Sunday, November 15, 2009

Krugman Misses the Point about Kurzarbeit

Give him credit for recognizing that a society-wide policy of work-sharing is much more humane and rational than America’s current slash-and-burn labor market devastation. Especially in light of the increased unemployment risk faced by minorities and youth, it would be much better for government to push companies to reduce hours rather than bodies. So far so good.

But this is not the main reason Germany has an institutionalized short-work (that’s the translation of Kurzarbeit) program. The Germans have this strange belief that working builds skill: you go through an apprenticeship, you work with master craftspeople, you learn the subtle ins and outs of the particular firm you are attached to (in German you work “with” and not “for”), and lo and behold you become more productive. The key purpose behind Kurzarbeit is to not lose this accumulation of human capital.

Oddly, Krugman writes, “Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.....But these aren’t normal times.”

In normal times the US runs a massive trade deficit with Germany, unable to compete in industry after industry on quality-price comparisons. Labor in this country is strictly an expense, not an asset, and therefore quickly shed when sales go down. Note Krugman’s language: it is “occupations”, not workers who are productive. Even our most knowledgeable pundits can’t imagine an economy in which the skill of the average worker is the main competitive advantage, the last resource you would want to shove out the door.

22 comments:

Ina Pickle said...

EXACTLY! Human labor has been devalued in our system to the point where work does not nourish. It's almost impossible to take pride in your work any more - it would be foolish to put more into it than the company is going to reward you for, and besides, the nail that sticks up gets hammered down.

Between that and the complete destruction of home life on the rack of "increased productivity," work has become untenable in this country.

ict558 said...

I always thought it would be preferable to be a 'Human Asset' rather than a 'Human Resource'.

Assets are generally maintained for their working life, while resources are merely consumed.

Otto Rock said...

Utterly agree.

Anonymous said...

Not to point out the obvious, but a lot of American companies do pretty well treating their workers as pure working capital (so to speak) and not some strategic asset. It depends on the business. What's true for an economy with lots of manufacturing will not necessarily be true for an economy with lots of big box cashiers.

In addition, the relationship is two-sided; I realize it's a chicken and egg problem, but how much sense does it make for a US company to cling desperately to its workers if the best of them are ambitious enough to jump ship at the first post-recovery opportunity?

It would be nice to have a more "nourishing" work environment as Ina points out, but we shouldn't imagine that this is perfectly aligned with a private company's cost benefit calculations, or even a whole society's cost benefit calculation (if you conceive benefit as measured by GDP at least) under normal circumstances.

If you want to introduce moral considerations about the value of work into economic calculations, fine. Just don't pretend that the considerations are strictly economic. And don't be surprised is someone else wants to introduce their moral considerations too, which may not be identical to your own.

Min said...

"Labor in this country is strictly an expense, not an asset, and therefore quickly shed when sales go down. Note Krugman’s language: it is “occupations”, not workers who are productive. Even our most knowledgeable pundits can’t imagine an economy in which the skill of the average worker is the main competitive advantage, the last resource you would want to shove out the door."

Worth repeating. :)

Hubert said...

Sorry for nitpicking,

but we Germans work "at" a company as employed people and "with" as freelancers

BR

Min said...

Anonymous: "In addition, the relationship is two-sided; I realize it's a chicken and egg problem, but how much sense does it make for a US company to cling desperately to its workers if the best of them are ambitious enough to jump ship at the first post-recovery opportunity?"

I do not know about clinging desperately to workers, at least most workers. However, according to Wall Street pundits, it is appropriate to cling desperately to top management (via huge compensation) to keep them from jumping ship.

"It would be nice to have a more "nourishing" work environment as Ina points out, but we shouldn't imagine that this is perfectly aligned with a private company's cost benefit calculations, or even a whole society's cost benefit calculation (if you conceive benefit as measured by GDP at least) under normal circumstances."

That is true, but neither should we believe that the current state of affairs is, either. Remember Henry Ford's insight that his workers needed to be able to afford his cars. Also, there is much to criticize about the GDP. Does anyone believe that it captures all the costs and benefits in the economy?

"If you want to introduce moral considerations about the value of work into economic calculations, fine. Just don't pretend that the considerations are strictly economic. And don't be surprised is someone else wants to introduce their moral considerations too, which may not be identical to your own."

While I do not think that the main argument here is a moral one, moral values are as economically important as other values. On top of that, the economy rests upon morality. As Arrow pointed out, trust is a linchpin of the economy. One problem that we face going forward is the erosion of trust that has occurred in the financial sector. And, despite perhaps short-sighted cost/benefit calculations, loyalty is an important value, as well. It is related to trust. As Red Green says, we are all in this together. Relationships are important. And they are economically important. There is always a balance between competition and cooperation. And there is no answer as to what is the best combination of the two. At times of crisis the need for cooperation increases.

Bill said...

There is irony in Krugman using Germany as the example in that the Germans have succeeded while also doing little in the way of fiscal stimulus.

Anonymous said...

Over the years I've worked for the UAW in an engine plant, studied work methods at Volvo (no assembly lines) and then studied Japanese companies use of Demming's methods. Kurzarbeit probably makes the most sense as to why we are always getting our ass kicked by high wage countries like Germany and Japan. It'll be interesting to see if China and India take a route more like US or like Japan/Germany.

Not unlike Krugman or any economist to miss the point when it's time to APPLY the theory.

Blissex said...

«Labor in this country is strictly an expense, not an asset, and therefore quickly shed when sales go down.»

Well, it is also a matter of power: owners of assets want to enjoy the fruits of those assets sharing as little as possible of control as well as profits with those who work those assets.

There are some excellent quotes from Tocqueville on the subject:

«the skills of the armorer is but little needed: his "occupation's gone". A boy does as well as a man. Indeed, from possessing greater activity of body, he does better. The difficulty of finding good armorers no longer exists; they abound in every machine shop and manufactory throughout the country. The skill of the eye and the hand, acquired by practice alone, is no longer indispensable; and if every operative were at once discharged from the Springfield armory, their places could be supplied with competent hands within a week.»

and from Landes:

«The mule spinners are a tough crowd to deal with. A few years ago they were giving trouble at this mill, so one Saturday afternoon, after they had gone home, we started right in and smashed up a room-full of mules with sledge hammers. When the men came back on Monday morning, they were astonished to find that there was no work for them. That room is now full of ring frames run by girls»

Note in the latter the substitution of "difficult" men with meek women. it is not just about money; it is also about power.

«Note Krugman’s language: it is “occupations”, not workers who are productive. Even our most knowledgeable pundits can’t imagine an economy in which the skill of the average worker is the main competitive advantage, the last resource you would want to shove out the door.»

If the goal is power and control, other people are the *first* resource an asset owner wants "to shove out the door"; the satisfaction of profit only goes so far, and being able to lord it over the weak is sometimes more powerful.

Anonymous said...

I worked for Hewlett Packard for close to 30 years.

Bill Hewlett and Dave Packard considered their employees
as assets. They knew business cycles were always bust
and boom. They figured if they kept there employees
through the bad times, then when the good times started
to roll, the company would hit the ground running.

HP would do it's best to retain all it's employees.
They would help to move the employees to other
locations in the company. The whole company would
work 9 days over a two week period and go one day as unpaid.


This policy continued till Carly Fiorina became CEO. Then
HP entered the great ranks of the slash and burn as other
companies had done in the 80's.

I agree with this post. Knowledge is an asset. US companies
would benefit from this type of policy.

Mark Hessel

Anonymous said...

Totally agree. Even a great economist like Krugman cannot escape the de-humanizing language of the freemarket-champions: investors as rational robots, and workers as mere objects, to be squeezed, and discarded at will. Just travel to Germany or Switzerland, and see how much difference it makes to have people serve you who have skills and are proud of it. In the US it takes me three times longer to get an information at a hotel desk. Speak of productivity!

Blissex said...

«EXACTLY! Human labor has been devalued in our system to the point where work does not nourish. [ ... ]
Between that and the complete destruction of home life on the rack of "increased productivity," work has become untenable in this country.
»

As any employer will tell you, you are very welcome to leave if you don't like it in the USA -- nobody owes *you* a living, while everybody owes everything to the CEOs and other creative and productive heroes without which nothing would get created or produced.

«I always thought it would be preferable to be a 'Human Asset' rather than a 'Human Resource'.»

Only the winners, the creative and productive heroes at the executive level are Human Assets in the USA.

The "bulk headcount" are essentially worthless, as "bulk headcount" can be purchased wholesale for very little money in other countries.

«Assets are generally maintained for their working life, while resources are merely consumed.»

Why should USA companies do anything other than consuming their "bulk headcount" when they can get as many replacements as they want for very cheap somewhere else?

«Not to point out the obvious, but a lot of American companies do pretty well treating their workers as pure working capital (so to speak) and not some strategic asset. It depends on the business. What's true for an economy with lots of manufacturing will not necessarily be true for an economy with lots of big box cashiers. »

It goes further than that; the big context is that with the end of the Cold War several things happened:

* The "bulk headcount" supply of the whole second and third worlds (China, India, ...) is now on the market and can be purchased very cheaply by USA companies. The global labor-to-capital ratio has doubled, reducing drastically the leverage of labor, and increasing that of capital.

* The ideological rivalry of a nominally labor-friendly ideology and empire has disappeared. There is no longer a global competitor to the Washington Consensus.

* The common threat of obliteration that was hanging on both productive and creative heroes and the "bulk headcount" of the first world countries no longer is there, and psychologically this means something, including the disappearance of any need to appease the "home front".

From the long term pattern it is pretty obvious that a lot of USA capital is leaving the USA to move to asset-poor countries where the labor-to-capital ratio is more favorable to asset owners; in effect USA companies, with the strong dollar and pumping-and dumping USA assets to buy foreign assets, have been asset stripping the suckers in the USA to chase new growth in as yet unexploited locales.

Most USA voters, who are petty, fearful, greedy, mean, older asset owners driven by the mirage of effortless income via ever greater capital gains, enthusiastically support policies to drive down wages and employment and up the dollar and asset prices.

They dream of a comfy, easy retirement, funded by massive house and stock price increases, while they pay peanuts in wages to the "bulk headcount" workers serving them in McJobs in some gated community in the USA itself or in some tropical retirement club. They are the dumb money that have been sold a delusion by Wall Street and the old money that are ahead of the game, and cultivate a stream of greater fools for their pump-and-dump schemes.

Get used to it.

Anonymous said...

pensions are the only thing left that treat workers as assets.

Anonymous said...

If I understand it correctly, Kurzarbeit is a public policy, not a business practice. If there is any devaluing going on here, it is in Washington, not so much on Wall Street - Washington is allowing ordinary working families to be treated like so many disposable parts.

Barkley Rosser said...

Peter is right that the system in Germany reflects longstanding and deeply rooted traditions.

Regarding the matter of fiscal stimulus, it should be kept in mind that Germany has experienced a steeper declilne of output than has the US, which almost certainly reflects their avoiding using a fiscal stimulus. Both the US and Germany are now growing slowly. However, they managed to have their recession with much less loss of jobs than we have in the US.

BTW, I am not sure where Walker/Sandwichman has gone to or why, but as someone who disputes with him, I would like to see him back again.

Anonymous said...

Germany also entered its recession with a higher unemployment rate: http://www.indexmundi.com/germany/unemployment_rate.html

Most German work for medium and small enterprises, which probably dont expand or contract nearly as much as American businesses, allowing them to invest much more into their human capital.

Robert said...

Regarding working for, at or with - the German term for employee is "Mitarbeiter" which implies "working with". The Mitarbeiter would work "at" a particular firm.

Good article and discussion.

Anonymous said...

Hey, I'm an older asset holding USA voter, and I'm not petty, fearful, greedy or mean, you sniveling little freeloading viper. You can vote too.

TheTrucker said...

Any alteration to the conventional "supposed" Keynesian spend your way back to economic growth address to economic anemia is probably one bridge too far. We have Afghanistan and Health Care running neck and neck with the recession/depression and too many balls in the air.

Globalization says the US cannot be a manufacturing economy. And if it is not a manufacturing economy then Germany is not a good template. But that leaves a lot of us wondering what kind of economy it is or is proposed to be.

spencer said...

One of the biggest source of productivity growth in the US in recent years has been Walmart.

But Walmart has labor turnover of over 50% every year.

They have reduced every job to the point where it can be learned in just a few hours.

It is a very different productivity model than we generally think about.

Anonymous said...

Just came across this write up... pretty interesting

One point I thought of worth considering - would these differences in philosophy result in the US economy become MUCH more nimble in adapting to changing times? In Germany, it's great that workers are valued like an asset and cultivated like one over the years, but if all of a sudden a given company's business isn't needed anymore (due to changing times, some new invention, etc), then all the highly skilled workers who've spent all their years working there getting good at that particular business are now useless. In the US, however, the assembly-line/treating-workers-as-spare-interchangeable-parts culture results in the economy being much more highly adaptable

Interested to hear others' opinions on this. Was really just a random thought that popped into my head that I could be totally wrong about