Free Markets and the Re-employment Charade

July 4, 2013
By Prof. Oren M. Levin-Waldman, Ph.D. Graduate School for Public Affairs and Administration Metropolitan
College of New York

Virtually all ends of the political spectrum appear to agree on one thing, which is that more should be done to get people back to work. Although the economy is said to be on the mend, unemployment is still 7.6 percent, which really says nothing about the actual jobless number. Conservatives and Republicans argue that government should get out of the way so that the full force of the market place can be unleashed and job be created.

Liberals and Democrats argue that more activist policy is needed in order to create jobs. And yet, one wonders if the language of job creation is nothing more than bromide. Do adherents of free market ideology really want to lower the unemployment rate?

We certainly want people to work given the traditional American work ethic. The cultural tradition of rugged individualism stresses the need for us all to be autonomous and independent. Because we need to pull ourselves up by our own bootstraps, we are exhorted to eschew government handouts, i.e. welfare programs and other types of support, in favor or work which will enable us to be self-sufficient. Liberals, over the years, have stressed the need for government programs, even public service jobs, because of market failure. Markets fail to ensure that everybody who wants to work is able to find work, or that the work that is a available matches the skills offered by workers. Market purists, or neoclassical economists, often retort that it is because of government interventions that we have unemployment. Competitive market theory, assumes a full employment economy, whereby workers are able to adjust their wage rates downwards until their labor is consumed by employers who will now demand it at lower prices.

John Maynard Keynes pointed out the fallacy of this assumption in The General Theory when he pointed to the obvious: that it was aggregate demand for goods and services that would ultimately determine the demand for labor. And yet, if neoclassical theory persists in the belief that it is wage rigidity that is the problem, perhaps it has to do more with the fundamental maxim of competitive markets, which is that employers seek to minimize costs while maximizing profits. Among the costs to be minimized are labor costs.

In Capital Karl Marx talks about how capitalists desire to have an industrial reserve army of labor in order to discipline workers and suppress wages. It should follow from this that Republicans and conservatives would be, if not outright opposed to unemployment policy, at least indifferent to it. High levels of unemployment should be desirable in some circles because it effectively adds to the industrial reserve army of labor, thereby suppressing wages. The issue for Liberals and Democrats should be how can we create jobs that pay respectable wages that allow workers to live in dignity? Organizing workers will certainly raise wages. But contrary to the neoclassical synthesis that assumes that to be bad, we should recognize what Keynes recognized, which was the broader macroeconomic benefit of higher wages for all. Higher wages for all mean that we have the ability to increase our aggregate demand for goods and services because we all have greater purchasing power.

Again, we return to the question: is it really true that we all desire to lower unemployment? It certainly would not be polite to be outright opposed. But Conservatives and Republicans can put the onus on workers by talking about skills mismatch and openly embracing training solutions. If the workers need to receive training because they lack the requisite skills for today’s economy, there is little else that can be done. Government programs, so the argument goes, only interfere with the efficiency of the marketplace, thereby putting the employment of others at risk. Or by espousing the language of jobs and training, Conservatives and Republicans can at least create the impression that they are concerned. But we haven’t really solved the problem because unemployment does pose a serious ethical dilemma for free markets. Markets do fail, and when they fail there is unemployment, which, because there is an industrial reserve army of labor, will drive down wages. But if people lack purchasing power because they are under pressure to lower wages, there can be no real job creation. Aside from the traditional collective bargaining discussions, organized labor needs to address the question of what it would take in order to accomplish serious job creation.



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