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?