Coping with Global Unemployment

Putting People Back to Work

John Eatwell

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315481999
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

A collection of papers that address unemployment as a social phenomenon. It suggests there are solutions if society is willing to take the steps necessary to find and implement them. Focus is on the persistent unemployment in the USA and the UK.

_________1_________

Unemployment on a World Scale

John Eatwell

From 1950 to 1970 all the major industrial countries enjoyed employment levels at or near full employment. This was also a time in which world trade grew more rapidly than in any equivalent period before or since, and in which productivity growth (i.e., the absorption of technological change) was faster than at any time before or since. Inflation was also low relative to later experience. This was a Golden Age of western capitalism (Marglin and Schor, 1990). Over the same period there was a sustained improvement in economic performance in almost all of the third world, maintained in large part by the steady growth of demand emanating from the industrial countries.

A distinct break occurred around 1970, with a sharp increase in trend levels of unemployment. The increase has been greatest in the major countries of the European Union, with western Germany experiencing an almost eightfold increase (from a very low base). Only Italy had a relatively low increase, but this was from what was, for the 1960s, a high base. Canada and the United States, both relatively high-unemployment countries in the 1960s, also suffered “only” 50 percent and 130 percent increases in average levels of unemployment. Japan’s experience is exceptional, having very low unemployment in the 1960s and from that low base suffering only a 120 percent increase (see Table 1.1).

The economic disruption visited upon the 1970s by oil price shocks, together with the deflationary measures taken by G7 governments in reaction to the oil price rise, might be thought to be the source of the deterioration in G7 economic performance. The OECD estimated that 20 percent of the loss in OECD real income in the mid-1970s was due to the terms of trade effect of the oil price rise. The remaining 80 percent of the loss was due to the concerted deflation policies that characterized the response of the western economies to the price increase. But the oil price rises of the 1970s are not an adequate explanation of sustained high unemployment. For not only had the western economies absorbed similar rises in raw material prices at the time of the Korean War without similar slowdown, but also these new high trend levels of unemployment have persisted into the 1980s and 1990s, and were not notably affected by the collapse in oil prices and other commodity prices in 1986. It is these high trend levels of unemployment that underpin the yet higher unemployment figures produced by the current “slowdown” in the G7 economies. Today, G7 unemployment cannot possibly be considered to be purely cyclical. It is a combination of a long-term trend and the cyclical factors associated with current recessions in Europe and Japan. Indeed, it may well be that the current recession is simply another step up in the long-term level of unemployment. This suggests that unemployment in the G7 today cannot be tackled by standard counter-cyclical policies. A new approach is required.

Table 1.1

Unemployment in the G7,1964–73 and 1983–92

	A. 1964–73	B. 1983–92	B/A
West Germany	0.79	6.03	7.63
France	2.23	9.70	4.35
Italy	5.48	10.13	1.85
UK	2.94	9.79	3.33
USA	4.46	6.69	1.50
Canada	4.23	9.64	2.28
Japan	1.22	2.71	2.22
Source: OECD Main Economic Indicators. Note: Annual standardized unemployment rates as percent of the labor force, averaged for each ten-year period.

The commonality of the unemployment experience throughout the G7, outweighing the particular economic fortunes of individual countries, is especially striking. The particular circumstances of each country will, of course, affect the distribution of unemployment between them. But the common experience suggests that the causes of high unemployment are to be found in factors that affect all G7 countries in a broadly similar manner, rather than in the individual circumstances of each country. So to devise a range of policies capable of tackling the G7 increase in unemployment requires the identification of the common factors underlying that increase.

Likely candidates for a common source of increased unemployment are: first, the pace of labor-saving technological change; second, the structural changes in world trading relationships that are associated with the increasing mobility of capital and the rapid growth of third world manufactured exports, particularly from China and the Pacific Rim; third, changes in the international financial environment and consequential changes in the macroeconomic policies of the G7 countries, which have, in turn, impacted on the growth performance of developing countries, notably through a reduced rate of growth of world trade and low commodity prices.

The Pace of Technological Change

It has been a common view since the early nineteenth century that technological change is a threat to jobs. In the 1950s and 1960s “automation” was regarded as the key menace. In the 1970s and 1980s the impact of information technologies and electronics has often been cited as potentially job destroying.

Whatever technological changes may have done to the composition of employment, there is no evidence that the speed of technological change is behind the growth in unemployment throughout the G7. If it were, then there should have been an acceleration of productivity growth in the 1980s and 1990s as new techniques sharply reduced the labor input required per unit output. In fact, the reverse has occurred. There has been a sharp slowdown in productivity growth, a slowdown that has been greatest in Japan and least in the United States and the UK (in both of which productivity growth was relatively low in the earlier period). Indeed, the slowdown in productivity growth has everywhere been greater than the slowdown in the overall growth of demand, which means that the slowdown in productivity has contributed to the creation (or at least the preservation) of jobs, rather than their destruction (see Table 1.2).

In each of the G7 countries the slowdown in productivity growth has been less pronounced in manufacturing than in the economy as a whole. Insofar as the growth of demand for manufactures has also slowed, the fact that manufacturing productivity growth has been relatively buoyant has resulted in substantial job losses in manufacturing, notably in the UK. An exception to the general trend has been manufacturing employment in Germany, which toward the end of the 1980s had resumed a (slight) rising trend, though this has been overwhelmed by the recent downturn (see Table 1.3).

Table 1.2

Overall Productivity Growth: GDP Per Person Employed

	A. 1961–70	B. 1981–90	B/A
West Germany	4.3	1.9	0.45
France	5.0	2.0	0.40
Italy	6.2	1.9	0.31
UK	3.3	2.0	0.60
USA	1.9	1.1	0.58
Japan	9.1	3.0	0.33
Source: European Economy, Annual Economic Reports.

Table 1.3

Manufacturing Productivity Growth in the G7

	A. 1964–73	B. 1983–92	B/A
West Germany	4.0	2.4	0.60
France	5.3	2.6	0.49
Italy	5.1	2.6	0.51
UK	4.2	3.6	0.85
USA	3.1	2.8	0.90
Canada	4.0	2.6	0.65
Japan	9.6	5.7	0.59
Source: OECD Main Economic Indicators.

The loss of jobs in manufacturing has been exacerbated by a change in the relationship between the growth of demand and the growth of jobs. In the 1960s growing demand was associated with increasing jobs. In the 1980s, growing demand has been satisfied (even more than satisfied) by productivity growth, and jobs have been lost. It is not clear to what extent the failure of manufacturing to create jobs as in the past is due to the slowdown of demand, and to what extent it is the result of a change in the relationship between the rate of growth of demand and the rate of technical progress.

Whatever might be the case, it seems likely that a higher rate of growth of demand for manufactures, although it would probably bring with it a higher rate of productivity growth too, would at least stem the loss of jobs. And there is certainly a potential for a higher growth of demand for manufactures. Even in the most advanced of the G7 countries there are substantial proportions of the population who do not have access to the number and quality of manufactured goods that their fellow citizens regard as necessary to sustain a normal standard of living.

Structural Changes in the World Economy

An issue of growing importance is whether the rise in competition from the newly industrializing countries, particularly those on the Pacific Rim, will jeopardize job creation in the traded goods sectors of the G7 countries. The possibility of securing full employment by a higher growth of domestic demand will be significantly diminished if the competitive strengths of G7 industry are overcome by the potent combination of low third world wages and ever more mobile capital.

There has been a distinct acceleration of the penetration of developing country manufactures into G7 markets. In 1968 just 1 percent of G7 domestic demand for manufact...