20 April 2012

Employment Policy

I've been thinking quite a lot about the question of employment.

It's an unfamiliar line of thought for me — I've always held to the libertarian line on unemployment: it's a result of an obstructed market, let the market clear and unemployment will not exist by definition. Subsidise unemployment through the welfare system and you'll get more of it.

That isn't wrong — within the libertarian framework it's completely true. But I've left the framework behind. Political power will be gained and held by people who believe that gaining and holding power are always a first-order consideration. I hope for a government whose hold on power is so solid that it does not depend on interfering in the market for labour, but that is not relevant to any present government or any feasible near-future one. Welfare is here to stay (even if based on private charity rather than the state, it would still have market-distorting effects), and unemployment will therefore always need to be addressed.

In the meantime, we're faced with questions like the one a commenter asked back when I was kicking around AI possibilities:
Don't you think we're already way past the point where diminishing   returns of replacing human activity with automated activity kicked   in? Most people are just not that smart, they can't all be designers   and scientists (or can't be made smart quickly, it is not important   which is true as practical results are similar in both cases), and   it appears to me that we, the societies of the developed countries,   don't know how to employ these people.
Yes, in a free market these people would have jobs, even if at a wage below what is generally seen as the poverty line. But, if I'm going to be more serious than simply advocating that, I need to face the question: is the combination of politically necessary price control in the labour market with technological advance making high unemployment unavoidable?

I don't think it has to. There are other causes to high unemployment, some of which can be treated rapidly, and some which are more long-term projects.

High taxation is one of the biggest. Doing work yourself instead of employing someone is by far the greatest area of tax avoidance. I've spelled out the arithmetic before: I can do an hour's work for myself, or I can do more of my normal job and use the income to pay someone to do it. The former is tax free, the latter, at minimum, involves 40% tax on my extra income, then 20% tax on what I pay out. I have to earn £1.68 to put a pound in someone else's pocket, without taking into account NI or VAT, which may or may not come into it as well, pushing the effective tax on the extra activity up towards 100% of the real cost. That applies to jobs around the house (leading to the dreaded DIY); it also applies, less obviously but probably more significantly, to any good or service I buy where the supplier could, by employing extra labour, provide a better or more complete service. It applies to having the supermarket deliver my goods rather than make me carry them, or even to them having someone work on a checkout rather than wave me to a self-service.

Lower taxes would directly lead to lower unemployment. Also, lower taxes on economic activity would directly lead to lower unemployment — I've never written about the question, but I'm pretty sure the Land Value Tax crowd are basically right. Land Value Tax is still a tax, and is still bad, but it's less economically destructive than the taxes we currently have.

That's one area then for attacking unemployment: reduce tax, and shift what's left from income, sales & profit taxes to land.

Next?  Well, the education system. It's not that it's failing to teach people "what they need to get jobs". Rather, the purposeless and ineffective attempts to control unacademic children are actively teaching them not to work. Being forced to do schoolwork is a fairly crappy training for doing real work, but today the bottom stratum aren't even getting that training. The result is they're unemployable, not for lack of skill so much as lack of socialisation. It may be only a few percent, but the risk to the employer of getting one of them, and the costs if you do, push a large swathe of the lower classes out of employability.

A demonstration of what I mean came to my mind a couple of weeks ago: a hundred years ago, some huge proportion of the population worked in domestic service. I've been meaning to look it up: Tim said yesterday it was 25%.

That dropped sharply from the First World War to about zero by the 1960s, in large part due to the high demand for unskilled labour from mass manufacturing industry. Now that demand has subsided (for good, and inevitably — as also pointed out yesterday by Tim, busy chap). What is the reason why we can't have domestic service back?  We're always hearing about how ridiculously stinking rich the the rich are getting, so it can't possibly be that they can't afford what the moderately rich of a century ago were happy to pay for. The answer is all too obvious — the equivalent today of the people who were domestic servants a hundred years ago are people that no sane rich person would allow into his house under any circumstance. The late twentieth-century education system prepares normal people for the easily-supervised assembly line jobs that no longer exist, but not for any role requiring any degree of trust or self-discipline. (Having said that, the mass of civilised but somewhat dim people doing largely pointless make-work in the bureaucracy would possibly be capable of roles as butlers or housekeepers supervising the helots... worth thinking about).

The education system doesn't need to be improved, it just needs to be in large part abolished. Actually doing useful work, for the family or for someone else, is not only a better preparation for being a useful adult than our schools are, it's probably a good deal more personally satisfying and rewarding as well. The norm should be for people to be in full-time employment by the age of 16, and 13 or 14 is probably a good idea in a lot of cases. The wealthy can do what the hell they want as long as they pay for it themselves, and a sane education system not lumbered with uneducable teenagers should be able to grab anyone from any background with the right talent into a more academic channel, as was routine in this country up until the introduction of comprehensive education in the 60s-70s.

This is a tricky change to introduce, not least because if you already have high unemployment, throwing the bulk of the 16-21 age group into the job market is going to make things worse in the short term. But in the longer term, I think it would improve the situation. Unemployment is not simply the result of lack of work available, but due to the unfitness of a chunk of the population for what work could be available, due to artificially created and prolonged adolescence. The problems raised by Robert Epstein and Lenore Skenazy are relevant here.

Other options?  Well, there's the immigration question. Again, the libertarian reasoning is entirely correct: if an immigrant is making a living, that means he is producing more value than he is consuming; in aggregate he is making all of us better off. But if immigrants are overwhelmingly competing with poor people in providing services to rich people, on top of that aggregate benefit there is a transfer effect from poor to rich. If it is politically necessary to compensate the poor for this transfer, and if the mechanisms for doing so are unavoidably clumsy and inefficient, then the aggregate benefit can be entirely eaten up. I'm not convinced that that is practically the case, but all the steps in the argument are plausible, and so I am not convinced that it isn't.

The same form of argument could be made for other forms of protectionism: after all, foreigners compete with natives whether they actually come here or not. But I draw the line at that with moderate confidence. There are so many different ways in which overseas trade affects the domestic economy, all of them beneficial in the aggregate, and while some of them may harm some particular interest or other, the wide distribution of harms means that for almost everyone, the net effect of free trade is positive, and for the aggregate, the effect is so enormously positive that it should not be rejected.

And the same even more strongly for technological development — it is so hugely beneficial that restraining it in order to protect a politically influential constituency from competition is always a bad policy. The reason for paying attention to unemployment and being realistic about the necessity of reducing it is to make it politically easier to hold onto the huge benefits of technology and trade, which it is disastrous to give up.

(The effect of current tax and industrial policies is mainly to encourage more investment in capital goods rather than employing low-skill labour. There is no need for that. But neither is there a need for opposite policies). 

3 comments:

A Nonny Mouse said...

Two Irish stories are relevant here.

1) An Irishman who introduced a friend of his as "Someone I worked with when I was unemployed."
2) A SPGB speaker at Speakers's Corner was declaiming to the only person who would listen to him, an Irish drunk, about the wickedness of the Capitalists, how they oppress and exploit the workers. The Irishman's retort was, Haha man, did you never hear of tieving?

In your case, the inference is, did you never hear of getting the Unemployed to work for you? The true nature of Welfare is as a subsidy which keeps alive those people who work for rich mean bastards when the rich mean bastards have no need of them. Straightening things out so the rich mean bastards can get their tax back and pay for services directly without their money passing through the hands of the taxman and from there to the unemployed does not seem to work. Lady Richlist, I am sure, pays no tax at all, as she has her money offshore: does this mean she can afford to pay her cleaner twice the going rate? Does it ****. A 100% markup on a good or service is not at all unusual: you probably pay it on most of the things you consume.

Our legal system ensures that a working man's wife, on divorce, gets half his estate. Cleaners, childminders and cooks, who do essentially the same job, get no such protection. The market says they have to be paid peanuts, and they are paid peanuts.

Lower taxes would directly lead to lower unemployment? Totally untrue. Maybe it works out on a World level, lower taxes in England leading to lower unemployment in China, but ordinarily lower taxes will mean higher unemployment. To have any benefit on the home economy, you would have to be one of the cheapest countries in the world, and those countries probably have low taxes already.

Otherwise, we would expect this scenario. The Conservatives/Republicans get in power, they lower taxes, unemployment falls, GDP rises, they lower taxes again, unemployment is non-existent, no one ever votes for Labour/Democrats again. When did that last happen?

The culture of equality, it must be admitted, does not help. If you gave job preference to men, then all men would be employed, but only a portion of women. The unemployed women would then attach themselves to an employed man, reducing their welfare dependance. If you employ Englishmen in preference to foreigners, then the unemployed foreigners will probably move elsewhere to work. The Englishman, if unemployed, becomes chargeable to the parish.

All I can think of is some alternative currency, which can only be only be spent on employing people: as a supplement, not as the whole wage: or perhaps we could just admit that the unemployed are really just underpaid casual and menial workers and accept it.

Mark Wadsworth said...

"Land Value Tax is still a tax, and is still bad, but it's less economically destructive than the taxes we currently have."

When I first started off thinking seriously about tax simplification, I thought the same, but the more I think about it, there is an irreducible minimum of taxation which will always be collected, even in the absence of publicly collected taxes, and that is land rents. Income tax is, OTOH, entirely man-made, you can abolish it if you like, but you can't abolish land rents.

Land rents can only arise in a stable, law-abiding country, and land "ownership" can only exist with the state to back it up - compare for example rental values in Kenya with those next door in Somalia, or rental values under Ian Smith compared to those under Robert Mugabe.

So LVT is a question of rendering unto Caesar, of course, you can spend the proceeds sensibly (pay off national debt, spend it on things which boost economy and rental values further or dish out as Citizen's Dividend) or waste it (quangocracy, aid payments etc) that's a separate topic, the same can be said for income tax.

Consider - perhaps you live in a housing association house and rent your business premises from Crown Estates - all your rent goes to the government, and at least some of that will be spent on stuff which benefits you.

Why would it be better if you rent your home and business premises from a private landlord, who pays little or no tax?

Anomaly UK said...

Mouse: you totally misunderstand my point about taxation. It is not simply that taxing people less will make them richer and therefore more willing to employ people. Though true to some extent, that is probably not all that significant. Rather, it is to do with what people do with the income they already have. All of that is spent in one sense, on consumption or investment. The government taxes cigarettes to make people smoke less, and taxes petrol to make people drive less. It also specifically taxes employing people at a very high rate, making employing people a less attractive form of consumption than importing goods or simply taking time off, and a less attractive investment than buying machines or consumer lending.