Varieties of Capitalism: A Critique


The Varieties of Capitalism (VoC) has become the dominant approach in comparative political economy and enjoys wide application and attention in disciplines outside of political science and sociology. Indeed the VoC approach has enjoyed much attention in comparative industrial/employment relations (IR). This article undertakes a critical evaluation of the importation of the VoC paradigm into comparative IR. Inter alia, it is argued that the VoC approach, as it is presently configured, may have little to teach IR scholars because its basic theoretical concepts and methodological priors militate against accounting for change. This article begins with a summary of the routine problems researchers in comparative political economy and comparative IR have encountered when attempting to account for change within the constraints of the VoC paradigm. Here the focus is on the limitations imposed when privileging the national scale and the problems engendered by a heavy reliance on comparative statics methodology infused with the concepts of equilibrium and exogenous shocks. The article then goes beyond these routinely recognized limitations and argues that the importation of terminology from neoclassical economic theory, of which the original VoC statement makes foundational reference, further serves to constrain and add confusion to the comparative enterprise; namely, comparative advantage, Oliver Williamson’s neoclassical theory of the firm, the use of the distinction made between (im)perfect market competition in neoclassical economics and the fuzzy distinction made between firms, markets and networks.In the concluding section we argue that the VoC’s narrow focus on the firm and its coordination problems serve to legitimate IRs traditional narrow focus on labour management relations and the pride of place that HRM now enjoys in the remaining IR departments. Ultimately, however, the embrace of the VoC paradigm by comparative IR is a net negative normative move.

The full article can be found here

A rotting fruit that does not give vent to its own demand?

Given we seem to be stuck in fairly heady economic times it seems worthwhile to me to put out another post on the subject of employment, labour force growth and unemployment. In this post I am going to revisit the question of labour supply and demand and then take a closer look at the related issues of structural unemployment and the rotting skills (hysteresis) and dependency thesis  that has gained so much popularity in policy circles since mid 90s.

In a former post I mentioned the surge in labour supply during the 70s and 80s yet the graph I produced was a little underwhelming because it took a look at the underlying demographic growth of potential labour supply and not actual labour supply.  So this time I have have subtracted total labour force growth from total employment growth. Again, a positive reading indicates demand growth is outstripping supply growth and thus a decrease in the unemployment rate.  The inverse is that a negative reading says labour supply growth is greater than labour demand growth and thus leads to an increase in the unemployment rate. Here is the graph:

This is fairly sobering stuff.  The jobs boom of the 60s gave way to the deluge in the labour supply of 70s from which the employment market not to mention the welfare state has never fully recovered.  All that talk in the 90s about the need to reform UI/EI was not really about workers gaming the system it was about a welfare state that could not and would not provide the kind of insurance necessary to cover an over 70 % participation rate in which workers were more likely to be unemployed.  The graph below shows just how ugly it can get.

Clearly the deluge in the labour supply 70s had profound impact on long term unemployment which amounted not to an institutionally determined behavioural switch in workers propensity to work but rather a structural shift in the labour supply curve sans an equally profound shift in the demand curve for labour.  We know for example that for two decades, from the late 70s to late 90s, that real wages were stagnant indicating a loss in the bargaining power of Canadian workers. Yet despite the loss in wage bargaining traction, demand for labour was not forthcoming until the dot com and later housing booms of the late 90s and 2000s.  At the end of the day it was the bubble economies which finally, and fictitiously managed to work through the supply boom of the 70s.

If there is any doubt that demand for labour is the most important determinant of structural unemployment rates we need only look south to our American cousins.  In the graph below I have plotted US long term unemployment rates along side the Canadian rates.

Despite or because of higher US productivity during the 2000s the US had already begun to move towards higher levels of structural unemployment than Canada during the early 2000s something not seen since the mid 70s.  Clearly the severity of the last recession in US accounts for most of the difference in long term unemployment rates.  I have not seen any research which argues that the US has a significantly more generous unemployment insurance system than Canada.

The popular myth promulgated throughout 90s was that structural rates were high because they were high.  In the literature this is called hysteresis.  The basic idea is that the longer  a worker is unemployed the less employable they become because their skills degrade like a piece of fresh fruit on the kitchen table.  The hysteresis argument was used in turn to argue for more restricted access to EI and lower benefits to encourage workers to get back to work before their skills rotted.  This all had the air populist plausibility particularly when combined with the trend toward increasingly individualistic explanations for collective social problems in the social sciences especially economics.  But whatever the strange brew of populist folk wisdom–that workers prefer the dole to working–and academic fads the problem is, as the graph above demonstrates, high structural unemployment and hysteresis seem to magically disappear when there is strong demand for labour.  And that demand, as the graph above also suggests, is determined by the general health of the macro economy and has nothing particularly to do with the supply characteristics of labour.

To put a fine point on the argument what needs to be demanded of the purveyors of the hysteresis hypothesis is just what reversed the rotting of workers’ skills that magically made them employable after 1991-92.  Was there a steady increase in the funding of retraining programs for example?  And what about the US what was going on after 2001 did the Skills of US labour all of sudden just start rotting?

The alternative narrative to the rotting skills / lazy labour thesis is that the 70s was a period of structural realignment in which secular period of decreased GDP per capita growth set in matched by a deluge of labour supply.  The 80s and 90s were thus periods of adjustment to this new reality.  The UK the US and Canada were early supply side reformers which consciously sought to re-enforce the punitive logic of capitalist labour markets in order to assure price stability (tame inflation) and break workers bargaining power.  In other words, neoliberal macro-policy, despite protestations to the contrary, had nothing much to with solving the problem of long term and high structural rates of unemployment.  It was a feature not a glitch that the solution to that problem would have to wait until the supply side reforms delivered up their magic via a tsunami of consumer credit and control fraud serving up a ponzi economy that could approach something close to what could be called full employment.

As this report from the BLS (p.23 A-12) demonstrates long term structural unemployment has gotten worse in the US not better since 2009.  Most sober economists will concede that this has everything to do with the health of the US economy.  But it will not be long before the rotting skills thesis is floated into the stream of policy discourse as a cover for the fact that like with the financial sector the solution is to kick the problem down the road and blame the victims along the way.

*Note that Stats Can defines long term unemployment as 1 year + whereas the BLS defines it as 27 months weeks +.  By using 6 months + which conforms to the format of the data reported by the OECD I have more less deployed the BLS definition.

Canada: persistently 2nd worst in class

During the last election much was made about Canada’s relatively good performance during the last recession.  What was conveniently left out of the discussion by all political parties is just how dismal Canada’s macroeconomic performance has actually been over the last forty years including the last decade.  Below are two graphs plotting Canada’s relative macroeconomic performance on three metrics: unemployment and inflation, the so-called Misery Index (MI), and productivity. First the MI (click for enlarged and clear image).

Over the forty years Canada has ranked either the worst or second worst of the seven countries plotted in the graph above.  What is most interesting is that for the last two decades most of that dubious distinction has been earned via high unemployment rates as almost all the differences in the scores in the misery index are attributable to differences in unemployment rates as inflation rates clustered into a tight band between 0 and 3 percent.  So top marks for price stability and low marks for employment creation.  That should help to put a fine point on the topic of corporate tax cuts.

But OK you say so unemployment has been high price stability surely helped bolster Canada’s productivity.  Nope.  There the story goes from bad to pathetic.  Canada has consistently trolled the bottom of the pack.

I guess Canadian policy makers and corporates can take solace in the fact that over the last decade Germany and the Netherlands were also pancaking in terms of productivity but as I will show in later post the other two can at least claim very healthy current account surpluses and in the case of Germany a nonetheless very strong manufacturing sector.  As I will also illustrate in yet another post the bright side is that Canadian profits have been very healthy.  This too will help to put a fine point on the subject of corporate tax cuts.

Regulating Flexibility: book review comments welcome

I received a rather harsh note from a journal demanding that I submit the review or give back the book. To make matters worse, shamefully (on my part) the journal is hosted by my department. I am more of a note taker than a bring it to the finishing shop kind of guy. Here is the first draft. Comments welcome.

Regulating Flexibility: The Political Economy of Employment Standards.
Mark P. Thomas (2009), McGill-Queen’s University Press.
ISBN: 0773535284

Mark Thomas’ qualitative analysis follows firmly in the York tradition of political economy with its heavy emphasis on analysing the way in which institutions are both shaped by and shape the composition of social relations between class, gender and ethnicity. His study is thus able to offer insights on the way in which, what would at first glance seem to be, rather mundane legislative changes have nonetheless significant impacts when analysed within the broader context of neoliberal economic restructuring.

In Regulating Flexibility Mark Thomas undertakes an analysis of the evolution of labour market policy principally with respect to employment standards in Ontario. While the bulk of his analysis is concentrated on the period form the beginning of the 1970s to the new millennium, he nonetheless commences his empirical analysis with a concise presentation of the evolution minimum standards legislation since the end of the 19th century in Ontario.

One of the central strengths of Regulating Flexibility is that it makes the firm link between economic restructuring in Ontario in the pursuit of deep integration with the US and the broader global processes restructuring of production and consumption. In this frame policies designed to elicit greater “flexibility” from the workforce in general and individual workers at the level of the enterprise more often than not served to increase a sense of insecurity on the part of workers. That is, in many ways the pursuit of flexibility with respect to minimum standards legislation, by conscious design or not, served as a punitive form of (re)regulation which intensified the insecurity of already increasingly precarious and marginalized segment of the labour force. Moreover all of this occurred in the context of a diminished and diminishing labour movement which was increasingly incapable of defending core labour markets.

The picture that thus emerges in Regulating Flexibility is one of a (re)segmentation of labour markets: with elements of secondary and tertiary labour markets creeping into primary labour markets while at the same time, in the pursuit of flexibility, producing noticeably deteriorating conditions in secondary and tertiary labour markets. Clearly minimum standards legislation is part of the broader labour relations regime.

Characteristically Thomas concludes his book with a discussion of what is to be done about what he, rightly views, as a distressing turn in labour market regulation in Ontario at century’s end. Here the familiar tension is drawn out between the evident need for transnational regulatory institutions to limit the regional whipsawing of what are increasingly integrated global labour markets and the institutional reality that unlike the regulation of global trade via the WTO for example, there is not an international organization with the power to enforce transnational minimum standards. Simply, as far as labour markets go the national and regional states are the only games in town. And in Canada, given the constitutional division of powers, it is at the provincial level where most of the work must be done.

I generally agree with the list of reforms Thomas suggests will ameliorate the most egregious of labour practices in Ontario—expanding coverage, increasing minimum wages, improving minimum standards on work times, and equally important enforcement. I am, however, less sanguine, given the current milieu, that workers in Ontario have the organizational capacity and solidarity to win these reforms by pressure from the ground-up. One of the facts of neoliberal labour market policies coupled with the trans-nationalisation of production and consumption is that they actively intensify the intra-class cleavages between workers. That said, the mobilization of workers to defend and promote their collective needs is historically the only way legislative reform has taken place. Thomas thus quite rightly understands that mobilisation and solidarity are the only way forward so perhaps he is right to cast his prescriptive gaze and hopes in that direction.

I would like to conclude this review with some quips and errata. With respect to the quips, I found Thomas’ presentation of his framework of analysis to be too perfunctory which in no small part I would argue derives from its eclectic nature. It is not at all clear to me that different research strategies and paradigms he draws on make for good dance partners. The result is a rather, albeit rich, descriptive exercise married to underdeveloped theoretical underpinnings. Which research program does this book seek to advance? There is no sense in which there are serious differences between the hypotheses of the contending theoretical camps he is drawing from. Simply put, those looking for elegant conceptual formulations or an explicitly coherent framework of analysis will be disappointed. That said this eclecticism is refreshing if one has been reading too much hypothetical deductive analyses of late.

The last quip I have is that Thomas did not attempt to answer what was surely one of the central questions his study posed. Namely, did the pursuit of flexibility lead to a more competitive and productive economy in Ontario as its protagonists claimed it would? Surely in order to understand neoliberalism as an ideological and macroeconomic strategy at least attempting to answer the above questions is critical.

As to the errata, researchers who are looking for a cogent take on the path of labour market reform in Ontario will find this book a useful reference resource. It catalogues and summarizes the key reforms made in each successive legislative change. The appendices are like wise a valuable resource on changes to employment standards legislation and coverage at both the federal and provincial levels.

Travis William Fast
Université Laval
Département des relations industrielles

Lowered expectations: Canadian Productivity

Pace Stats Can, annual labour productivity was up 1.4% for 2010 which was a level not seen since 2005. In the Canadian context that makes the latest release noteworthy. Sad really. Even more so given the bulk of the gains in the last quarter came from retail which means productivity was not driven by investment but rather by good old fashioned labour sweating or what Marx called absolute surplus vale extraction.

Canadian capitalism same as it ever was.

IMF research paper: “Inequality, Leverage and Crises”

A recently released research paper coming out of the IMF is worth your time. Particularly so if you find yourself making what you take to be a serious argument about the link between inequality and macroeconomic stability but can’t seem to get any respect. Over thirty years of neoliberalism it has been constantly argued that inequality was good for growth and economic stability; this IMF paper argues the opposite and has the neat feature that it is based in evidence rather than in elegant counter intuitive theory.

Below is the abstract for the research paper by Michael Kumhof and Romain Rancière (hat tip to Andrew Jackson over at PEF)

The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and eventual financial and real crisis.

The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group’s bargaining power is more effective.

Exploding the Myth of the Total Quality Toyota

The FT has an article which details union concerns that Toyota was sacrificing quality for price competitiveness. This is not in of itself news: it is a constant of the conditions of capitalist production that cost is weighed against quality and market share. What is interesting is that Toyotism has largely been described as a managerial philosophy where among other contradictions the tension between quality of build and price competitiveness need not exist. Of course the hype was always just that hype. Most forms of managerialism which portaray themselves as resolving fundamental contradictions simply serve to repress them only to find them surfacing in other forms, places and times. Worth a look.

Social democrats need to take social democracy seriously

Part I

It is not exactly a secret that social democracy, at least in North America, has fallen on hard times. Any honest assessment of the NDPs platform reveals a grab-bag of for better or worse ideas.* The problem is that it lacks not only a coherent animating vision but a realistic appraisal of the state of things. It lacks a certain pragmatism but not for the reasons commonly adduced. Indeed, usually realism and pragmatism are invoked to urge social democrat parties to make an accommodation with the existing politics and economics of the time. Yet, Tony Blair’s “there is no alternative,” or Schroeder’s third way social democracy are by now thoroughly discredited political exercises.

But what went wrong? Curiously, there is not any end of analyses which argued that in the case of New Labour it was too accommodative; too willing to make its peace with the political economy of neoliberalism. How then could such a political program of pragmatism now be so out of sorts with the reality of today? Ironically, part of the answer is that it is precisely because New Labour sought accommodation with neoliberalism that it was bound to fail. In very real sense it was indeed too pragmatic. What new labour failed to do was develop a clear headed vision that was not merely based on an acceptance of the status quo. Politically this may have been a symptom of the times. But what North American social democrats and Canadian social democrats in particular need to take stock of is the abysmal failure that was the pragmatism of New Labour without engaging in reckless magical thinking.

This magical thinking has taken two central forms. On the one hand it has manifest in a benign or malignant romanticism of the thirty glorious years or the golden age of the Keynesian welfare state. Let us skip over the debate about how glorious these thirty years actually were. The idea is that what social democrats ought to be advocating is a return to the universal bureaucratic welfare state of a by-gone age. Why on earth would social democrats hold this up as a model? Even beyond the fact that today there is simply not the type of social and political cohesion available to make this work in terms of tax policy why would social democrats hold up the high modernist, top down, bureaucratic welfare state as the solution to the contemporary anarchy of the market? Take welfare policy for example. And here I do not mean to denigrate or trivialize the compassion of welfare workers but the fact is there are humanist limits to what large bureaucracies can process. And yes that is what welfare bureaucrats do: they process. First, they employ a pre-determined formula to assess whether the prospective recipient is worthy. Second they then start a file and begin the process of monitoring their object (you just can’t have 300 subjects per case worker…ratio is of course illustrative not actual). So here subjects become objects: grist for the bureaucratic mill. And there is a limit to what can be done at this scale. It is indeed a poor substitute for a humanistic and democratic form of welfare. The bureaucratic solution to the necessity of welfare is alienating precisely because it both individualises its subjects and then renders them as objects of policy. It neither empowers nor thus liberates them: it does not give them agency it rather reinforces the lack of agency stemming from poverty. Now why would social democrats accept this as a democratic and humanistic model of how to deal with the anarchy of capitalism and the existential uncertainty of modern life? A realistic politics would attempt to address this, and the magical thinking that takes harbour in a unearned romanticism just kicks the problem down the road and plants the seeds of its own destruction.

On the other hand, magical thinking has captured the imagination of those social democrats who would look abroad. Often we hear Sweden, Norway, or Germany is evidence that another world is possible. Let us leave to the side for the moment the question over whether or not these countries have in the last 15-20 years been on a social democratic trajectory or on an accommodationist trajectory. That is, let us not ask the pertinent question as to the direction of political and economic change in the past two decades in these countries. Let us assume that all is well that is stylised well. Rather, the North American social democratic magical thinking consists in presuming that these model social democratic welfare states can be transplanted into the North American context. They can not. Even a cursory glance at the history of their welfare state institutions form training to unemployment insurance through to industrial relations reveals a complex web of socio-political compromises that would shape the development of their institutions and create natural constituencies for their reproduction over time. North America lacks these histories and hard institutionalisation of these institutions and there simply is no way to technocratically impose them. We have neither the legal nor the social precedents to enforce them let alone reproduce them.

The mater can be graphically illustrated. In the neo-Kaleckian framework economies exist in three potential states. A high road equilibrium characterized by practicable full employment, high productivity growth and the requisite institutions to ensure a balance between the rate of productivity growth and the rate of wage growth. We can call this a weak equilibrium as it rests on a series of historical compromises and institutional path dependencies that are difficult to maintain. Their durability rests on the fact of a balance of class forces which in which the significant social actors have the credible capacity to punish defection from the game. Neoliberalism in North America and Anglo Saxon countries in general was about forever depriving both the democratic state and the subordinate social partners such as unions from developing and maintaining this sanctioning capacity. This fact cannot be papered over. There is not in North America a state or a union movement strong enough to force the kind of class and institutional compromises into existence necessary to produce a credible sanctioning force. Thus it would appear that social democrats are left with one of two choices. An embrace of middling equilibrium between economic boom and bust in which more or less welfarist policies can be pursued or an acceptance of a low road, low employment, low productivity growth de facto model in which dogs eat dogs.

Thus far the pragmatist element within North American social democracy has been pre-occupied with redistributing boom time gravy and now bust time austerity. It is essentially parasitic on neoliberalism and thus is a sick pragmatism. Real pragmatism and serious realism demands that they start from where they are and guided by a coherent animating vision, set a bar for where they want to go. North American social democrats are in this regard totally lost.

In the second part of this post I will suggest how social democrats could realistically and pragmatically move forward. Continue reading

Book Review: The Dirty Work of Neoliberalism

Aguiar, Luis, and Andrew Herod, eds. The Dirty Work of Neoliberalism: Cleaners in the Global Economy: Cleaners in the Global Economy. Oxford: Blackwell Publishing, 2006.

In this edited volume Luis Aguiar and Andrew Herod have brought together a collection of articles on the global cleaning industry principally organized into three thematic sections: geography, ethnography and agency. This book takes an expansive approach to considering labour relations in the cleaning industry. Not only do the editors manage to bring together a collection of articles in which the experience of cleaners in the global north and the global south are put into relief. They also manage to provide great depth in terms of the individual experiences of cleaners as they are subject to increasing forms of intensive management. Here a clear line is drawn between classic Taylorist managerial strategies (involving increasing levels of micro-supervision with the goal of work intensification), new innovations in cleaning machinery and surveillance technology and the pressures that a now globalized cleaning industry brings to bear on workers in the modern cleaning sector. The last section of the book is dedicated to an exploration of the different strategies of resistance to work intensification and to examples of the collective struggles taken-up by workers in the furtherance of their common interests. This book thus comprises an ambitious attempt to reveal, what the authors’ stress, is the hidden and largely invisible world of the cleaning industry, cleaning work and the particular challenges facing cleaning workers.

One of the articles I personally found most interesting was that authored by Andries Bezuidenhout and Khayaat Fakier. Here the authors do an excellent job at exposing the continuities and discontinuities between the pre and post apartheid labour relations regimes. Both the continuities and discontinuities will be disconcerting for those who would hold to any simplistic notion of the amelioration of the life of South African workers following the end of apartheid.

Clearly the strength of this book is that it combines the work of several different researchers and their diverse perspectives. As often is the case in projects of this type and scope, however, its strength is also its weakness: the diversity of the researchers and perspectives makes it difficult to achieve a totally coherent whole. For example, as the title of the book makes clear the editors seek to link the research contained inter alia to the broader political economy of what the authors see as a globalized neoliberalism. While I am sympathetic to this project I am not sure the articles manage to come together in a systematic enough fashion to offer a clear workout of neoliberalism as a description of the structure of the global economy, an ideology, or a policy paradigm. In this regard the introductory remarks of the editors are too schematic.

Yet these are minor criticisms. I would recommend this book to those with an interest in critical management studies, industrial relations, trade unionists and those who specialize in the sociology of work.

Does Collective action by workers always increase unemployment?

Thinking out-loud

The answer to this question is almost a unanimously agreed upon yes across paradigms even within formalized Marxian models.  In the classic Marx-Goodwin formulation successful collective action by workers only serves to increase the long-run rate of unemployment: some workers maybe able to raise their wages but this will be balanced out in the aggregate by increased unemployment.  However, if as Shaikh (2003) points out the strength of labour endogenously influences the rate of technical change then workers can increase their wages in the aggregate (wage share) without causing an increase in long term rate of unemployment.

Shaikh sums up the case thus:

6. Summary and Conclusions

This paper has attempted to analyze the manner in which alternative macroeconomic frameworks portray the dynamics of the labor market. Two types of dynamics have been of interest, both of which depend upon the mutual interactions between the wage share and the employment rate. In disequilibrium dynamics, the issue is the manner in which these variables respond to imbalances in the labor market, while in growth dynamics the issue is their response to technical change and growth in labor supply growth. We examined the basic neoclassical, Keynesian, Harrodian and Marx-Goodwin models, since each embodies a particular approach to macroeconomics

Dynamics require explicit analysis of stability of various equilibria. But even the existence of a particular stable equilibrium need not imply that the economy will be at or even near that point. The analysis of the neoclassical model in Section 2 demonstrates that if real wages respond to the current excess demand for labor, then the labor market converges to a particular wage at full employment (Figure 1). But if real wages respond to the cumulative excess demand for labor, then the labor market would exhibit endless and possibly large fluctuations in real wages and excess labor demand, around but not at, the equilibrium real wage and full employment (Figure 2). This second type of response is reminiscent of Goodwin’s elegant representation of Marx’s argument about the reserve army of labor, except that in his model the center of gravity is a persistent level of unemployment, not full employment (Section 5). In any case, this type of disequilibrium dynamic remind us that we should be careful to distinguish between equilibrating paths and equilibrium points. At an empirical level, this cautions us not to confuse observed variables with their putative equilibrium levels.

In the case of growth dynamics, a second type of finding emerges. It turns out that in each of the four macroeconomic approaches, the paradigmatic case is one in which the organizational or institutional strength of labor has no influence whatsoever on the path of real wages and on the level of the wage share. In all of the approaches, it is technical factors and labor supply growth which determine the standard of living of workers. The degree of labor strength in the struggle over wages has no effect at all. In the neoclassical case, this is instanced by the ubiquitous Cobb-Douglas production function, in which the labor elasticity parameter directly determines the wage share. Hence the profit-wage ratio is entirely determined by production conditions. In the standard Keynesian case, the corresponding outcome arises from mark-up pricing, in which changes in money wages are said to cause equiproportional price changes. This not only leaves the real wage unchanged, but also implies that it is unchangeable. In the Harrodian framework, unemployment affects the wage share, which in turn affects the warranted rate of growth via the dependence of the savings rate on the wage share, a la Kaldor and Pasinetti. This feedback loop leads the system to stabilize around full employment in the long term. But it also implies that the wage share is completely determined by the rates of technical change and population growth, completely independently of labor strength. Finally, even in Goodwin’s classic formalization of Marx’s theory of the reserve army of labor, “class struggle” over wages has no effect whatsoever on the rate of surplus value. Indeed, greater labor strength would only serve to increase the long-run equilibrium rate of unemployment. This is a particularly unkind cut for a Marxian model.

Two critical questions are raised by the general theoretical finding that wage shares are independent of labor strength. First of all, it is at all empirically plausible? The stability of wage shares is a well-known “stylized fact.” But then so too are differences between wage shares across nations and across levels of development. Are these differences reducible to those arising solely from technical factors and conditions of labor supply?

Alternately, if social forces do indeed influence the wage share, how might such a mechanism operate? The key expression to consider is equation 15, in which the rate of change of the employment ratio depends solely on two critical variables: the rate of accumulation gK = s(u)R and the rate of mechanization gk, assuming that the rate of growth of the labor supply gn is exogenous.

v‘/v = gK – (gk + gn) = s(u)R – (gk + gn)                                            (15)

We saw that if the output-capital ratio R and the mechanization rate gk are exogenously given, then there is only one wage share u = u* consistent with a stable employment rate (i.e. with v‘/v = 0). But this conclusion would not be altered if R and gk, and indeed even gn , were to also depend on the wage share.21 What is needed, therefore, is some other mode of feedback between the employment rate and one of these variables. A particularly simple one is to suppose that the rate of mechanization depends not only on the wage share (i.e. indirectly on the employment rate through its effect on the relative cost of labor) but also directly on the employment rate (i.e. directly on the relative availability of labor). Rowthorn (1984, pp. 203-205) notes that this is precisely the argument in Marx.22 Then gk = f(u,v), and

v‘/v = gK – (gk + gn) = s(u)R – [gk(u,v)+ gn]                                      (15a)

The results of this apparently minor extension are dramatic. Suppose we consider the extreme case in which the wage share is now entirely determined by “class struggle,” so that u = u0. Then if v‘/v > 0 initially, the employment rate v will rise, which will raise the mechanization rate gk(u0, v), thereby bringing the employment rate back into balance. It follows that the same result would also obtain if we assume that the wage share depends on both “class struggle” and the employment rate. Thus the preceding simple modification completely reverses the general theoretical conclusion that the wage share is independent of labor strength, for now there is plenty of room for the influence of the relative strength of labor.

However, if the mechanism is technical change–the swapping of machinery for living labour–it strikes me that over the short run the Marxist model would have to say that unemployment must initially increase unemployment.  This is consistent with Marx’s observation that capital can always adjust to existing supply shortages through technological / organizational innovation. Surely this process takes time.  As Marx was well aware.   I think Marx’s position was that even in cases where capitalism managed to produce full employment that such a condition would not prevail for long do to the tendency to substitute away from labour.

Moreover, what about the case of successful collective action by workers in the face of not labour market shortages but rather excess supply aka unemployment?  It seems the inescapable answer is that such action would serve to increase the short term rate of unemployment even if over the medium to long term there were not any adverse effects.

This result undoubtedly sharpens the political question for unions during recessions.