November 8, 2009

Overproduction and Unemployment

I’ve often asked myself why a modern industrial country is not able to get rid of unemployment. A terribly naive question some might proclaim. There just aren’t enough jobs out there to employ the population. That may well be true. In tough times cutbacks are necessary. Sales go down, layoffs are the result. You don’t need to be an economist to understand that. Even the government can’t create enough jobs to keep the masses employed. The tax base isn’t there. So full employment is pie in the sky?
Not necessarily. Let’s take the pie as an example. The not-in-the-sky-pie is divided up into 1 million pieces, each piece representing one job in a given country. There are 1 million jobs available but 2 million able bodied adults looking for work. Either we have 50% unemployment or we simply divide the pie differently. No longer does each person get an entire piece of the pie, rather they get only half a piece. Immediately we have 0% unemployment. Each person no longer has to work 40 hours a week but only 20 hours. We have more time to take care of our children.
Could this work? Could it be integrated into the “Grundeinkommen” proposals being discussed in Germany? Of course we don’t need to be so draconian to call for halving the work week. Unemployment rates in Western countries today hover somewhere between 4 and 8%. By reducing the average work week by 10 to 20% we should easily be able to wipe out unemployment. The German auto manufacturer VW installed the 4 day work week a few years ago in order to avoid layoffs. That equals a 20% percent reduction in the work force. This model has worked for VW. Why not try it out on a national scale?
Admittedly it is a radical and unconventional proposal. Admittedly I have not yet looked into the feasibility of such a move. What would the financial ramifications be? What would the effects be on the general wage scale? Perhaps we could find some answers by looking at the present program by the German government called “Kurzarbeit”.
Presently, German companies in financial trouble in which job cuts are being considered can implement “Kurzarbeit” or “shortened working time”. The goal of this federally funded program is to prevent job cuts. Basically employees work about one day a week less and are paid 20% less wages for a predefined period of time. The reduced pay is offset by a government subsidy. In the end an employee works say 20% less, is paid, however, only about 5% less. It’s designed as a way of helping a company get through difficult times without having to fire employees. During the current crisis large companies like Daimler and Siemens have taken advantage of this program. The German government has extended the program into 2010.
The logic behind “Kurzarbeit” is that the government will, in the end, save money because fewer people will become unemployed. The government is helping companies rescue threatened jobs and at the same time protected the coffers at the unemployment agencies.
So why not extend this program to a general policy where the government subsidizes companies which reduce the work week and thus create more jobs? We would immediately see drastic reductions in unemployment. Working people would, moreover, be much happier, healthier and more productive if they had more free time.
Think of all the possibilities for our society if people had more free time. Programs could be set up which encourage people to volunteer their time for community projects, non-profit organizations, local schools, etc.
Many aspects of the labor market reforms of the past ten years in Germany contradict the above-proposed policy. Germany has gone through a litany of changes in its social and educational system over the past years designed to increase the the size of the working population. Why would Germany conduct a reform which results in more individuals competing for a limited amount of jobs available?
It was, funny enough, the coalition government under Chancellor Schröder with the labor-oriented SPD and environmentalist Green Party that pushed a series of initiatives through the parliament between 1998 and 2005 designed to “modernize” the education system and reign in overspending in social services. The program came to be known as “Agenda 2000” and the reforms of unemployment benefits and social welfare are best known as “Hartz 4”. The center-left coalition passed reforms that conservative governments of the past could only have dreamed of. Social benefits were reduced, conditions for the unemployed were worsened and the financial belt was tightened on higher education.
The SPD and Greens were successful with their far-reaching reforms in part because a large enough percentage of the population was convinced that it was necessary in order to make German businesses competitive on the global market. They argued that it was necessary to reduce labor costs in order to halt the flow of jobs to cheaper foreign competitors and to discourage German businesses from closing domestic production facilities. Lower labor costs or lose jobs, that was the mantra of the labor reforms. People fell for the neoliberal myth.
Slowly, I think, people are realizing that it didn’t help. German companies continued to move jobs to cheaper labor regions like the Czech Republic, Hungary or Poland. While walking through the Hewlett Packard offices in Böblingen, Germany these days, one is hard pressed to find a German computer programmer. The German division of the company almost completely relies on Indian technicians. Domestic manufacturing jobs continue to decline, despite the reforms.
Part of the labor market reforms served to increase the age of retirement from 65 to 67. Another aspect tightened the rules for unemployed individuals, forcing them to accept jobs previously seen as unacceptable based on pay, location or qualification. Increasing the age of retirement saves the government millions simply because they don’t have to pay benefits to all those 65 and 66 year olds out there and those folks also pay into the pot for two more years. The other side effect, and the reform’s legitimization, was that there would be more workers available. Tightening up the terms of receiving unemployment also served to get people back on the labor market.
The issue I would like to discuss here is that of over production and unemployment. One effect of Schröder’s reforms was to increase the number of people in the labor market. They increased the age of retirement and decreased the number of years in higher education. Why would this be beneficial to Germany? There already is high unemployment. Why would one want to increase the potential number of workers? From a capitalist’s point of view, many would argue, unemployment is necessary. The bargaining power of business is much higher if they can choose between a multitude of desperate job seekers. If there was full employment, the employees would be able to bargain for higher wages and better working conditions. With the sword of Damocles hanging over the worker’s head in an environment of high unemployment, he hardly will feel motivated to demand higher wages.
Another issue that recently came up a long walk with a friend was that of overproduction. In our high tech, automated, efficient society way too much is being produced. Though only a wild estimate, I would guess that today’s working population could reduce their work load to 50% and Germany would have no problem producing all the goods and services it needed. How many jobs are involved in producing things that soon end up in the trash? What would happen if we started building cars that lasted 25 instead of 10 years? What would happen if we forbid the production and sales of military products? All those bombs produced in Germany are a senseless waste of time. Why build something that is designed only to destroy itself and other things and people along with it?

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