Over the last couple of centuries, owners of capital, the bourgeoisie on one side, and workers, who offer their labour in exchange for wages in the production of goods and the creation of wealth on the other, have been depicted as forming opposing sides in a class struggle. The capitalists aim to maximise profit by keeping wages low. The workers organise themselves and seek to match the power of the bourgeoisie.
The capitalists have centralized the means of production concentrating property in a few hands. They constantly revolutionize the instruments of production and turn the worker into a mere appendage of the machine (Jacobus, 2010). The result of all this is to convert even small tradespeople, shopkeepers and peasants into the proletariat. With no means of sustenance outside the capitalist system unless the proletariat organizes itself and takes power into its own hands (Marxist Communism), the labour force is doomed to suffer periodic unemployment.
Unemployment, as defined by the International Labour Organization, occurs when a person is without a job and has been seeking work for the previous four weeks. The unemployment rate of a country is calculated as the percentage of the number unemployed divided by the number in the total labour force.
Currently these rates are very high due to a global economic downturn. In the United States it stands at 9.7%, with the European Union rate at 9.5%. Canada fares slightly better with 8% and the United Kingdom at 7.9%. Even within the EU, Spain and Greece have a very high unemployment rate of over 20%. These figures may be unfavourably compared with China’s 4%.
Causes of unemployment are so varied that there is no agreement on definitive reasons for this fluctuating phenomenon. Explanations in terms of classical, structural, frictional and cyclical theories abound.
If wages are kept high, for example by the state decreeing a minimum wage, unemployment that results falls under the classical term. Structural unemployment occurs when there is a mismatch between the skills of workers and the skills demanded in the workplace. When unemployment is temporary while people are looking for work, then the term frictional applies. Cyclical or Keynsian unemployment is due to fluctuations in the economic cycle and may be eased by state intervention. With increasing globalization, causes of unemployment are not easily isolated and may take us into hitherto uncharted territory.
To cite an example, unemployment within the USA, affects different kinds of people disproportionately. According to January 2008 statistics, while 4.4% of men were unemployed 4.2% of women in the workforce were without work. Among the unemployed, 4.4% were Caucasians, 6.3% were Hispanics/Latinos. While only 3.2% Asians were out of work, 9.2% African-Americans were unemployed. As a group, teenagers were the most likely to be unemployed with the rate at 18%. Obviously in most countries different groups of people (e.g. minorities) are affected disproportionately.
Robert Reich (1991) reports how level of education influences employability. His main argument is that a nation’s prosperity no longer depends on the profitability of industries based within its borders, but on human capital.
Capital investment is now global and ‘footloose’. America’s 500 largest corporations failed to create a single new net job between 1975 and 1990. Indeed their use of the labour force dropped from 17% to 10% during that period. Reich believes that it is the high level of education and skills of the workforce which creates value in a ‘global web’ that no longer relies on mass production in giant factories to create wealth. High value production has replaced high volume production.
Today’s custom-tailored goods and services need an elite group of highly qualified ‘symbolic-analytic’ workers whose earnings are way above the rest. They are further identified as composed of problem identifiers, problem solvers, and strategic brokers. They form 20% of the work force but are at the core of the world’s wealth creators. Reich (ibid) says that the rest of the workforce consists of the everdwindling blue collar workers in routine production jobs, and ‘in-person’ service providers like waiters, waitresses, janitors and care workers. While the symbolicanalytic group are highly mobile, and can provide their services from any part of the world, only the in-person service providers remain local.
Unemployment leads people to claim state benefits in order to survive. Although there appears to be a sizable minority who have settled for an existence on state handouts, the majority are unhappy, under stress, insecure, and are willing even to settle for lower wages in order to escape the stigma of being unemployed. Inequalities widen and social cohesion is under threat. Crime increases, and where there are pockets of unemployed concentrated in certain localities, there is said to be an identifiable culture of despair. Street riots are a consequence of such despair. Overall, linkages (statistical correlations) to poor health, premature death, attempted and actual suicide, divorce, domestic violence, racial tension (radicalisation of a Muslim minority), and hooliganism are made where there is a high incidence of unemployment. Not only is there a loss of tax revenue to the state, but benefit payments as well as the increased social and financial costs attached to the negatives cited above, become a greater burden on the taxpayer.
Various solutions have been attempted to stem the tide of mass unemployment. As demand for products and services fall, Keynsian policies may be implemented. These include lowering the interest rate, so that entrepreneurs are more likely to borrow capital to start new projects. The central bank of the state could print more money for circulation, so that this is available as credit. This move is referred to as quantitative easing. The problem is that such policies take time to make even a small difference in the expected direction.
Employment subsidies and tax breaks to firms taking on more people, even as parttime workers in a recession are also a means of boosting the economy. Even if much of the unemployment is cyclical, there are pockets of structural unemployment because of a lack of needed skills.
Programmes aimed at education and training of the long term unemployed help even partly,to resolve this problem. Here, economists recommend more vocational training as against purely academic degrees which do not necessarily lead directly to a job. Reducing the minimum wage has also been advocated, but there is no guarantee that this would result in the creation of extra jobs.
Zero-hour contracts of employment are another negative outcome of this situation. These have the opposite effect of reducing demand for goods, due to less spending power among the workforce, and could result in further layoffs.
References Jacobus, Lee. A. A World of Ideas (8th edition). Bedford/St Martin’s, 2010. Reich, Robert. The Work of Nations; Preparing Ourselves for 21st Century Capitalism. New York, Vintage Books, 1991.