What Is Unemployment?

by R.L. Stephens II on June 12, 2015

Mike Isaacson of Vulgar Economics is an activist and PhD student at the New School for Social Research. We recently chatted about unemployment, full employment, and how bosses need unemployment to discipline workers.

R: What is unemployment?

Mike: Everyone, workers and business owners, needs employment, but for different reasons. The workers need consistent employment so that they can buy the things they need to survive. Business owners need employment because it is ultimately human effort that creates the things that they sell for a profit.

Thus, we can take two perspectives on employment. First, it can be for the purpose of determining how much work is needed for bosses to maximize their output. Second, it can be for the purpose of determining how much work is needed for workers to maintain a given standard of living. Whichever version we choose, unemployment becomes the amount of labor that we believe society isn’t producing.

To speak of unemployment, we need a very specific type of economic system. It has only been within the last 400-600 years that “employment” has become a necessity as an end in itself.

R: What was work like before employment?

M: So there’s a myth that our present economic system — capitalism — has produced the more for the greatest amount of people than any previous economic system. This is simply not true. Anthropological evidence on pre-capitalist societies demonstrates that they were likely able to produce more for themselves than they needed and would often spend days on end goofing off and pigging out. The question of distribution wasn’t determined on the basis of work, but on the basis of needs, rights, or some other notion of justice.

Prior to capitalism, you were entitled to what you made. Now, the business owners are entitled to the product of your work, for which you are paid an agreed-upon amount. This is called “alienation” by Marx.

This is where profit is able to emerge. Business owners pay workers less than the amount they charge for what the workers make. Since business owners make all the decisions on how things will be produced, how much they will cost, and how much workers get paid, the system operates primarily in the interest of profit.

R: How is unemployment measured?

M: Officially, there are now six different measures of unemployment. All of them attempt to measure missing work in the form of missing workers. The standard measure — the civilian unemployment rate — requires you to understand two concepts. First is the civilian non-institutional labor force. Basically, this is everyone not in the military, jail, or a medical or mental institution who is either employed or who has looked for work in the past four weeks. Second is the unemployed population. This is everyone who has not worked for one or more paid hours in the past week (this counts as being employed somehow), but have looked for work in the past four weeks (if you wait longer, you’re no longer in the labor force). The unemployment rate is simply the number of unemployed divided by the total civilian non-institutional labor force.

Obviously, this is insufficient for most practical questions about the state of unemployment. Should people who would work more hours if they could find more work count as employed or unemployed? What about people who have left the labor force because there are no jobs available? Measures like U-5 and U-6 count these workers, but economists don’t use these measures nearly as much as perhaps we should.

R: How should unemployment be calculated?

M: Ultimately what measure of unemployment you should use is a matter of what you’re investigating. For the most part, these measures move in largely the same direction, so it doesn’t matter much which you use for most statistical tests.

R: What is full employment, and is it a solution?

M: As I said before, alienation — the entitlement of the business owner over the things the worker makes — creates the necessity of employment for the worker. Full employment, then, only becomes a thing because alienation is a thing. The term itself gained a lot of traction during the Great Depression in the 1930’s. This was a time when, in the US, unemployment reached 25%. That means that chances are one out of every four people you knew were unemployed.

Full employment for these economists is simply the level of employment such that everyone who was willing and able to work has employment. Of course this “willing and able” bit is problematic, because as we’ve said before there is a lot of disagreement as to how to count someone who is willing to work. In general, a system that requires employment will necessarily have unemployment just by people being fired or resigning to look for new work. This is known in economics as “frictional unemployment.”

The problem arises when the level of unemployment exceeds this normal amount of workers between jobs. Following an economic crisis, like the one in the 30’s and like the one we saw happen in 2008, many businesses may shut down or lay workers off in order to maintain a profitable position. If this were happening in one business, this wouldn’t be such a problem, as workers would simply seek employment at other businesses. However, when the problem becomes systemic, workers find it ever more difficult to get employment. Because employment is the only way that workers can secure a livelihood in capitalism, this means that overall businesses will see fewer customers, causing further shutdowns and layoffs.

Trying to achieve full employment, within the context of capitalism, is necessary to the sustainability of the system. Because of the feedback between unemployment and depressed business activity, spikes in unemployment become self-reinforcing.The question then becomes why are we spending so much time trying to reset a system prone to financial collapse? Why save a system that systematically deprives people of resources, not for lack of resources, but for lack of confidence in the system?

R: Why wouldn’t businesses be interested in achieving full employment?

M: Since businesses will generally see higher sales, and therefore higher profits, when more people have money to spend, you’d think they’d want full employment. However, historically, business leaders have fought tooth and nail against policies that can provide employment, either directly through government jobs programs, or indirectly through welfare payments that stand to become revenue for businesses.

In spite of the obvious benefit that these sorts of programs present for businesses and for society at large, business leaders (the Koch brothers are perhaps the most visible example) pour millions of lobbying dollars to make sure that they don’t happen. The reasoning for this was discussed by Michał Kalecki in 1943.

His reasoning was that the maintenance of unemployment itself was an asset to businesses. If you as a worker know that when you’re fired you can get another job with relative ease, you don’t need to be as loyal to your boss. If you know that you’ll be competing with a quarter of the population for a handful of jobs, you’ll probably be a little more docile.

R: How is unemployment used as a discipline device?

M: One of the great charades of our economic system is the way in which it makes everything appear to be voluntary. By virtue of the application process, it appears as if workers choose to work. By virtue of your ability to leave your employer at any time for another employer, it appears as if workers choose their level of income, lest they find another employer. But in reality, workers choose between jobs and unemployment. And since unemployment isn’t an option that most can maintain, workers are forced into employment, not so much for a desire for a particular kind of work as for the sake of avoiding unemployment.

Since your boss knows the stakes of unemployment, they are able to wield the threat of unemployment as a weapon. The larger the level of unemployment, the more of a threat this is. High unemployment works in the boss’ favor. The more workers there are who are unemployed, the harder it will be to find a job. Additionally, it will be easier for the boss to find a replacement. This threat of being fired allows bosses to keep wages and benefits low, keep working conditions odious, and keep productivity high. Anyone who fails to deliver or who rocks the boat is gone.

There are laws that prevent bosses from firing workers for organizing to improve their working conditions, but using those laws requires legal expenses that are usually out of the range of what most workers can afford on their own. This is one of the benefits of unions.

R: Principled liberals believe that urban poverty is caused by unemployment. They define unemployment simply as a lack of jobs. But you’re saying that the boss, and not necessarily a lack of jobs, is the real problem. What should be done?

M: I want to push back a little here and say that it’s not the malice of the boss that is the problem. The problem is the system of incentives that the boss is faced with. Remember, the primary goal of any business is to maximize profit.  This means cutting costs, increasing productivity, and raising prices wherever possible. Whether or not a particular boss is good or bad is largely irrelevant to the outcomes that the system will foster.

It’s important also to remember that profits don’t just sit under some bigwig capitalist’s mattress, as amusing as that caricature may be. Profits themselves are usually reinvested, used to expand the business. This means that not only does a business owner benefit personally from profits, but also that a particular business must try to turn as high a profit as possible in order to compete with other business.

The structure of the capitalist system itself guides business owners to create poverty and unemployment among workers. Making room for profit means cutting wages and benefits when possible (or refusing their improvement). Making room for profit means reducing the workforce either by sweating the workers or replacing them with machines (perhaps the cruelest example of this is the way in which enslaved people were tortured into higher productivity as documented in Ed Baptist’s new book). Making room for profit means increasing prices, making basic necessities less affordable.

Within the context of a capitalist system, things like a universal basic income can be used to ameliorate the conditions of the urban (and rural) poor. Business leaders don’t like it for the same reason they don’t like government jobs programs — it takes away the power that the threat of unemployment has. If unemployment represents only partial rather than total deprivation, being unemployed become (somewhat) less terrifying of a prospect for workers. However, it does nothing to challenge the fact that the decision making power over production is in the hands of someone who doesn’t do the actual producing.

There are alternatives. There are employee share owned businesses in which the workers hold shares in their company. There are worker cooperatives in which the workers have the decision making power in the business. I don’t know if these business models in their present form will be the way to subvert the failings of the profit-driven economic system we have today, but they provide inspiration for imagining alternative institutions for providing for human livelihood.

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