The “Mystery” of Unemployment

As the stock market rebounds and key statistics show some slowing of the pace of economic decline – even some growth – economists and forecasters are hailing the recovery. At the same time, they are wringing their hands and bemoaning the increasing unemployment, as though there are no connections between the two events.

To read the mainstream media, one gets the distinct impression that unemployment is a calumny that descends upon the economy like locusts. Where any other economic problem requires attention and repair, the unemployment problem – apart from issuing unemployment benefits – must run its course. Maybe, the pundits say, employment will begin to grow next year or perhaps it won’t improve until even later. Banks, of course, get immediate attention - as do other ailing corporations. But the unemployed must suffer quietly until the self-regulating market regulates itself and jobs miraculously reappear.

Lost in all of this nonsense is the fact that unemployment is the result of a conscious, deliberate act on the part of employers. Bosses terminate workers because they see some gain from doing so. Of course there is much regret –real or feigned – and “I feel your pain” parting of the ways, but in the end, the decision to fire, lay-off, or dissociate is made to somehow gain an advantage. It’s a simple truth, yet of great consequence.

In a time of systemic profit decline like the current crisis, the employer grasps every opportunity to restore profitability. The kept press obscures this motive as a noble desire to contain and reduce costs. Of course “costs” in this downturn is simply shorthand for “labor costs”. The other factors of production - raw materials and fixed capital – offer little opportunity for savings. For some time, energy and raw material prices have been creeping back. Fixed assets are more costly when capacity is dramatically underutilized. Therefore, profitability is directly connected to labor costs. If they can be reduced, then the decline in profitability can be abated.

But it is not enough to reduce labor costs in proportion to production, which can, at best, only stabilize an undesirable situation. The employer must decrease labor costs more deeply in relation to the level of production in order to regain profit growth. This is the categorical imperative of capitalist management.

Thus, the recovery of enterprise profitability is intrinsically tied to paying workers less and/or reducing the number of employees – the only two routes to shrinking labor costs. Both are features of the current crisis and both tactics are obscured in the popular celebration of recovery. The drive for greater profits explains the persistence of unemployment.

Yet we have more than a credible argument to make this case. We have the facts.

Second quarter labor productivity growth was an astounding 6.6%. Quite simply, the same worker who produced a hundred widgets in spring of 2008 produced nearly 107 in the spring of 2009. Bearing in mind that the unemployment rate grew by roughly 4.5% in that period, every remaining, employed worker was required to make up for those fired and produce yet even more. At the same time, payrolls dropped over 4.5%, in step with the orgy of layoffs. This dramatic increase in the productivity of the labor force demonstrates how prevalent the tactic of reducing labor costs through layoffs has been. The desired level of production has been achieved by driving fewer workers to produce far more.

But has this tactic improved profitability?

Decidely. The Wall Street Journal reported on August 8, 2009 that 75% of companies included in the Standard and Poor’s 500 index reported earnings over analyst’s expectations in the last quarter, the highest recorded figure since calculations began in 1994. Moreover, the Dow Jones industrial average has leaped by approximately 50% since March, indicating a strong rebound in the corporate bottom line.

We get an even sharper understanding of this process when we turn to the language, the framework of Marxism. For Marxists, the ratio of surplus value or profit to labor costs is definitive of the rate of exploitation of labor, a notion foreign to the thinking and language of academic economics. When employers (capitalists) force labor costs down while extracting greater profits from the production process, they are taking a greater portion of the social wealth created in that process. This notion of exploitation is central, at the core of Marxist political economy and marks a sharp line between the Marxist point-of-view and that of liberals, social democrats and other progressives. While many non-Marxists admirably decry the uncertainty, pain and destruction of mass unemployment, they fail to acknowledge the plight of the working masses suffering the life-threatening, spirit-draining effects of intensified exploitation. One can search wide and far in the popular media for even a hint of the exhausting grind of today’s workplace. Only Marxism offers the theoretical machinery to reveal this harsh reality behind producing more for less.

Marxists also link the rise of unemployment with the disciplining of workers who retain their jobs. Marx called mass unemployment “the reserve army of the proletariat”. When millions are without work, they constitute a reserve that would eagerly work for less to survive the ravages of unemployment, an extortionate force that restrains workers from demanding a greater share. Thus, high unemployment serves to dampen, even quench the fight for better wages and working conditions through the fear of being discarded into “the reserve army”.

The “mystery” of unemployment evaporates when we understand that it is not a direct result of economic ills, but the result of conscious decisions meant to restore and grow profitability.

With an understanding of exploitation, we see that forced unemployment is a direct attack not only upon those forced out of work, but those still employed. It is a vicious assault in the struggle between the capitalist class and the working class.

With this understanding, we see why corporate-friendly politicians and policy makers are in no hurry to either attack unemployment or see its demise.

With this understanding, we see why it is fool’s gold to stake the fate of workers on a capitalist recovery.

Zoltan Zigedy
zoltanzigedy@gmail.com