Supply Side Solutions Needed for Unemployment

September 22nd, 2011
in Op Ed

by Elliott R. Morss

I know, employment is always slow to recover coming out of a recession. And Obama’s stimulus bills were inadequate and poorly focused.  And yes, some deleveraging is happening.  But is that all there is to it?  And is it not tragic and troubling to think that the only way we know to reduce unemployment is to get consumers binging again?

Follow up:

The Employment Recovery

Let’s start by looking how employment has changed since before the recession (Table 1). The private job losses in 2008 and 2009 are chilling – almost 9 million. And while there have been 2.3 million jobs added in the last two years, manufacturing, construction, and retail trade are each still down more than one million jobs since 2008. Construction is understandable: the real estate market remains in terrible shape, and in reality, the stimulus programs did little for other types of construction. But there is more too it….


Source: Morss article

The Information Revolution

Remember the 1995-2000 “dot-com bubble”? It was based on the belief that the new information technologies had arrived and were going to revolutionize how we lived and worked. It failed. Nobody questioned the potential of the new technologies, but there were two problems:

We had not yet really figured out how to use the new technologies effectively, and
The history of science academics tells us it takes humans a while to adapt to new technologies.

That was back then. It is now a decade later, and the new technologies are now being effectively utilized in all aspects of life and work. And remember too that recessions/recoveries give employers a great chance to rethink how they operate and whether they need to hire all their workers back.

What in essence are the new technologies providing? Two things:

  • the ability to perform manual labor better and more efficiently than humans, e.g., factory work, and
  • the ability to process information better and more efficiently than humans, e.g., bill pay.

In short, the new technologies are very labor-saving. Let’s consider this in more detail.

Wholesale and Retail Trade

In the US, More people are employed in retail trade than any other sector. Retail and wholesale trade together employed 21.5 million in 2007. Because of the new technologies, it will never be the same. I don’t think I will ever go to stores again to buy clothing, shoes, sports equipment, or furniture. Why? Because there is a wider choice and better prices on the web. I now only go to food, drug and liquor stores. And I only go to liquor stores because they have managed to block interstate shipments of wine (in violation of the Interstate Commerce Clause).

With the Internet, the distinction between wholesale and retail disappears. When I buy online, I buy from a warehouse – no need to ship to a retail store. The recession caused many job losses. But the consolidation of wholesale and retail might end up causing even more. Between 2008 and 2011, wholesale/retail lost 1.5 million jobs, and many of those jobs are not coming back.

The loss of jobs resulting from finally figuring out how to use the new technologies permeates every field. Consider real estate. With the Web, realtors are no longer needed to find us houses. They are only needed when we have narrowed down our choices and want to actually visit our leading house candidates.  Consider the ability to pay bills online and its implications for postal workers. The military is finding it can use drones to collect information without having to risk the lives of military personnel.


The knee-jerk explanation for the loss of jobs in manufacturing over the last two decades has been cheap foreign labor. I questioned this in an earlier piece. I quote from it:

“In the 1987 to 2007 period, manufacturing value added output has increased by 123% while employment has fallen by 21%.”

This implies a tremendous productivity gain. It means that a manufacturing worker today can produce almost 3 times what he could produce 20 years back. Sure, some jobs have been lost overseas, but a lot of the job losses in manufacturing have resulted from labor-saving productivity. And these jobs are not coming back.

Are More Jobs The Answer?

Over the years, some have worried that with all the labor saving productivity gains, there would not be enough work to “go-around”. Economists have normally debunked these ideas, pointing out there was no limit on what people would pay for. I am starting to wonder. Juliet Schor has been writing intelligently on this for more than 20 years. I extract a few quotes from her recent article below: 

She argues we must “re-structure the labor market by reducing hours of work”. She argues this will result in a “triple dividend”:

1. A significant reduction in unemployment.

She points out that reductions in hours of work have always been used to maintain a balance in the market. “Without the advances of a shorter workweek, vacation time, earlier retirement and later labor force entrance, the economies of the OECD would never have attained the “golden age” of high employment that prevailed after the 1930s depression. Between 1870 and 1970, hours of work fell roughly in half. We need shorter hours because it is unrealistic to count on growth in GDP to absorb all this current and future “surplus” labor. Rich countries just never grow that rapidly. So the austerity economics that says work longer and retire later has it exactly wrong.”

2. A reduction in GHG emissions.

“Countries that work more pollute more. That both because their scale of production is larger (the GDP effect) and because time-stressed households and societies do things in more carbon intensive ways than societies in which time is more abundant.”

3. The value of freed-up time.

“As a growing movement of “downshifters” attests, short hour lifestyles allow people to build stronger social connections, maintain their physical and mental health, and engage in activities that are creative and meaningful. Time is especially valuable in rich countries where material needs can be met for everyone, and deprivation is caused by mal-distribution of income and wealth.”

Yes, I know. Too theoretical. Too many problems. And with the US government unable to even think sensibly about how to get the country out of recession and back on a sustainable growth path…. But I come back to what I said at the outset: Is it not tragic and troubling to think that the only way we know to reduce unemployment is to get consumers binging again?

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About the Author

elliott-morss-photo1 Elliott Morss has a broad background in international finance and economics. He holds a Ph.D. in Political Economy from The Johns Hopkins University and has taught at the University of Michigan, Harvard, Boston University, Brandeis and the University of Palermo in Buenos Aires. During his career he worked in the Fiscal Affairs Department at the IMF with assignments in more than 45 countries. In addition, Elliott was a principle in a firm that became the largest contractor to USAID (United States Agency for International Development) and co-founded (and was president) of the Asia-Pacific Group with investments in Cambodia, China and Myanmar. He has co-authored seven books and published more than 50 professional journal articles. Elliott writes at his blog Morss Global Finance.

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  1. Clonal Antibody says :

    While in theory, the suggestion of reduced work weeks is good, under the current institutional arrangements, it cannot work. Will an individual's take home pay be slashed, as he/she has to share it with additional workers? Will a business payroll load increase as more workers are put on the payroll, resulting in declining profitability and possible bankruptcy?

    The only way this can be achieved is via large government subsidies in the form of increased deficit spending, subsidizing both labor and business.

    In the current socio-political austerity mania, and and deeply flawed understanding of money creation and destruction (Modern Monetary Theory - MMT being the correct paradigm) - this is extremely unlikely to happen.

    A JG (Job Guarantee) program suggested by MMT advocates could be effectively used to transition to the reduced work weeks. This again will not happen unless there is a widespread paradigm shift towards an MMT world.

  2. Clonal Antibody says :

    As an addendum to my previous comment, I should add that the 44 hour work week and the 25c/hr minimum wage was adopted with the NRA and the WPA operating in the background. This is analogous to the MMT proposal of a Job Guarantee. Even with that, the work week changes were from a manufacturing base of 50 hours/week -- not as drastic as that suggested by the author in order to share the productivity gains.



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