Home > Uncategorized > When success becomes failure

When success becomes failure

from David Ruccio

fredgraph

The U.S. economy is a remarkable success according to the standards of neoclassical economic theory. Yet, for “prime-age” men, who need to work to provide for themselves and their families, it is increasingly a failure.  

That’s the clear lesson from the latest report from the Council of Economic Advisors (pdf) on “The Long-Term Decline in Prime-Age Male Labor Force Participation” (which has been taken up and discussed in a wide variety of news media, from the Financial Times [ht: bn] to the New York Times).

On one hand, the United States, more than any other advanced country, has labor market institutions that represent a neoclassical economist’s free-market dream.

The United States has the lowest level of labor market regulation, the fewest employment protections, the third-lowest minimum cost of labor, and among the lowest rates of collective bargaining coverage among OECD countries. . .In the United States, governments and institutions (such as labor unions) place relatively few barriers in the way of employers who want to change who they employ and what they pay.

That’s exactly what labor markets look like in neoclassical models and what neoclassical economists recommend as the best, “flexible” labor-market policy. It’s a world in which it’s easy to hire and fire workers, which is supposed to facilitate matches between employers who want profits and individuals who want to work.

And yet, on the other hand, the labor-force participation rate of men between the ages of 225 and 54 has been declining since the late-1950s—from a peak of 98 percent to close to 88 percent today (which means the United States now ranks third lowest, above only Israel and Italy, among 34 OECD nations). And the rate for men with a high-school degree or less had plummeted even more, to 83 percent.

In a world in which selling their ability to labor is the principal way for workers to earn enough income to purchase the commodities necessary to support themselves and their families, the extraordinary success in creating neoclassical labor markets in the United States has resulted in a complete failure from the perspective of working people. As a result of declining wages (and, in addition, high incarceration rates, which makes finding a job that much more difficult), prime-age men are simply being forced by employers to drop out of the labor force.*

Now, the decrease in the labor-force participation rate for male workers has not escaped the attention of other mainstream economists and policymakers, as the long-run decline has tremendous implications for economic growth.** Fewer workers (especially since the labor-force participation rate for prime-age women, which had been increasing, leveled off after 1990 and since 2000 has also started to decline) means, in the absence of large productivity gains, less output and slower rates of growth. Therefore, they propose policies that seek to create more flexibility for prime-age men and women within the labor market, to increase their labor-force participation rates.

The alternative, of course, is to create more flexibility for workers outside the labor market—by giving them more say in the enterprises where they work and by creating a universal basic income for all—so that they’re no longer forced to have the freedom to sell their ability to work to a small group of employers.

That kind of flexibility beyond the labor market represents the only real way of solving the failures of neoclassical economists and of the economic and social system they celebrate.

 

*As the report notes, “The direct effect of increased incarceration is to actually increase the reported participation rate because the official statistics cover only the non-institutionalized population and omit prisoners, people in long-term care, and active duty members of the Armed Services.” But the indirect effect runs in the opposite direction, as these men face substantially lower demand for their labor after they are released from prison.

**Even the International Monetary Fund has recently warned about the negative implications for U.S. economic growth of declining labor force participation—along with slow productivity growth, an increasingly polarized society with income gains concentrated among the wealthiest Americans, and too many people living in poverty.

  1. graccibros
    June 29, 2016 at 12:30 am

    David:

    Thanks for this. You had me nodding my head all along, in agreement on the importance of this decline in participation, and its terrible consequences and implications for families, but you lost me when you said it pushes us towards a universal income.

    I think it pushes us towards L. Randall Wray’s proposals towards the end of his “Modern Monetary Theory” book, toward, instead, guaranteed employment, government as the employer of last resort, although I hate that phrasing. I prefer FDR’s framing in his Second Bill of Rights, eight rights, the first of which is the right to a job.

    I have a very different take than much of the left on this. Culturally, and politically, America is not ready to give up the ideal and practicality of daily work for all able bodied citizens, men and women who want to work. Given all we have neglected vis-à-vis basic infrastructure maintenance and creation, all the environmental work that has not been done, remedial and to fight global warming, all the unmet educational and pre-school, child care…I could go on and on…an updated CCC and WPA with the projects being designed by local and regional citizen participation – professionally vetted by the appropriate skill sets – with job training built in (think of environmental and child care requirements)…

    I believe this will be much more constructive for everyone. If we prove we can’t do it and employ everyone, then we will have a better argument for your proposal.

    When I pushed this at my posting place at the Daily Kos, I got the clear impression much of the left, many of the Hillary supporters, backed your concept. They seem to have forgotten that Bill and Hillary took the opposite course when they were supporting his compromise welfare reforms worked out with Newt Gingrich and the Right in the mid-1990’s: to push people off our very flawed AFDC program, which no one liked, push them into the labor force no matter how young their children, and then turn the support funding and follow through over to some of the most reactionary states and forces in our Union.

    I found this reaction at the Daily Kos a complete avoidance of what happened to “end welfare as we know it” and the obvious attempt of the Clintons to “capitalize” on the national attitudes: 180 degrees from “universal incomes.”

    As a practical matter, I think both our inclinations will run into the same problem from the Neoliberal Right and Center: both represent interventions they strongly dislike because they interfere directly with private labor markets, which you have described very well. My inclination is to force capitalism to live up to its own broken promises for employment and adequate incomes…and I think the direct participation of citizens in the design of their work, defining what work needs to be done…is a start on what the left says we always stood for: economic democracy, but the starting point isn’t in Google warehouse operations or the shopping floors of Wal-Mart, but in all the important work contemporary capitalism under Neoliberalism has ignored or left “up in the air” along with the CO2 and Methane.

  2. David F. Ruccio
    June 30, 2016 at 2:53 am

    Yes, “graccibros,” many people seem to have forgotten about the earlier Clinton administration and the push to end welfare, which resulted in an increase in poverty.

    As for a universal basic income, it doesn’t eliminate the need for workers to take jobs or for the country to to create full employment for American workers. What it does is change the terms of the wage-labor contract, so that people are not forced to accept onerous, low-paying jobs. But, and this is important, a universal basic income can’t be used as a way of eliminating other social programs (like Social Security), which seems to be the way the folks in Silicon Valley and right-wing libertarians are currently talking about it.

    In my view, heterodox economists and their allies need to get out in front on this, before it’s taken over and transformed either by the Clinton campaign or the folks on the Right.

    • graccibros
      June 30, 2016 at 3:26 am

      Thanks David, I’m taking it all in, and I especially appreciate your point that there are conservative and libertarian variations on this, and the left could be outflanked.

      I’m working my way through Robert W. McChesney’s and John Nichols new book, “People Get Ready: The Fight Against a Jobless Economy and a Citizenless Democracy. It mentioned an article by Derek Thompson, “A World without Work,” which appeared in the July-August 2015 issue of The Atlantic magazine; I haven’t read the article yet, but I jotted down this quote from Thompson which appears in this book:

      “‘ Industriousness has served as America’s unofficial religion since its founding…the sanctity and preeminence of work lie at the heart of the country’s politics, economics and social interactions. What might happen if work goes away?…the paradox of work is that many people hate their jobs…but they are considerably more miserable doing nothing…Most people do need to achieve things, through yes, work to feel a lasting sense of purpose.'”

      Most of us can appreciate Keynes observations on these matters from his famous essay, looking ahead to a world not so driven by these compulsions, but we would be premature to read his fine insights into the mood or inclinations of most Americans…it could very well be that “the system” is going to fail massively in a way that can’t be hidden in the current statistical disguises – fail to produce anywhere near enough jobs – and then the matters at hand here will assume an intensity that they don’t quite have yet.

      If L. Randall Wray is tuning in to this, it would be great if he could chime in…

    • mrkemail2
      July 1, 2016 at 4:16 pm
    • July 12, 2016 at 3:35 am

      The problem with a “universal basic income” is that it cannot work. It is made up of parts that can work, that can be put together to be part of something good – something that it is morally insane not to have – a job guarantee / ELR. UBI proponents mean well, but we all know where the road they are paving goes to. For there is no way that a UBI could “work”, could be a good idea, outside of play-acting, outside of universal pretending that it had anything to do with the real world economy. In which case slavery, cannibalism, human sacrifice etc could be said to good ideas that “work” also. (In Hollywood only)

      I can link to Wray’s and other MMTers unanswerable objections & expand on them if anyone wants. I wrote a bibiliography with links to dozens of articles and symposia on the debate as a comment to a Wray article. But to quote Wray from memory there- people who are for the BIG / UBI are really, really bad at economics, even worse than neoclassical / mainstream. Sorry – for I too have believed in many stupid things in my time – but I must agree with that about anybody who still believes in a UBI after they see both sides of the debate.

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