Posted by: Jeff | January 13, 2011

The Moral Limits of Efficiency

I know, I know, I need to hop back on the blogging bandwagon. I’d like to try finding stuff that can be pontificated on at relatively little length. Hopefully the following qualifies.

Matt Ygelsias has posted some interesting graphs courtesy of Nick Rowe:

The top graph tracks GDP for the G-7 countries before, during and after the recession. The bottom graph tracks employment. Notice anything strange? When it comes to GDP, everyone behaves as you might expect; they’re trucking along, then get hit by the 2008 collapse, and are now slowly getting back on their feet again. But when it comes to employment, everyone follows the same trend except the United States. Our employment level was absolutely clobbered by the recession, and has yet to recover. We’re a surprisingly dramatic outlier.

Now, both Yglesias and Rowe are at a loss as to why this is so, which is a respectable position to take. It is really weird. But plenty of their commenters are happy to propose an explanatory mechanism which I find persuasive. (And Paul Krugman made the same argument indirectly last year.) Basically, in comparison to these other countries, the United States’ package of labor laws and practices, along with its welfare state, are really lousy. That means U.S. workers occupy an unusually poor bargaining position vis-a-vis their employers. They can’t afford to lose their jobs and they can’t afford to cause trouble or difficulty.

The result is that employers can squeeze a lot more productivity (GDP) out of their workers at much less cost (employment and wages) in the U.S. than in other countries. So whenever times get tight, employers here have much more freedom to take costs out of their employees’ hides.

Of course, in raw econo-speak, more productivity for less cost is called efficiency, and it’s supposed to be a good thing. But that value judgement only works when you’re talking about getting efficiency out of a machine or a business model. When you talk about getting efficiency out of a human being, you enter the moral world and have to start contending with things like dignity and basic necessities and standards of living.

Of course, this is just a theory. I’d like to see these trends mapped out over at least another two years or so to be sure. For instance, Japan and Italy look like their employment levels — while not outliers nearly to the degree of the U.S. — are still noticeably lower and slow in recovery. If those trends continue, it would be worth comparing Japanese and Italian welfare provisions and labor laws to America’s and the rest of G-7 to see how they all stack up. But for the moment, it looks like the recession has provided a massive opening to further exploit the American workforce, and U.S. businesses are eagerly jumping at the opportunity.

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