Policy, not technology, is behind declines in job security

Employment & Income,Inclusive Economy20 May 2014Jo Michell

Inequality and declining job quality have been driven mainly by government policies, so reforming policy is now needed.

In his essay ‘Economic Possibilities for our Grandchildren’, written in 1930, Keynes made the prediction that, within 100 years, most people would work for only fifteen hours per week. Capital accumulation and technological advancement would allow us to provide for all of our consumption needs in only three working hours per day, freeing up the majority of our lives for leisure pursuits.

The failure of this prediction lies partly with Keynes’ rather elitist view of leisure activities: learning and reading; discussion and debate; and engagement with the arts. In this he failed to foresee the rise of mass consumerism. Nonetheless, Keynes’ prediction of exponentially rising productivity due to capital accumulation and technological change was accurate. So why do so many people in advanced economies still work long hours, earn low wages, and struggle to provide even a basic standard of living for themselves and their families?

The answer to this question is straightforward. Inequality has risen dramatically in the last three decades; the majority of the rewards from increases in productivity over this period have accrued to an ever-shrinking minority. This has important implications for policy-makers concerned with job quality and security.

Among economists, the almost universally cited reason for this rapid rise in inequality is that increasing technological complexity has raised the demand for skilled labour, leading to rising wages for skilled workers. At the same time, an excess supply of low-skilled labour, exacerbated by trade with developing economies and inward migration of low-skilled individuals, has led to stagnant or even falling wages for the majority.

This is a convenient narrative. It implies that inequality is the result of impersonal – and largely irresistible – economic forces. Unfortunately for the economists, it is false. The accumulated evidence now overwhelmingly undermines this account. In fact, changes in inequality have been driven mainly by government policies aimed at creating ‘flexible’ labour markets, and the rolling back of the progressive taxation regimes that were in place at the end of World War II. These reforms have increased the probability of unemployment, reduced job security and squeezed real wages. At the same time, the enormous rises at the top of the income distribution are mainly accounted for by disguised profit and rental incomes of corporate executives.

However, technological change has weakened the position of unskilled workers in a more direct way – through unemployment arising out of automation. Huge numbers of jobs that were previously done by low-skilled workers – supermarket check-outs, petrol station attendants, telephone operatives, bank tellers – are now performed by machines. As their bargaining power is undermined by their own governments, low-skilled workers face competition not only from cheap workers abroad but also from robots at home.

Policy-makers must be bold in the face of the challenge posed by technological change. If managed well, these advances have the potential to increase quality of life for the majority. But if managed badly – as has so far been the case – the result will be a deepening of the current trend of increased concentration of wealth and income for the few while the majority face job insecurity, unemployment and stagnating real incomes.

An essential first step in reforming policy is that governments must recognize the damaging effects of the emphasis on labour market flexibility and instead focus on protecting the rights of workers. At the same time, policy-makers must reject the dogma that governments cannot ‘pick winners’. Either directly, or indirectly through institutions such as publicly-owned banks, governments must ensure that sufficient investment spending is directed to socially useful activities – such as adaptation to climate change. In doing so, governments will generate decent jobs in the present and the promise of a better life in the future.