anwar shaikh, unemployment (lecture 12 - 11/22)

the theory of unemployment in marx, as contrasted to the theory of unemployment in Keynesian and neo-classical theories

(1) 'have you worked in the last week?' (1) if you've worked even ten minutes in the last week, you're counted as employed; (2) many countries 'make up' their unemployment rates (Pakistan, etc.)

(2) if you've become discouraged and aren't looking for work, you are not counted as unemployed. the unemployment rate drops when people fall out of this category (people who just 'give up')

(3) people in institutions are not counted as unemployed—it's a voluntary measure, not residual (if you lose job and go crazy or get jailed, you're not counted as part of the labour force)

even this very restricted measure is used in the US, this is 9.6%

if you use the scandinavian measures (incorporating discouraged, and weighting by length of time), then the measure jumps to 17 and 17.5% [and even that doesn't count the measures of people who drop out, or who are institutions]

marx's concern, of course, is with real unemployment, unencumbered by this nonsense

the neoclassical theory of unemployment: that unemployment is automatically eliminated by free markets—if the labor market were allowed to work properly, than unemployment would vanish. the story is fairly simple—the unemployed will bid wages down, until all are employed.

if the real wage is flexible, it settles at a market-clearing price (what happens if the real wage is below subsistence? well they don't have a concept of subsistence, but an implicit claim that it's below the mkt wage—at a theoretical level it doesn't appear)

from this point of view, the source of unemployment is gov't/institutional intervention.

a further suggestion, here, if the government tries to pump up the economy, you're going to get 'full employment' (because you are at NAIRU – 'effective full employment')

the problem, of course, is that over the 70s and 80s, you didn't see the patterns expected—and they suggested that NAIRU just needs to be adjusted.

this argument goes one step further—if you're at full employment and you try and pump up the economy (and rational expectation says everyone knows inflation is coming), you go to the employer and demand higher wages (because of that, there'll be no change in employment) [“policy impotence” – the government cannot change the unemployment rate]

this is the debate that's going on today, in the world right now

keynesian theory of unemployment: neoclassical theory implies that the output and effective demand are full employment-enabling (that all labor can be effectively employed when the real wage goes down)

keynesian theory says that you're going backward – aggregate demand (which is exogenous) determines the level of output, which in turn determines the level of employment. the output level at any given money wage is the determining factor.

the fulcrum of the story is aggregate demand (the 'commodity market', as it's called)

the central conclusion, then, is that there's no reason that the aggregate demand will give you full employment; you can have persistent unemployment, etc., depending on AD.

policy-wise, to make the demand go back up, you have monetary policy (cut the interest rate), or fiscal policy (spend gov't money, run gov't deficits), by borrowing/printing money,etc.

the difference between the neoclassical theory and the keynesian theory is that the former thinks you are at full employment, and the latter thinks that you might or might not be (but can very well be). both agree that full employment is a sustainable situation in capitalism—but unlike neoclassicals, keynesians think that you need the government to do it.

what about wages? what about the labour market, etc?

here Keynesian theory becomes very unclear:

1. money wage doesn't change if there's unemployment. why is that though? (b/c of unions—well that's the neoclassical argument). Keynes himself admits that if there's persistent unemployment, another solution is to let the market work itself out—instead of pumping up the economy, you can let the economy be dragged down (in this case, he reverts to neoclassical theoretical precepts—but he also adds that this is going to happen at great social cost).

2. money wages go down, but prices will also go down (entails a mark-up theory of price). therefore real wages don't change, but are sticky

important--in both theories, inflation is a full employment problem (both for neoclassical economics, and for keynesian economics, you can't pump up the economy once at full employment or you'll get inflation. in the 70s, of course, you got inflation—and neoclassical economics won the debate).

- - - - - -

the marxist argument

in marx, you don't have this duel between inflation and unemployment.

but let's construct the argument first.

the central point in Marx is the idea of a normal rate of persistent unemployment (reserve army of labour)

what Marx means by that is that capitalism produces and maintains a pool of unemployed labour (the question, we should ask, is what's the mechanism?)

here's how the argument goes:

suppose that employment is growing. there are two possibilities: either this growth in employment is faster than the growth of population, or the opposite is true—the reserve army will fall or rise, accordingly (hydraulic – inflow and outflow q.)

(1) so Marx says, let's start by imagining the best circumstances—the reserve army is shrinking, employment is doing well. as this happens, the real wage will begin to rise (relative to productivity)

(2) as this happens, worker's bargaining power will start to increase.

(3) in this case, though, the impetus to accumulation will decrease (because the profit rate will fall). the demand for labour will fall.

(4) the reserve army of labour will increase, in size

exactly the same story works in the other direction.

in the second part of the argument, he makes the further claim that the size of the reserve army (and the real wage) will also have an impact on the rate of mechanization. on the one hand, the growth of jobs comes from more accumulation; but more accumulation means increased mechanization.

the same dynamic that pulls workers in, also tosses them out.

the end result is a balance at some rate of persistent unemployment. [richard goodwin formalized the theory in a very nice way – 'wage employment cycle'] it's a predator-prey story – you don't ever stabilize, but are caught in a set of dynamic cycles.

so what does it mean, then, to say that there is a reserve army of labour, in practical terms?

(1) one, it means that 'full employment' is not a stable result.

(2) the reserve army is not located in one particular location—but in the sphere of capital as a whole. the appropriate backdrop, today, is the reserve army of labour, as a whole.

what's critical, also, is that Marx's conception of the 'labor power' is distinct from his understanding of all other commodities? labor power's supply is generated by social factors (social relations dictate the supply in a way that's different from other commodities); the demand for labour power depends on profitability. supply depends on social-historical conditions (the limit is not the availability of supply of labour)

this leads to the issue of real wage determination—the real wage, in Marx, is determined by three sorts of things:

1. depends on the degree of unemployment (size of the reserve army)

2. the productivity of labour (in the wage bargain, how much workers produce is relevant to how much they can ask for)

3. social-historical factors (unions, the State, culture, history, etc.)

the immediate question is what are the limits of this?

one limit is that the real wage will have to be above the socially-determined the minimum

but also will have to be below some maximum below some measure of productivity (can't capture all gains)

wage_{socially-determined minimum} <>productivity-limit

this is why—in two countries with the same productivity and employment—you can see differences. class struggle matters, but it matters within limits.

one of the central differences between neoclassical economics and marxist economics is that labour-power is not the same as any other commodity (and thus labour-markets operate differently)

unlike neoclassical theory, where the wage is only a function of the unemployment rate, in marxism the wage is a function of much more. there is also the fact of endogenous technical change, which distinguishes it.

in Marx the problem of unemployment is not a function of interference, but is a product of the character of the labour-market