Unemployment is now the most critical issue of the current recession, whose depth and duration remain unpredictable despite the federal stimulus program. New sources of economic growth sufficiently vigorous and labor-intensive to absorb the growing pool of redundant workers, domestically and internationally, are not currently in view. Even if they were, development would be stymied by the vast corporate and household indebtedness yet to be liquidated. I will discuss some of these matters here, as well as some of the forces that resist attempts by labor and its advocates to raise and stabilize worker income and relieve unemployment.
In the United States, unemployment has risen from close to 7 percent of the labor force to roughly 9 percent in the spring quarter of this year. In the Euro area, and in countries like Poland, Hungary, and Russia, the rate exceeded 9 percent in the early months of 2009. Of the forty-three countries for which the Economist reported data on industrial production, all show declines from a year earlier, with the United States down more than 13 percent.
The unemployment numbers understate the problem. In the United States, the May figure for “discouraged” or “marginally attached” workers, who had given up a futile search for jobs, was reported at 2.2 million men and women, nearly 800,000 more than a year earlier. The “marginally attached” work force in still-developing countries such as China, Indonesia, and India surely exceeds greatly the official count of the unemployed.
High economic growth rates in those and other developing countries, together with the rising employment and income they made possible, were predicated on large-scale exports. These countries, moreover, became links in the supply chains of multinational firms. As the slump in industrial production indicates, overcapacity in a wide array of industries, and the multitude of services attached to them, has resulted in the disemployment of millions of workers, many of them forced to return to a countryside itself impoverished. Whether and how the financial aid promised at the G-20 conference in London earlier this year will help is not clear—and we do not know whether the promise will be kept or whom it would benefit. Nor can we be sure that the huge increase in special drawing rights, administered by the International Monetary Fund, will do more than finance balance-of-payments deficits so as to prevent devaluations that “export” unemployment. The rescue or subsidization of financial institutions has anyway failed to help much in sustaining employment. The main reason why banks have tightened credit standards, and likely will continue to do so, is because of the “uncertain economic outlook” and “reduced tolerance for risk” (Cato Institute Policy Analysis No. 637, April 2009, based on Federal Reserve survey of loan officers, early 2009, late 2008). Thus, if the forecasts of continuing weakness worldwide (or in ...
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