Tuesday, January 31, 2012

The Unemployment Crisis

Davos 2012: Youth Unemployment Disaster (BBC)

The world, they say, is "sitting on a social and economic time bomb". The world is plagued by youth unemployment. The numbers are stark: In some countries of the Arab world, up to 90% of 16-24 year olds are unemployed. In the United States the youth unemployment rate is 23%. In Spain nearly 50%. In the UK 22%. Worldwide, some 200 million people are unemployed. 75 million are between 16 and 24 and every year about 40 million young people are entering the workforce.

One in ten people in the European Union are unemployed. One in five people in Spain is unemployed. As the article points out, the youth excluded from participating in the economy will never recover. This will have a permanent impact on the economy.

It’s a simple story – first workers got kicked out of agriculture, then they got kicked out of manufacturing. The remaining ‘service’ jobs were too scarce and too specialized to provide full employment, even as the fruits of automated agriculture and industry kept the population growing. The systematic imbalances between the number of people needing to work and the jobs available is causing capitalism to break down. Under the current system, the only way to procure the things needed is to sell one’s labor, since both land and means have production have consolidated into the hands of a relatively small slice of humanity. Thus, most people don’t own any means of wealth creation. Just as unusable goods pile up on shelves, unusable workers are piling up worldwide. Deprived of the means to earn a living and with nothing to lose, they’re tearing the world apart. More education doesn’t help, because the demand for even educated workers is finite. The story is told in this article and chart: Where did all the workers go? According to the article: “Manufacturing and agriculture employed one in three workers just after World War II. Today, those sectors employ only one in eight.” More from the article:

The big story about American jobs in the post-war period is this: The manufacturing/agriculture economy shrunk from 33% to 12%, and the services economy grew from 24% to 50%. I don't want to leave you with a facile explanation, but for the purposes of space, I think it's acceptable to say that as manufacturing and agriculture got more efficient, they required fewer American workers, while the services industry (which had slower efficiency gains since it has more person-to-person work) required more employees to keep up with the rising demand for consulting, nurses, teachers, computer technicians, and so on.

And an interesting feature of services is Baumol’s cost disease:

Both industries [health care and education] suffer from an ailment called Baumol’s cost disease, which was diagnosed by the economist William Baumol, back in the sixties. Baumol recognized that some sectors of the economy, like manufacturing, have rising productivity—they regularly produce more with less, which leads to higher wages and rising living standards. But other sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers and in less time than it did in 1980. But the average student-teacher ratio in college is sixteen to one, just about what it was thirty years ago. In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices. And the Baumol problem is exacerbated by the arms-race problem: colleges compete to lure students by investing in expensive things, like high-profile faculty members, fancy facilities, and a low student-to-teacher ratio.
From the Atlantic article:

Closing thought: Why isn't anybody talking about the tragic decline of agriculture? The industry's share of workers has fallen by 80 percent in the last 60 years. Nobody seems to think that's much of a tragedy, but we do consider it tragic that manufacturing has lost 60 percent of its share over the same period. Are we being hyperbolic about the decline of manufacturing, in particular, or are we being way too stoic about the greater loss in agriculture employment?

Of course a centralized authority could find work for people to do, but “government” jobs are considered somehow “fake” and government workers are derided as lazy. Such things are considered wasteful, but consider how our drive for efficiency has sidelined much of the world’s workers. If the government employs workers directly, there is a fear among the elites that this will lead to socialism, which was supposedly vanquished by the fall of the Soviet Union. Hence the drive for ‘austerity’ which are sidelining much of the world’s workers.

This trend seems unavoidable, embedded as it is in the current paradigm. Part of it is the nature of work itself. It is so highly specialized, that once you get laid off, you may never work again. For proof of this, see this article: Old Techies Never Die; They Just Can’t Get Hired as an Industry Moves On.

I like this quote from the BBC article:

"Universities are just too slow," said one industrialist. "If I tell them that I need graduates with different skills, it takes them two years or more to change their courses. By then technology will be changing yet again."

What’s amazing is that the problem is never the economy – it’s always with the workers themselves. They just somehow are never good enough, no matter what they do. In other words, humans must conform to the needs of the economy, not the other way around. Why does no one ever question this ridiculous thinking? More truthful is this quote:

However, another boss warned that "a good education does not guarantee you a good life anymore."

Finally, someone tells the truth. Kind of flies in the face of "more education" as a solution, doesn't it? Welcome to Capitalism 2.0, where nothing you do guarantees you a good life anymore (except, maybe choosing your parents wisely).

The problems are structural. Tinkering around the edges will do not good. So where will all those workers go?

Here: Rise of the shadow economy, the second largest in the world.

Is it any wonder even the elites at Davos now see the world turning into a dystopia?

BONUS: Latest Congressional Budget Outlook For 2012-2022 Released, Says Real Unemployment Rate Is 10% (Zero Hedge). Will anything reverse this trend? If so, what?


  1. Re "shadow economy:" the Forbes article is just what you'd expect from Forbes or Fox -- preaching to the right-wing choir. Sure, unleash business from scrutiny and see how the real free market will displace the black market. There's only one standard explanation from the talking points list for every situation or problem. Cut-throat competition is always good; that's why your Wal-Mart and every other obnoxious big-box store is full of cheaper, worthless things made in China. That has nothing to do with your jobs disappearing!
    What is wrong with economists from Austria, anyway?

  2. I didn't read page 2, but I should have expected that from Forbes. I heard an interview with Robert Neuwirth on Michael Ruppert's show (I have serious issues with Ruppert, but sometimes he has a good show), and Neuwirth said that libertarians want to adopt him as some kind of hero, which is totally not the point he's trying to make. It seems people perceive this through their own political biases. But if you put aside this heroic view of the market, the places Neuwirth lived are wracked with interpersonal violence, unsafe dwellings, child labor, lack of sanitation, spotty electricity, crime, drug use, prostitution, lack of education, and rampant poverty. And this is what these people want for society? There's a reason why Neuwirth's talk at The Long Now foundation was called 'The 21st Century Medieval City.'Do they realize that the reason Brazil's economy is growing is because it's developing a middle class thanks to dreaded regulations, and thus providing a market for their products? As someone said today on a podcast I heard, it's ironic that American corporations are excited about the growth of a middle class in these emerging markets while dismantling it at home.

    Some people see the underground economy as a good thing. They point to things like the harassing of raw milk producers at the behest of agribusiness. I see it as a sad necessity due to the fact that our economy will exclude more and more people. I think the ideal answer wouldn't be Ron Paul style libertarianism, but good, honest, uncorrupted government like we had in the Progressive era. But since conservatives have waged war on the very idea of government, and they own the media, people have turned to libertarianism since they've given up on the very idea of reform. It's sad, really.

  3. For an explanation of why there is such an intransigent unemployment problem, read these two write-ups:

    Offshoring Has Destroyed The U.S. Economy: Nobel Economist...

    More Liberty through Better Shopping

  4. Good links, thanks. Unless these issues are tackled, there can be no "recovery" except a paper one. The problem is, I can't see anything reversing this short of total economic disintegration. This issue can only be tackled on a national (not local) level, and national-level politicians of both parties are wholly owned by the Chamber of Commerce. Add to the fact that our finacnial system depends on there not being trade imbalances (!!) As the Our Finite World post states, globalism sows the seeds of its own demise.


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