Real unemployment is double the ‘official’ unemployment rate

How many people are really out of work? The answer is surprisingly difficult to ascertain. For reasons that are likely ideological at least in part, official unemployment figures greatly under-report the true number of people lacking necessary full-time work.

That the “reserve army of labor” is quite large goes a long way toward explaining the persistence of stagnant wages in an era of increasing productivity.

How large? Across North America, Europe and Australia, the real unemployment rate is approximately double the “official” unemployment rate.

The “official” unemployment rate in the United States, for example, was 5.5 percent for February 2015. That is the figure that is widely reported. But the U.S. Bureau of Labor Statistics keeps track of various other unemployment rates, the most pertinent being its “U-6” figure. The U-6 unemployment rate includes all who are counted as unemployed in the “official” rate, plus discouraged workers, the total of those employed part time but not able to secure full-time work and all persons marginally attached to the labor force (those who wish to work but have given up). The actual U.S. unemployment rate for February 2015, therefore, is 11 percent.

Share of wages, 1950-2014Canada makes it much more difficult to know its real unemployment rate. The official Canadian unemployment rate for February was 6.8 percent, a slight increase from January that Statistics Canada attributes to “more people search[ing] for work.” The official measurement in Canada, as in the U.S., European Union and Australia, mirrors the official standard for measuring employment defined by the International Labour Organization — those not working at all and who are “actively looking for work.” (The ILO is an agency of the United Nations.)

Statistics Canada’s closest measure toward counting full unemployment is its R8 statistic, but the R8 counts people in part-time work, including those wanting full-time work, as “full-time equivalents,” thus underestimating the number of under-employed by hundreds of thousands, according to an analysis by The Globe and Mail. There are further hundreds of thousands not counted because they do not meet the criteria for “looking for work.” Thus The Globe and Mail analysis estimates Canada’s real unemployment rate for 2012 was 14.2 percent rather than the official 7.2 percent. Thus Canada’s true current unemployment rate today is likely about 14 percent.

Everywhere you look, more are out of work

The gap is nearly as large in Europe as in North America. The official European Union unemployment rate was 9.8 percent in January 2015. The European Union’s Eurostat service requires some digging to find out the actual unemployment rate, requiring adding up different parameters. Under-employed workers and discouraged workers comprise four percent of the E.U. workforce each, and if we add the one percent of those seeking work but not immediately available, that pushes the actual unemployment rate to about 19 percent.

The same pattern holds for Australia. The Australia Bureau of Statistics revealed that its measure of “extended labour force under-utilisation” — this includes “discouraged” jobseekers, the “underemployed” and those who want to start work within a month, but cannot begin immediately — was 13.1 percent in August 2012 (the latest for which I can find), in contrast to the “official,” and far more widely reported, unemployment rate of five percent at the time.

Concomitant with these sobering statistics is the length of time people are out of work. In the European Union, for example, the long-term unemployment rate — defined as the number of people out of work for at least 12 months — doubled from 2008 to 2013. The number of U.S. workers unemployed for six months or longer more than tripled from 2007 to 2013.

Thanks to the specter of chronic high unemployment, and capitalists’ ability to transfer jobs overseas as “free trade” rules become more draconian, it comes as little surprise that the share of gross domestic income going to wages has declined steadily. In the U.S., the share has declined from 51.5 percent in 1970 to about 42 percent. But even that decline likely understates the amount of compensation going to working people because almost all gains in recent decades has gone to the top one percent.

Around the world, worker productivity has risen over the past four decades while wages have been nearly flat. Simply put, we’d all be making much more money if wages had merely kept pace with increased productivity.

Insecure work is the global norm

The increased ability of capital to move at will around the world has done much to exacerbate these trends. The desire of capitalists to depress wages to buoy profitability is a driving force behind their push for governments to adopt “free trade” deals that accelerate the movement of production to low-wage, regulation-free countries. On a global basis, those with steady employment are actually a minority of the world’s workers.

Using International Labour Organization figures as a starting point, professors John Bellamy Foster and Robert McChesney calculate that the “global reserve army of labor” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion — far less! Writing in their book The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, they write:

“It is the existence of a reserve army that in its maximum extent is more than 70 percent larger than the active labor army that serves to restrain wages globally, and particularly in poorer countries. Indeed, most of this reserve army is located in the underdeveloped countries of the world, though its growth can be seen today in the rich countries as well.” [page 145]

The earliest countries that adopted capitalism could “export” their “excess” population though mass emigration. From 1820 to 1915, Professors Foster and McChesney write, more than 50 million people left Europe for the “new world.” But there are no longer such places for developing countries to send the people for whom capitalism at home can not supply employment. Not even a seven percent growth rate for 50 years across the entire global South could absorb more than a third of the peasantry leaving the countryside for cities, they write. Such a sustained growth rate is extremely unlikely.

As with the growing environmental crisis, these mounting economic problems are functions of the need for ceaseless growth. Once again, infinite growth is not possible on a finite planet, especially one that is approaching its limits. Worse, to keep the system functioning at all, the planned obsolescence of consumer products necessary to continually stimulate household spending accelerates the exploitation of natural resources at unsustainable rates and all this unnecessary consumption produces pollution increasingly stressing the environment.

Humanity is currently consuming the equivalent of one and a half earths, according to the non-profit group Global Footprint Network. A separate report by WWF–World Wide Fund For Nature in collaboration with the Zoological Society of London and Global Footprint Network, calculates that the Middle East/Central Asia, Asia-Pacific, North America and European Union regions are each consuming about double their regional biocapacity.

We have only one Earth. And that one Earth is in the grips of a system that takes at a pace that, unless reversed, will leave it a wrecked hulk while throwing ever more people into poverty and immiseration. That this can go on indefinitely is the biggest fantasy.

Higher taxes lead to more jobs

Make it harder for people to retain a job, and fewer people will. Adequate pay that makes a job worthwhile is one factor, but frequently overlooked are support structures that facilitate employment.

Contrary to orthodox economic ideology, punishing people does not increase employment.

Countries that provide more subsidies toward services that are complementary to work — such as child care, elder care and transportation — have higher workforce participation rates. This shouldn’t be surprising as we don’t leave the rest of our lives behind when we go to our jobs, however much bosses insist we should. Such a finding can only be controversial in a world dominated by ideologies that insist that conditions be made as harsh as possible to “force” people to work.

Alas, such a world is the one most of us live in, particularly in the English-speaking advanced capitalist countries. I have often noticed that the thinking of middle-class conservatives often boils down to “I had to suffer, so everybody else should have to suffer.” I’ve heard words to this effect from many conservatives. Although people who have enunciated that to me often are people who did indeed work hard to rise from modest circumstances, the reductionist hyper-individualism it reflects is blind to the social solidarity necessary for society to function.

Moving up the vertical scale represents higher rates of employment; moving left on the scale represents higher effective tax rates. (Graphic by Henrik Jacobsen Kleven)

Moving up the vertical scale represents higher rates of employment; moving left on the scale represents higher effective tax rates. (Graphic by Henrik Jacobsen Kleven)

More subsidies lead to a higher percentage of working-age people holding regular employment, and these subsidies are possible through higher taxation. Contrary to orthodox economics, higher rates of taxation lead to more employment. This is the conclusion of a study by Henrik Jacobsen Kleven, “How Can Scandinavians Tax So Much?” Professor Kleven, a professor at the London School of Economics, compared Denmark, Norway and Sweden with other OECD (Organisation for Economic Co-operation and Development) countries (a club of the world’s advanced capitalist and some of the largest developing countries) and found strong correlations between taxation rates and workforce participation.

More social services, more employment

Plotted on a graph, there is a steady progression of countries with higher “participation tax rates” having greater percentages of their population employed. This pattern, not surprisingly, is even stronger for women than men. The author defines a country’s “participation tax rate” as the average effective tax rate when including all income and consumption taxes, and public benefits. This rate is far higher in Denmark, Norway and Sweden than it is in, inter alia, the United States, Japan or Britain. Professor Kleven writes:

“[T]he Scandinavian countries spend relatively large amounts on means-tested transfer programs that create implicit taxes on working and therefore reinforce the distortions coming from the tax system. On the other hand, these countries also spend relatively large amounts on the public provision and subsidization of goods that are complementary to working, including child care, elderly care, and transportation. Such policies represent subsidies to the costs of market work, which encourage labor supply and make taxes less distortionary. Furthermore, Scandinavian countries spend heavily on education, which is complementary to long-run labor supply.” [page 7, citations omitted]

Denmark, Norway and Sweden also have unusually low rates of tax avoidance. Professor Kleven writes that systematic third-party reporting is “crucial” to minimizing tax avoidance. (If your income is reported, it is very difficult to avoid paying taxes on it.) The three countries also have a broad tax base and Denmark in particular allows very few deductions and exceptions.

The United States, in contrast, has a complicated tax system riddled with loopholes. U.S. tax policy for low-income workers centers on the Earned Income Tax Credit (EITC), yet the Scandinavian countries have higher rates of workplace participation without such tax deductions. Because child care subsidies act as a subsidy to labor participation, Professor Kleven argues, those countries have no need for a U.S.-style income tax credit.

Although the author recoils somewhat from his own conclusions at the end of his paper, he does earlier write:

“[E]empirical and theoretical arguments above suggest that public spending on work complements such as child care, preschool, and elder care allows for a more efficient provision of low-income support and at the same time weakens the argument for low participation tax rates at the bottom of the distribution through an EITC. In this sense, it is conceivable that Scandinavian countries (with their large subsidies to work complements and no EITC) got it right, while the US (with its small subsidies to work complements and a large EITC) got it wrong.”

More health care earlier, better jobs later

Perhaps imposing ever harsher conditions on working people makes for a weaker economy? It would seem that several years of punishing austerity has not exactly brought prosperity to the world. Another study daring to offer heterodox economic ideas, just released by the National Bureau of Economic Research, calculates that spending by the U.S. government on child health care through the Medicaid insurance program likely will pay for itself by the end of a recipient’s adult working career.

Providing health care ought to be a human right; it is something that should be provided as a matter of basic humanity to enable better lives. In the U.S., of course, such is not the case; health care there is a privilege reserved for those with full-time employment that provides benefits or for those who can afford it. But, in raw economic terms, Medicaid for children may be cost-free over the long term.

This study, “Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?,” prepared by Amanda E. Kowalski of Yale University and two economists with the U.S. Treasury Department, David W. Brown and Ithai Z. Lurie, found that children who were Medicaid recipients as adults earn more money on average and thus pay more in taxes than those who did not receive that benefit. These cohorts were followed until age 28, but, projecting the results over a full working career, the authors estimate that the extra taxes accruing to the federal government will amount to 56 cents for every Medicaid dollar. That is virtually identical to the 57 cents that the federal government pays out of every Medicaid dollar.

Professor Kowalski, in summarizing the study, said:

“Although it will take years to know the long-term impact of current expansions of Medicaid undertaken as part of the Affordable Care Act, this study shows that the investments that the government made in Medicaid in the 1980s and 1990s are paying off in the form of higher tax payments now.”

The study did not take into account the extra tax money paid to state and local governments, nor benefits from decreases in mortality and increases in college attendance. If all factors could be calculated over a lifetime, it is conceivable that Medicaid for children will actually be a direct financial benefit. Such a crass calculation shouldn’t be necessary, but the U.S. health care system exists to provide corporate profits rather than provide health care, which is why U.S. spends much more on health care than other countries while achieving inferior results.

A society that provides the infrastructure for a productive, balanced life, as opposed to one that imposes grim struggles to survive, is a healthy society. We are, after all, a social species, something that the ever more propagandized individualist ideology of capitalism seeks to erase.

Scapegoating the unemployed for being at the mercy of a global phenomenon

People are out of work longer and the jobs that become available pay less. These developments of the past several years of economic downturn are not your imagination, no matter how many times individualist ideology is invoked to falsely point fingers at the “downsized.”

A flurry of studies and papers demonstrate these patterns are found across the mature capitalist economies. The latest of these, “The Low-Wage Recovery” issued by the National Employment Law Project, found that nearly half of the jobs created in the United States since unemployment peaked in February 2010 are low-wage jobs.

March against inflation and unemployment, Chicago 1973 (Photo by John H. White)

March against inflation and unemployment, Chicago 1973 (Photo by John H. White)

Two million more low-wage jobs, defined as those paying $13.33 per hour or less, have been created in the past four years than were lost between January 2008 and February 2010. By contrast, the deficit in jobs paying more is about two million. Although the number of jobs in the U.S. has rebounded to what it was at the end of 2007, that means more people are unemployed since the population has grown. The Employment Project’s breakdown:

• Lower-wage industries ($9.48 per hour to $13.33) constituted 22 percent of the 2008-2010 losses, but 44 percent of jobs gained since then.
• Mid-wage industries ($13.73 to $20.00) constituted 37 percent of the 2008-2010 losses, but 26 percent of jobs gained since then.
• Higher-wage industries ($20.03 to $32.62) constituted 41 percent of the 2008-2010 losses, but 30 percent of jobs gained since then.

The National Employment Law Project notes that:

“Job growth is still heavily concentrated in lower-wage industries. As a result of unbalanced employment growth, the types of jobs available to unemployed workers, new labor market entrants, and individuals looking to move up the career ladder are distinctly different today than they were prior to the recession.”

More people are out of work for longer periods

At the same time, the Economic Policy Institute reports, the number of long-term unemployed in the United States has risen sharply. This is true for all age, education, occupation, industry, gender, and racial and ethnic groups. The author of the EPI report, Heidi Shierholz, wrote:

“Today’s long-term unemployment crisis is not at all confined to unlucky or inflexible workers who happen to be looking for work in specific occupations or industries where jobs aren’t available. Long-term unemployment is elevated in every group, in every occupation, in every industry, at all levels of education.”

The overall rate of those who were unemployed for six months or longer in 2013 was 3.4 times the rate in 2007. There is little variation in this ratio based on educational attainment. In fact, the two categories of “some college” and holders of four-year college degrees showed the highest increases in long-term unemployment. That pattern has been persistent, rendering nonsense the frequent claims of right-wing economists and those intellectually dependent on them that higher or longer-term unemployment is a result of a supposed “mismatch” between worker skills and job requirements.

The picture is not different when we look at other countries. In Canada, the number of people who have been unemployed for 27 to 51 weeks, although down from its peak, is nonetheless close to double what it was in 2008. The number of Canadians who today have been out of work for at least one year is more than double those in the same position in 2008.

In the European Union, where total unemployment has barely declined from its 2013 peak, the number of long-term unemployed has yet to retreat. The long-term unemployment rate, defined by the European Commission as those out of work 12 months or longer, was about two-thirds higher in the third quarter of 2013 than it was in the first quarter of 2009. (The third quarter of 2013 is the latest for which figures are available.) The commission reports that:

“[O]ver the last five years, full-time employment has decreased dramatically — by 9.8 million (–5.4%). On the other hand, at EU aggregate level, the number of employees working part-time has grown by 1.2% (or 480,000 part-timers) in the year to 2013 Q3. There has been steady growth in this type of work in recent years, with 2.9 million more part-time jobs since the third quarter of 2008, a rise of 7.8%. Consequently, the share of part-time workers (of total EU employees) has risen consistently in recent years, reaching 19.3% in the third quarter of 2013.”

Less work, and less of it for those who do have it. The E.U.’s unemployment rate of 10.8 percent climbs to almost 20 percent when the underemployed and discouraged are added to the officially unemployed.

So it is elsewhere. The percentage of Australians unemployed for more than 52 weeks constituted 21 percent of the country’s unemployed in February 2014, in comparison to 13 percent in February 2009. Similarly, New Zealand’s long-term unemployed have more than doubled since 2009.

The race to the bottom

What we have here is something much bigger than any individual or single country. Market forces are at work, which undergirds the “race to the bottom” capitalism has foisted on the world. It is demand that creates jobs and if wages are declining and more are unemployed, demand will naturally decline, leaving less incentive to hire. Eventually, corporate profit margins will be squeezed, with the result that production is moved to locations with ever lower wage, safety and environmental standards.

(Graphic by the Economic Policy Institute)

(Graphic by the Economic Policy Institute)

Although the future will see occasional periods of growth, with temporary rises in employment and wages, the trend toward more austerity, lower wages and more inequality — concomitant with increasing concentration of power in corporate hands as more money leads to more coercive power over governments — is not only firmly in place but accelerating. This is the inevitable result of allowing “market forces” to make ever more social decisions.

Market forces are nothing more than the aggregate interests of the most powerful industrialists and financiers. Blaming sacked employees for being caught in this flow as lacking adequate personal characteristics is not simply an abuse of individualist ideology but is scapegoating.

Capitalism is a system that produces for the private profit of a few by paying employees far less than the value of what they produce. Meeting human need, when it does occur, is an accident of this system. The only long-term escape is the imposition of a different system designed to meet human needs that provides work for all who need it under democratic control.

Ask yourself: Why is is that massive numbers of people are unemployed at the same time that factories and offices sit empty in large numbers? Is it really true that a system that produces such results is the best the world can do?