How
to have Full Employment with Good Wages
In a previous article I talked about the need to reduce the length
of the work week. But this cannot be done in isolation; if we simply all
began to work less, then we would produce less, and we all would be poorer. No, it must be done in synchrony with other measures. This is the plan that I present below.
First, let me list some facts:
1. A large fraction of the U.S. population is either unemployed or
under-employed. Also, many are earning poverty wages even when working full
time or more than full time.
2. The gap between the incomes of ordinary people and the incomes
of the wealthy is very large. The last time it was this large was about
1928. Since then it has mostly been much lower, until recently. You can see a
nice graph above.
3. America’s large corporations are doing very well. Their profits declined briefly during the recent recession, but quickly recovered to reach record levels. Wealthy individuals are also doing very well. (The rich have gotten richer.)
4.There is no shortage of investment capital to invest in plants
and equipment, or to hire new employees, should corporations decide to do so.
They are currently able to supply the demand for their goods and services with
what they already have, so they are investing very little. (The so-called
“job creators” are not doing it.)
5. About 70% of the goods and services produced by American
businesses are consumed by Americans.
6. Wealthy people spend a fraction of their income on goods and
services; the rest they invest. The size of the fraction depends on the income.
(of course there is individual variation) The very wealthy invest most of their
income.
7. Poor people save nothing; they spend all of their income
quickly. Middle class people save a little; they spend most of their income
fairly quickly.
8. Due to pervasive and continually increasing automation, the
number of workers needed is less than the population of working age adults.
This unbalance will grow, probably for decades to come.
Now let’s address how to improve our situation:
If the populace were to smarten up just a little, and elect
representatives that understood these issues, and had the courage to do what’s
best for the whole country, then they would begin to fix the roads, bridges and
railroads, and invest in alternative energy, and raise subsidies for the
installation of solar systems on homes and small businesses, and a host of other
things.
Not just any other things; they must be projects that result in
significant employment gains, and with little delay. This would employ
many people directly, and many more people through the increased spending by
those who are directly employed. (the well-known multiplier effect)
Projects that mostly transfer tax dollars to wealthy people and
corporations should be avoided.
There are 3 ways to pay for this: Money can be borrowed, revenue
can be increased, or the government can “print” the money. (as you know, this
last means that they simply create money by accounting entries in computers.)
Although there can be a mix, IMO it’s best to pay for most of it
by increasing revenue. There will be substantial revenue increase just due to
the increased employment and increased profits of businesses, but some tax
increases, or loophole plugging, are desirable.
Taxes should be
progressive, because if the goal is to boost the economy, then it’s important
for the average person to have money to spend. (This follows from items
5, 6, and 7 above.) This is not a new idea: http://earthchurch.blogspot.com/2012/06/what-do-henry-ford-joseph-stiglitz-have.html
For those who think that increasing revenue will prevent the
economic gains, I refer you again to items 5, 6, and 7 above.
The main and important goal, as I see it, should be to maintain,
over the long term, a balance between a labor shortage and a labor surplus.
Currently we have a labor surplus. That leads to low wages, and to oppressive
working conditions.
A labor shortage would also not be a good thing; it would
lead to inflation and high labor turnover. Too much government spending on
job-creating projects will create a labor shortage. Hence government spending
needs to be adjustable. It needs to be part of a feedback control system. It
should reflect the unemployment rate.
When the unemployment rate is high, government spending should be
increased. When it is low, spending should be decreased. I suggest a “dead
band” of 3% to 5%. When the unemployment rate is below 3%, then spending should
be decreased.
When it is above 5%, then spending should be increased. As a side
issue, it would be very desirable if the labor department would calculate and
publish a true unemployment rate, It is this rate that should be input into
this proposed feedback control system.
Legislation can be enacted which describes the broad outlines of
such a scheme, but it is impossible to get everything right in advance.
Congress will have to revisit this topic annually, or better yet,
semi-annually, and make necessary adjustments, with the goal of maintaining
unemployment within the desired range. And of course that range may also need to
be changed.
Now to the question of the length of the work week: As a
consequence of the great strides that have been made in automation, it is no
longer necessary for people to work a 40-hour week.
In fact, that custom makes
it more difficult to keep everyone employed. The only way that we could
maintain full employment and the 40-hour week is to undertake major projects,
something like building the pyramids.
An expanded space program is one example,
but it would probably not be sufficient. We could also build lots of hospitals,
clinics and schools of all kinds. Or we could expand the defense establishment
even beyond it’s present bloated condition.
It is difficult to regulate the work week. There are many
categories of people who want to work long hours, and should be allowed to do
so. Into this category fall artists and other creative workers, as well as the
self-employed.
However, it is only necessary for work-week regulation to apply
to a majority of the population, in order to have the intended effect of
enabling full employment. It should apply to all of the most common
occupations, blue and white collar. It does not need to apply to any category
that includes relatively few people.
Current labor law (Fair Labor Standards Act) makes a 40-hour week
standard, and requires the payment of time-and-a-half for overtime. This law
applies to the employees of most large organizations, public and private, and
hence covers a large fraction of the workforce.
What I propose is that the FLSA
be modified to reduce the 40 hour figure according to a flexible schedule. The
initial schedule would be simply one hour less for every year that passes.
However, whenever the unemployment rate is low, say below 5% for example, the
work week would not be changed.
Whenever the unemployment rate climbs
above 5%, then the once-a-year lowering of the work week would resume.
The work week would never be lowered by more than one hour per year.
I’m sure it is obvious that the present congress is neither
willing nor capable of implementing my proposal. It cannot happen until we have
a congress that is dominated by people who are both intelligent and
open-minded, and furthermore are not beholden to conservative political donors.
Why do I want the government monkeying with the economy to such a
degree, some will ask? My answer is that I am convinced that without such
“monkeying” we will continue to regress toward a very hierarchical society,
with the vast majority of the populace in poverty.
This has been the normal
state of human civilization ever since the rise of large cities several
thousand years ago. It is still the norm in most of the world. I prefer a
society where there is a well paid job for everyone who wants one.