Who Needs Jobs?

Spreading Poverty or Increasing Welfare

P. Lemieux

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137355065
• eBook ISBN: 9781137353511
• Topic: Economics
• Subtopic: Labour Economics
• Index: Economics

In Who Needs Jobs?, Lemieux explains how jobs are not the goal of economic life and how creating jobs should not be the goal of public policy. He delves into how income and prosperity are created (businesses producing what consumers demand), proposes solutions to the unemployment problem, and provides readers with the knowledge to navigate the jobs discussions of politicians and economists in America. With his approach, Lemieux takes this controversial and complex topic and makes it understandable, using economic analysis and real world examples.

CHAPTER 1

BANNING CHAIN SAWS

The chain saw was a great invention. Stihl, a German company that is still thriving, manufactured the first chain saw in 1926. Until then, loggers had to fell and debranch trees with axes and cut the logs with handsaws operated by two men. The chain saw expanded the productivity of the fellers who cut down the tree, as well as of the buckers, who trim the top and the branches and cut the logs into specified lengths. The growth of productivity was especially dramatic after 1950, when chain saws became light enough to be manipulated by a single man, even if they were still twice as heavy as they are today.¹

How a Ban Would Create Jobs

As conducive to productivity as they were, chain saws did not help loggers’ employment. Between 1920 and 1970, the number of “lumbermen, raftsmen, and woodchoppers” (as the old Census Bureau terminology called them) decreased by 50 percent, from 180,000 to 90,000, while the volume of harvested wood climbed by 43 percent.² Given the increased production, we could have expected the number of these loggers to increase to 257,000, so the drop in employment that occurred between 1920 and 1970 compared to what it would otherwise have been is about 65 percent. Most of these changes occurred after 1950.

Chain saws were not the only culprit in the destruction of logging jobs. Tree harvesters appeared in the early 1970s. Manned by a single logger, a modern harvester clamps a tree into its jaws, sections it off, debranches it, and cuts the log into the required lengths. A modern harvester can fell up to 60 trees per hour, while a feller with a chain saw would need one whole day to do the job.³ It is no surprise that since 1970, employment in logging fell another 14 percent, while timber harvesting continued to increase—by 16 percent.⁴

Without this continuous technological progress, and assuming again that today’s employment in the logging industry maintained the same proportion to output, there would be about 358,000 jobs in the logging industry compared with the actual 59,000 (data for 2007). Thus, more than a quarter of a million jobs could be created by banning the use of all mechanized machinery in logging. A quarter of a million jobs may not look like that many in an economy with 156 million employed people (in October 2013). However, it amounts to a not insignificant proportion of the 12 million unemployed. These new jobs would be good for those who want them.

How did the chain saw and other technological innovations destroy logging jobs? The simple explanation is that the chain saw made a logger more productive because he could now cut more trees in a given amount of time, so that the typical logging company might hire fewer loggers in order to produce the same output. But this explanation is not really satisfactory: the logging company, the logger, and the lumber company are in business to make profits—as much profit as possible—not to maintain the quantity of jobs they supply.

As loggers now brought in more profits per hour for their employers than the hourly wage they were paid, these employers decided to hire more loggers and sell more logs. This tended to bid up loggers’ wages. The earnings of self-employed loggers rose similarly as they produced more. But a second phenomenon soon worked in the other direction. Producing logs—and the goods made from them—now cost less, more supply was forthcoming, and competition drove prices down. The price of lumber and paper dropped. This exerted a downward pressure on the value of productivity of, and demand for, loggers—the value of productivity being physical productivity times the price the goods fetch on the market. After their physical productivity increased, loggers saw the value of their productivity plummet.

To what extent did this downward pressure on the demand for loggers, caused by the lower prices fetched by their production, compensate for the increased demand for their services because they were more physically productive? The answer depends on the elasticity of demand (the sensitivity of quantity demanded to price) for the products made with the logs and, therefore, for logs as an intermediary input. The demand for logs is a function of the demand for lumber (which is what logs are mainly used for) and other wood products, such as pulp for paper. This is an important economic fact to understand: the demand for an input—such as logs—is a “derived demand”; it is derived from the demand for the consumer product it serves to make, not the other way around.

We don’t need to get into much theory to know what finally happened to the employment of loggers after they became more productive and the price of their product (and the goods made from logs) dropped, for history gives us the answer. Available statistics suggest that the employment of loggers increased only slightly from 1920 to 1950, but dropped dramatically from 1950 to today. We can thus deduce that, in more recent times, the prices of wood products and logs dropped faster than the physical productivity of the loggers increased. Loggers were producing more logs, but it led to such a drop in the product prices that the value of their productivity fell. Consequently, the demand for their services fell.⁵ There were close to 200,000 loggers in 1950; in 1970 there were about 70,000 loggers, and in 2012 there were fewer than 40,000. Even before the 2008–2009 recession, their number had dropped below 60,000. We can double check our deduction about the overall drop in the value of loggers’ productivity by observing that their real hourly wages (nominal wages corrected for inflation) have decreased since the early 1970s.⁶

A ban on chain saws—and other mechanized logging equipment—would have the opposite effect. In a first step, loggers’ physical productivity would drop. At current market prices, logging operators would not be able to sell their logs at a profit. They would therefore cut their production by laying off loggers, whose wages would be bid down. Many self-employed loggers would not find it worthwhile to continue working in the industry given the depressed contract prices. This would reduce the quantity of logs supplied and thus the supply of the goods they produce, leading to higher prices in the housing and paper markets (and markets for other wood products). These price increases would, in a second but near-simultaneous step, push up the value of the loggers’ productivity, countering the drop in their physical productivity. The net effect is that the quantity demanded for loggers’ services would increase on balance, as would their wages. What would then happen is the exact opposite of what has occurred in the logging industry over the past several decades. A ban on chain saws would create more than a quarter of a million new logging jobs.

Don’t bet your life on this actual number. A more serious estimate would require building a model of the logging industry that factors in all the influences I have mentioned (and some I have not). A model is a simplified representation of reality that helps isolate the main relations of causality. But our broad conclusion remains: banning chain saws (and other mechanized equipment) would create many jobs in the logging industry, all other things being equal.

But not everything is equal. Another factor to consider is that a ban on chain saws would destroy jobs in chain saw manufacturing. This observation also applies to other mechanized equipment, as we use “chain saws” here as shorthand for all such equipment. Whether banning chain saws would generate a net increase or a net decrease in jobs depends on how many jobs would be lost in the chain saw manufacturing industry. Chain saw manufacturing is a small industry, employing only a few thousand employees among the 15 million manufacturing jobs in the American economy. Manufacturing of other logging equipment is also a small industry. Because such manufacturing is likely to be less labor intensive than logging, fewer jobs would likely be destroyed in the former than would be created in the latter.

Other Job-Creating Bans

We can find other prohibitions that would, without any doubt, create more jobs than they would destroy. Consider agriculture, where technological progress has been momentous. In 1810, 2 million Americans were employed in agriculture, a number that has increased to only 2.2 million today. But these 2.2 million persons are now supporting a population 45 times larger as it has grown from 7 to 314 million inhabitants today. Every person who was employed in agriculture in 1810 provided food to 4 Americans; now, the modern farm worker supports 144 persons.⁷ The proportion of the American labor force that is employed in agriculture simultaneously decreased from 84 percent of the labor force in 1810 to 1.5 percent today—with most of the steep decline occurring before 1970. The absolute number of people working in agriculture reached a peak around 1910 (at about 12 million), and has been on the decline ever since.

The steep rise in agricultural productivity is due to the use of more capital, that is, machinery, equipment, and some other inputs (such as fertilizers), as well as more scientific farming methods. In all cases, new technologies played a crucial role.⁸ In 1910, American farms had 1,000 tractors; this number jumped to 246,000 in 1920, 3.4 million in 1950, and 4.8 million in 1970. Only 4,000 grain combines were at work in 1920, but there were 714,000 in 1950, and 850,000 in 1970.⁹ If machines and the technology that comes with them were forbidden on farms, imagine how many jobs could be created—the reverse scenario of what has happened as mechanization and technical progress have pushed farmers out of agriculture.

Let’s try some back-of-the-envelope calculations. Suppose agricultural machines and other innovations were banned so as to bring us back, from a technological viewpoint, to the situation of 1920. It can be calculated that, in order to provide the quantity of food now produced in the American economy, some 32 million workers would be needed. Taking into account the 2 million persons currently occupied in agriculture, 30 million new jobs would thus be created. There is no way this gain would be cancelled out by the loss of the manufacturing jobs that now serve to produce the machines used by farmers, for there are currently only 12 million jobs in the whole American manufacturing sector, which produces much more than agricultural machinery. However, even if we unrealistically suppose that all 15 million manufacturing jobs would be destroyed, the ban would still create 15 million new jobs, some 24 percent more than the total number of unemployed persons at the end of 2012. Banning agricultural equipment would thus solve America’s unemployment problem.

Other similar ideas could be entertained. Forbidding the use of personal computers (PCs) would also be great, creating millions of jobs. Once you open the Pandora’s box of bans, the employment sky is the limit. Where is the catch?

CHAPTER 2

TWO DIFFERENT APPROACHES

Banning chain saws, tractors, or combine harvesters is not as cranky an idea as it may appear—if you adopt a certain approach. Banning has always been a preferred activity of governments and, with a few exceptions, the trend has only accelerated during the last decades. If you look around you, in both economic and social life, you will find a large number of goods or activities that are forbidden, from incandescent light bulbs to running businesses without permits or licenses, to recreational drugs, to many sorts of sexual encounters, to many other things. When outright bans were impossible, partial ones were imposed. Tobacco is prohibited by law in many places, including private places like restaurants and bars. Drinking is prohibited for patrons younger than a certain age and in certain places. Many sorts of trades are banned, not only on financial markets but also for ordinary consumers. Similarly, a worker and an employer cannot agree on terms that violate labor legislation and regulation. As Robert Nozick once remarked, socialism—he could have used the more general term “statism”—is about prohibiting capitalists acts between consenting adults.¹

Governments live by banning things, if only by prohibiting resistance to their countless laws. We don’t see these bans, however, because we have become so accustomed to them. Often, they have appeared slowly and stealthily. Why then shouldn’t the government ban technology in order to fight technological unemployment?

Individual or Collective Choices

Asking the state to ban new technology in order to create or maintain jobs is not a new idea. Around 1811, the Luddite movement rose against the destruction of jobs by power looms and other machines in new British textile mills. The weavers whose jobs were threatened had worked at home, often with a shop attached to their houses. The Luddites, named after their mythical chief, Ned Ludd, carried out raids and destroyed industrial machines. At least one manufacturer was killed. A few Luddites were hanged, and their uprising was finally repressed by the army. Similar machine-destroying raids continued sporadically until 1830.²

Although the motives of the Luddites themselves are still debated,³ the term is often used to describe those who would destroy or ban machines in order to protect jobs or for other antitechnology reasons. The temptation was indeed sporadic throughout industrialized history, and not limited to the Luddites proper. In 1827, a group of “manufacturers, workmen and others” from Frome, England, sent a petition to the government, begging for the prohibition of

gigs, shearing frames, and the whole mechanical apparatus for dressing of cloth, power and single handed spring broad looms, and a newly invented machine called the mule . . . because they are of no real advantage, either to the manufacturers or the purchasers of woollen cloth, while they operate most fatally on the labouring classes, and have already deprived upwards of sixty thousand honest and industrious men and their families of their customary employment.⁴

In 1830, a factory that made threshing machines was destroyed because these machines were deemed to create unemployment. Invented a few decades earlier, threshing machines separated grain from stalks and husks, a task that was previously done by hand with flails and required much agricultural labor. Marxist historian Lionel Dunby criticizes a judge who declared “The same argument which justifies or recommends the destruction of the threshing-machine could also apply to the abandonment of the use of the flail, the spade, the hoe, the axe.”⁵

New tech...

Table of contents

• Cover
• Title
• 1 Banning Chain Saws
• 2 Two Different Approaches
• 3 Work as a Cost
• 4 The Value of Consumption
• 5 The Lump-of-Labor Fallacy
• 6 Exchange, Competition, and the Division of Labor
• 7 Exchange over National Borders
• 8 Exporting Jobs
• 9 Efficient Jobs
• 10 How to Destroy Efficient Jobs
• 11 Economic Growth
• 12 Artificial Jobs
• 13 Aggregate Demand
• 14 Do Jobs Matter?
• Notes
• Bibliography
• Index