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The Engineering of Labor Markets


The Bureau of Labor Statistics (BLS) issued their latest jobs report and by their accounting unemployment has declined to 8.3%. The Obama Administration and the corporate media are cheering this as good news that indicates jobs are returning. But are they, really?

Sadly neither the government nor the corporate media are telling the truth about unemployment in the U.S. A peek behind the curtain at the real numbers tells a different story. For a reality check let’s compare October 2009 with March 2012 and see if there has been any growth.

Fed Chairman Bernanke says to keep pace with annual labor force growth we need a gain of 125,000 jobs per month.

However the civilian employment-to-population ratio, October 2009 vs. March 2012 remains unchanged, 58.5% vs.58.5%. Visually according to this chart we are near the percentage range of the 1980’s.

Perhaps I’m on Quaaludes but I don’t see growth there.

Yet we’re told the unemployment rate has decreased.

The civilian unemployment rate, October 2009 vs. March 2012:10.0% vs. 8.3%

This doesn’t add up unless you exclude, as the BLS does, those still unemployed but out of frustration have given up looking for work. These people are classified by the BLS as simply “Not in the Labor Force” and therefore are not counted as unemployed.

Not in Labor Force, October 2009 vs. March 2012:82,728,000 vs. 87,897,000

If the “Not in Labor Force” people were included in the unemployment rate it would be well over 11%.

During the campaign circus Republicans will fault Obama for this sorry state of affairs.

So let’s step back and look at additional statistics from 2000 vs. 2012:

Currently there are 132,409,000 non-farm employees. In December of 2000 there were 132,481,000 employees. Wow, perhaps I need those darn Quaaludes to see “growth” here.

Between January 2008 and February we lost 8.8 million jobs. In the last year the civilian population rose by 3.6 million, yet the work force rose only by 1.5 million. Millions are dropping from the labor force, disappearing by the magic wand of BLS accounting. We are losing ground and in are deep trouble.

Something structurally is very wrong. It seems the simply answer is because American companies are outsourcing millions of jobs for cheaper labor, but there is a deeper psychology at work here.

Recently I read the following article at Rationalrevolution.net by blogger R.G Price. Mr. Price granted us permission to feature his commentary (thank you). I find his explanation in The Engineering of Labor Markets explains not only what structurally is wrong but also the deeper mind-sets in motion.

The Engineering of Labor Markets

By R.G Price

We hear a lot today about “structural unemployment” in America, the notion being that unemployment in America today is related to workers not having the right set of skills for the available jobs in the economy. There is some truth to this, but the reason for this has nothing to do with any inherent realities of a modern economy, it has to do with how American capitalists have intentionally engineered the global labor markets.

The first thing to acknowledge is that every economy, including the American economy, is engineered and planned. An idea came to prominence in the 1970s among the economic elite in America that the future of the American economy was in “high skill jobs”, i.e. research, design, science, analytics, etc., and that “low skill jobs” were to be something outsourced to developing foreign countries, for them to do the work that was “beneath Americans”, but also so that those “low skill jobs” could be done more cheaply by these much more desperate foreign workers.

This idea has dominated the thinking of America’s economic engineers (corporate executives, investment bankers, financiers, major investors, wealthy philanthropists, influential professors, private equity moguls, Federal Reserve members, and all of their corresponding enablers and puppets in government, etc.) for the past three or four decades, and has been a major driver in the engineering of the current American “jobs market”.

The result of this has been that massive segments of occupation have been eliminated from the American jobs market by the owners and controllers of capital and transferred to foreign countries, largely Mexico and China, but many more as well of course. In the absence (or weakness) of unions capitalists dictate the conditions of employment, and the fact is that the parameters of “the game” in America are dictated almost entirely by the owners of the capital. The reality we live in is the reality designed by these people, and their engineering efforts have been effective. They have successfully transferred a large portion of “low skill work” to foreign countries and they have successfully shifted the American occupational portfolio disproportionately toward “higher skill work”, but the “low skill work” that was outsourced to foreign countries wasn’t actually “low skill”, it was medium skill work.

What I’m saying here is that the American “jobs market” has been distorted by the practices of capital owners and government policy (at the request of capital owners), under the guise of so-called “free trade” (which is anything but) and neo-liberal “globalization”. So what are the results of this? Well the results are quite obvious, and exactly what would be predicted by market theory.

The result of this is of course a shortage of “high skill workers” in America and a glut of “low and medium skill jobs” in places like China and Mexico, and the result of this is inflated prices for high skill workers in America as well as deflated prices for medium skill workers in America.

So one would ask then, if there is a glut of low and medium skill jobs in places like China and Mexico, then why aren’t the wages of low and medium skill workers in those countries rising faster? After all, a glut of jobs should mean a shortage of workers.

Two reasons: The first is obviously developmental and based on population. Places like China, India, and Mexico have been able to adsorb a massive influx of low and medium skill jobs because of their large populations and relatively undeveloped economies which afforded relatively few competing opportunities for workers. Due to the relative wealth of the West, we’ve been able to pay foreign workers higher for their labor than what they could earn within their own economies, even for lower skilled work than those same workers could perform in their local economies. In other words, we were able to pay a worker in China, who could have been a Chinese doctor or skilled mason or software engineer, more to put together iPhones on an assembly line than they could have otherwise earned as a doctor, etc. if “we” weren’t employing them. As foreign economies develop this “should” become less and less true. In addition, the relatively small population of the West compared to China and India has meant that the labor forces of those nations are large compared to the populations of Western consumers they serve. But now we get to the second reason for why labor prices in these foreign countries haven’t risen quite so rapidly, and that has to do with the policies of their governments. American capitalists have almost universally moved American production to countries ruled by authoritarian regimes, in places with anti-worker policies that are designed to keep wages low. The ruling class in these countries benefit from Western support and wealth, from American corporations if not from government policy as well, while the workers carry the burden.

But let’s get back to America, and how all of this plays into growing income inequality here.

A very interesting debate took place between Alexander Hamilton and Thomas Jefferson. Hamilton (whom I would consider an economic genius superior to Adam Smith, even though I disagree with Hamilton on a number of issues) argued that economic diversity was key to the development of the American economy, and to this end Hamilton opposed “free trade” practices (then supported by Britain) and supported government subsidies for the development of industry in America (as well as polices that encouraged the illegal (in their home countries) immigration of skilled manufacturers from Europe and the theft of intellectual property from Europe (sound familiar?). Hamilton was a supporter of corporations and manufacturing. Jefferson, on the other hand, argued that corporations and manufacturing would result in the concentration of too much property and power in the hands of banks and wealthy elites and that democracy could only be maintained by an agricultural economy rooted in widespread ownership of land with land remaining the most important form for property. Jefferson argued that unless the majority of people owned the majority of the property then the majority would become disenfranchised (this was of course especially true in Jefferson’s time when property ownership was a requirement for voting, but his argument was not based solely on that requirement, but rather the power grated by property ownership, regardless of any voting requirements). Hamilton’s counter, of course, was that an agricultural economy was not diverse enough to provide enough opportunities for a diverse population to make the best use of its skills.

“It is a just observation that minds of the strongest and most active powers for their proper objects fall below mediocrity and labor without effect, if confined to uncongenial pursuits. And it is thence to be inferred, that the results of human exertion may be immensely increased by diversifying its objects. When all the different kinds of industry obtain in a community, each individual can find his proper element, and can call into activity the whole vigor of his nature. And the community is benefitted by the services of its respective members, in the manner, in which each can serve it with most effect.”
- Alexander Hamilton – Report on Manufacturers

“The spirit of enterprise, useful and prolific as it is, must necessarily be contracted or expanded in proportion to the simplicity or variety of the occupations and productions, which are to be found in a Society. It must be less in a nation of mere cultivators, than in a nation of cultivators and merchants; less in a nation of cultivators and merchants, than in a nation of cultivators, artificers and merchants.”
- Alexander Hamilton – Report on Manufacturers

In the end both were right. But here is where Hamilton’s point comes into focus: the economy that has been engineered by America’s economic elite is not diverse enough for the American population. Everyone can’t be a scientist or a doctor or an engineer, everyone can’t even be a college graduate, not everyone has that aptitude, and yet, just because one doesn’t have the aptitude to be an engineer doesn’t mean that one should be relegated to flipping burgers at a fast food joint, where, as Hamilton put it, their labor is “confined to uncongenial pursuits,” but this is exactly what has happened in the American economy.

If we take a global view of the job market, what we see is that the American job market is disproportionately comprised of “high skill jobs”, while the jobs markets in “developing” countries are disproportionately comprised of “low and medium skill jobs.” Yet if we look at the labor force what we find is that the American labor force is not comprised of disproportionately “high skilled workers”. America is not “exceptional”, we are merely “normal”. The problem is that our job market is not “normal”. Our job market has been manipulated in a way that has put it out of sync with the needs and skills of the population.

The result is that the demand for “high skill workers” exceeds the supply in America, while the supply of “high skill workers” exceeds the demand in most of the rest of the world. This is why so many highly skilled people immigrate to America, because prices in our labor market for high skilled workers are artificially inflated while prices for high skilled workers in most of the rest of the world are artificially depressed due to a jobs market disproportionately comprised of low and medium skilled jobs.

The result of exporting many medium skilled jobs to foreign economies has been growth in truly low skill jobs in America, and a drop in labor prices for everyone except high skilled workers, because now there is a glut of medium skilled workers in America without many jobs for them to fill.

But the thing to remember is that the lack of medium skill level jobs in America isn’t a product of the fact that those skills are no longer needed or valuable, it’s a product of the fact that those jobs have been exported to foreign markets by American capitalists. There is still massive demand for the products of medium skilled labor; we just aren’t supplying that demand with American workers.

So this is a driver of American economic inequality, and it’s something that has been completely engineered by the economic elite in this country. The reality is that every country has a relatively equal distribution of worker capabilities. In any given population, aside from war-torn places like Afghanistan and Somalia perhaps, there is going to be pretty much a normal distribution of aptitudes. You are going to have some really capable people and some really incapable people, and the bulk of the population is going to be of moderate capability. It’s absurd to expect any nation to be able to become a nation of nothing but engineers, scientists, executives and entrepreneurs. That’s never going to happen anywhere. As Alexander Hamilton laid out over 200 years ago; a productive economy is a diverse economy that is able to take advantage of the diverse range of skills, abilities, and aptitudes of its population. What our economic engineers have done is they have engineered a less diverse economy that does not match the diverse needs and capabilities of the American population. The result is artificially inflated prices of “highly skilled labor” and artificiality depressed prices for all other labor (though there are other reasons for declines in labor compensation as well). A true global job market, or a properly functioning global job market, is one in which the distribution of jobs matches the distribution of labor skills in every location.

American policy for the past several decades, however, of both private industry and the government which does its bidding, has been to try and intentionally distort this distribution, to try to skew the occupational skill distribution and “corner the market” on “high skilled jobs”. The government has seen this in part as a measure of “national security” and “national prestige” to have a disproportionate number of “intellectual” workers active in the American economy, and the economic elite has perused this goal out of a combination of naiveté and economic interests, in that doing so inflates the prices of high skilled workers (themselves and their peers) and deflates the prices of low and medium skilled workers, whose work generates the profits they benefit from.

It’s a grand experiment that was always doomed to fail from the beginning, especially considering the lack of support for such an agenda through other aspects of American policy and society. America’s conservative populace never wanted the education required to have a population of disproportionately highly skilled workers, and furthermore, even if Americans were more accepting of science and intellectualism, the reality is that the average person is… average, and always will be. The notion that America would ever be an economy with a disproportionately highly skilled work force is founded on a belief that America could be the Lake Wobegon of the world, a place where “everyone is above average”.

We need an economy that matches the needs of the population, not economic elites that ridicule the American population for not fitting into the dystopia that they engineered, and yet the engineers of American economic dysfunction are more strongly in power now than ever. Virtually all elected officials in both parties, as well as the policy “experts” that they appoint and rely on, are beholden to the interests of America’s private economic engineers and buy into their vision. The fact is that America’s elite are largely divorced from reality and they are pursuing a quasi-utopian vision for America’s future. This includes people like Bill Gates and Warren Buffet, the so-called “good billionaires”, as well as political leaders like Barack Obama, and these are the people who are pursuing this agenda for ostensibly altruistic reasons, this isn’t to mention the engineers of our economy whose agenda is dictated by much more self-serving and/or elitist objectives.

The problem with utopian visions is that when the goals are set too high and are unachievable then the effects on reality are disastrous. When we engineer an economy where the path to success is only attainable by 2% of the population, and everyone who doesn’t make it is discarded and ridiculed, its a recipe for social disaster and collapse, and the important thing to understand is that it doesn’t have to be this way – its a product of intentional (and flawed) design.

Basically, what our economy today tells us is, “if you can’t be a superstar then you are a worthless piece of shit,” but that’s not true. Not everyone can start the next global mega-corporation; it’s not possible, no matter how capable everyone is. We can’t have a system where everyone is a general or a ship’s admiral. Someone has to man the torpedoes and someone has to be on the front lines, it can’t work any other way, and those “front line” positions, the jobs performed by average workers, are absolutely vital to the productivity of the economy and provide the basis of wealth upon which all of civilization exists and upon which the lifestyles and opportunities of the wealthy elite are afforded.

Ultimately, the root cause of this whole situation is the loss of control over capital by the American public, and so we now come back full circle to debate between Hamilton and Jefferson. Productive opportunities in America no longer reflect to the diversity of capabilities and aptitudes of the population because property ownership has become too concentrated in the hands of banks and corporations, and [thereby] a small wealthy elite who have undermined democracy. Hamilton and Jefferson were both right.

R.G Price

Rationalrevolution.net

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