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Is Full Employment Still Attainable?

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In a previous post, I focused on the growing danger of extreme income inequality in the world today. A complicating factor is that as more people are unemployed, this inequality can only increase.

In this post we examine the prospects of future full employment and of a higher minimum wage as means of reducing this huge disparity.

The current debate in the Western world reveals that we live in two parallel intellectual universes, as far as the causes of unemployment are concerned. In universe one, mainly populated by political leaders in electoral mode and many commentators, the assumption is that unemployment is a temporary accident which will be resolved when growth returns. To achieve this, the left favors more government action and the right, freer markets. But the underlying view, in both cases, is that more growth means more jobs. For this reason, unemployment compensation is seen as an insurance policy good for a fixed period until normal times return. What if this assumption were wrong and that unemployment, far from being the exception, could become the new normal?

In universe two, inhabited by innovators, computer scientists and entrepreneurs, the goal is to look for labor-saving devices, replace humans by machines and cut payroll to a minimum for better profits. This second universe is less vocal but works silently to introduce new technologies, whose purpose is definitely not to create jobs but to reduce them via automation. Which of the two universes is supported by the facts?

First, there has been a steady growth of long-term unemployment, in many countries, to about a third of the total. Jobless recoveries are now commonplace: more profits are now accompanied by fewer jobs. Second, many of the new jobs are part-time and poorly paid. The era of the 40-hour week, 48 weeks a year is coming to a close. We no longer need all these workers, full time. Part time will do, even though the salaries are obviously insufficient for full time living expenses.

Overall the economy as a whole is experiencing what happened to agriculture with mechanization which used to employ 80 percent of the labor force. Today it employs less than 3 percent and no amount of government or free market effort is likely to increase this number -- unless of course we were to drop the tractors and go back to shovels. Who really wants that? For good or for ill, humans are managing to subcontract more and more production to machines. The evidence is unmistakable.

Have we heard this before ? Yes we have. It was false then and it is true now. When the Luddites attacked steam engines, during the First Industrial Revolution, they were misguided. Humans were never very efficient energy machines and could easily be supplanted. Today's machines are replacing humans in intelligence-intensive tasks. That is a sea change.

A much-quoted recent Oxford University study has claimed that up to 47 percent of U.S. jobs could be replaced by automation as soon as 2030. Present and future jobs, previously threatened solely by outsourcing are now challenged by what some have called "robo-sourcing." A robot has no vacation, no sick leave, will not strike and needs no job satisfaction at all.

The net result of all this, if true, is that full employment, as we know it may soon become an unattainable goal.

What to do? Lament? Not necessarily. If the fruits of automation are well-distributed, this could be a victory, not a defeat for Homo Sapiens as long we devise better distribution systems without killing entrepreneurship. Raising the minimum wage is a good idea for now, but, if the above analysis is correct it may not be a long-term solution, unless applied worldwide. The more sustainable one seems to be a GMI, a guaranteed minimum income.

The GMI explicitly recognizes, instead of ignoring, the now broken link between economic growth and jobs. If the link is indeed broken, or at least weakened, why not replace unemployment compensation with a guaranteed minimum income for all citizens, no questions asked? This GMI should be high enough to be above the poverty line yet low enough not to discourage entrepreneurs and innovators. The latter must be adequately remunerated but the displaced workers should not be forgotten either.

The most interesting aspect of a GMI is that it is one of the few policies which have been proposed by both the extreme left and the extreme right. The left has endorsed it on equity grounds, and the right (among others by Milton Friedman) on efficiency grounds. Interestingly, an unconditional guaranteed minimum income is likely to be less costly to administer than the myriad of social entitlement programs now present in many Western countries. These programs by the way, end up doing very little to alleviate unemployment, witness France with a very generous unemployment compensation and very high unemployment actually fed by this generosity.

For those who consider the idea too outlandish, consider that Switzerland, hardly a communist country, is envisioning a guaranteed minimum income of $2,800 a month for every adult citizen. The proposal will be submitted by referendum to the Swiss people in 2014.

Instituting a sustainable GMI should not be done lightly and may, initially have to be introduced in a closed socio-economic space. A worldwide introduction is not likely to be workable at the present time. The fine tuning will be complex but doable.

But whether we choose this solution over others, one thing is becoming clear: repeating the mantra that full employment is just around the corner is misleading and cruel because it is not going to happen. The direction of change is clearly towards labor-saving new technologies. We must accept that fact whether we consider it inconvenient or liberating, and devise new policies to meet this challenge for, as John Stuart Mill used to say, to promote the greatest happiness of the greatest number.