Thursday, 05 May 2016 00:00

Factors Determining the Number of Jobs

Written by Jim Carpenter

It is useful to develop a common understanding of the factors affecting job creation in our economy. The idea that a full employment economy is possible in not new. For instance, this goal is stated in Article 23 of the Universal Declaration of Human Rights: I quote: “Everyone has the right  to work, to just and favorable conditions of work and to protection against  unemployment.”

Before FDR died, he was planning to introduce the Second Bill of Rights that included the right to a job.
Dr. King’s march on Washington in 1983 called for “a massive Federal Public Works program to provide jobs for all the unemployed.”   
The 1972 Platform of the Democratic Party called for a guaranteed job for all Americans, with the government providing employment, if necessary, at a living wage. 
Unfortunately, in recent years there has been little talk of creating a full employment economy. Instead we talk about reducing unemployment but not actually reaching a point where everyone who needs a job is able to find one.  One of the purposes of this call tonite is to restart the conversation of how to achieve a full employment economy.                       
So how are jobs created?
When businesses pay wages to people to produce products, jobs are created.  Businesses get the money to pay wages from the sale of their products.
So in a market economy, the number of jobs depends on both businesses organizing people to produce products and the demand for these products by both households and businesses.
The income earned in production, such as wages and profits, and the subsequent spending of this income is called the circular flow of money.
This circular flow of money can increase when households or businesses borrow money that is newly created  or was sitting idle and when these households and businesses then spend that money on products. When this circular flow of income and spending increases, jobs can increase.
This circular flow of money can also decrease when households or businesses save or repay loans. When the circular flow of income and spending decreases, jobs can decrease.
During the Great Depression, John Maynard Keynes explained that when the circular flow of income and spending is decreasing because the private sector is not borrowing and spending sufficiently, the government needs to step in and borrow and spend in order to maintain the circular flow of money. In other words, the federal government needs to run a budget deficit to stop a decline in income, spending and jobs. This is known as fiscal policy.
For example, budget deficits were used by most countries to stop the downward spiral of their economies during the Great Recession of 2008-2009.
Another way of saying this is as follows:  When there is unemployment because there is not enough demand for goods and services, the government can increase demand by borrowing and spending.       
Central banks, such as the FED, can also encourage borrowing and spending by lowering the interest rate. This is known as monetary policy. Interest rates have been kept very low by the FED ever since the Great Recession.
Running budget deficits and maintaining  low interest rates can not only stop a downward spiral it can help stimulate the economy by increasing the demand for goods and services. This, in turn leads to more production which can result in more jobs.
In a nutshell, this is how textbooks explain the job creation mechanism.
However, and this is an important however, fiscal and monetary policy is necessary but not sufficient to create a full employment economy.  If we don’t understand why this is true, we won’t understand how we can achieve a full employment economy.
I will explain very briefly why fiscal and monetary policy by itself will not lead to a job for all who need one.
First, some of the jobless do not have the skills to fill the jobs that are created.   They will stay unemployed if they don’t obtain these skills. But what if they are unable to obtain these skills?
Some of the jobless do not have work histories which employers require before they hire.    
Some of the jobless do not live in the place where the jobs are being created.
Some of the jobless are discriminated against because of their race, age or other characteristics.        
Employers can also abandon communities as they move to places where wages are low, unions are weak, taxes are low and environmental regulations are weak. This happened to Detroit, Milwaukee, Cleveland, Baltimore and other rust belt communities. It also happens in rural communities.
When fiscal and monetary policy increase demand, production and jobs, these communities may continue to be bypassed. Milwaukee’s inner city has been in a depression for years.  The jobless rate for working age black males has been near 50% for years.
When fiscal and monetary policy increase demand and production, this may not result in more jobs if businesses use more technology rather than more workers to increase production. This  circumstance is sometimes called the “jobless recovery” or “jobless expansion”.
In past years. economists believed that the fear that new technology would lead to high unemployment was unjustified. However, a number of economists now believe that the potential of increasing unemployment from technological advance is real as artificial intelligence and computer technology continues to advance. Such things as driverless vehicles are becoming become real.  I’m sure everyone on this call is familiar with talking to computers rather than real people, using computers to make our own travel arrangements, checking out are own groceries or withdrawing money from our banks using computers.
The growth of the global population also provides an obstacle to achieving full employment. We are living in a global economy with a population over 7 billion with many people desperate to find a job. Businesses are more than willing to exploit this desperation. It is predicted that global population will expand by another 4 billion this century. It is likely that population will continue to outpace job creation and the U.S. workforce will be competing for jobs with this growing global work force.
In this type of job environment, there are a number of economists that believe that the goal of full employment will not be achieved unless the government is willing to subsidize jobs in either the public sector or private sector for the jobless who cannot find a job in the job market. 
In other words, some economists are calling for a modern version of the WPA and CCC of the Great Depression. Some economists point out that we already have a subsidized jobs program in the form of military spending on military personnel, private contractors and weapons production. We simply have to shift our focus to creating a subsidized jobs program in other sectors.            
Finally, some economists are making the case for creating more jobs thorough sharing the work rather than creating more work.  For instance , some workers. like myself, want to work part time but continue working full time to keep health insurance.  Affordable health insurance for part time work may create an incentive for some people to reduce their work hours, thus increasing job opportunities for others.

Reducing income inequality can also lead to shorter hours and work sharing. If wage rates are increased, some workers may choose to work fewer hours while maintaining their same income, thus freeing up work hours for the unemployed.   

These mechanisms to create more jobs by work sharing have received little discussion in the U.S.. although European countries have attempted to use shorter work weeks to create more jobs and avoid layoffs during recessions.          
Increasing income inequality can also reduce jobs as income is pushed upward to households who save a greater portion of their income, thus reducing the demand for goods and services.
Read 24478 times Last modified on Thursday, 05 May 2016 00:52