Unemployment in the High-Pressure Capitalism of the 21^st Century: Introduction

Abstract

The transition from an industrial to knowledge economy created many stressors that exacerbated the excesses of four decades of neoliberal economic policies culminating in a high-pressure capitalism that is reducing the effectiveness of the social contract upon which its success was based in the first place.

KEYWORDS::

• Unemployment
• underemployment
• IT revolution
• knowledge economy

The twenty first century has become at least as challenging as other major transitions in the history of Humankind, if not more so. The Reformation—a transition to a multipolar Christianity, the transition from Feudalism to Capitalism, and the transition from an agricultural to an industrial economy are just some of the numerous examples of major historical transitions that restructured the socio-economic and the political balance of power both internationally and domestically, causing substantial conflicts that invariably included countless wars and revolutions. In this vain, the transition to a post-industrial knowledge economy in wake of the technological revolutions of the late 20^th and early 21^st centuries repeats this fundamental historical pattern (Turchin, 2023). In the knowledge economy the availability and accessibility of information replaces physical capital as the key factor of production with obvious impact on the labor market (Powell and Kaisa 2004; Rooney et al., 2005). The production of goods and services in such an economy is based primarily on knowledge-intensive activities and on intangible assets. Thus, human capital and intellectual property are the key to the production process including technical and scientific innovation. This revolution—also referred to as the digital revolution, the Fourth Industrial Revolution, or the Information Age,—still in progress, coincided with the powerful process of globalization, the stupendous increase in inequality in the developed economies, the rise of neoliberal ideology, and the repeated appearance of unanticipated low-probability high-impact events—dubbed Black-Swans—like the Meltdown of 2008 and the Covid pandemic (Foroohar, 2016; Komlos, 2021a; Stiglitz, 2012).

Policymakers learned nothing at all from the historical record that might have mitigated these powerful developments in the twenty first century. In addition, these larger-than-life processes reinforced each other, magnifying their impact and making it much more difficult for the economy and the society to adjust to the new challenges. This is obviously a global problem but is particularly true for the U.S., as the leader of the Western World, and still the largest economy. Economists and policy makers made mistakes of historical proportions in the way they confronted the challenges of this conjuncture (Appelbaum, 2019; Kwak, 2017; Madrick, 2014). For example, they completely underestimated the impact of globalization (Rodrik, 2018). It is, after all, a two-edged sword. It opens new opportunities to those who are well situated to take advantage of them while simultaneously creating obstacles for those whose skills are devalued and have to compete on unfavorable terms in the international labor market. Hence, the smart way to transition into globalization would have been to make sure that the losers are compensated sufficiently so that they do not become a nuisance to the socio-economic and political systems. The dumb way was the high-pressure way: to let the losers fend for themselves (ILO, International Labor Organization, 2008). The U.S. chose the latter way and is paying a very heavy price for it in terms of globalization’s harmful social, political, and demographic consequences. Michael Sandel of Harvard University is not alone in thinking that ‘…the election of Trump was an angry verdict on decades of rising inequality and a version of globalization that benefits those at the top but leaves ordinary people feeling disempowered’ (Sandel, 2019). Thus, the theoretical case for free trade is no longer absolute; rather, the experience of the last two decades suggests that context matters a lot.

The upshot of all the policy mistakes was a turbocapitalism in a dual economy in which a substantial portion of the society was left far behind because they lacked the skills, education, and support networks to benefit from the new economic structures. A dual economy is one which is separated into two segments by an invisible barrier, in this case educational attainment. To be sure, the regressive tax policy and the concomitant rise in inequality also have a role to play in creating and maintaining this dual character of the economy because they contribute to the strengthening of the barrier by pricing the less privileged out of attaining the credentials that would enable them to join the prosperous part of the society. Of course, once this barrier is in place vested interests are sure to maintain it in order to defend their superior positions in the economy. Thus, workers with a low level of education are mostly barred from the expanding sector of the economy because of the lack of skills and have to contend with remaining in the contracting, low-paying sector of the economy.

Moreover, a high-pressure economy has little social protection that makes a downturn more threatening to the well-being of the population (Komlos, 2022a, 2022b). Instead of focusing on the quality of life, policy makers have been concentrating on maximizing output, overlooking the many negative externalities that are generated in the process, including the harm to the population’s mental and physical health. In an economy producing as much as possible there is insufficient slack in the system that would be useful in case unforeseen events necessitate falling back on some reserves. Lack of slack implies that the economy is producing so close to the production possibilities frontier that the inventories of health-related equipment are depleted, that the state coffers are low on cash and high on debt, that households have insufficient savings to overcome an emergency, and also that firms have insufficient inventories to overcome a disruption in trade flows.

Thus, a large GDP does not imply that the economy is actually doing well. To be sure, much is being produced efficiently from a strictly economic perspective, but with excessive negative externalities. These externalities reach beyond the conventional conceptualizations and include alienating a substantial segment of the labor force who are underemployed, angry, and may not even be counted as unemployed (Durkheim, 1893). That is the nature of the high-pressure capitalism of the twenty first century conceived on neo-liberal principles that seek to diminish the role of the state to a minimum and enact policies that maximize the power of free markets by weakening regulation as much as possible and idealizes the freedom of the individual without considering the existing power structure and how that affects well-being of the population. In the U.S., much stress is generated by the inadequate government guaranteed security in the form of health and unemployment insurance and subsidized tertiary educational opportunities.

The architecture of a high-pressure economy is a kind of turbocapitalism. The emphasis in such an economy is reducing taxes, reducing public spending, privatization, working more, generating income, accepting more risks, while disregarding its effect on the quality of life. Such a system was brought about by the ideology of market fundamentalism—the idea that free-markets can solve most, if not all, economic and social problems.

A big disadvantage of a high-pressure dual economy is that the pressure accrues mostly on those who are at the lower end of the income distributions, since most of the gains of the new economy accrued to a select few, while those at the bottom of the economic hierarchy were excluded from the good life and without social protection became sufficiently disenchanted with the free-market system to turn against it and threatened to destabilize the democratic liberal political order. In short, globalization, tax policy, deregulation, i.e. the major policy blunders, increased some incomes to be sure, but also harmed the lower classes especially severely and contributed substantially to the hollowing out of the middle class (Lazonick, 2015; Warren 2007).

Unemployment, nonemployment, and underemployment is not the only threat to the system, but it is one of the more important ones because it threatens the very existence of those affected (Burns, 2022; Guendesberger, 2019; Jayaraman, 2021; Marlar, 2010; McCallum, 2022; Pitkin, 2022). An additional problem is that the bellwether data on unemployment is severely misleading. The official U.S. unemployment rate is biased, serves political purposes, and confuses the public as well as researchers and policy makers. This is the case because the official unemployment rate omits those who are working part time, although they would like to have full-time jobs but have not found such employment, are not counted as being at least partially unemployed. Their numbers reached 3.9 million in April 2023. (St. Louis Federal Reserve, series LNS12032194). Moreover, those who have given up searching for employment because they are discouraged about their prospects, given their experience at being turned down for employment, although they would like to work, are also not counted as unemployed. These numbered 5.3 million (St. Louis federal Reserve, series NILFWJN). This statistical deception implies that the official unemployment rate is downwardly biased. The true unemployment rate has been estimated to be approximately twice the official rate with minorities bearing the brunt of any downturn (Komlos, 2019a, 2020a, 2021b, 2021c). The official end of a recession does not pertain to minorities. The problem of unemployment lingers for years after the end of a recession. For instance, the actual unemployment rate among African Americans was still 23% four years after the official end of the Great Recession (Komlos, 2019a).

The importance of having a job with an income source was demonstrated vividly during the Covid pandemic. In the U.S. the virus struck the underbelly of a vulnerable high-pressure dual economy. A socio-economic system in endemic disequilibrium is vulnerable and the invisible enemy destabilized it with ease. It had not been an inclusive economy in which all who wanted to work had found stable full-time jobs with decent pay. It was not an economy with ample savings and with strong safety nets in case of an improbable calamity. Moreover, the government faced endemic deficits of $1 trillion even before the epidemic and too many households were maxed out on their credit cards. International trade was unbalanced. Hubris was so widespread that preparing for the remote possibility of a major pandemic appeared unreasonably cautious. The prevalence of hyperbolic discounting made it even more unlikely that long-range planning for public health would be adequate.

The pandemic demonstrated the significance of basic needs, a simple-enough concept, but one amazingly missing from the mainstream canon (Mankiw, 2018). Yet, there is overwhelming evidence that overlooking it and focusing instead exclusively on economic efficiency, profits, GDP, and its growth—the bellwether indicators of economic success—creates anxiety that is harmful to human beings (Sen, 1985). In the high-pressure turbocapitalism that resulted from the neo-liberal ideology, output, free markets, competition, small taxes, and small government became indicators of success instead of security, safety, basic needs, leisure time, a healthy work-life balance, and peace of mind, that is, the quality of life. Mainstream economists blundered also by treating labor as merely another factor of production. This was an error insofar as unemployment, nonemployment, and underemployment, and wage-suppression have immense social and political consequences including the strengthening of the forces of populism (Komlos, 2017, 2023b).¹ Workers differ from capital in substantial ways that make it necessary for economists not to conflate them with capital. Workers need to sustain themselves, i.e. have basic needs. Capital obviously does not. Policy makers have to take that into consideration while overseeing the economy. In addition, workers are also citizens and that implies that what happens to labor has political implications. Capital does not vote. Labor does. These differences are crucial. Thus, the decline in labor’s share in GDP generated much discontent not only but especially in the U.S. (Figure 1). The elephant in the room is that without adequate savings and liquid financial resources most U.S. households cannot survive any spell of unemployment, let alone a lengthy spell, without significant government support.

Figure 1. Share of Labor Income in GDP, U.S. (%).

Source: St. Louis Federal Reserve, FRED, series LABSHPUSA156NRUG

During the pandemic the Bureau of Labor Statistics claimed that the unemployment rate was 13.2% whereas the true rate was closer to 24.4% (St. Louis Fed, series UNRATE, Komlos, 2020a). The cavalier treatment of such a bellwether indicator of economic performance as the unemployment rate is inexcusable. The pandemic also demonstrated the importance of real full employment at a living wage (Colander, 1981). Instead of considering a certain amount of underemployment as natural, a fair economy would acknowledge that there is a natural right to life (Farmer, 2013; Mitchell & Muysken, 2008).² Exclusion from work threatens one’s very existence since work is necessary for survival; the right to life practically implies that we need to be guaranteed the right to work (Tcherneva, 2020). Pope Leo XIII argued similarly in his famous encyclical, Rerum Novarum of 1891.³ Moreover, the United Nation’s Universal Declaration of Human Rights states that, ‘Everyone has the right to work … and to protection against unemployment (United Nations, 1948)’. The spirit of this pronouncement appears in numerous international documents including in the French constitution: ‘Each person has the duty to work and the right to employment’.⁴ Real full employment becomes a most significant policy goal especially with the looming threat of the impact of artificial intelligence on the labor market (Darity, 2010; Darity & Hamilton, 2018; Frey & Osborne, 2017; Klosse & Muysken, 2016; Paul et al., 2018).

Within this historical context the position of labor in the new knowledge economy is obviously of utmost importance. Hence, the inception of this special issue. Its six studies contribute to our understanding of the challenges facing labor in the post-industrial economy. Ernesto Dominguez Lopez and Seida Barrera Rodriguez start off by delineating the path-dependent processes associated in the U.S. with the transition to post-industrial capitalism. They begin the analysis with Reaganomics as the watershed moment that ended the New Deal and inaugurated a new era based on neo-liberal principles of laissez faire that advantaged those who were already privileged. The Reagan tax cuts were poison for the economy because they unleashed a tsunami of inequality the likes of which were not seen since the stock market crash of 1929 (Komlos, 2019b). As the rich became richer, they also became more powerful politically, and the U.S. morphed into an oligarchy (Formisano, 2015). No wonder that worker’s rights were weakened, that their bargaining capacity was limited, contributing to the downward pressure on their income and led ultimately to the hollowing out of the middle class. The authors also outline the structural economic changes—particularly the decline in manufacturing—that accentuated the inequality of income. Low-skilled and middle-skilled workers were especially in a precarious position as they had to compete with low-wage Asian workers. Re-skilling and investment in human capabilities would have been a cogent government policy that could have made globalization Pareto-optimal, which, however, failed to materialize. In the new knowledge economy high-school education became inadequate to meet the needs of Big Tech or of Wall Street and the expenses of a college diploma was prohibitive for many youth. This led to a skill-mismatch, implying that the supply of skills was insufficient for the demands of the labor market in the new economy. This meant that there has been a substantial waste of human resources because children were deprived of an adequate education to enter the labor market on favorable terms. The financialization of the economy led to further instability that could only be overcome through immense bailouts, so much in fact, that the U.S. turned into a bailout Capitalism, implying that only through endemic bailouts can the economic system be kept afloat.

In addition to mismanaging globalization, another major mistake of mainstream economists was their insistence on focusing on GDP, disregarding that it was not conceived to be a measure of welfare and is consequently hardly a reasonable measure of a population’s well-being (Komlos, 2019c). Iulia Monica Oehler-Șincai contributes to the better understanding of the difference between average incomes and the quality of life by emphasizing the importance of job satisfaction, health of the family, productivity at work, the quality of governance, and employment policies to be able to live a fulfilled life according to universal human values. She examines several quality-of-life indicators—including the Better Life Index, the Human Development Index, the Global Health Index, the World Happiness Index—that are compiled by international agencies such as the OECD and the UN, and Bloomberg, a private company. She finds that employment policies along with the quality of governance in general are important for creating an environment in which harmonious living is possible. These indexes typically include nearly all the countries in the world. Not surprisingly, the Scandinavian countries and Switzerland are generally at the top of all rankings. The emphasis in these countries on safety, security, and adequate educational opportunities for youth so that they can enter the labor market with adequate skills demanded in the workplace. This kind of socio-economic system not only creates a high level of job satisfaction among the labor force but also a healthy work-life balance that is a prerequisite low-pressure economic system in which the common good is given significant consideration in the spirit of enlightened self-interest, and incorporates institutions that lead to a more relaxed lifestyle whereas the dogmatic reliance on free-market principles, especially in Anglo-Saxon countries, places the onus of responsibility squarely on the individual and creates a highly competitive and precarious existence, with much anxiety, stress, and frustration. Scandinavian and the Swiss form of capitalism are exemplary at providing for a thriving democratic society that distributes risks equitably thereby reducing the stress-load of the population and increasing their happiness and life-satisfaction. The rest of the world could profit from learning from the examples of these countries.

The next three papers in this issue address the immense challenges faced by the labor force during the Covid-19 pandemic. Thomas Lambert explores its impact on the U.S. labor market at the sectoral level focusing on labor shortages as the economy was coming out of the recession in 2021 and 2022. Workers left the jobs they had prior to the crisis in record numbers. In March 2022 no less than 4.5 million workers (2.9% of the labor force) quit their jobs. The unusually large quit rates, dubbed the ‘Great Resignation’, was caused by a confluence of factors that included labor market segmentation (similar to the concept of a dual economy), high underemployment rates in some industries, the concentration of minorities in low-paying jobs, and wage stagnation (Komlos, 2020b). The sectors most affected—including the accommodation and food services, entertainment and recreation, retailing, and professional and business services—had unemployment rates that were twice the national average. Firms in these service industries generally offer low wages, employ low-skilled workers with a high concentration of minorities and most of them do not provide any benefits such as health insurance or paid sick days. Working in these industries required face-to-face contact with consumers that was a threat during the pandemic, thereby increasing the health risks to the employees. So, many of the workers in the post-pandemic era quit their job in the hope of finding better employment. Paying a living wage and providing benefits would go a long way to lower these extraordinary quit rates and diminish the underutilization of the labor force.

Concentrating also on the impact of the Covid-19 epidemic, Alina Ligia Dumitrescu describes the immense difficulties faced by the Romanian labor market during the Covid pandemic and how the government responded immediately with support programs in order to overcome the severe crisis of unemployment. The bailouts included tax holidays for firms while employees received 75% of their salary. Hospitality businesses were subsidized to compensate for the decline in revenue. In contrast, professional, scientific, and technical activities practically doubled their output. A subsidy of 29 billon Euros was granted by the European Union to help the Romanian labor market recover from the crisis. Part of it will be used to reduce the underemployment rate, a main goal of the government.

Also analyzing the Covid-19 crisis but from a different perspective, Avraham Baranes and Carrie Coward Bucher explore how people are classified using big data by bureaucratic institutions and how that classification mechanism affects their ability to succeed in the labor market. According to the authors, in the new economy of the twenty first century classification systems have replaced the notion of class. According to this theory people are classified into categories that determine their life chances. The classification determines who is included and who is excluded from the various opportunities provided by the society. They apply this theory to the pandemic and note that marginalized communities fared poorly during Covid precisely because the classification system was formulated in such a way as to support financial interests, instead of those people who were most at risk of falling prey to the pandemic that took seven million lives worldwide. Minorities were more at risk because they were more often employed in the service sector that required personal contact with consumers. That is why the mortality rate among minorities was disproportionately high (Komlos 2021b). Low-wage workers were five times as likely to die during the pandemic than their better-off counterparts.

Turning from Covid to cyberspace, Dominika Werczyńska and Julia Włodarczyk explore at the conceptual level the extent to which the labor market changed fundamentally in the new economy. The cyberspace is obviously the iconic technology of the post-industrial economy, and it transformed the nature of work in unanticipated ways. The digitalized labor market has conflated play with work to such a degree that their conventional definitions no longer apply and the distinction between work and leisure, as well as between consumption and production in cyberspace has become blurred to a considerable degree. In fact, a new vocabulary is needed to explore these complex concepts and a renewed effort is required to provide adequate oversight so that powerful corporations cannot take advantage of the new opportunities provided by the internet to enrich themselves at the expense of the public.

In sum, these six studies advance our understanding of the predicament Western Civilization finds itself at this crucial and extremely critical juncture of its evolution with multiple challenges facing it, as it continues its inexorable transition to a post-industrial economy. If we want to avoid a ‘Brave New World’, we will need to free ourselves from the shackles of neoliberal dogmas, reform our institutions, and adopt an industrial policy that provides real full employment in a thriving society. This reformation should include in the U.S. as the leader of the developed world:1) institutional innovation to nudge households to save more in order to remain solvent during recessions; 2) decrease the influence of advertisements so that people are not tempted to consume excessively (Schor, 2005; Whybrow, 2005); 3) eliminate the twin deficits (government budget and foreign trade) so the structural imbalances are mitigated; this would require a much nimbler trade policy than is currently practiced; 4) improve the safety net so that the population’s basic needs are met even in case of misfortune; 5) introduce universal health care; 6) force megacorporations and billionaires to pay their fair share of taxes so that public health can be improved; 7) transition to a low-pressure economy by decreasing competition and copy the efforts of the Scandinavian countries to create a more harmonious economy and improve the quality of life of the population;⁵ 8) this also requires cultural changes in order to diminish the influence of instant gratification.

In other words, we should prioritize institutional innovation and adopt far-sighted policies to achieve these goals so that the purpose of the economy becomes the enhancement of human flourishing and the creation of a black-swan robust economy, instead of the current focus on production, income, and GDP growth. In an era characterized by radical uncertainty more than ever before, we also need to think about the introduction of ‘failure-mode analysis’ (fail-safe strategies) in economics. These issues must be put on the agenda if we want to alleviate the endemic structural imbalances plaguing the Western World in the first quarter of the twenty first century.

Notes

1 The unemployed are those who would like to work but do not have a job; nonemployment refers to those who are not working but many of them are not counted because they are not actively looking for a job; underemployment means that people are not working at their full capacity either because they are not using all their skills or because they are not working as many hours as they would like.

2 The Declaration of Independence also asserts the unalienable Right to “Life”; http://www.archives.gov/exhibits/charters/declaration_transcript.html, accessed May 13, 2023.

3 “The preservation of life is the bound duty of one and all, and to be wanting therein is a crime. It necessarily follows that each one has a natural right to procure what is required in order to live, and the poor can procure that in no other way than by what they can earn through their work” (Leo XIII, 1891, Paragraph 44).

4 From the Preamble to the French Constitution of 1946 which is still in force today. http://www.conseil-constitutionnel.fr/conseil-constitutionnel/root/bank_mm/anglais/cst3.pdf, accessed May 13, 2023. See also the work of the Internationl Labour Organization whose stated goal is “to achieve full and productive employment and decent work for all…” (Muqtada, 2010, p. iii). These values were already annunciated in the ILO’s Constitution including the Declaration of Philadelphia of 1944 (ILO, 2008). A recent UNDP report asserts that “Universalism… also applies to labour markets—ensuring that everyone has access to decent opportunities for paid employment” (2014, p. 92).

5 To be sure, globalization and competition from abroad has put pressure on the Scandinavian model. Nonetheless, it has remained a paradigm for the rest of the developed world (Bergh, 2014; Freeman et al., 2008; Park, 2005; Steinmo, 2002).