John Quiggin, the Australian economist, haswritten a post about the business cycle over at Crooked Timber, and in it herings my chimes – or he makes me mount on my hobbyhorse, to use an older cliché.Specifically, he defines recessions in terms of unemployment, mostly, which I think is a good thing – but he defines employment, implicitly, in terms of a labour market analysis, which is a normal thing, but I think is fundamentally misleading. In a footnote, this is how he defines full employment:
“Full employment doesn’t mean zero unemployment, since some people are always changing jobs, or are in the process of leaving the labor market. Roughly speaking, the employment is at full employment in the sense required here when any additional job creation in one sector of the economy is feasible only by attracting workers away from other sectors.”
Implicitly, what is happening here is a vision of laborers as sovereign consumers in a market place, chosing this or that place to work. Or, in times of lesser employment, consumers without the full freedoms that endow the sovereign consumer. Of course, at the same time, these choosers are also vendors. The neo-classical model allows for this double aspect, but doesn’t ask any questions about it that would lead to some nasty dialectical thinking. That way lies madness and Marxism!
Myself, though, I think that this is a way of looking at the labor force that dissolves extremely pertinent sociological and economic distinctions. For instance, we know that around 30 percent of American workers – to stick with America – work in credentialed, or guild like, professions. Not just doctors and lawyers, but accountants, nurses, plumbers and air conditioning men – given this fact, it does seem like the definition of full employment here is, to say the least, not comprehensive.
Interestingly, when the “market” was first being conceptualized, in the 18th century, it was conceptualized as a ‘natural’ phenomenon against an artificial phenomenon – state sponsored or regulated activity. There is a famous and defining text, Turgot’s entry in the Encyclopedie on the Foire, or fair, that provides an exemplary instance of a discourse we have all become familiar with, in which the workings of the market are ‘distorted’ or “interfered with” by non-market, and hence, vicious, factors. Turgot used this distinction to analyse fairs as opposed to markets:
“Fair and a marketare therefore both a gathering of merchants and customers at a set time andplace. But in the case of markets the merchants and buyers are brought together by the mutual interest they have in seeking each other, while in the case of fairs it is the desire to enjoy certain privileges — from which it follows that this gathering is inevitably much more numerous and solemn at fairs. Although the natural course of commerce is sufficient to establish markets, as a result of the unfortunate principle which in nearly all governments has infected the administration of commerce — I mean, the mania of directing all, regulating all, and of never relying on the self-interest of man — it has happened, in order to establish markets, that the police1 has been made to interfere; that the number of markets has been limited on the pretext of preventing them from becoming harmful to each other; that the sale of certain goods has been prohibited except at certain appointed places, either for the convenience of the clerks charged with receiving the duty with which they are burdened, or because the goods were required to be subjected to the formalities of testing and marking…”
Given Turgot’s definition, one should speak, then, of the labor “market” as, actually, a hybrid of a market and a fair, for certainly many, if not most of those jobs we associate with the upper middle class are fair-like in their composition.
But there is more to the picture than that. I think Quiggens might be more aware than most economists that governments also employ people. But still, it seems to me that he underestimates employment by the state. In other words, full employment is supposed to be something sustained by private enterprise in which the state plays only a marketmaker role, by using its powers to tax, borrow, and raise and lower interest rates to create optimum conditions of demand in the private sector.. But – to use the US as an example – full employment in the sense of the private sector absorbing all but a small portion of the working population has never been the case since the great depression. Since WWII, the government has gone from employing about 13 percent of the workforce to close to 17 percent. In 2009, for instance, according to the Bureau of Labor, there are around 22 million Americans employed by local, state and federal governments.
This means, at first glance, that the private sector employs on average about 82-84 percent of the work force. In actuality, given a very rough average of unemployment of 5 percent, which is really generous, the private sector ends up employing closer to 78 to 80 percent of the work force.
You can look elsewhere in the developed world and find similar statistics. The OECD has published a comparison across countries of the percentage of the work force employed in the public sector. The scandinavian countries rank high – in Denmark, Norway and Sweden, over 30 percent of the workforce works in the public sector. The UK is 21.5 percent in 2015. In Australia, the public sector grew in the past four years – an exception to the OECD norm – to 18.9 percent of the employed population.
So the first thing one can safely say about full employment, even before brandishing the market metaphor, is that under modern capitalism, it doesn’t ever happen if we rely solely on the private sector. In a sense, the unemployed mass of the Great Depression was dissolved into the state, and has remained there ever since.