What's wrong with the labour market?

There’s a distinct sound of head scratching going on out there. We’ve a record number of job vacancies, lots of unemployed people and yet no one seems to be getting hired. What’s going on?

Britain’s employers might be struggling to fill a record 1 million job vacancies amid the worst labour shortages in a generation – with a lack of lorry drivers, hospitality staff and other workers vital for the economic reopening. But for millions like Cousin, navigating the jobs market remains tough.

With the end of furlough last week, hundreds of thousands of workers are likely to be on a similar journey. Many are expected to drift into early retirement or put off their job search until their sectors recover.

Despite a gradual fall in recent months as firms scramble to recruit, official figures show unemployment is still almost 200,000 higher than before Covid, standing at more than 1.5 million.

The answer is in the Nobel winning work of Chris Pissarides and colleagues - frictional unemployment. It takes time to run through the jobs on offer and decide which one seems suitable. It takes time to run through the applicants and ponder which seems the best fit. Therefore there will always be some part of the workforce going through that run through and ponder process.

We would expect that the greater specialisation of the modern economy will increase the time it takes. We’d also expect that online job searches and advertising will reduce it. The growth of the human resources bureaucracy in most organisations might well increase it again. We end up with the balance we have.

The warning for us is to ponder a further point. How much worse would it get with more bureaucracy? If we had all those insistences about checking social class of parents (an actual thing that people are trying to insist upon), race, gender, and so on and on? Things would be worse.

The lesson being that there are costs to absolutely everything as well as benefits to many. Any decision making process has to weigh both.

Folks, they're making the New Soviet Man mistake again

The arrival of New Soviet Man was at first ecstatically predicted, then grimly awaited and finally the non-arrival mourned. For those who devised the socialist system were fully aware that human beings did not in fact act in the ways that would make such a system work. But that’s fine, build the system anyway and await that arrival of the new type of human who would make the wheels turn and the clocks tick.

This is the New Soviet Man mistake. To insist that folks will be, or are, how they need to be for your idea, your system, the plan, to work. Rather than observing how they are and then devising ways to deal with that nature:

The British like to think that they have a uniquely profound understanding of class. In truth, it’s the opposite. The arcane rules of the country’s class system mean we have a deranged understanding of our divisions, one that is informed not by whether someone owns financial assets or capital or employs people, but by their accent, hobbies and choice of supermarket.

That’s exactly the mistake being made there. Man is a purely economic being, we should view relationships between men in those purely economic terms. Thus class must be defined solely in those purely economic terms, capitalist, bourgeois, prole and the one rarely mentioned these days, lumpen. That this is necessary to make Marxism work as a method of understanding society and that we’re using Soviet to describe it is just a coincidence - any manner of describing humans as other than they are is that new man problem.

For we in Britain do not define class in that manner. It is about accent, education, interests, even, as George Mikes pointed out, shaving upon Sundays. The only ones who didn’t in his day were the toffs and the lumpen - everyone else did. Similarly, it’s long been a standing joke that the worst dressed person in the room is the toffest - to the point that a snide about Michael Heseltine was his mistake in getting his hand made suits to actually fit him.

Perhaps it’s even true that we ought to regard class purely through that lens of economic relationships. But we don’t and that’s all there is to it. Plans devised for the British have to deal with us as we are, not as we should be to fit the plan. Anything else is to condemn to that wait for the New Man who isn’t going to turn up.

If only these people could manage to make up their minds

Apparently it is just terrible that large American companies - including much of Big Tech - is funding lobbying and PR on the subject of the law and climate change:

Some of America’s most prominent companies, including Apple, Amazon, Microsoft and Disney, are backing business groups that are fighting landmark climate legislation, despite their own promises to combat the climate crisis, a new analysis has found.

A clutch of corporate lobby groups and organizations have mobilized to oppose the proposed $3.5tn budget bill put forward by Democrats, which contains unprecedented measures to drive down planet-heating gases. The reconciliation bill has been called the “the most significant climate action in our country’s history” by Chuck Schumer, the Democratic leader in the US Senate.

Not that we’d believe Chuck Schumer if he said the sky was blue but still - the insistence is that it’s bad the companies are lobbying upon climate matters.

Yet it was only last week that the same newspaper reported that it’s a terrible shame that large companies spend so little lobbying upon climate change:

The world’s biggest tech companies are coming out with bold commitments to tackle their climate impact but when it comes to using their corporate muscle to advocate for stronger climate policies, their engagement is almost nonexistent, according to a new report.

Apple, Amazon, Alphabet (Google’s parent company), Facebook and Microsoft poured about $65m into lobbying in 2020, but an average of only 6% of their lobbying activity between July 2020 and June 2021 was related to climate policy,

Perhaps a little work could be done on making up minds here. Is corporate lobbying a good thing or a bad one?

Ever such a slight problem with this renationalisation of the utilities idea

Knowing a little history is one of those things that could be useful here:

The privatisation of public services is a 40-year failed experiment that voters have had enough of. Recent polling shows that 74% of potential Labour voters now support a greater commitment to public ownership. Evidence suggests that Labour’s public ownership policies were always popular with the general public, and became even more so from 2017 to 2019. Brexit and the party leadership were the stated factors that stopped people from voting Labour. Even Conservative voters support public ownership of railways and water utilities. That’s because in general, people want to see profits reinvested into better services rather than leaking out to shareholders.

To use just the example of the water utilities:

The water industry in England has been transformed since privatisation 30 years ago. It’s easy to forget how bad things were, so it’s worth reminding ourselves.

After decades of underinvestment by successive governments water quality was poor, rivers were polluted, and our beaches were badly affected by sewage. Quite simply, the water industry was not high up the list of priorities for Ministers when its funding came out of the same pot as the money for schools, hospitals and police officers.

Now we agree, something called “Water UK” might not be the most entirely unbiased source. But that basic claim is true. Precisely because any profits from the water industry - and by logical extension, other publicly owned utilities - went into the general revenue pot to then be spent according to political priorities not a great deal went into reinvestment in better services.

Investment in the water companies - the water and sewage systems - rose substantially after privatisation.

We do agree that it’s theoretically possible that government deciding upon investment levels can or could lead to the optimal amount of said investment. We also insist upon pointing out that that’s not what actually happened.

Which does lead to an interesting question, doesn’t it? How can renationalisation be the solution to the problem that privatisation solved itself? How to increase the investment in the utility systems?

An interestingly difficult argument to make about mineral availability and the circular economy

We are told that there’s really no need to go deep sea mining because there’re plenty of minerals around without doing that:

Electrification of vehicle fleets is a “positive pathway” to reduce carbon emissions, says McCauley. But he accuses deep-sea mining companies of a “false narrative” that we must mine the ocean to meet renewable energy’s demand for metals.

We have an interesting example in the same newspaper on the same day. There’s vast amounts of lithium in the geothermal waters underneath the Salton Sea:

But as disastrous as the disappearing Salton Sea is, powerful people believe that a vast reserve of lithium locked beneath it and the surrounding area holds the key to flipping the region’s fortunes.

The Salton Sea thing is true by the way, just as there’s lithium underneath Cornwall, the Krusny Hory and many other places. For the same reason that we’d no go deep sea mining for that particular element, it’s soluble. We can, in fact, extract it from seawater itself even if that’s currently rather expensive -as might be that extraction from geothermal waters, something that remains to be found out.

But d’ye see the logical problem here? If it’s true that there are those vast resources meaning that we don’t have to go deep sea mining then what’s the argument that we must have a circular economy because of the lack of available resources? Why do we have to recycle everything if there’s plenty of it?

It’s difficult to argue both at the same time, there’s plenty but there isn’t. Still, no doubt some will still try to insist on both at the same time. Sadly, many of those some seem to be the people making policy.

Be careful what you wish for

It’s a reasonably standard claim, that workers should gain lots of things over and above their mere wages from their employment. Rights to this and that, good things that should be provided. The problem, of course, is that all of those things cost money. Compensation of the workers becomes rather higher than the wages of the workers. Which does lead to things like this:

Meat companies across Europe have been hiring thousands of workers through subcontractors, agencies and bogus co-operatives on inferior pay and conditions, a Guardian investigation has found.

Workers, officials and labour experts have described how Europe’s £190bn meat industry has become a global hotspot for outsourced labour, with a floating cohort of workers, many of whom are migrants, with some earning 40% to 50% less than directly employed staff in the same factories.

The Guardian has uncovered evidence of a two-tier employment system with workers subjected to sub-standard pay and conditions to fulfil the meat industry’s need for a replenishable source of low-paid, hyper-flexible workers.

About 1 million people work in Europe’s meat sector, with unions estimating that thousands of workers in some countries are precariously employed through subcontractors and agencies.

Well, yes, the larger the wedge between compensation and wages then the larger the temptation to find alternative arrangements which close that gap. This always being true, the more mandates are loaded onto formal employment there more less formal structures attract.

This is not something restricted to the meat sector, it’s one of those unfortunate facts of life.

Mr. Hayek and a plate of chips

Hayek’s grand insight in his Nobel lecture was that the centre just never can gain enough data to create the information on how to run society in any great detail. This does, of course, still leave open the meaning of “great” and “detail”. At some level of granularity we are going to have to have centralised decision making whatever the fog of ignorance such decisions are taken in. Say, and just to pick an historical instance which will never repeat itself, what should be the British response to the French marching upon Brussels again?

But that level of detail does seem to be pretty low (or high perhaps). Here’s The Guardian on food:

The grave effects of this relatively recent departure from time-honoured eating habits comes as no surprise to those of us who never swallowed government “healthy eating” advice in the first place, largely on evolutionary grounds.

Is mother nature a psychopath? Why would she design foods to shorten the lifespan of the human race?

And time is vindicating. This bankrupt postwar nutrition paradigm is being knocked for six, time and again, by up-to-date, high quality research evidence that reasserts how healthy traditional ingredients and eating habits are.

Apparently organic rice doesn’t lead to immortality.

We do not, by the way, insist that either this or the official advice is correct or not so. Instead we just want to ponder the idea that the official advice might be wrong. Even after all those decades upon decades of research and investigation. If this is true then we’ve a guide to what level of detail we ought to have government dealing with, don’t we? If they can’t manage simple things like advice upon diet then the complex issues like the housing market, who makes what where, in what quantity, prices, energy supply, all those sorts of things, will have to be dealt with by the alternative, markets.

Government will thus be restricted to areas where they are competent like dealing with bumptious Corsicans. Well, mildly competent perhaps, don’t forget it took them 15 years last time around.

The simple answer to Skidelsky's question

Increased automation leads to greater productivity of labour, this is true. This means that we need less labour to achieve any one task, we therefore have labour available to tackle a further such task. The end result being that we now undertake, or perform, two tasks with our available labour and so are richer - we’ve the two, not the one, things.

So far so good then Skidelsky goes wrong:

The problem is social: to ensure that the fruits of increased productivity are passed on to the mass of the people in the form of higher wages and non-work income. The political debate is about how much public intervention is needed to ensure that the wealth created by machines trickles down to all sections of the population.

This is to make the mistake of thinking that your income is the amount of money received for your labour. Not so, your real income is what you are able to consume as a result of your labour. As society is now more efficient in its use of labour, more is being produced that can be consumed, therefore real incomes have risen as a result of the increased productivity.

This doesn’t in fact require public intervention. It’s a natural outcome of a market economy. That increased production hits the supply and demand curves, prices fall, consumers benefit.

The mistake is to think of the benefits from automation arriving to us in our roles as workers - they arrive to us in our roles as consumers instead. As William Nordhaus memorably pointed out, 97% or so of the benefits of entrepreneurial innovation - not exactly the same as automation but not far off it either - arrive as the consumer surplus. This being achieved simply though market competition, no politics nor public intervention required.

This rather depends upon who you read and believe about climate change Mr. Jack

Ian Jack has been reading Bill McKibben and some others that he, Mr. Jack, has published on the subject of climate change:

The idea of a better future has been replaced by one of a future not as bad as it could be, providing urgent steps are taken; but for more than 20 years (more than 30 years, if the counting starts with Hansen’s address to Congress) the science behind our understanding of climate breakdown was widely dismissed either as an international conspiracy or an inconvenient speculation, or relegated to a problem on a par with McKibben’s “growing trade deficits”.

That rather depends upon who you read on the subject of climate change. We ourselves would avoid the hysterics and go and have a look at the science. But, you know, perhaps we’re funny that way.

That science is easiest understood in the SRES. This is the set of economic models that has underlied all discussions since the early 1990s. In which we are presented with a range of possible futures. Where humanity as a whole becomes perhaps 5 times richer this century by being somewhere between socialist and social democrat. Or up to 11 times richer by being globally capitalist and free market. In that latter case absolute poverty is entirely extinguished as a part of the human experience which is something that we’d describe as a better future.

That lowest flourishing of humanity also leads to high emissions and thus climate change. That glorious enrichment is consistent with low emissions and little climate change. This is not just the science these are the underlying models upon which everything else done by the IPCC, Stern Review and so on is built.

We do think that’s rather a better future.

Who knows, perhaps Mr. Jack should try reading some of the people correct about climate change rather than just those that he himself publishes?

A certain incompetence to this argument about electricity privatisation

It is The Guardian, of course, that tells us that if only the electricity system were more communal, communitarian even, then things would be better. Freed from those vicious capitalists who just suck dividends and profits out of the system we’d be better off:

The monopoly grid companies haven’t invested much in upgrading the system for renewable energy, but they have extracted huge amounts in dividends and interest. National Grid shareholders took £1.4bn out of the company in both 2020 and 2021, although that is still below their record take of £3.2bn in 2017. The private generators didn’t invest in renewables until we started injecting public money. The supply companies didn’t compete and just enjoyed extracting dividends, until even Theresa May admitted there had to be a price cap – a humiliating acknowledgement of market failure.

The price cap is the market failure itself but let us leap beyond that and just feel how joyous it is to be free of capitalist exploitation.

This isn’t just theoretical. In other major western countries, most households do not have to play the market as in the UK. In Germany, public sector suppliers of energy are more trusted, and two-thirds of all electricity is bought from municipally owned energy companies (“Stadtwerke”). They avoid other problems of the UK system, too. Stadtwerke own and run the great majority of the distribution companies and have also played a leading role in developing renewable electricity generation. The Stadtwerke of Munich city council has been supplying enough renewable energy for the needs of every household in the city since 2016, and by 2025 will supply enough for all the local industries, too – your BMW will be made using public renewable energy.

Well, yes. Although we do need to add the one more little bit here. The EU tells us that the average price of electricity in Germany is .30 euros per KWh. That’s about 26 pennies in real money these days. The average price of electricity in Britain is, according to Go Compare, 17.2 of those real pennies.

German electricity is about 50% more expensive than British. Yes, true, some of that is the extra costs of the lunatic Energiewende plans but we’re not entirely free of such green levies here either.

This being the argument in favour of the capitalists plus competition of course. That in the absence of those two things prices will be higher. As they are in places without those two things. Therefore we all submit to that vicious competition and the exploitation by the capitalist classes because it makes us better off.

As Joan Robinson pointed out: “The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.”

Just think how high fuel poverty would be if we were like Germany with those municipally owned companies and prices to match.