The WEA internet conference on ‘The crisis of Europe’. Unemployment.
I’ve tried to extend the analysis of unemployment policies by Joan Muysken en Wiliam Mitchell, Full employment abandoned. Shifting sands and policy failures, by adding a few years and a number of countries to their sample and by incorporating new concepts and estimates on the flow of labour and broad unemployment. Here, the full paper. Below, the abstract.
In 2008 William Mitchell and Joan Muysken argued that after about 1978 there had been a shift from public policies aimed at full employment at the macro level to full employability at the micro level, accompanied by a larger emphasis on the budget balance of the government and low inflation. At the same time, unemployment rose to levels unheard of in decades. After 2008, however, unemployment increased to even higher levels, while extending the analysis to countries from the ‘fringe’ of Europe and to data on ‘broad’ unemployment reveals that extreme levels of unemployment in these regions were a rule instead of an exception. Flow data on the labour market show that during crises there is a temporary and relatively small increase of inflows into unemployment and a decrease of outflows out of unemployment, which, however, combine into a fast increase in the stock of unemployment – which is not countered by higher rates of outflow and inflow after the crisis. This evidence shows that major crises tend to shift countries to a semi-permanent situation of higher unemployment.
Instead of countering this situation, after 2008 public policies shifted away from even the idea of employability and, led by EU institutions, a public discourse which tended to stress the moral and ethical advantages of extreme unemployment, like increased levels of ‘discipline’, developed. At the same time and led by EU institutions, government transfers to banks increased, leading to a deterioration of government balances and less room for government spending. The solution proposed by Mitchell and Muysken – a job guarantee financed by money printing and shredding – might still be a good idea but has to be accompanied by a central bank buying bad debts from banks (the catch: lower wages, less bonuses and increased government guidance for bank lending) while, considering the elevated levels of unemployment, allocation of unemployed over the guaranteed jobs might have to be enhanced by using the same kind of planning algorithms which are, at the moment, used to match donor kidneys with patients.