|SNAP participation. (U.S. Department of Agriculture)|
Noting that the unemployment rate is "broken" as an indicator as a result of the changing structure of the labour market is not particularly novel. For example, Bill Mitchell's academic work has documented the structural changes in employment policies in the OECD since the early 1990s, and the rise of "underemployment." (Bill Mitchell is one of the founders of MMT, and I was on a panel with at the conference.) My concern is somewhat more stark: employment status as a whole has become somewhat meaningless as an indicator.
(Note: the panels are available on video at: https://www.mmtconference.org/)
I will first discuss some of the more "technocratic" implications of my thinking first, then dip into political economic ramblings.
Is a Job at Starvation Level Wages a Job?In the industrialised countries in the post-war era, providing workers with the resources to allow for "food security" was not considered that big a deal. Hunger was an issue for the jobless. Although I am not an expert on the Soviet system, I believe that even the 1980s Soviet Union managed to feed its workers (a major concern was that they were dipping too much into the vodka rations).
Courtesy of the economic policies provided by a highly educated economist class, this is no longer the case. We now have people who are employed, yet need to lean on assistance -- either from charities, or governments -- to get adequate nutrition. Meanwhile, I am unaware of any collapse in productivity in the agricultural sector that could explain this shift.
The question is straightforward: does it matter what the official unemployment numbers are if the people who are working are dependent upon food aid? If we look at the chart at the top of the article (unfortunately, no time for formatting), we can see the explosion of SNAP recipients in response to the Financial Crisis, and the slow rate of decay. (I did not have time to better present the data, but by comparison, the official number of unemployed on the U-3 measure is currently bouncing around 6 million people.)
It seems straightforward that if workers as a class had bargaining power -- which is what the monetary policy hawks have been warning against since 2010 -- SNAP participation would have fallen a lot faster.
As a result. it is no surprise that forecasts of rising inflation based on NAIRU estimates would fail. My concern is that it is unclear that even the underemployment indicators will become misleading in this environment.
No Indicator, 'Mo ProblemsWhy do we care about this breakdown as an indicator from a technical point of view? We want to forecast the wage inflation rate, based on the plausible argument that higher wages might eventually feed through into consumer price inflation (which is the usual definition of "inflation" that people use).
(As a disclaimer, there is a gap between wage inflation and CPI inflation, and rising wages may just represent an income share shift towards workers. However, it is hard to see how rapid wage rises can be sustained without rising consumer prices. [Thanks to Jerry Brown for spotting typo.] )
We want to be able to forecast wage increases. We typically look at some form of capacity utilisation measure -- like the unemployment rate -- to try to make such a forecast. However, if those measures break down, we have a hard time to measure the "pressures" in the labour market. We have to infer the level of utilisation by looking at wage inflation. That is, we are trying to forecast wage inflation by looking at -- wage inflation.
Luckily, I am not in the forecasting business, so the circularity of that logic is not my problem.
How "Inefficient" is the Job Guarantee?I will now turn to some political economy issues. I will first start with an argument about the Job Guarantee, that I have seen advanced by Simon Wren-Lewis. Since I do not have a reference handy, I will just paraphrase his argument here.
The argument is that the number of people in the Job Guarantee (the "JG rate") will be higher than the number of unemployed people "all else equal" when we have inflation stability. The premise is based on search theory, that people find unemployment more unattractive than a JG job. As a result, it will take greater wages to coax them out of the JG programme. If we assume that something like NAIRU exists, we need a greater number of JG workers to get the same anti-inflationary effect as a pool of unemployed.
I always had technical complaints about Wren-Lewis' argument. However, my thinking about this SNAP data is causing me to go internet Austrian, on top of my technical concerns.
Under current institutional arrangements, the presumption that private employment is efficient is misguided. We have employers who are incapable of paying their workers a starvation level wage, and this is obviously unsustainable. However, charities and government assistance are bailing them out. These firms are destroying capital, and are undermining the profitability of legitimate firms. Euthanising these firms will raise domestic productivity. A Job Guarantee that pays a living wage will accomplish exactly that, whereas the "reserve army of the unemployed" strategy preferred by neoclassicals leaves those firms in place.
I have some doubts that there are no flaws in this logic. However, it underlines the shakiness of "all else equal" arguments when we are attempting to make structural changes to economic institutions.
(c) Brian Romanchuk 2019