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Theory of full employment

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This article applies social development theory to examine the theoretical basis for full employment.

The prospects for employment in the 21st Century are of growing concern to citizens and governments of both developing and developed nations around the world. Few social issues bring out so deeply our latent anxieties about the future. In developing countries it calls to mind the immediate challenge of generating remunerative work opportunities to meet the rising expectations of one billion people who will enter the labor force during the coming decade. For many in the industrialized West, it evokes an image of a future in which technology and international competition economically disenfranchise more and more people. Concern over the continued migration of manufacturing jobs to low wage developing countries has recently been aggravated by fears regarding the large scale outsourcing of service sector jobs as well. For the younger generation the issue of employment is viewed in more individual terms as an obstacle to career advancement and personal fulfillment.

Discussion of this subject is further complicated by a lack of reliable facts and a confusing array of impressions, emotions, misconceptions and statistics, even in countries with highly educated populations. For example, in the early 1990s when rising unemployment generated growing concern in North America, the focus on the increasing numbers of unsatisfied job seekers overshadowed the more fundamental fact that the actual percentage of the population employment had also reached historically peak levels.

Attention to the serious economic problems of some developing nations prompts us to overlook some startling successes and encouraging trends. In recent years a number of East Asian countries have achieved full employment and now confront labor shortages. China has created approximately 100 million jobs during the past decade. The rate of employment growth in India has more than doubled since an economic reform package was launched in 1991. In spite of the fact that seven million young Indians are entering the job market annually, quite remarkably there is no significant evidence of a surge in unemployment. Official statistics do not record a commensurate growth in employment opportunities because they reliably report only on the eight percent of total employment in the formal, organized sector, while most of the job growth is occurring in the informal sector.

Need for theory

The current concept of work as employment is a relatively recent phenomena. In earlier centuries the vast majority of people around the world were left to fend for their own economic survival working on farms and in crafts. But the transformation of economic activity and social life in this century and the increasing regulation of economic activity by government have made individuals increasing dependent for their economic survival and security on political, economic and social policies and forces beyond their control. Without access to jobs, people lack the ability to ensure their economic survival. Today employment opportunities are directly influenced by a wide range of public policies relating to taxation, monetary stability, trade, investment, immigration, defense and environmental regulation. This led the International Commission on Peace and Food (ICPF) to conclude in its report, Uncommon Opportunities: An Agenda for Peace and Equitable | Development, that employment must be guaranteed as a fundamental human right. Recognizing the right of every citizen to employment is the essential basis and the most effective strategy for generating the necessary political will to provide jobs for all.

The confusion of facts is reinforced by the lack of good theory. There is urgent need for formulation of an integrated theory of employment to explain the process by which jobs are created and the contributing role of political, social, technological and economic factors in that process. Why is it that the rapid development and application of technology in the USA during the 20th Century was accompanied by a four-fold increase in employment? How are rising social expectations and rising incomes related to the emergence of new needs and new employment opportunities in modern society? The increasing contribution of non-material resources such as information, technology, organization, education and skills to economic development seems to challenge traditional assumptions regarding the limits to growth valid for economic systems based primarily on scarce material resources. To what extent is unemployment a result of economic determinisms? To what extent is it a product of social choices and public policy?

Unmet social needs

Every society has a host of human needs that are not being fully met, needs for greater physical comfort, health, education, environmental safety, enjoyment, luxury, curiosity, travel, etc. These unmet needs represent a huge untapped potential for employment generation.

A study by the International Commission on Peace and Food entitled Prosperity 2000 showed that a strategy designed to improve nutritional levels in India by increasing the productivity and incomes of farming families could generate downstream multiplier effect capable of creating 100 million new jobs within a ten year period.

Money is no longer scarce

Money creates purchasing power and capital for investment in new jobs. Money is no longer a scarce resource.

  • Trillions of dollars in accumulated surplus wealth are now circling the globe in search of attractive investment opportunities.
  • Even developing countries possess enormous untapped financial resources. Consumer markets in China, India and other developing countries are growing at double-digit rates, creating huge demand and new job opportunities.
  • Indian citizens’ current gold reserve is estimated at $200 to 250 billion. This represents a two-fold drain on local resources – first, because the money has been spent to procure the gold from outside the country and, second, because storing wealth in the form of gold prevents the savings from being lend to others through the banking system. At a time when annual foreign investment in India is only hovering around $10 billion, conversion of gold into other forms of savings would free up enormous resources for productive investment in activities that generate employment.
  • Recent experience has demonstrated that micro-credit lending to the poorest levels of society can be successful and commercially viable. Last year ABN Amro dramatically expanded its micro lending programs to low income women and youth in Brazil and India as well as to low-income communities in the USA[1].

Unutilized social resources

Every society also has a vast reservoir of unutilized and underutilized resources in terms of knowledge, skill, technology, information, organization, management expertise, money and values that can be harnessed to meet those needs.

  • There is no inherent limit to the capacity of society to increase its knowledge, skill, technology, information, organization, management expertise or values; therefore there is no inherent limit to its capacity for development and employment generation.
  • Land and water productivity are very low in many developing countries. Cotton grown under irrigated conditions in India on average consumes 30 times as much water and five times as much land per unit of cotton produced than is required by leading cotton growers in California using the latest technology for crop management.
  • The Internet itself represents a vastly underutilized social resource whose potential we have barely begun to grasp. Internet-based self-employment, which is still in its infancy, could in future become one of the major sources of work in the world.
  • A full cataloging of social resources and assessment of their untapped potential for employment generation can create sufficient employment opportunities to eradicate unemployment globally.

Employment as basic human right

Given the fact that employment is the primary means provided by society for individuals to achieve and maintain economic security under current economic systems, societies are necessarily obligated to ensure that the system provides opportunities for every citizen to obtain gainful employment. Every nation has an obligation to guarantee access to gainful employment to all its citizens. Employment should be made a constitutional right.

This does not mean that government should or could employ every job seeker, any more than it means the government should itself grow all the food needed to ensure food security for its population. Rather it means government has an obligation to formulate and modify its policies to make the system meet this objective.

Human choice creates jobs

The ILO’s 1995 World Employment Report challenges the deterministic view of employment in noting that “feasible solutions do exist…Employment problems are not predetermined outcomes of the workings of uncontrollable forces such as globalization, intensified competition, and technological change. They are the result of social choice: commissions or omissions in economic and social policies and short-comings in institutional arrangements.” The report points out that a common vision and inspired action based on a universal commitment to the goal of full-employment was responsible for the high levels of employment achieved by Western nations after the Second World War.

The number of jobs and the level of employment in any society is a function of the extent to which the political-social-economic system is able to harness the available resources to meet human needs. The level of employment generated is not fixed according to any universal laws of economics. It depends on the implicit values and explicit policies on which the system is based. Changing those values and policies changes the availability of employment. There is ample scope for increasing employment opportunities in every country through a judicious application of policies.

  • Interest rates, tax rates, zoning laws, environmental regulations, limits on the number of licensed physicians or taxicabs, import and export restrictions, limits on business hours are just a few of the ways in which policies influence the number of jobs created.
  • A tax system that provides incentives for capital investment in the form of depreciation allowances while discouraging employment through the levying of payroll tax is an example of an explicit policy that creates an inbuilt bias toward investment in technology rather than labor.
  • The initiative of Netherlands to ensure part-time employees the same worker rights as full-time employees enabled large numbers of people who preferred part-time work to reduce their working hours and thereby created a proportionate number of new jobs.

Impact of technology

The conception that technological advancement inevitably destroys more jobs than it creates is not supported by the facts. There is no direct relationship between technological development and unemployment. Technology is a net job creator. Therefore, it is not true that rising levels of unemployment will be an inevitable aspect of the future society.

  • In spite of the unprecedented adoption of new technologies during this century, the USA, which is one of the most technologically advanced nations in the world, has quadrupled the number of people employed since 1900 and has a higher percentage of its population employed today than at any time in the past 100 years.
  • It is true that introduction of new technologies can eliminate jobs in specific fields of activity. It is also true that it can create many more jobs in other fields related to scientific and industrial research, education, equipment manufacture and repair.
  • The higher paid jobs generated by technological development also increase purchasing power and demand for goods and services generating a multiplier effect that creates jobs in unrelated sectors of the economy.

Skilled labor shortages

In many fields, a shortage of skilled labor is a driving force for technological advancement rather than vice versa.

  • There is a shortage of labor for agriculture not only in industrialized nations, which immigrant labor is essential, but even in the more developed regions of countries such as India (e.g. Punjab, Pune, Coimbatore).
  • According to current estimates there are more than 200,000 unfilled jobs for computer software professionals in the USA today alone.
  • The tooling and machining industry in USA, which employs highly skilled, high paid (average $40,000 or more) workers, has been suffering from an increasing shortage of job applicants for the past decade or more, despite concerted efforts by the industry to promote careers in this sector.
  • Even unskilled workers are in short supply in many places. In many parts of rural India where more than 50% of the workforce are still engaged in agriculture, many farmers find it difficult to hire all the workers they require and are forced to introduced farm machinery or switch over to less labor-intensive crops.
  • In previous centuries the global migration of labor was propelled by dire conditions of poverty at home. Today it is at least equally propelled by the pressing demand for more workers in more prosperous countries.

Impact of rapid social transition

Current problems of youth unemployment in Europe and many developing countries are a result of a complex mix of factors which can respond to effective policy initiatives.

  • The impact of labor market rigidity on unemployment levels in France and Germany has been well documented. Recently France has reported progress in loosing up labor markets.
  • The population explosion that has peaked in most countries has created a larger wave of new entrants to the labor force that will gradually decline in the coming years.
  • The sudden influx of large numbers of women into the labor force is a one time increase which has raised unemployment levels in some countries at the same time that overall employment rates have been rising.

Technology compensate for labor shortages

Ever since the invention of the steam engine and the power loom, workers have feared being replaced by more efficient and economical machines. But the real driver for technological development has been the shortage of workers to meet the demands of work. The proliferation of labor saving technologies in America was driven by the fact that there were far too few people to handle all the work to be done. That is why, in spite of all the mechanization, the US work force multiplied four-fold during the past century. Today the same factor is driving companies to mechanize production processes and outsource service jobs overseas.

But there is a more fundamental reason for the continuous drive to improve technology. The primary role of technology is not to eliminate jobs but to make it possible for a limited number of workers to meet their own needs as well as those of the non-working population of youth and elderly which will always be many times greater, as the next section explains.

Every person create his own employment

Every person born creates additional demand for employment in society in excess of what they can themselves contribute: Each individual begins life by creating work for others long before they are born and continues to do so for a period even after their death.

  • Expectant mothers often seek medical attention, purchase clothes, accessories and even furniture for their children even before they are born.
  • Working mother’s also stop working for a period before and after delivery.
  • Once the child is born right up until it becomes an adult, it places demands on others for food, clothing, toys, books, education, entertainment, health care and so forth.
  • After retirement the same process continues up until death. Assuming the average person works for approximately one-third of his life, that person creates work for others for three times as long as they are available for gainful employment.

Now take into account that those people who do that work also work only for a third of their own life times. That means it may require not three but as many as nine people to meet the needs of each human being. This is only a theoretical calculation, but one which illustrates an in-built tendency for successive generations to create more work than can be done. Thus, technology is essential for filling the gap.


Human aspirations are unlimited

Economics was founded at a time when many things vital for human survival – food, clothing, housing, furnishings, etc. -- were in short supply. Some argue that the end of work will arrive when the capacities of technology are able to produce sufficient goods to meet all human wants with a minimum of human input. This argument fails to take into account the fact that human wants are not limited. Even after humanity’s essential physical needs are met, the aspiration for material acquisition and material comforts and conveniences does not cease. Furthermore, when more physical needs are fully met, vital needs and desires acquire greater importance, such as the need for social interaction, communication, travel and transportation, recreation and entertainment. So also, when the vital needs are provided for, mental needs grow in number and intensity. People quest for more information, more and better education, etc. People become more concerned for their physical and psychological health and the health of their environment. Spiritual aspirations also tend to emerge when the physical and social aspirations are fully met. This higher order needs do not lend themselves to mass production the way basic physical necessities do. Both youth and the elderly require personalized attention which can demand far more time than the production of physical necessities. In other words, the progression of human wants is essentially unlimited and therefore the potential for creating work to fill those wants is not subject to any limits.

Economists will protest that this entire approach is invalidated by the fact that many people do not have the purchasing power needed to create effective demand and generate work for others. This is certainly true today for many people because of the way society presently functions, but that does not mean it need always be true. A fuller understanding of this point requires an in depth consideration of the role of money in society and the means by which it is created. This subject is beyond the scope of this discussion but will be fully examined in the Theory of Money Project. May it suffice to say here that in recent decades more and more societies have assumed the responsibility for ensuring the minimum needs of all their citizens, including universal access to education, health care, civic facilities, public transport and communication, etc. Based on past trends, it is not difficult to conceive of a time when nearly all human beings will have assured access to these basic amenities. That suggests the future is one which will provide greater and greater opportunities for gainful employment, rather than an end of work.

  1. http://online.wsj.com/public/article/PR-CO-20070330-905074-69gKf901OXCShc_gyFCY5xaVmiU_20070330.html?mod=wsjcrmain


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