Can you have a sustained tight labor market in capitalism?

[Cycloneman]

An economy where the number of available workers is about equal to, or less than, the number of available jobs, obviously has many advantages: it reduces unemployment, raises worker's wages, improves worker's rights, etc.

Yet the number of countries who have an unemployment rate representative of a tight labor market (let's call it less than 2% for an easy cut-off) is very small. Let's take the CIA World Factbook's list: Monaco, Qatar, Guernsey, Belarus, Uzbekistan, Isle of Man, Thailand, Liechtenstein, Cuba, Vanuatu, and Papua New Guinea. Let's ignore the tiny countries, since it's hardly fair to consider a small sample size of Yet Another City State (for example, IIRC, Moscow had .6% unemployment in March 1996 but that was hardly representative of the economic policies of the time and place). Of these countries, only Belarus, Uzbekistan, Thailand, Cuba and Papua New Guinea have populations of over one million.

Reading that list, it jumps out that of the five countries, two have largely planned economies (Belarus and Cuba). One of them is overwhelmingly agricultural (Papua New Guinea) and with serious unemployment problems in urban areas, and one of them provides some cursory googling with significant evidence that it is not actually operating in a tight labor market (Uzbekistan). If someone wants to correct me on any of the above facts, please feel free to do so.

It seems as though a tight labor market is a great humanitarian boon for the people of a country, but it isn't generally accomplished under capitalism. Can it be? If so, how?

[Simon_Jester]

One problem is that for as long as capitalism has dominated the global economy, said economy has been getting more and more mechanized, and more and more globalized. Even back in the Victorian era you had people mechanizing farms and factories, and "outsourcing" production of things like wool to other parts of the world (consider the interaction between the English wool trade and the global cotton trade).

Both mechanization and outsourcing fight very hard against the creation of tight labor markets, because they give businessmen an alternative to accepting a higher cost of labor. Computers accelerated the process, because now we can more easily outsource labor (computers let us coordinate widely separated workplaces), and we can automate almost anything.

So I'm going to guess that the answer is "probably not, certainly not without extensive government intervention." Though it might be at least slightly possible in better economic times; at the moment most of the world's economies are in the toilet and tight labor markets are impossible.

[Eddie Van Helsing]

Under corporatism (the system under which we currently live), full employment appears to be impossible. It's not in the interest of either big business or a government with an all-volunteer military to have a tight labor market. A tight labor market means lower profits for business, and makes it harder for the military to recruit. Under laissez-faire capitalism (which only exists in the theory espoused by Austrian-school economists and the fiction of L. Neil Smith and Ayn Rand), full employment is more likely because business can pay people less and not deal with payroll taxes/pensions/etc, but is still prone to interruption in the event of market panics.

[D.Turtle]

Under corporatism (the system under which we currently live), full employment appears to be impossible. It's not in the interest of either big business or a government with an all-volunteer military to have a tight labor market. A tight labor market means lower profits for business, and makes it harder for the military to recruit. Under laissez-faire capitalism (which only exists in the theory espoused by Austrian-school economists and the fiction of L. Neil Smith and Ayn Rand), full employment is more likely because business can pay people less and not deal with payroll taxes/pensions/etc, but is still prone to interruption in the event of market panics.

Any evidence that "big business" or the government actually have the power and ability to enable full employment and choose not to do so? It is a lot easier (and realistic) to simply expect corporations doing things for selfish reasons, within the framework provided by the government, with the results being what they are. No need for pie in the sky conspiracies.

Also, employment is useless if you earn too little to live.

An economy where the number of available workers is about equal to, or less than, the number of available jobs, obviously has many advantages: it reduces unemployment, raises worker's wages, improves worker's rights, etc.
[snip]
It seems as though a tight labor market is a great humanitarian boon for the people of a country, but it isn't generally accomplished under capitalism. Can it be? If so, how?

First of all, your cutoff point of a "tight labor market" is quite arbitrary. IIRC, an unemployment rate of about 4% is generally seen as full employment.

Secondly, it is possible for there to be a higher unemployment rate, while still having a "tight labor market" in certain sectors of the economy. Here in Germany for example, there is a constant cry for more trained personnel, especially engineers, despite an unemployment rate of more than 7%.

Thirdly, I would say the more important measure is not the unemployment rate, but rather the ability to get a good job. If there is a constant turnover in who is unemployed, with people quickly moving from job to job, the situation is a lot better than a situation where there is a smaller number of people who are unemployed, but can't get a good job at all.

The key to achieve what you want (lower unemployment rate, higher worker's wages, more rights, etc.) is to realise that the government to a large extent defines the framework and rules under which corporations act. Change the rules and the framework, and you change the results. Nowadays it obviously gets more difficult, as no longer can a single government define the entire framework (because of globalisation), but it can still positively intervene a lot - look at the difference between the US and Germany as to the change in GDP (worse in Germany) and the change in unemployment rate (a lot worse in the US). So instead of having unfettered capitalism or total government control, you have to find the correct middle ground.

[Eddie Van Helsing]

Any evidence that "big business" or the government actually have the power and ability to enable full employment and choose not to do so? It is a lot easier (and realistic) to simply expect corporations doing things for selfish reasons, within the framework provided by the government, with the results being what they are. No need for pie in the sky conspiracies.

Sorry, but I was just being cynical. I had not intended to pull a conspiracy theory out of my ass. I agree that unemployment is more likely a result of the actions of individuals running corporations within the framework of law and regulation created by the individuals running the government.

<cynicism>Who needs a conspiracy when properly placed individuals acting in what they consider to be their own best interests produce the same effect?</cynicism>

[D.Turtle]

Ah ok then, no harm done

I just find that way too many people immediately jump to some malicious conspiracy (whether by the government or by corporations or individuals) when simple greed and looking out for one's own interest can explain it just as well (if not better).

[Simon_Jester]

Any evidence that "big business" or the government actually have the power and ability to enable full employment and choose not to do so? It is a lot easier (and realistic) to simply expect corporations doing things for selfish reasons, within the framework provided by the government, with the results being what they are. No need for pie in the sky conspiracies.

I think there's a problem with your take on his argument, D. Corporatism does not requires a systematic conspiracy. All it requires is that corporations all do more or less the same things when faced with the same situation and that the government be very sympathetic to the interests of corporations, even at the expense of the citizenry.

The first half of that is inevitable: corporations (long lived ones, at any rate) are rational actors, and when faced with identical situations rational actors will usually behave the same way.

The second half is present in modern America. Corporate donors have far more leverage over the political system than the voter base, because of a combination of factors that has been covered on this site more times than I could count.

So it is not in the interests of "big business" to seek full employment- that would involve all corporations accepting an increased price of labor without taking steps to reduce their demand for labor. So long as corporations react to increased labor costs by trying to find cheaper supplies of labor, or by making do with less, full employment is not possible.

Likewise it isn't really in the government's interests to seek full employment (in the modern US) because corporations (reasonably) oppose the idea of full employment. They donate money to politicians on a scale average citizens do not or cannot match; therefore they get their way.

Also, employment is useless if you earn too little to live.

True. In an economy where surplus production is so great that we can afford luxuries like commercial air travel for the middle class, it really is a bit surprising that we can't find productive labor for nearly all citizens that makes it cost-effective to pay them enough to live on.

Secondly, it is possible for there to be a higher unemployment rate, while still having a "tight labor market" in certain sectors of the economy. Here in Germany for example, there is a constant cry for more trained personnel, especially engineers, despite an unemployment rate of more than 7%.

This is kind of irrelevant. First, because highly skilled labor is not fungible (a shortage of skilled workers in industry A cannot be filled by a surplus from industry B). Second, because there's a perfectly good reason for industry to want far more skilled laborers than they now have, whether there's actually a shortage or not: that would cut down the price of skilled labor. Look at what happened to computer programmers; they went from highly paid wizards to low-paid white collar drones as the supply of programmers expanded.

High demand for skilled labor does not mean there is a shortage; it means prices are higher than the buyer would like.

Thirdly, I would say the more important measure is not the unemployment rate, but rather the ability to get a good job. If there is a constant turnover in who is unemployed, with people quickly moving from job to job, the situation is a lot better than a situation where there is a smaller number of people who are unemployed, but can't get a good job at all.

That's true up to a point, but it becomes a poor measure when the total unemployment rate is high, say 10%. Because if every worker is unemployed 10% of the time, that probably means people aren't staying in their jobs long enough to become efficient at them... which implies a serious problem with the way the economy is managed.

However, at low unemployment you're right; the average duration of unemployment matters more than the total rate.

[Eddie Van Helsing]

Look at what happened to computer programmers; they went from highly paid wizards to low-paid white collar drones as the supply of programmers expanded.

No shit. Why do you think I work for Wegmans as a butcher after spending ten years as a programmer and DBA? The pay and the hours sucked harder than the last M. Night Shyamalan movie.

[Kanastrous]

I suspect that I'd prefer working as a butcher. Which do you like better (the work itself; I don't know about the relative pay etc, and I'm not asking...)

[Simon_Jester]

Look at what happened to computer programmers; they went from highly paid wizards to low-paid white collar drones as the supply of programmers expanded.

No shit. Why do you think I work for Wegmans as a butcher after spending ten years as a programmer and DBA? The pay and the hours sucked harder than the last M. Night Shyamalan movie.

And yet I suspect that if you asked a modern corporate executive today whether it was a good thing for schools to encourage more people to study computer science and become programmers, he would say "yes."

Because it IS a good thing. For him.

[Eddie Van Helsing]

I suspect that I'd prefer working as a butcher. Which do you like better (the work itself; I don't know about the relative pay etc, and I'm not asking...)

The work itself is tolerable. I get more exercise in the meat department than I did spending ten hours a day with my ass in a chair. The pay is reasonable; my wife and I still live comfortably on our combined net salary and wages. The hours are much better. I work 40 hours a week, and get paid for every hour I work. Before, I was working 60-80 hours a week and only getting paid for 40 because I was a salaried, "exempt" employee. In other words, I was being exploited. Sure, I could have become a contractor, but then I'd have to go into business for myself, take the full brunt of payroll taxes, and deal with a whole lot of other related bullshit when all I wanted was a day job.

I was making fifty grand a year at $12 an hour. Now I make thirty-one grand a year at $15 an hour. I have time to take care of myself. I have time to love my wife. I have time to live. Software development is for suckers.

[Eddie Van Helsing]

]And yet I suspect that if you asked a modern corporate executive today whether it was a good thing for schools to encourage more people to study computer science and become programmers, he would say "yes."

Because it IS a good thing. For him.

<cynicism>And that same executive would, as soon as you left the room, be on the phone to his pet congresscritter demanding that more H1-B visas be issued so that he can bring in experienced foreign programmers at about the same salary he'd pay an American code monkey fresh out of college.</cynicism>

[Kanastrous]

And I bet you look at cows a whole different way now, too.

All it requires is that corporations all do more or less the same things when faced with the same situation and that the government be very sympathetic to the interests of corporations, even at the expense of the citizenry.

Sympathetic? Yeah, to the degree that being just about wholly-owned engenders a certain sympathy...

[Eddie Van Helsing]

Sympathetic? Yeah, to the degree that being just about wholly-owned engenders a certain sympathy...

Sinclair Lewis was right. Fascism came to the US, draped in Old Glory and humping the Bible.

[D.Turtle]

I think there's a problem with your take on his argument, D. Corporatism does not requires a systematic conspiracy. All it requires is that corporations all do more or less the same things when faced with the same situation and that the government be very sympathetic to the interests of corporations, even at the expense of the citizenry.

Agreed.

The first half of that is inevitable: corporations (long lived ones, at any rate) are rational actors, and when faced with identical situations rational actors will usually behave the same way.

Agreed.

The second half is present in modern America. Corporate donors have far more leverage over the political system than the voter base, because of a combination of factors that has been covered on this site more times than I could count.

Agreed, if corporate donors = individuals who support corporatist views - something that includes a large portion of the US population.

So it is not in the interests of "big business" to seek full employment- that would involve all corporations accepting an increased price of labor without taking steps to reduce their demand for labor. So long as corporations react to increased labor costs by trying to find cheaper supplies of labor, or by making do with less, full employment is not possible.

This is not true. If a company's output grows, it can increase the amount of labor employed despite also increasing productivity. The same thing holds true for the economy as a whole - if the economy's output increases faster than productivity, then the amount of employed labor has to grow. If the employed labor grows faster than the (employable) population increases, then the unemployment rate will fall.

Likewise it isn't really in the government's interests to seek full employment (in the modern US) because corporations (reasonably) oppose the idea of full employment. They donate money to politicians on a scale average citizens do not or cannot match; therefore they get their way.

Completely disagree (for the first part see above). In addition, I would again say that individuals who support corporatist views wield massive influence on the government. It is not a case of corporations vs individuals.

This also makes it harder to change the US system, because what would be needed is a massive change of the perception of the role of government by the average citizen - something on the scale of the Reagan revolution.

This is kind of irrelevant. First, because highly skilled labor is not fungible (a shortage of skilled workers in industry A cannot be filled by a surplus from industry B).

Exactly my point.

Second, because there's a perfectly good reason for industry to want far more skilled laborers than they now have, whether there's actually a shortage or not: that would cut down the price of skilled labor. Look at what happened to computer programmers; they went from highly paid wizards to low-paid white collar drones as the supply of programmers expanded.

While an industry might demand and welcome and oversupply of labor, this is only relevant if they can also create this oversupply of labor. I would dispute that this is possible for the vast majority of cases, as most individuals can choose what area they specialize, study, etc. in.

High demand for skilled labor does not mean there is a shortage; it means prices are higher than the buyer would like.

This can be true, but does not have to be the case. It is possible (and is the situation here in Germany for certain engineering jobs) that overall demand for such people is higher than overall supply. In that situation, no matter what you offer, you can not fill overall demand.

[Simon_Jester]

The second half is present in modern America. Corporate donors have far more leverage over the political system than the voter base, because of a combination of factors that has been covered on this site more times than I could count.

Agreed, if corporate donors = individuals who support corporatist views - something that includes a large portion of the US population.

Some of those individuals are wealthy and can reasonably be seen as agents of corporate interests, because they're the people who define corporate interests.

Others are not so wealthy. They may well support policies that play into the hands of corporations, but the issues that motivate them (insofar as they have clearly defined positions) are usually not corporatist issue. This is where the Republican Party excels- at playing to corporate interests at least as well as the Democrats do, and at the same time taking stances on social issues that secure money and votes from a large fraction of the lower and middle class. The Democrats are less effective at this, and are also divided by the split between the corporatist and anti-corporatist wings of the party.

So it is not in the interests of "big business" to seek full employment- that would involve all corporations accepting an increased price of labor without taking steps to reduce their demand for labor. So long as corporations react to increased labor costs by trying to find cheaper supplies of labor, or by making do with less, full employment is not possible.

This is not true. If a company's output grows, it can increase the amount of labor employed despite also increasing productivity. The same thing holds true for the economy as a whole - if the economy's output increases faster than productivity, then the amount of employed labor has to grow. If the employed labor grows faster than the (employable) population increases, then the unemployment rate will fall.

This is only true up to the point at which unemployment is low enough that the cost of labor increases due to competitive bidding by employers. When that point is reached, it quickly becomes more profitable to find ways to increase productivity or outsource than to increase the number of hours of labor.

When hiring people to make goods at 25$ an hour in your own country is more expensive than hiring people to make goods at 10$ an hour elsewhere and shipping the finished goods back to your country, you stop hiring factory workers in your own country. At which point employment in your country goes down until the equilibrium is restored- until there are enough people out there looking for jobs that the market price of labor drops to something employers are willing to pay.

Second, because there's a perfectly good reason for industry to want far more skilled laborers than they now have, whether there's actually a shortage or not: that would cut down the price of skilled labor. Look at what happened to computer programmers; they went from highly paid wizards to low-paid white collar drones as the supply of programmers expanded.

While an industry might demand and welcome and oversupply of labor, this is only relevant if they can also create this oversupply of labor. I would dispute that this is possible for the vast majority of cases, as most individuals can choose what area they specialize, study, etc. in.

It is generally not possible, but it certainly explains the high demand in those areas. An expensive product in widespread use will be in high demand almost by definition; people will be shopping very hard for the best bargains they can find. If automotive engineers make 50$ an hour, people will keep hunting for new potential automotive engineers whether they need them or not, if nothing else in hopes of finding someone they can pay 40$ an hour to replace their current employee with.

High demand for skilled labor does not mean there is a shortage; it means prices are higher than the buyer would like.

This can be true, but does not have to be the case. It is possible (and is the situation here in Germany for certain engineering jobs) that overall demand for such people is higher than overall supply. In that situation, no matter what you offer, you can not fill overall demand.

That is certainly possible.

[D.Turtle]

Some of those individuals are wealthy and can reasonably be seen as agents of corporate interests, because they're the people who define corporate interests.

Others are not so wealthy. They may well support policies that play into the hands of corporations, but the issues that motivate them (insofar as they have clearly defined positions) are usually not corporatist issue. This is where the Republican Party excels- at playing to corporate interests at least as well as the Democrats do, and at the same time taking stances on social issues that secure money and votes from a large fraction of the lower and middle class. The Democrats are less effective at this, and are also divided by the split between the corporatist and anti-corporatist wings of the party.

The Tea Party. They're reason for existence is largely the support of a corporatist agenda. They have a huge influence on the agenda of the Republican Party as a whole, and are supported by a significant minority of Americans. In addition, additional tax cuts to help the economy are still supported by a large minority (in at least one poll even a majority). In addition, fear of the government has been enshrined in a large subset of the population - a lot more than fear big business (see various polls on Pollingreport.com - copying the exact poll out is *argh*, though I can do that if you want me to).

Let me say it differently: The American people bear a large part of the blame for the political infatuation with corporatism. It is simply incorrect to pour all the blame on corporations or bought politicians or a rigged system or whatever.

[JointStrikeFighter]

WRT to the OP;

frictional unemployment; people simply in-between jobs means that unemployment below 5% is extremely unlikely.

[Patrick Degan]

Sympathetic? Yeah, to the degree that being just about wholly-owned engenders a certain sympathy...

Sinclair Lewis was right. Fascism came to the US, draped in Old Glory and humping the Bible.

Huey Long said much the same thing: "When fascism comes to this country, it will be wrapped in an American flag."

[Simon_Jester]

Let me say it differently: The American people bear a large part of the blame for the political infatuation with corporatism. It is simply incorrect to pour all the blame on corporations or bought politicians or a rigged system or whatever.

Granted. Though in many cases their fear of government is more motivated by social than economic issues, but you're not wrong.

[Cycloneman]

WRT to the OP;

frictional unemployment; people simply in-between jobs means that unemployment below 5% is extremely unlikely.

Nah. Think about it. What's the average period for frictional unemployment? A month? Two? Much more than that and we're not really talking about frictional unemployment anymore. If frictional unemployment is (for example) 3% and average period out of work is a month, then we're talking about 36% of the population changing jobs every year.

For a real statistical example (again, a planned economy): the Soviet Union in 1965 had frictional unemployment amounting to ~11 million people moving between jobs yearly for an average of 30 days each. In a population of ~230 million, that's less than one half of one percent being frictionally unemployed at any given time.

[Jalinth]

For a real statistical example (again, a planned economy): the Soviet Union in 1965 had frictional unemployment amounting to ~11 million people moving between jobs yearly for an average of 30 days each. In a population of ~230 million, that's less than one half of one percent being frictionally unemployed at any given time.

Could I ask what the 230 million represents? Is it the total population, etc...? The current US labour force is only around 153M.

One problem with any planned economy is that you are likely to see very significant difference (much more than in western economies) between various unemployment measures - the U1 to U6 used in the US. If everyone has a job (whether they actually work or are paid for it), the low U's will be tiny. But the underemployment measurements (U6) would be huge simply because virtually everyone will be given a job whether or not they actually report to it.

[HMS Conqueror]

Frictional unemployment being higher in free market economies than in planned economies is indicative of a beneficial process: greater fluidity in the labour market, which allows the economy to adapt much better to changing conditions. The USSR's GDP per capita of less than 1/3 that of the US, and most of it spent on military and heavy industrial rather than consumer goods, can't be separated from the state labour allocations that made unemployment very low. Nor from the fact that unemployment was, aside from being low, largely illegal. One could not decide to live on welfare if the alternative employment was unpleasant, or just not much better paying. Instead the state allocated everyone to some sort of work with legal punishments if it was not done.

Now US, of course, is not any kind of principled capitalist society anyway, more like half-and-half socialist/capitalist (or maybe 1/3 - 2/3 in favour of capitalism, but that's the most one could claim), so lower unemployment might be expected if the labour market were fully liberalised, but the US does very well for unemployment compared to the even more dirigiste western continental european countries.

Finally, "it seems as though a tight labor market is a great humanitarian boon for the people of a country" is a dangerous assumption to make. Everyone being paid more, in and of itself, does not necessarily make anyone better off. If the total amount of goods and services produced is just the same, but everyone's salaries rise, the standard of living is exactly the same. All you did was devalue the dollar, because while everyone earns more, they also have to pay more for everything they want to consume. You only get paid for your own labour; everyone else's you have to pay for. So it's in our interests that labour is priced in line with productivity, not higher, and obviously not lower either. The free market tends to produce that state of affairs.

[D.Turtle]

Your last paragraph is complete bullshit.

That would only be the case if the US economy was a completely closed circuit, with no trade, no growth, no new or old debt, etc.

As for the US doing well in unemployment, that is true as long as the economy runs well. As soon as there is even a slight recession, it does a lot worse than European countries. In the current situation for example, the German unemployment rate has been largely untouched (and is now lower than at the beginning of the financial crisis), while the American unemployment rate has risen rapidly, and is staying at those levels. This despite the initial drop in GDP being larger in Germany.

[HMS Conqueror]

That would only be the case if the US economy was a completely closed circuit, with no trade, no growth, no new or old debt, etc.

No, rather that is the case if creating an artificially uncompetitive labour market resulted in increased growth, etc. But if it affects that at all, it has a negative impact, not a positive one.

As for the US doing well in unemployment, that is true as long as the economy runs well. As soon as there is even a slight recession, it does a lot worse than European countries. In the current situation for example, the German unemployment rate has been largely untouched (and is now lower than at the beginning of the financial crisis), while the American unemployment rate has risen rapidly, and is staying at those levels. This despite the initial drop in GDP being larger in Germany.

German unemployment is presently 8.5%, US 9.7%, France 10.1%. Spain has a staggering 20% unemployment. These figures are current according to wikipedia.

So US has much lower unemployment than dirigiste EU welfare state in the good times, and only about the same as the better performing EU welfare states in the bad times. Not a trade I would go for. And the two things are intimately related: it's the fact that employers in a dirigiste labour market know that they can't respond to recessions (or any other cuts in revenue) by cutting just a few staff, but rather would be forced into bankruptcy, that means they don't employ more people in the good times. It's also obviously a far lesser personal harm to be temporarily unemployed, even for a year or two, than to be a permanent welfare dependent for your whole life.

Now the good news is, US doesn't even have an approximately perfect free market in labour, just less imperfect than EU welfare states, so there is more improvement that can be made.