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  March 21, 2011

What a Full Employment Policy Looks Like

Robert Pollin: Full employment as a policy goal is the way out of the economic crisis
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Robert Pollin is Distinguished Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst. He is also the founder and President of PEAR (Pollin Energy and Retrofits), an Amherst, MA-based green energy company operating throughout the United States. His books include The Living Wage: Building a Fair Economy (co-authored 1998); Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity (2003); An Employment-Targeted Economic Program for South Africa (co-authored 2007); A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States (co-authored 2008), Back to Full Employment (2012), Green Growth (2014), Global Green Growth (2015) and Greening the Global Economy (2015).


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. Unemployment is down a little bit. We're told about the official rate's now 8.9 percent. Unofficial rate, I guess, who knows? Does that mean that the natural course of recovery from recession is kicking in, unemployment will continue to go down, or we are in fact still in a crisis of high employment? Now joining us to talk about the latest stats and the whole issue of can we get to an economy that has full employment is Bob Pollin. Thanks for joining us.

BOB POLLIN: Thank you for having me, Paul.

JAY: So Bob is codirector of the PERI institute in Amherst, Massachusetts. You've been doing a lot of work on this whole issue of unemployment. So start from the latest statistics. Are we seeing a light at the end of the tunnel?

POLLIN: Well, there's been some minor reduction in official unemployment so that it's down to 8.9 percent as of last month, whereas on--for the entire Obama administration we were at about an average of about 9.5 percent, which is higher than at any point for this long of a period since the 1930s Depression. That's how severe the crisis is. Now, is there some kind of recovery? Well, it is improving, but now let's just say--let's just say that the rate of improvement is equal to the average rate of improvement over the previous three recessions. Okay? If we just let things go, we won't get to 5 percent unemployment until mid 2017. That's how bad things are. Now, that's assuming that the recovery is equal to the previous three recoveries, but we already know that's not true, because we're 20 months--officially, we're 20 months into this last economic--the recession's been over officially for almost two years now, and we're still at almost 9 percent unemployment. So the fact that the recovery is so slow and so weak, and fraught with all kinds of landmines as well, such as what's going on in Wisconsin, where we're talking about laying off state and local government workers, and that's going on throughout the country--.

JAY: Well, there's two landmines. So let's talk about that first landmine. So what will be the consequences if there is either cuts in pay or significant layoffs across the country [inaudible]

POLLIN: I mean, even a model from Goldman Sachs now says that that will weaken the recovery. It'll reduce GDP growth by cutting, cutting, cutting, because why--I mean state and local governments are the biggest employer in the country. That's on average--I mean, overall, it's 20 percent of overall employment directly or indirectly. So you start cutting it, well, of course it's going to weaken--maybe there is a recovery going on, but, you know, we're going to put the recovery in reverse by keeping on attacking state and local governments. So the point is that there is some small signs of a recovery. And even if it's a decent recovery, we don't get to anything close to full employment until 2018.

JAY: Okay. The other landmine is what's happening to oil prices. And we're--I think we'll do another segment on the whole issue of why oil prices are going up, because certainly supply and demand hasn't changed very much. But at any rate, they are going up. How much effect did that have on the recovery?

POLLIN: Well, of course, I mean, we know from previous experiences. And indeed what one of the major things it set off, the last recession--of course we remember the Wall Street collapse, but we--also what was going on right before the recession was that oil prices spiked in 2008. So if there's another spike in oil prices, that'll also put the recovery in reverse. So we have those two things going on. There are some forces pushing the economy forward, but they're very weak, they're tentative, and we have countervailing forces. So to say that we are, you know, in a recovery that's going to create a decent employment situation is really a far-fetched proposition at this point.

JAY: So the problem is dramatic, and what you're proposing, something dramatic has to be done about it. There's no normal course of coming out of this recession that's going to solve this problem.

POLLIN: No. I mean, if we care about people having decent jobs, then we have to have at least--at the very least, if we say, okay, we're in a normal recovery, that means we're at 5 percent unemployment in six and a half years. That's normal. And we're not in normal.

JAY: Okay. Let me read you a quote from something you recently wrote, an article in The Boston Review. And here's a quote from you--I'm quoting you to you. "Coming out of the Great Recession, we need full employment, not patched up neoliberalism." And the main argument you give in this article is that what we should do is set full employment as the objective, and then start from there in our policymaking.

POLLIN: Right.

JAY: So explain, first of all, before we get to your proposals, what does this mean, we don't need "patched up neoliberalism"? 'Cause you're suggesting that is what we're getting.

POLLIN: I mean, basically, you know, the neoliberal model, just with respect to employment conditions, the neoliberal model privileged in controlling inflation over job creation. And if there is unemployment, it's a problem that gets solved by the market, because if people are unemployed, then all they have to do is lower their wages and keep lowering them, and eventually someone's going to hire them. That's the underlying premise behind the neoliberal arguments around the labor movement.

JAY: Now, just for everyone listening, we're going to put below the player here Bob's article from The Boston Review. It will be in full. And in the article you point out Milton Friedman's argument is exactly that. There's no--there will be full employment if you could basically get rid of unions, and people will work for whatever the market says they should be working for in terms of wages.

POLLIN: Right, because, I mean, Friedman's argument is that--let the free market rip, and then there's bargaining between people that want jobs and people that want to hire, and they'll reach an agreement. And the only thing that stands in the way of that is government regulation, such as minimum wage laws, which says, well, you know, I'll hire you for $4 an hour. Well, the government says, I can't do that. So therefore you're unemployed. Or unions, which says, you know, I'll hire you for $4 an hour [inaudible] no, no, no, no. This is a union job. You have to pay $8 or $10 or $12. And that's what's inhibiting the natural free flow of bargaining between employers and people that want jobs. And so that's--in essence that's the neoliberal [inaudible]

JAY: So what's wrong with that?

POLLIN: The neoliberal model of the labor market, well--.

JAY: Other than people are going to have low wages. But in terms of employment and the overall economy, what's wrong with that?

POLLIN: Well, the first thing you said is a big deal. So if everyone--yeah, everyone could get jobs at $2 hour, or everyone could be kind of selling trinkets in the street. I observed this when I used to--I was working in Latin American, in Bolivia, and they--I was told--I was doing work in Bolivia, where the country was in a total mess, disaster, and I said, well let's--I was doing advising, and I said, let's deal with unemployment. They said, there is no unemployment here. I said, there's no unemployment? I said, look at the people selling Chiclets and, you know, transistor radios in the street. I said, well, they're employed. And they were. They were employed. So--.

JAY: They call--the informal economy, they call it.

POLLIN: Yes. So we could have a total--yeah, we could have an informal economy.

JAY: But isn't part of the problem with that is that you're not going to have people who can buy cars?

POLLIN: That is a major problem. Right. So, you know, [inaudible]

JAY: If you're selling Chiclets in the streets, you're not buying cars, refrigerators, or--.

POLLIN: Are not buying cars. So no. But you can--you can have full employment by that definition, by the definition that's anybody does something to scratch out a living, you will always have a full employment economy, I mean, if you want to stoop that low. But what I'm talking about is decent job creation. And by decent job creation, we mean at least some kind of living wage standard. You're talking about, you know, union wages, where people can have high productivity and can--yes, can buy things and have a decent living standard, which in turn, of course, strengthens the market, because then people can invest to create the products that the people that have money in their pockets will buy.

JAY: Now, you start your article by saying, why don't we have full employment as our objective? Is part of the reason for that is that it's in the interests of people that own big businesses--and small businesses as well--not to have full employment? In fact, don't they start from the objective that you need a certain amount of unemployment to regulate wages, or workers just get too much bargaining power, and you need to keep constantly fighting that issue? So in fact the objective is not to have full employment.

POLLIN: Right. That's true. I mean, that has--you know, from way back, Karl Marx wrote about this in Kapital, Chapter 25, Volume 1 of Kapital. He called it the reserve army of labor, which means mass unemployment, which prevents workers from getting enough bargaining power to increase their wages. And that is the fundamental regulator of how a capitalist relation between workers and businesses gets resolved, according to Marx. And, really, nobody has contradicted that [inaudible]

JAY: Putting it in really simple terms, if you put--it's very much in your favor as an employer that when you put up the "for hire" sign, there's 500 people on the sidewalk trying to get five jobs, versus you can't find people to work for your jobs


POLLIN: When you can't find people to work, then, yeah, you have--then the worker has bargaining power. And it's true. I mean, we've seen in periods when there has been something approximating full employment in this country, such as the late 1960s and the late 1990s, workers' wages were bargained up, even workers' at the bottom, in the--you know, not that long ago. Twelve years ago, when the economy got to below 4 percent unemployment, wages at the bottom, which had not risen at all for a generation, started going up pretty quickly. Workers had bargaining power.

JAY: Now, in your piece, you talk about the 1990s, that that happened, worker's wages went up, unemployment came down. But you said it's not a good model, because so much of late 1990s was driven by a bubble economy, and you can't call that a successful model. So how do you--one of the things that has been a pressure on wages going down in the United States and been a pressure on the whole issue of industrialization in the United States has been outsourcing and this kind of model that Marx talked about, the industrial reserve army of the unemployed--you now have a global army of cheap labor to compete. How do you deal with that?

POLLIN: Well, that is a massive problem. And I think, you know, that Marx's insight of thinking about a reserve army, I think we can think about a global reserve army. And where we have businesses pitting workers in this country against workers in other countries, and they say you want a union, you want higher wages, fine. You know, we'll go invest in China or Indonesia or Bangladesh or Guatemala. And that is a major factor dampening workers' bargaining power.

JAY: 'Cause the important point here is not that everything's outsourced. It's been a leverage to force workers to give up. And, in fact, Wisconsin's a great example of it, where you have Harley-Davidson, Mercury Marine, and Kohler plumbing all threatening to leave Wisconsin if the unions didn't accept two-tier wage tier. So the starting workers essentially get half what workers traditionally had been getting. So how do you deal with that?

POLLIN: Well, okay. So the basic approach--and this is something that I've thought about and worked on, along with other people. I mean, the basic approach is that you need to have investments that are really fixed in place to this country, to this economy, and you encourage those, you support those. And, you know, so the one that I--the two that I focus on in the paper that you've mentioned, the Boston Review paper, investments in the green economy and investments in education, those are investments that for the most part have to be done in the United States. If we think about, say, in energy efficiency building retrofits, you have to retrofit a building where the building is. You can't outsource it. So to the extent we increase the proportion of those kinds of jobs in the economy, we will counteract this pressure.

JAY: Well, let's do the education one first, 'cause there's a debate about that. There's an argument that says, given one of the big things that's changed in globalization is that it's not just competitive, cheap, unskilled labor that's competing with American labor, it's now educated, skilled labor that's competing with American labor, so you can outsource a lot of jobs that require sophisticated education. So just investing in education doesn't guarantee the jobs are going [inaudible]

POLLIN: No, no. But I'm talking about the education industry in the United States. I mean, it could be people--and, of course, there are foreigners that come to the United States because we do have a good educational system. I myself, the majority of my graduate students are from other countries. But they're here, and they help pay for my job and my colleagues'. So education in the United States obviously has to be done in the United States. If you're going to do the public schools in Baltimore or anyplace else, they have to be in Baltimore. That's just a given.

JAY: But the argument is that producing more educated people doesn't necessarily create more jobs. You can have a lot of unemployed educated people.

POLLIN: No, no, no, no, no. That's right. But the point is, if you invest in education, if you're spending money on teachers, on custodians, on school bus drivers, on the people preparing lunch, all of that, those are just jobs that will happen where we know they're going to happen in--if we--if it's the Baltimore school district, it happens in Baltimore. If it's in Madison, Wisconsin, you can't outsource--I mean, as much as Governor [Scott] Walker may be thinking he'd like to, you cannot outsource the public schools in Madison, Wisconsin, to Guatemala.

JAY: Well, unless you get some Skype teaching [inaudible]

POLLIN: Yeah, right.

JAY: Okay. Well, let's go to the investment in the clean energy sector. How do you model this, given--and you say that jobs will be based here, 'cause, for example, building retrofitting has to be done here. But how do you know how much of those materials are made here? [inaudible] go to clean energy [inaudible] you were saying in another interview we did that wind power is now getting competitive with coal, particularly if you take in the consequences of what coal's doing to society. But right now China's making a lot more windmills than are being made here.

POLLIN: Okay. So, yeah, I would break it down. The investments in energy efficiency, such as--and the biggest one is the building sector. Building sector is gigantic. You know, it's 40 percent of energy consumption in our economy is to do things for buildings--heat them, cool them, light them, get the elevators going up and down, and so forth. And so there is a massive opportunity to increase the efficiency of the building sector. And that's something that has to be done here. Public transportation is another--I see it as an energy efficiency investment. If you've recently been, you know, in a traffic jam, as I was in Los Angeles' freeways, there's a lot--there is a generation of work to build a decent public transportation system, and that for the most part is work that has to be done on-site in places where you need the new transportation system. So those efficiency investments are heavily concentrated in the domestic economy. Now, when we start talking about manufacturing renewable energy, which I support--you know, wind, solar power, geothermal--it's true a lot of the activity is manufacturing. And the manufacturing could be done. It could be done elsewhere. In fact, it will be done all over the place. But the US should have a competitive manufacturing sector in renewable energy, because that's going to be the energy of the next 50 years. And it would be stupid for us to just, you know, wave it bye-bye and, on the basis of some, you know, free-market nostrums, think that we don't need one.

JAY: So you have to kind of separate two types of investments you were talking about there. If you're talking roads, you're going to be talking public investment, unless you really want to go to privatize toll roads, where you get private capital investing in roads. So I guess that's one model. The other, if you're talking clean energy, there's a lot of private capital that wants to get into the clean energy game. In fact, that whole section of Wall Street's kind of salivating over getting into it. And there's quite a contradiction between capital involved in the fossil fuel industry and capital that wants to get in on the clean energy business.

POLLIN: Right.

JAY: So let's start with the first thing. A lot of this is going to be public money, one would think, especially talking roads and that kind of stuff and schools and state employees. So of course the counterargument always is, how are you going to pay for it?

POLLIN: Well, how you pay for it is you pay for it through taxes. But it doesn't all have to be public investment. I mean, public investment, I think, should be a leader, but you also incentivize private investment. In fact, I would think that if you think about building a clean energy economy over the next generation, most of the investment is going to be private investment. And I think it should be. I mean, public investment is good, but, you know, we have limited capacity. And therefore I think, you know, that public investment should be the leader, should encourage private investment, and we move private investment into it, and that's how you pay for it. So that--incentivize the private sector in the right way, and punish the private sector for, you know, spewing out carbon into the atmosphere, and you will move investments into clean energy.

JAY: So from your modeling, in terms of employment, what--if your policies are followed, what are the consequences on the economy?

POLLIN: Well, in terms of employment, this is, you know, how it ties back into the issue around full employment and globalization. It is a counterforce to these pressures for outsourcing, because if we're going to increase the proportion of jobs that have to be done in the United States, by definition, you know, the businesses in the United States are going to have to bargain around those jobs because they can't outsource them. I mean, there is an important paper by Professor Alan Blinder of Princeton, who was former vice chair of the Fed and so forth. He himself said, you know, 20 percent of the jobs in this country, he says, could be outsourced--not that they will be, but they could be, and that, yes, that creates a different bargaining dynamic. So the point of investing in clean energy, education, and other things that are grounded in this economy is to reduce that percentage that Blinder is talking about to the point where workers have bargaining power. And then we set as a national goal, we say, okay, full employment is the goal. So how do you do that? Among other things, you increase the proportion of jobs that have to be done here. And, you know, that's the way that we address this issue of outsourcing. There will still be outsourcing, but we keep countering it.

JAY: So then you get to a political question.


JAY: Your goal is full employment.

POLLIN: Right.

JAY: But if I own some great big factory, my goal is not full employment.

POLLIN: Right.

JAY: So then it becomes a political question, which is, in terms of government policy, which you're relying on, you have to have some political will to want to do it. And if I'm in a position like--well, say I'm a Koch brother--and, by the way, if one of the Koch brothers wants to make me brother, let's talk. Let's say I'm not interested in full employment. So now we have a political battle. So how does that unfold?

POLLIN: Well, I mean, businesses are interested in selling things. So, I mean, if you have, you know, a robust economy at a high level of unemployment, that's good for domestic business. It's certainly good. Let's think about retail. I mean, people in retail want to have customers. So it's good if people have jobs and they're going out and spending money. That's positive. I mean, so the notion, by the way, this notion that austerity--cutting, cutting, cutting--is good for business is faulty. And businesses themselves say that. I mean, the business climate weakens as a result of cuts, significant cuts. So we want--if we run a full-employment economy, yes, workers will have more bargaining power, but businesses will also have more investment opportunities 'cause the markets will be more buoyant.

JAY: Okay. So then their counterargument is that you're going to get riproaring inflation and all my gains won't mean anything.

POLLIN: Yeah. Well, you know, that is an issue. And I--actually, in the Boston Review article, I address it because it is a serious issue. And I think, you know, progressive people, union people, need to acknowledge that if you get to 100 percent employment and nobody in the whole economy, you know, needs to find a job, I think worker bargaining power will go out up very, very rapidly, which is good, but they have to be able to restrain themselves in terms of keeping wage increases more or less commensurate with productivity growth. And so one of the arguments I make is that, you know, the working class movement, the union movement, should themselves take responsibility--.

JAY: Now, you gave an example that--you say this was done in Sweden for a while, but then it wasn't. They started going against those policies. So what happened in the Swedish model?

POLLIN: Neoliberalism won. You know, it was--you know, nothing's perfect out there, but I think it was a reasonably successful model. The unions as a--bargaining from a position of strength, not weakness, said, we should run the economy at something close--at least stimulate the economy till you get to 3 percent unemployment, not zero, so that you do still have some unemployment, and then help people that--the 3 percent that still don't have jobs, help them through, you know, job placement, through training, and so forth, and then get the economy maybe to 2 percent at that point. But don't overheat the economy. That can be dangerous. Now, we're so far away from that--I would love to have that problem.

JAY: But in the Swedish example--and I don't know this history at all; I'm just asking the question--the Swedish business elite was not satisfied with that. They may have said, okay, we're making money out of this, but we can make more money, in fact, if we beat you down.

POLLIN: Well, I mean, the Swedish unions were strong, and this--you know, the Swedish unions did cooperate with business around restraining wage increases. They had a high-wage economy. They were exporting successfully. And, you know, business and labor were cooperating around that. And the unions were in the leadership. And they had built a model--it was an intellectual model as well as a policy model--around it. It was the heart and soul of, you know, the Swedish third way, if you want to call it, the Swedish social democracy. That key idea of maintaining a full-employment economy without excessive inflation was the central idea, in my view. Now, yes, it broke down, because, yeah, Swedish businesses said, well, you know, we don't need to keep doing this. So you do have to have a disciplined capitalist class. And the question is politically how you achieve that. And, you know, I think to the extent that, you know, you focus on investing in the domestic economy and create incentives within the domestic economy, it's achievable.

JAY: So we'll pick this up again. Thanks very much for joining us. And thank you for joining us on The Real News Network. And don't forget the donate buttons, 'cause if you don't do that, we can't do this.

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