Unemployment and under-employment

["Per Gunnar Berglund" <pgb@xxxxxxxxxxxxxxxxxx>]

In response to Harry Veeder and Greg Nowell:

(Note: thread names have been renewed to suit the query)

WARNING! LONG POST!

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Harry Veeder wrote:
> I don't think it is obvious because I don't think it is accurate to say
there is a high rate of UNemployment. I think it is more socially accurate
to say there is a high level of UNDER employment with an associated problem
of OVER employment.

This of course requires new theories of under and over employment to
supplement the traditional theories of voluntary and involunatry
unemployment.

Any takers? (I think Per G. is working on a theory of under employment.) <

Per:
Yes, Harry, I believe you are on the right track here. Unemployment in the
usual sense, i.e. people being completely out of paid work, is of course a
tremendous social and economic problem, and I reckon there is a great social
value in making jobs available to as many as possible. But we must also
recognise that there may be situations where people are better left
unemployed. The Swedish economy is a great example here.

All the way up to 1990, we had very low unemployment figures, a fact which
caught the eye of many Keynesian economists. These low unemployment figures,
however, concealed a great deal of QUALITATIVE under-employment. The "active
labour market policies" made sure to push a lot of potentially unemployed
into underpaid jobs at qualification levels way below the education and
skill standards of the workers. By this method, a great deal of human
capital was "locked up" in low-skilled work. Many of these workers may have
benefitted a lot from being left alone in order to improve their education
and take some more time to find better jobs.

The moral of this is that "full employment", meaning low open unemployment
rates, may be "bought" at the expense of a high rate of individual human
capital utilisation. So there seems to be a possibility to achieve different
unemployment rates at the same aggregate rate of human capital utilisation.
Most European countries have had high rates of open unemployment, while the
employed had jobs at fairly high rates of skill utilisation. Sweden differs
from this, in having low open unemployment figures, but a generally lower
rate of skill utilisation for the employed.

There is clearly a need for qualitative adjustment of employment. Counting
the number of persons employed has its obvious shortcomings: we don't even
know how many hours the employed are working on average. Counting the
aggregate number of working-hours yields a finer measure of employment, but
on closer inspection even this measure has its shortcomings: it does not
account for differences in what people are doing on their working-hours.
Only a qualitative adjustment of the working-hours will account for this,
and hence a volume measure, including qualitative adjustment of
working-hours, will give the finest and most precise measure of employment.

Such a volume measure is an index-number by nature, as different from the
number of persons employed or the number of working-hours, both of which
have their own natural unit of accounting. The index-number nature of the
volume of employment will render impossible unequivocal estimates of the
rate of under-employment (or over-employment for that matter). What we can
do, is to estimate the actual and the potential volume of employment as two
index-number series, and then proceed to compute the ratio of actual to
potential employment as an indicator of human capital capacity utilisation.
I have worked out a theory for this measurement procedure, shown sketchily
in my "Abolishing Unemployment". The capacity utilisation index may be
called the "rate of employment".

Now, the rate of employment is a quotient of two index-numbers, and such a
quotient will also be an index-number, with all the belonging
characteristics. For instance, there will be no possibility to meaningfully
assess the rate of employment at any particular time-period -- all we can do
is to COMPARE the rate of employment in one time-period with that of another
time-period. Like any price or volume index, there is no absolute base for
comparison.

A consequence of this is that the rate of under-employment, if such a rate
is meaningful at all, must be computed with REFERENCE to a particular
time-period when the under-employment was deemed to be satisfactory,
presumably the time-period with the HIGHEST rate of employment in the whole
time-series under consideration. Such a procedure will however not rule out
the possibility that the rate of under-employment will become negative some
time in the future. I don't know if it is meaningful to say that the
surpassing of previous employment rate records indicates "over-employment",
but that is the only sense in which this term may be used, I think. From my
own point of view, I would be more than happy with a great deal of
"over-employment" in the future.

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Greg Nowell wrote ("mischeivously"):
> Per suggests that the different nations of the EC do not need a superstate
or a central bank to forge ahead with full employment policies.

We all know about trade wars.  Here's a hypothetical:

All states are committed to "full employment."  However, as we know, the
exact definition of full employment is difficult to achieve.  It might mean
putting in wheel chair ramps and special devices so that Muscular dystrohy
teenages can work at McDonald's restaurants.  Or it might mean that everyone
with two legs can work at McDonalds.  Or it might mean that everyone with
two legs and an IQ over (you pick) X level can get a job at McDonald's.

In theory the "deeper" you go into unemployment pool the higher the wage
level will be at the margin.  And the higher the wage level, the less
competitive, internationally, your goods.

So here's my mischeivous proposal:  Nations nominally all committed to
full employment will "cheat" (just as free trade nations can cheat by
putting other kinds of restrictions on goods) by defining downward the
"real" level of full employment.  The nation best able to fool its working
class gets lower priced goods and "wins." <

Per:
Well, I don't know if this is a matter of fooling the working class, but
anyway you are driving at the right problem here. "Full McJobs" is not the
same thing as true "Full Employment". The awkward part is that once we start
adjusting the working-hours for quality (supposedly giving McJobs a low
weight), we will end up with index-numbers, and that will make impossible a
strict definition of "Full Employment".

I think this has some bearing on Keynesian economics, and even the economics
of Keynes himself. Both have been carried out under the notion of "full
employment" as an absolute ceiling to what can be accomplished. Personally,
I doubt there is such an absolute ceiling. I think my point of view has been
illustrated fairly well by the futile attempts to operationalise the concept
of "full employment". Maybe we could do better with an approach which takes
the softer, gradual approach of the rate of employment, instead of dealing
with a measure which supposedly has a sharp 100 percent stopping limit??


Best wishes,
Per


Per Gunnar Berglund
Lilla Sallskapets vag 60
127 61  SKARHOLMEN
SWEDEN

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