The misery of Marx’s reserve army

Unemployment is not a choice, but the consequence of too few jobs. It can push people into a cycle o

Is unemployment in America finally beginning to fall? The latest US job numbers, published on 5 November, were better than expected. Non-farm payrolls, a statistical and economic indicator released monthly by the US labour department, increased in October by 151,000. That sounds encouraging, but the data release carried a much more mixed message. In fact, the unemployment rate increased overall - there are now 14.8 million unemployed Americans (9.6 per cent of the workforce). It seemed a sensible idea to put on my labour economist hat and explain to readers what is going on in the US labour market and what might happen next in Britain.

Each month a separate household survey is also conducted in the US which contains in­formation on employment as well as unemployment. It tends to be more volatile, month to month, than the establishment survey. The household survey has a more expansive scope, because it includes the self-employed, unpaid family workers, agricultural workers and private household workers, who are excluded from the establishment survey. It is the household survey that is used to calculate the unemployment rate. Some months the two surveys provide rather different pictures, and this is such a month.

In contrast to the increase in non-farm payrolls, employment based on the household survey fell by 330,000. Plus, the number of unemployed increased and the size of the labour force fell, which resulted in the unemployment rate rising by roughly half a percentage point.

For comparison, I present the equivalent data for the UK alongside the US figures (see adjacent table). The UK labour market looks in better shape but the worry is that the most recent indicator, the claimant count, increased in both August and September.

Wrong mandate

The Federal Reserve has acted to increase its quantitative easing programme by a further $600bn, not least in an attempt to get unemployment down. This is one of the benefits of having a dual mandate focusing on inflation and unemployment, rather than the mandate of the Bank of England's Monetary Policy Committee to target CPI inflation alone. At present, inflation is not an issue in either the UK or the US.

I was driving along in my car in Vermont the other day listening to a radio interview with some politician explaining that it was the government that caused unemployment. He argued that in the 1960s unemployment was low and government spending was low, but in the 1980s, and again today, unemployment was high and government spending was high - ergo, reduce government spending and unemployment would fall.

He had his causation mixed up; when un­employment increases this causes government spending to rise as a proportion of national income, not the reverse. Why? First, in a recession the private sector declines more than the public sector, so the total share of the public ­sector rises. Second, government spending increases in a recession, acting as a so-called automatic stabiliser. This helps to soften the blow from a private-sector downturn.

The other great myth being bandied about is that the unemployed are a bunch of lazy bastards. A vast array of evidence suggests that this is not the case. Unemployment has not increased because the unemployed are lazy and have chosen not to work because benefits are so high. Marx's reserve army of the unemployed is a conscript, not a volunteer, army.

The problem right now is simply that there are too few jobs. The facts are these: a) there are five unemployed people per vacancy; b) there is inevitably a mismatch between the skills of the unemployed and those required for the job being advertised; and c) it takes time for the unemployed to find new jobs.

During a long period of unemployment, workers can lose their skills, causing a loss of human capital. In addition, being unemployed is obviously stressful and it makes people unhappy. Unemployment increases susceptibility to malnutrition, illness, mental stress and loss of a sense of self-worth, leading to depression. Being jobless injures self-esteem and especially fosters feelings of helplessness among the youth. There is evidence that the psychological imprint of joblessness is long-lasting. Increases in the unemployment rate tend to be associated with increases in the suicide rate. And it increases the probability of poor physical health.

blanchflower table

Downward spiral

The long-term unemployed are at a particular disadvantage when trying to find work. A person's morale sinks as the duration of unem­ployment lengthens. As unemployment rates increase, crime rates tend to rise. There is evidence that a cycle develops whereby involvement in crime reduces subsequent employment prospects, which then raises the likelihood of participating in crime. There is even evidence of a significant positive relationship between unemployment and "right-wing criminal" activities. In short, increases in the unemployment rate lower the happiness of everyone in society.

Professor David Bell of the University of Stirling and I have just published a paper in the National Institute Economic Review called "UK Unemployment in the Great Recession". We found that the unemployed in the United Kingdom have particularly low levels of well-being, are depressed, have low levels of life satisfaction and are likely to be in financial difficulties.

We also found that the underemployed - those who say they work part-time because they could not find a full-time job, or that they would prefer more hours - are much more likely to be depressed than those who have adequate hours.

The worry I have is that the numbers of unemployed are going to start to rise, and soon. At least in the US they have Ben Bernanke, chairman of the Federal Reserve and celebrated scholar of the Great Depression, on the case.

David Blanchflower is a labour economist and a professor at Dartmouth College, New Hampshire, and the University of Stirling.