Sunday, September 27, 2009

OECD Jobs Crisis Policy Forum

As part of the OECD Labour and Employment Ministerial meeting on the Jobs Crisis, taking place in Paris on Monday and Tuesday, there will be a policy forum engaging "the social partners, researchers, Ministers and representatives of the civil society." (One wonders what the difference is between "social partners" and "representatives of the civil society". Are the partners not civil?). Professor David Blanchflower will be the keynote speaker at the Policy Forum.

Blanchflower is a "happiness" economist and, as a member of the Bank of England's Monetary Policy Committee, was early in warning of the impending credit crisis. He has also been in the front lines warning of the jobs crisis and now writes a weekly column for the New Statesman.

The Policy Forum's website presents four questions for discussion at the forum:
- Are standard employment policies adequate to respond to the crisis?

- Do these measures need to be reinforced or complemented by other less conventional measures?

- What should be done to minimize the risk that the current steep rise in unemployment will become persistent into the recovery and beyond?

- How can dialogue with social partners and other stakeholders facilitate the design and implementation of the most suitable labour market and social policy package to help workers weather the storm of the crisis?
The Sandwichman sent Professor Blanchflower his response to these four questions and is pleased that he has acknowledged the email. Below are the responses.

1. "Are standard employment policies adequate to respond to the crisis?"

Certainly not.

2. "Do these measures need to be reinforced or complemented by other less conventional measures?"

Yes, see below.

3. "What should be done to minimize the risk that the current steep rise in unemployment will become persistent into the recovery and beyond?"

The traditional trade union prescription for high unemployment put forward in the 19th century, in the 1930s and even as late as the 1950s and 1960s was to reduce the hours of work. Samuel Gompers said, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." John Maynard Keynes agreed. In a 1945 letter to T.S. Eliot, Keynes explained, "The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution." Keynes expressed the same opinion more formally in a 1943 Treasury Department memorandum on "The Long Term Problem of Full Employment".

A fuller explanation of the theory underlying the trade union position can be found in Dorothy Wolff Douglas's 1932 Journal of Political Economy article on "Ira Steward on Consumption and Unemployment". For the context of Keynes's views on working less and their centrality to Keynes's thought, see the conclusion to Robert Skidelsky's 1998 paper, "Keynes and Employment Policy in the Second World War." In light of the uncanny convergence between Steward's ideas on unemployment and Keynes's, it would be a serious mistake to overlook them.

4. "How can dialogue with social partners and other stakeholders facilitate the design and implementation of the most suitable labour market and social policy package to help workers weather the storm of the crisis?"


Dialogue on the relationship between unemployment, wages and reduction of the hours of work has been effectively banished from mainstream economics by the bogus accusation that proponents of shorter working time commit a "lump of labor fallacy". Even the unions in the US have finally acceded to the shibboleth. Below is the abstract to my 2007 Review of Social Economy article, "Why Economists Dislike a Lump of Labor":

"The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it."

The unreasoning antagonism of contemporary economists to shorter hours of work is not unprecedented. Mark Blaug's 1958 article, "The Classical Economists and the Factory Acts," revealed how most of the 19th century political economists opposed the reduction of hours on the basis of "principles" that owed nothing to any actual economic analysis. Fortunately, that earlier opposition was overcome by persistent agitation. The current impasse, though, has been hard-wired into theoretical models that owe more to their fanciful premises than to their mathematical rigor.

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