short-term reductions in staff hours or temporary lay-offs as a means to save costs and give their businesses a better chance of survival."


BruceMcF said...

The common "lagging indicator" meme comes from confusing an offset and a leg.

It takes more than 0% growth to reduce unemployment. So, yes, the "time that employment growth" occurs "lags" "the time that GDP growth occurs" ... but its coincident with "enough GDP growth to generate sufficient jobs to reduce unemployment".

That is, the timing of when GDP crosses from negative to positive does not predict "future" unemployment reduction as well as the timing of when GDP is growing fast enough to cover productivity growth and labor force growth predicts concurrent unemployment reduction.

Anonymous said...

This pretty much confirms that unemployment is a political, not economic problem. The solution is readily available, but events await a political trigger.