Sunday, April 29, 2018

Job Guarantee versus Work Time Regulation

There has been a bit of commotion recently about the Job Guarantee idea (AKA employer of last resort). I don't consider myself an opponent of the strategy but I do have several reservations about its political feasibility, the marketing rhetoric of its advocates, and its economic and administrative transparency. Some of these concerns I share with an analysis presented by Robert LaJeunesse in his 2009 book, Work Time Regulation as Sustainable Full Employment Strategy. For that reason, it would be timely to post an excerpt from Bob's discussion of"Job guarantees versus work time regulation."

One thing that has puzzled me about the Job Guarantee rhetoric is the invocation of Hyman Minsky as patron saint of the strategy. There is no question that he advocated a job guarantee with the government acting as employer of last resort. But in the passages I've read, the proposal was either contingent to a broader discussion or supplemented with various other proposals some of which might be regarded as more far-reaching and controversial even than the job guarantee.

For example, a 1968 proposal argued that, "In addition, it will be necessary to restrain profits and investments; in particular, the highly destabilizing tendency for investment demand to explode will have to be brought under control." Nineteen years later, Minsky supported a proposal for "a maximum of 32 hours of work a week at the minimum wage" but argued it needed to be supplemented by other programs such as a universal, non-means tested child allowance. Both of these proposals were historical and context specific, with the earlier one arising from a critique of LBJ's War on Poverty and the later one in response to Reagan administration proposals for welfare reform.

The following excerpt is from pages 125-134 of  Work Time Regulation as Sustainable Full Employment Strategy. 

Job guarantees versus work time regulation

Recently, job guarantees have re-emerged among post-Keynesian economists as a way of achieving a more direct labor market intervention than fiscal stimulus alone (Wray 1998). Also known as the buffer stock employment model, the program posits that government manages a buffer stock of unemployed workers by providing jobs to all those willing and able to work for a living wage. The chief virtue of a job guarantee is its ability to quickly create jobs. A government policy of directly employing the jobless could certainly be viewed as expedient. It is also likely to be the most appropriate fiscal spending target for developing countries suited to Abba Lerner’s “Functional Finance,” as it can ensure adequate spending levels during slack times and reduced spending during robust economic activity. Accordingly, a buffer stock employment program represents a vast improvement over the current application of the “non-accelerating inflation rate of unemployment” (or NAIRU) in assisting developing countries to target the proper level of government spending needed to achieve low unemployment with minimal risk of demand-pull inflation. For the industrialized democracies of the world, however, a buffer stock model has many important disadvantages relative to a regulation of work hours. In light of the drawbacks delineated in this section, an alternative labor market policy that uses the government’s fiscal prowess and regulatory powers to influence the social effort bargain surrounding working time may be a more effective, sustainable and certainly more equitable, way of increasing socioeconomic participation.

One of the most troubling aspects of job guarantees is the promotion of greater work and consumption. By furthering the “work fetish” and the “gospel of consumption,” a job guarantee strengthens and expands the capitalist’s sphere of influence in everyday life (Cowdrick 1927). With its emphasis on more remunerative employment, as governed by exchange value, the buffer stock employment model addresses the social ill of unemployment by introducing what many would consider another social pathology—growth of the consumer culture. Perpetuating the market mentality by expanding aggregate work hours further strengthens the capitalists’ position in the dialectic struggle between capital and labor and represents a contraction of the worker’s “space for development” (Marx 1991: 493).

Like nearly all macroeconomic policy since the Industrial Revolution, the buffer stock model is guided by the pursuit of economic growth and paid work. The buffer stock is designed to absorb employment from the private sector and employ the workers at similar tasks so that they can be rehired by private firms at a later stage. By virtue of the fact that the buffer stock model temporarily employs workers until they can be rehired by the private sector, the program will have to offer jobs that are of private value, but not necessarily public worth. The activities undertaken by buffer stock workers will have to be governed by exchange value rather than use value. This precludes public good functions (such as environmental clean-up), leaving activities that were previously provided by households or the community via the third sector as prime candidates for “privatization.” As such, the operation of a buffer stock expands output and the reach of the market, bringing with it the potential for relative public decay, environmental damage, growth of a consumer culture and inflationary pressures. Joan Robinson, one of the earliest “post-Keynesians,” was herself solicitous of suffering a work fetish. Robinson (1969: xi) pondered the zealous pursuit of employment growth:
If we are to be guaranteed full employment in any case, the question to be discussed is what the employment should be for. Do we want more investment or more consumption? If more investment, should it be in the infra-structure of industry – the supply of power, transport and communications – should it be in private profit-seeking business or should it be in the improvement of social services – education, health, housing – and general amenities? If more consumption, should it be to reduce poverty or to give everyone a proportionate share? These deep divisive questions are smoothed over by the making of employment an end in itself.
In terms of Keynes’s three ingredients for full employment, a buffer stock model (as distinct from permanent public sector employment) owes its success at achieving full employment largely to the “first aid” of greater consumption. In a post-industrial setting, however, any policy dependent on more consumption is likely to inflame the social and ecological costs of indiscriminate economic growth outlined in Chapter 4.

A buffer stock scheme essentially redefines unemployment by expanding the functions of paid work. Since the buffer stock is not limited to the permanent employment of workers in the provision of public goods, it will have to expand the social definition of acceptable market work. It is not denied that greater throughput, at some magnitude, could eventually reduce unemployment to inconsequential levels. Yet, in a post-industrial economy of declining job opportunities, the redefinition of work and consequent expansion of output will have to be both prodigious and perpetual. Stubbornly high levels of labor under-utilization in some industrialized countries suggest that the level of economic expansion will need to be in excess of 10 to 15 percent of real GDP growth per year in order to ameliorate existing labor surpluses and to continually absorb the technologically unemployed.

Job guarantee proponents recognize this as a potential drawback to greater throughput. Cowling et al. (2003: 12) write, “while higher levels of output are required to increase employment, the composition of output is a pivotal policy issue.” To soften the social and ecological impact of this greater throughput, job guarantee advocates claim that make-work jobs could be environmentally sustainable, add value to the community, and promote upward mobility for current and future workers. Yet, if the private sector jobs they are temporarily replacing do not already possess such virtues, it is difficult to see how they will be imbued with these characteristics when they are performed in the public sector without re-defining the boundaries of work activities. Since the intention of the buffer stock is to temporarily employ workers and keep them trained for later private sector expansion, finding new tasks for them represents a permanent expansion of the functions of paid work. It is likely, however, that such job tasks will have to be permanently provided by the public sector as the private sector has little motivation to provide such socially beneficial functions.  Nels Anderson acknowledged the tendency for public employment to become permanent in his 1938 book The Right to Work. Anderson (1938: 65) links chronic unemployment to technological advance, “Technological advances in factory and office are constantly disemploying large numbers of workers, and despite assurances from American business that new industries will spring up, creating new occupations and new jobs, the truth is that such few new industries as there are do not want the unemployed from the relief rolls.” If they are intent on maintaining full employment through job guarantees, governments will need to be prepared to permanently retain the bulk of unemployed workers on public work projects.

A permanent expansion of public sector employment could certainly be used to reverse the Galbraithian social imbalance of private opulence in the face of public squalor, but if it goes beyond the provision of public goods and the amelioration of market failure it will itself be contributing to the growth of the private sector and the need for more public expenditure. If the provision of public goods is a persistent and growing need—the refitting of “clean technology,” for instance—then an appropriate response would be a permanent expansion of public sector hiring, not a buffer stock of temporary workers, who may disappear again when private sector hiring resumes. Thus, any full-employment program that entails an expansion of economic output works at cross purposes as it simultaneously causes social and ecological externalities that diminish well-being.

By contrast, work time regulation has the potential to reverse the Galbraithian social imbalance by reducing the scale of the private sector while expanding activities in the third sector. A redistribution of work time would afford the over-employed the time needed to partake more fully in the third sector, while the greater income received by the under-employed could help to increase their social involvement as well. Since work time reduction is a form of productivity dividend that does not necessitate more consumption and production in the private sphere, it would not exacerbate the social imbalance between public and private sector activities.

The difficulty surrounding the temporary nature of the buffer stock, has led some advocates to propose a bifurcated program with a “stable core buffer stock component and a flexible buffer stock” (Mitchell and Wray 2005: 240). As addressed below, wages of buffer-stock workers cannot be very attractive since low wages in the buffer stock serve to restrain the wage demands of primary sector workers. That is, primary sector workers will not demand higher wages if there is still some risk of having to accept a relatively lower buffer-stock wage. Effectively, a buffer stock model commits the government to achieving price stability by perpetuating the insider–outsider labor market segmentation that currently frustrates improved labor market outcomes. Assuming all buffer stock workers earn comparable wages, the stable core then becomes a permanent expansion of public sector employment at reduced wages. The risk of establishing and sustaining low-skilled, low-wage jobs has led Sawyer (2003: 888) to refer to the buffer stock plan as “underemployment or unemployment by another name.” Permanent public sector employment at low wages might be preferable to chronic unemployment, but is clearly inferior to a redistribution of work time that results in an expansion of private sector payrolls at prevailing wages.

Full-employment programs that fabricate jobs also present ideological hurdles related to the growth of market activity. For better or worse, the growth of the “free market” has resulted in many household or third-sector activities being commodified. There is a very real risk that make-work programs will accelerate this trend as they search for activities that can be performed initially by public sector workers and then be fully privatized when the economy expands. Indeed, many of the potential occupational activities that buffer stock proponents envision (companionship, safety and environmental supervision, daycare provision, etc.) are functions that are frequently provided through non-market mechanisms. Payment for such activities could easily corrupt the very meaning of non-market functions, pulling many caring and nurturing tasks into the orb of the market. Make-work programs run the risk of devolving into a program in which we are paid to “take in each other's laundry” and the children and parents too! A full-employment model that succumbs to such “work fetishism” effectively redefines household production, volunteerism, and nurturing care as a market activity in order to fabricate jobs for the unemployed. It consequently puts its proponents in the uncomfortable position of facilitating the commodification of social activity or the “creep” of the free market into erstwhile non-market activities. Activities in the third sector should not be regarded as a source of paid work tasks to be colonized by the capitalist market economy or as a quid pro quo for basic income and social assistance.

In addition to the commercialization of social activities, make-work programs run the risk of creating ecological and social burdens that swamp the benefits generated by the employment gains. In the 1990s, a backlash emerged in Japan against “make-work” infrastructure projects such as dams, airports, and bridges that were characterized as state-sponsored degradation of the environment and local communities (Economist 1999). Given the social and ecological ramifications of public development projects, the expansion of infrastructure should be governed by necessity and sustainability, rather than a zeal for job creation. Anders Hayden (1999: 38) writes:
An ecological approach demands that we refuse to create jobs artificially at the expense of nature and society, and that we begin the phase-out of unnecessary and destructive forms of production, from land mines to lawn chemicals … Rather than furiously scrambling to make new work that is often meaningless and of low or no social utility, we should seek to share equitably the work that needs to done, the leisure dividend from the work we choose to no longer do, and the wealth generated. 
As detailed in Chapter 4, ecological imperatives dictate that alternatives to make-work programs must be examined as a way to balance the convoluted social and ecological aspects of a fully employed economy. Thus, in a climate constrained, post-industrial world—with its diminished need for workers— even a job guarantee program would be forced to implement a long-term trend toward work time reduction.

Aggregate demand will always be larger with a job guarantee as more people will be receiving wages for activities that were previously provided by the community, the household, or no one. Moreover, the capitalist has a strong motivation to ensure that future productivity increases are directed toward greater aggregate demand. Capitalists prefer that any productivity benefits that are shared with workers take the form of higher wages rather than reductions in work hours (Philp 2001). This is because higher wages entail greater consumption to absorb the increased output that has threatened the capitalist’s planned scarcity or, in Veblenian terms, “capitalistic sabotage.” The use of buffer stock wages rather than a redistribution of labor and leisure amounts to the government distributing the social product in the capitalists’ favored form. The wage dividend perpetuates the inequities of the market system by inflaming the commodity fetish. Furthermore, it is naïve to think that the capitalists will maintain the status quo as the government expands output that competes with private sector sales. Since buffer stock work functions are governed by exchange value, a job guarantee would compete with the private sector in both input (labor and capital) markets and output markets. Insomuch as the increased output of buffer stock workers threatens the profitability that stems from both surplus labor and capitalistic sabotage, employers will truculently oppose the program and seek to maintain the labor market segmentation that is the source of their surplus labor extraction.

Although aggregate demand will always be larger with a job guarantee than without it, the question remains whether it will be large enough? If government spending is tied to unemployment and more unemployment is not forthcoming during an economic slowdown (due to a shift to part-time work, for instance), a job guarantee may not be able to stimulate spending sufficiently to bring the economy out of its doldrums. The recent economic slowdowns in Japan and the United States offer fruitful examples. Throughout the anemic economic growth of the 1990s the unemployment rate in Japan never rose above 5.5 percent. The situation has been similar in the United States where during recent recessions and the global financial crisis of 2008–09 unemployment has yet to rise above the levels recorded in the 1981– 83 recession. Given that the unemployed in these cases were such a small segment of the population, it is doubtful that providing them with a government paycheck could ensure that deficit spending was large enough to equate desired net savings with actual net savings and keep the economy out of recession. If a sufficient number of individuals do not feel the compulsion to work for a government paycheck during an economic contraction, the economic stimulus will have to take some other form. It is worth noting that roughly 35 percent of the working age population does not offer its labor for paid employment in most industrial countries. Moreover, if the “graying” of the baby-boomers results in the labor market shortages that are expected, using unemployment as a target for fiscal spending would be ill-advised as an underperforming economy could still have relatively tight labor markets.

In contrast to a job guarantee, work time regulation could reduce the overall sphere of influence of the marketplace, improving the bargaining position of the working class vis-à-vis the capitalist class. Linking future productivity increases to leisure payments instead of pecuniary payments, for example, could reduce the thirst for more mass-produced goods. If well-paid, part-time work (say 20 hours per week) became the norm there would be less scope for the capitalist to engage in exploitative tactics with any one worker. Under the right conditions, namely an equitable distribution of material necessities, the urgency of consumption in the private market could be diminished. This is not to deny that there would be some pressure toward speed-up or an intensification of work during the initial work time reductions, but such pressures would be forced to ease as labor markets tightened and the capitalist blunderbuss of unemployment and labor market segmentation was splintered.

The redistributive effects of work time regulation could offer greater stability to the economic system at lower levels of aggregate expenditure, including government spending. If economic contractions are caused by a poor distribution of income and consumption, as suggested by Ayres, work time regulation could effectively redress the distributional problems. Levitan and Belous (1977: 26) also extol the stabilizing virtues of work time regulation on the economic multiplier:

When a recession hits, something has to give. If prices, wages, and workweeks show little adjustment, all weight is placed on production levels and the number of workers employed. The results have been huge gyrations in output and employment. The argument is that if more variables – such as work time – are allowed to absorb some of the shock, the oscillations of the pendulum will be smaller and equilibrium – including full employment and vigorous output will be restored at a far quicker pace. 

Work sharing could be used to attenuate the roller-coaster effect of economic activity by stabilizing employment and consumption and, by extension, investment and output. Currently, hours adjustment serves this absorption function to a limited degree in the United States. Charts 3.1 and 3.2 suggest that variability of hours in the private sector already absorbs some of the impact of reduced labor demand during economic slowdowns. Chart 3.2 is particularly illustrative in this regard as it manifests a pronounce spike in the number of employees working part-time hours for economic reasons prior to and during official economic recessions in the United States. A policy of work time regulation would take the pragmatic step of improving this adjustment process by making work-sharing more practicable for employers and more equitable for workers. A systematic, predictable, transparent, and equitable hours adjustment process could substantially improve economic stability by stabilizing incomes with relatively low levels of government spending.

Another ideological objection to a buffer stock arrangement relates to the government assuming the social costs of unemployment caused by layoffs. If private firms are able to rely on the buffer stock as a temporary “storage shelf” for their workers in their search for short-run profits, the program would amount to a financial subsidy for firms with a fickle commitment to its workers. Temporary public sector employment (or a buffer stock of workers) promotes an undesirable shifting of the social costs of unemployment and underemployment from private firms to the government. By absorbing the expendable workers from the private sector, the government will be subsidizing the social costs of unemployment for employers. Stabile (1996: 151) summarizes the social costs of unemployment originally outlined by JM Clark (1923):
Regarding workers, this means that they must feed, clothe and house themselves and their families, whether they are working or not. These costs will not go away, if workers cannot pay them, so someone else must, whether it be friends and relatives, eleemosynary institutions, or government. If these other agencies helped the social costs of labor, businesses were being subsidized by them.
Like so many capitalist policies and practices before it, a job guarantee therefore creates an untoward socialization of the losses and privatization of the profits. By relieving employers of the obligation to maintain long-term commitments to workers, the operation of a buffer stock of workers represents a subsidy to those employers least committed to their employees. In essence, the buffer stock employment program temporarily hires private sector workers during a slowdown and attempts to keep them “employable” until corporate profitability (or the expectation of profits) is robust enough to hire them back again. By fostering a short-term time horizon in hiring, a buffer stock runs the very real risk of encouraging ephemeral work arrangements and shifting the costs to society at large. 
Although this is largely the case under current social structures, there is still some stigma attached to a myopic pattern of hiring and firing. Pension funds, consumers and workers themselves often react unfavorably when a firm engages in layoffs for short term financial gain. Under a job guarantee that makes such short-term layoffs more palatable to society, it is reasonable to expect that firms will more readily resort to layoffs to boost short-run profitability. Rather than encouraging firms to pass the costs of unemployment onto society in general, prudent public policy should encourage firms to internalize the social costs of unemployment. As outlined in Chapter 5, work-sharing programs have been used to encourage firms to assume a longer time horizon in their employment commitments by making it less expensive to expand and contract work hours in accordance with the economic cycle.

As with wage subsidies, subsidizing the social costs of unemployment could actually result in lower money wages being paid to workers. The experience of the Speenhamland income scheme of 1795 illustrates the intricacy of keeping an intended income floor from becoming an income ceiling. The poor design of the Speenhamland and other assistance programs of the Poor Laws epoch often allowed employers to lower wages so far that the workers experienced a lower level of absolute income even after receiving public succor. Indeed part of Marx’s preference for work time reduction was the view that the poor laws between 1795 and 1834 played a central role in the immiseration of the rural working class by allowing English farmers and landlords to pay below-subsistence wages, while the parish relief system mitigated the social costs of the sub-par wages. Although there are some bona fide reasons why firms would not take advantage of income and employment subsidies to lower wages (e.g. efficiency wages), it remains a theoretical possibility that job and income guarantees could have perverse effects on worker well-being (Block and Somers 2005). 


Calgacus said...

I'd been wondering for a while about your ideas on the Job Guarantee. Couldn't gather much from your review of this book. I am pretty much the most zealous pro-JG zealot around these days. A Job Guarantee obviously implies work time reduction, but not vice versa, so it is illogical to consider reduction more far-reaching. Minsky certainly didn't. So I hope to convert you from the weak tea of work time reduction to the strong drink of the Job Guarantee.

I have an 18th (& mid 21st) century attitude about it: A monetary economy without a job guarantee is an idea out of a lunatic asylum, one for the criminally insane. An idea that a few years in the future people will be unable to understand how anybody could not see was lunacy, the same way that post slavery generations understood slavery was bad & mad.

Some of LaJeunesse's criticisms are misguided or grossly mischaracterize job guarantees in theory, practice & history. Logic as weird as saying: Since Adam Smith talked about making pins, a Job Guarantee must be about making pins. And we don't need so many pins! So down with capitalist pin-maker exploiter job guarantees!

A line by line criticism would not be out of order, but I have no time now.

Sandwichman said...


Like I said in the OP, I am not opposed to JG in principle. There may indeed be implementations of it that I would applaud. My skepticism arises largely from some of Wray's formulations, which I find dogmatic and dismissive of policy concerns other than "full employment." My sense is that LaJeunesse's interpretation of JG is also largely based on Wray.

Blake Alcott considers how a JG could facilitate work time reduction and "degrowth" (that is, the decoupling of economic stability from a growth imperative) in "Should degrowth embrace the Job Guarantee?" (Journal of Clean Production 38 (2013) 56-60).

The thing that concerns me is that many advocates of JG react to criticism and question as if JG is a panacea and all the uncertainties of policy design and implementation have already been solved. They haven't been.

The thing about putting all one's political eggs in the full-employment basket is that it has been before and full employment got defined downward to non-inflationary full employment which got defined down to inclusive growth which got defined down to "Drill, baby, Drill!" and "Build the Wall!"

Where does the Myth of the General Strike fit in all this? I was afraid you would never ask.

Calgacus said...

Well, the MMTers are always saying a JG is not a panacea. I'm the only one who says to all and sundry, baloney, it damn well is. The MMTers aren't dismissive enough, present far too many details, so people don't see the forest for the trees. If you're obsessively stabbing yourself, not stabbing yourself is a panacea. Which drawer you put the bloody knife in - who cares? There aren't any serious policy design and implementation concerns. The devil is not in the details. Hopkins did it in a few months with a tiny staff of about 150. The problems are a joke.

The devil is in the decision, and remembering Keep It Simple, Stupid: Flat, fixed wage employment to everyone. As a legal right, a basis for a lawsuit if denied. Sure, the more better the program is run, the more betterly things will turn out. But it is a comparatively, absurdly trivial matter. Bringing it up at all is not understanding things. It is comparing "End slavery or not?" with "who will staff the Freedmen's Bureau? where will we put the offices?"

As for Blake Alcott, I will look at his paper, but it is not a matter of "could". It is logically must. A JG makes the necessary real work time decrease. If somebody wants to work more - well let them. Do we need work time cops? Minsky & Wray and all real advocates of the JG insist that it has absolutely nothing to do with any growth imperative - MMT is NOT hydraulic, old fashioned fine-tuning old Keynesianism.

The point is we don't need no crackpot "definition" of unemployment, or anybody to define it. Every individual knows whether they are unemployed or not. If they want work, they go to the JG office. What is truly insane - see Keynes, Wigforss etc is the weird idea that there is any problem with that, except to people who think they are the masters and everyone else the slave. A 12 year old child could be put in charge of the USA WPA. Probably would do better than anybody educated in economics.

What happened is that we took all our eggs out of the full employment basket a lifetime ago with the destruction of the New Deal work programs and the failure of FDR, Hopkins et al to make them permanent as they wanted to. And then the weakening of the Full Employment Act in 1946. I recently read some criticism in Business Week (?) from that time, strikingly similar to Wray's thinking. Capitalists knew they had to kill real full employment a la WPA because it would "change the structure of the economy" - the precise phrase Wray used decades later. No nonsense about difficulties, they knew it would succeed and that is what they were afraid of, the enemy, the rest of the human race, succeeding.

Why was full employment watered down? - because the bad guys fought like hell to water it down, and to brainwash people into obsessing over imaginary and peripheral problems. Because as Marx and most Marxists once understood, a job guarantee simply ends the capitalist system that he fought against. Period. I am unaware of any claim that work time reduction could do that. How?

Sorry for the argumentative tone - but I'm very pressed for time and can't think of any other way to put across these points, because so many of the assumptions implicit in LaJeunesse and others' criticism are ahistorical and wrong at every step.

Sandwichman said...

No need to apologize, Calgacus. I appreciate a spirited argument as long as it is not demeaning. You make a point that I respect in principle but dispute in substance:

"Because as Marx and most Marxists once understood, a job guarantee simply ends the capitalist system that he fought against. Period. I am unaware of any claim that work time reduction could do that. How?"

I refer you to Volume I, Chapter 10 of Capital and the "fragment on machines" in the Grundrisse. Elsewhere I have written on the relationship between Marx's arguments in those passages and the 1821 pamphlet by Charles Dilke, "The Source and Remedy of the National Difficulties" but more comprehensively I would refer you to Moishe Postone's Time, Labor, and Social Domination.

Ralph Musgrave said...

The entire "buffer stock" idea is nonsense, and for reasons I set out here:

AXEC / E.K-H said...

The set screws of overall and individual employment
Comment on Sandwichman on ‘Job Guarantee versus Work Time Regulation’

To this day, economists do not know how the price- and profit-mechanism works. Supply-demand-equilibrium is merely a brain-dead proto-scientific joke. By implication, the theory of employment is false.#1 By consequence, economists’ policy proposals never had a sound scientific foundation.#2 This applies to all political camps.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists do not have the true theory. And this is why the whole discussion about the Job Guarantee, the minimum wage, or other employment measures moves in circles.

So, let us first get the basics straight. The elementary version of the axiomatically correct (objective, systemic, behavior-free, macrofounded#3) Employment Law is shown on Wikimedia.#4

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 indicates a household sector budget deficit = dissaving = credit expansion, a ratio rhoE less than 1 indicates a household sector budget surplus = saving = credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete employment equation contains in addition profit distribution, the public sector, and foreign trade. Note that the Employment Law consists exclusively of measurable variables and is therefore directly testable.

The macroeconomic Profit Law for the elementary investment economy reads Qm=I−Sm=I−(Yw−C)=(I/Yw−1+rhoE)Yw. Legend: Qm monetary profit/loss, Sm monetary saving/dissaving. Macroeconomic profit is given as the difference between business sector investment and household sector saving.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the macroeconomic price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is beyond the horizon of the micro-brained micro-economist.

See part 2

AXEC / E.K-H said...

Part 2

With regard to an increase of average productivity then follows (under the initial condition of I given and rhoE=1) that overall employment L DECLINES. In order to prevent this and to keep employment at the given level, the factor cost ratio rhoF=W/PR has to be kept constant. So, either the average wage rate W has to rise in lockstep with productivity or the average price P has to fall. In order to keep the price constant, the wage rate has always to move in lockstep with productivity.

So, as a matter of principle, the economic system can be held stable at any level of employment with no inflation/deflation. How this can be institutionalized is a separate question.

The employment L in the Employment Law is the sum of individual labor times as shown on Wikimedia.#5 Legend: L total employment per period/year in hours, U legal norm time, e.g. hours per day/week/year, lit individual factor for the ith employee, i.e. lit less than 1 is part-time, lit greater than 1 is overtime, n number of employees.

If n is fixed at full employment (however specified), then a reduction of overall labor time L can be achieved either by a general reduction of the legal norm time U or a reduction of the individual factor lit or a combination of the two.

So, the macroeconomic Employment Law gives one all the set screws (aggregate demand, macroeconomic price mechanism, labor time setting) to realize any level of overall economic activity in the monetary economy.

The at any time possible stabilization of employment at a level that has to be determined by the legitimate sovereign makes the whole blather about the minimum wage, buffer stocks, and reserve armies superfluous.#6

Egmont Kakarot-Handtke

#1 Mass unemployment: The joint failure of orthodox and heterodox economics

#2 For details of the big picture see cross-references Employment

#3 The macrofoundations approach starts with three systemic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start it holds X=O.

#4 Wikimedia, Employment Law

#5 Wikimedia, Employment, differentiated labor input

#6 The minimum wage debate: a showpiece of economists’ hereditary idiocy