Tuesday, 17 December 2013

Nasty, brutish and (possibly) short(-lived): Putting the UK recovery in context

2013 has been a year of slow recovery for the UK economy. Thanks to a revival of household consumption, growth has returned. Yet, the sustainability of the recovery remains uncertain. The fact that growth is occurring in the context of falling real living standards suggests that recovery could be short-lived, at least without a revival in investment and exports. Neither looks very likely at the present time. 

There is the real fear that the UK is set to repeat the same mistakes as the past: that the economy is growing due to higher consumption that cannot be sustained into the future. Faced with lower incomes, households are only able to spend more by reducing savings or by borrowing more – neither is sustainable. 2014 may yield further economic growth, but subsequent years may bring another crash, possibly even worse than the last one.  

Even with the return of growth, the UK economy remains below its pre-crisis level of GDP. Technically speaking, six years after the start of the crisis, the UK economy remains in a state of ‘depression’. Unemployment also remains high. In employment terms, involuntary part-time work has risen and jobs growth has tended to be concentrated in low-waged sectors. In addition, wages have failed to keep pace with inflation, leading to an unprecedented squeeze on real wages. Many in work face poverty.  

Behind the statistics showing rising GDP is real hardship. Food-banks have been springing up almost at the same rate as forecasts of GDP have been uprated. It is unsurprising that many people in the UK report not feeling any benefit from economic recovery, even though most are convinced that the economy has returned to growth. This is a recovery with a ‘feel bad’ factor.

The expectation is that real living standards will continue to fall in the next few years. Hardship is likely to increase still further through the retrenchment of the welfare budget. The government’s attempt to reduce the size of its own spending will involve cuts in welfare payments that will hit the poorest in society the most.   

Growth, if sustained, will bring down unemployment. The fall in unemployment will at some point help workers to recover some of the loss in their real incomes. Yet, changes in the UK labour market mean that workers will have to fight hard for wage increases. The secular decline in union power, combined with the relative power of large corporations, make it difficult for workers to bargain for higher pay. The fact that many workers are burdened with debt also weakens their bargaining power. A significant fall in unemployment may be required before real wages rise again.

The prospect of an economy growing again but people not getting any better-off is a grim one. Talk of recovery has a hollow ring while many millions of people are suffering real hardships in their lives.  

The positive counter-narrative to the above is that somehow the existing consumption-led, debt-fuelled growth model in the UK can be challenged and an alternative put in its place. Let’s call that alternative a progressive model of growth based on higher wages and higher investment. It would seek to empower workers not cower them, by offering new training opportunities, it would demand a new role for the state in stimulating economic activity (in effect, a revived industrial policy), and it would entail the reform of finance so that it acted as the servant rather than the master of industry.

This progressive alternative, however, remains a long-shot. The political will for its adoption is simply not there. Nor is there any popular support for its implementation – most people are fighting just to make ends meet. Instead, there is a grim resignation to the current growth model, in spite of its evident flaws.

But as we approach 2014 it is important to keep alive the idea that things can be different. Austerity was a political choice. A recovery accompanied by welfare cuts also reflects the influence of ideology rather than economics. Different policy choices can and must be made. 2014 might just see the renewal of calls for a different policy approach and for a different kind of economy. Now that would be something to look forward to. 

*** The above was originally posted on the LSE Politics and Policy Blog: http://blogs.lse.ac.uk/politicsandpolicy/archives/38401

Monday, 14 October 2013

Postscript on Nobel

Three economists won the 2013 Nobel Prize in Economics  Eugene Fama and Lars Peter Hansen of the University of Chicago and Robert Shiller of Yale University. This is an odd mix. Fama is famous for devising the “efficient market hypothesis”, a key plank of free-market economics and ideology. Shiller is known for his contribution to “behavioural” economics (more directly “behavioural finance”) that challenges the perfect rationality postulate that Fama’s theory upholds. Hansen’s contribution comes in the area of statistical methods and is unfathomable even to many trained economists.

A cynic would see the selection of these three economists for the Nobel as a compromise. By awarding it to Shiller the award committee is able to say it is rewarding a real-world economics that is capable of confronting the current crisis. By awarding it to Fama and Hansen the committee is able to demonstrate conformity to the established theories and methods of mainstream economics.
Despite the award of the Nobel to Shiller, the key argument made in my earlier post remains essentially valid – there is no Nobel for contributing to the development and promotion of an economics that helps to resolve pressing real-world problems. To the contrary, the standard for winning remains that of progressing economic thinking largely for its own sake.
Shiller’s behavioural economics offers no theory of systemic crisis. Fama’s efficient market theory justifies a free-market approach that got us into crisis.
As the Guardian put it earlier, this is a Nobel for the right. It is also an award for an economics discipline that remains impervious to real dissent and real reform.

Economics Nobel must acknowledge the global financial crisis

What are economists for? Well, one obvious answer is to “do economics”, defined in the academic discipline sense. That is, to publish papers and advance knowledge. But there is another view, one that sees economics as a tool for resolving pressing economic and social issues. Half a decade into a severe global financial crisis, this latter view ought to be more relevant than ever. But it does not seem to be shared by those awarding the Nobel Prize in Economics.

Economics should not be about “advancing economic knowledge” for its own sake; it should be about changing the world for the better. And economics deserves a prize that reflects contribution to society, rather than just to the profession.

The Nobel Prize in Economics, awarded today, is not even an official Nobel, being awarded by a Swedish Bank “in Memory of Alfred Nobel”. Nonetheless, its award signifies the contribution of a leading name or names in the economics profession.

But for wider society, the gains from the award are not altogether clear. Relative to other Nobels, the economics prize has a tougher time demonstrating its contribution to broader progress in society. Given the obvious link between economics, the economy and social progress, this is a real problem. Even a creative and novel solution to the current crisis is not something that would guarantee a nomination – indeed, in some senses this form of rupture with orthodox thinking would be the opposite of what is required.

Economists have generally been rewarded for a slavish devotion to a particular set of theories and methods. Mainstream economics is based on ideas of efficiency, equilibrium and utility maximising agents. Even newer developments in the mainstream, including trendy fields like behavioural economics and neuroeconomics, still retain these core ideas.

The mainstream methodology, new and old, is that of formalism and individualism. Economics has become a science defined by the construction of complex mathematical models that outsiders will find tough to grasp. Winning the Nobel requires conforming to these set standards.

Even those few winners who have achieved a degree of public recognition for their critical commentary on the global situation, such as Paul Krugman or Joseph Stiglitz, tend to revert back to the mainstream in their academic work.

As the ideas conform, so do the winners themselves, fitting a particular mould. They are mostly white, male, and American. Elinor Ostrom, who won in 2009, remains the only female recipient of the award. Over half of the winners have been of US origin, and only three winners have come from outside North America or Western Europe. The University of Chicago, a bastion of mainstream economics and home to the likes of Milton Friedman, has 26 economic laureates alone.

Despite its influence over policy, the economics discipline is not open to public scrutiny. This is, in part, the product of the formal nature of economics that has prevented a meaningful dialogue with the public at large. Economists, as a result, have been allowed to pursue their own research without reference to the real world.

The magnitude of the current crisis – not foreseen by most economists, of course – forced the real world to get in touch with economics. The public could be forgiven for thinking that things would have changed as a result, but if people knew more about how economics research continues to be conducted they would doubtless be shocked. The fact that much economics research does not engage with the current crisis would be a cause of real concern to the public. They would be more horrified if they knew that those being nominated for and ultimately receiving the Nobel Prize in Economics were not undertaking serious study of the causes of and solutions to the crisis.

Dissent remains in economics, but only on the margins. These non-mainstream approaches, known as heterodox economics, build on the tradition of classical political economists such as Adam Smith and Karl Marx. They include diverse perspectives from contemporary Marxist political economy and post-Keynesian economics through to feminist and ecological approaches. These perspectives challenge the theory and method of mainstream economics and offer analysis of and solutions to real-world problems including the current crisis.

But years of marginalisation have meant that the heterodox economics community has diminished in size and influence. Despite its worth in understanding and resolving pressing problems, there is zero prospect of any heterodox economist winning the Nobel.

Yet, in spite of the ongoing crisis, there is talk of awarding the prize to economists whose research is far from helping to understand and resolve our global problems. This is bad for the reputation of economics. It is also bad for the public who continue to suffer the negative effects of the crisis.

We need a revolution in economic thinking, and a prize for leading this radical change would be a great step forward. Without such a revolution, we face the prospect of the Nobel continuing to be awarded for contributions to an esoteric, make-believe economics that few outside of the profession would see as relevant or important. Economists can, and must, do better than this.

*** This post was published on the Conversation website: see here.

Wednesday, 2 October 2013

Obsession with "hard work" is a dangerous distraction

This year’s Conservative Party conference has reminded us incessantly that George Osborne and his fellow ministers are “for hard working people”. This same slogan has also become popular among Labour politicians – indeed support for “hard working people” has replaced support for the working class.

The broader use (and overuse) of this slogan by politicians reflects a deeper belief that hard work is the proper way of living one’s life. Working hard is the way one gets on in life. No matter that real wages have fallen in recent years, work is promoted as the route to economic success.

Negatively, the benefits of hard work are contrasted with the evils of idleness. The “idle poor” are the ideological counterpoint to hard working people. This inevitably feeds hostility towards those on benefits and leads to support for draconian measures to force the poor and jobless into work even when jobs are in short supply.

But this obsession with hard work as the route to economic success and moral redemption has proved a dangerous distraction in several ways. Working hard to earn a living need not be seen as a good thing if it means enduring long hours of drudgery, long hours away from one’s family and friends, or undertaking several low paid jobs with no security of employment. We lose sight of, and indeed deny, the costs of wage labour by eulogising hard work.

History shows that capitalism brought about an increasing focus on the virtues of hard work. Life in pre-capitalist times was more leisurely and less pressurised; people worked much more irregularly and enjoyed extended periods of free time. It is essentially with the rise of capitalism that the work ethic has become idolised and lauded.

The rhetoric of George Osborne and his colleagues around hard working people is not new but it remains regressive in its effects, not least in ignoring the real hardships faced by those who work hard for a living.

The dream in the past was that capitalism would bring about a reduction in work hours. Keynes famously looked forward to the day when we would work only 15 hours per week. He thought that rising levels of affluence would lead to a shorter working week and to the liberation of humanity from hard work.

History has proved Keynes wrong as workers have continued to face relatively long hours at work, and the prospects for shorter work hours any time in the future look bleak indeed. In fact, with the squeeze on real wages, the likelihood is that many more workers will be forced to work longer just to make ends meets.

But there is a sense in which we could live better lives by working less. Firstly, shorter working hours would provide a means to spread work more evenly in society thereby combating the twin problems of unemployment and overwork. Secondly, working fewer hours would free up more time for people to pursue activities outside of work and thus to realise their creative capacities in other ways. Thirdly, working less would help to combat the stress and burnout associated with long and intense working hours.

Working hard, to be sure, can be rewarding. We can gain intrinsic reward by doing work well on a continuous and intensive basis. Work that matches with our needs, creative and material, can be uplifting. But work has its place. There are other areas of life that matter to our well-being and allowing work to dominate us can only lead to harm.

In essence, the struggle against the ideology of hard work is about the struggle to overcome an economic and political logic that forces us to work longer and harder than we would otherwise. Working less thus ultimately requires us to think beyond capitalism.

George Osborne to think beyond capitalism? Don’t bet on it.

Wednesday, 18 September 2013

Six Centuries of Vilifying the Poor

As far as routes to national economic prosperity are concerned the idea that the majority in society must suffer real hardship to achieve such prosperity would seem harsh and unjust. But that is the way that some policy debate in Britain and elsewhere has come to be framed. The idea that the poor must be subject to direct hardship to get them to work and to contribute to wealth creation underlies some welfare reform policy. And the idea that lower wages for the majority will help reduce the budget deficit as well as improve national competitiveness is part of some macroeconomic policy discourse.

Here I want to trace the historical origins of the idea that the poor must remain poor for the nation to grow rich by considering the contribution of mercantilism that dominated economic debates between the 16th and mid-18th centuries. Mercantilism was recently covered in an Economist article though without attention to its darker side in terms of its support for poverty as a basis for a wealthy economy. I want to remedy that neglect here. As I will show below, mercantilism set the basis for the vilification of the “lazy and undeserving poor” that still finds favour today (my more details thoughts on mercantilist labour doctrine can be found here). I want to show how such vilification is built on a crude mythology and has no basis in reality. Its persistence six centuries on from the beginning of mercantilism remains a barrier to the formulation of better policy and the creation of a better society.

Mercantilism states that a country will grow richer by increasing its net exports. To achieve this goal, the original mercantilist writers recommended that wages be kept at the subsistence level, not just to minimise the direct cost of labour, but also to maximise the pressure on workers to work. They believed that workers were lazy and had to be coerced to work. Daniel Defoe wrote scathingly in 1704 about the “taint of slothfulness” that was possessed by the labouring class in England, a viewpoint shared by other mercantilist writers. It was observed that as wages increased above the subsistence level workers tended to reduce their work hours and to lower their productivity. This was used by the mercantilists to argue for the maintenance of wages at the subsistence level. Subsistence wages not only helped to make the workforce more productive but also helped to maintain peace and order in society. Thomas Mun’s view, written in 1664, that “penury and want do make a people wise and industrious” summed up the prevailing attitude of his day.

Those who echo mercantilists today may not be quite so shameless in their use of language but the essence of their argument remains the same anti-worker prejudice that is nakedly revealed in earlier mercantilist doctrine.

The original mercantilists were advocates of the “utility of poverty” thesis. They believed that there was a positive side to poverty and that the State should create and maintain poverty as a way to increase the volume of exportable output. Workers were to accept enforced poverty as a necessary foundation for national prosperity. The nation needed a diligent and hard-working workforce but the nation had no duty to pay workers well – on the contrary it was the duty of workers to accept subsistence wages for the sake of the nation.

These views on poverty betrayed the prejudices and lack of sympathy of mercantilist writers. They failed to see how workers’ resistance to work (to the extent that it existed) was linked to the arduousness of work, rather than to any innate character defects in workers themselves. They also missed how workers were unused to a regular pattern of work; forcing workers to work longer hours on a consistent basis went against the traditional pattern of irregular working. Workers resisted work again not out of natural laziness, but out of concern to cling on to older, established patterns of working (see E.P. Thompson, 1967). The mercantilists represented the views of a privileged minority in society and their views distracted attention from the real hardships faced by workers in their lives.

Echoes of mercantilist thinking can be seen in two areas of modern debate. The first is in the area of welfare reform. There is a persistent stigmatising of those on benefits who are seen as “scroungers” living a good life at the expense of tax payers. This mythology fuels a hatred of welfare claimants. Yet, it fails to get to the heart of the life situation of those on benefits which involves genuine struggle and adversity. Looking for work on benefits is hard work and time consuming – it is no paradise state. The myth of the “lazy poor” also distracts from the structural causes of poverty and worklessness and justifies draconian policies that only lead to demoralisation and despair among the poor.

There is also the related argument that higher budget deficits have been caused by excessive welfare spending. Tougher times for the poor via reduced benefits are then seen as key to paying down deficits and getting the unemployed back to work. Apparently, a return to growth requires austerity for the masses. The austerity agenda, however, detracts from the actual causes of the crisis and the associated rise in budget deficits – in particular, the financialisation of the economy that ironically has been associated with the rising income of the very rich. If any group in society should shoulder the burden of responsibility for the crisis and its resolution, it is the reckless rich not the downtrodden poor. 

The second area where mercantilist doctrine resonates is in the area of foreign trade. At present, the archetypal mercantilist state is Germany. It has relied on a policy of low wages to increase exports at the expense of other trading nations and the trading surplus that Germany has enjoyed has allowed it to sustain economic growth when other economies have suffered periods of negative or zero growth. Note here that German “success” has been built on the rise of low-paid work. In a modern-day version of mercantilist labour doctrine, workers have been asked to sacrifice income in order to grow the German economy. But Germany now has an unbalanced economy with restrained domestic consumption. Rebalancing towards domestic consumption by the raising of wages has been viewed by critics as vital if Germany is to achieve sustainable growth. But that goes against the spirit of mercantilism as applied in Germany where the achievement and maintenance of low wages has been used to secure a growing economy. Changing economy policy in Germany requires the adoption of a new perspective that does not see low wages as a prerequisite for growth.

Six centuries on from mercantilism, depressingly, we still observe in the media and in politics the routine condemning of the alleged laziness of the poor. We also observe a lack of concern about and acceptance of low wages as a way to restore and increase economic growth. The harsh and unsympathetic attitude towards the poor is not just inhuman but also constitutive of bad economic policy. It is about time we learned different lessons from history.

Friday, 30 August 2013

Economics in crisis

Recent debate has centred on the current state of economics as a discipline. Some have accused economics of not being a "science" due to its lack of predictive success. This is an old argument that betrays a narrow view of what science is. This line of criticism has drawn a sharp response from some economists. 

Others go in a different direction, identifying the problem in economics with the sociology of the economics profession. Paul Krugman writes that:
 "the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions and uses hard math instead".
Below I reproduce a piece I wrote on the crisis (or more non-crisis) in economics. I argue that while many economists have come to endorse progressive policies they have simultaneously accepted essentially the same approach to economic theorising. There has yet to be any revival in heterodox economics. Indeed heterodox economics remains essentially locked-out of mainstream economics debates, this despite the need for alternative economic thinking and economic policies in the wake of the worst economic crisis in living memory.  


The academic discipline of economics ought to be in crisis. Its reputation has been severely damaged by the financial crisis. The implosion of finance and the slowdown in economic growth has left economics floundering. Economists have routinely assumed that markets work more or less perfectly and have assumed away the possibility of crisis. These assumptions betray an economics that is out of touch with reality and in need of revision.

Yet in several ways mainstream economics is continuing as if the events of recent years had never occurred. Its approach to research and key underlying theories remain essentially the same as before the financial crisis. The radical thinking that those outside economics might have hoped and expected to develop has not materialised: rather economics has been hemmed in by the standards and conventions of the dominant neoclassical paradigm. It has been business as usual in academic economics: no fundamental change in the economics profession, no fundamental change in economics journals, and no fundamental change in the economics curriculum.

Economics is more diverse than in the past, to be sure. Developments such as information-theoretic economics and behavioural economics have opened up economics to new thinking. Such research led by economists such as Joseph Stiglitz and George Akerlof has provided a platform for economics to extend its reach and potential influence across the social sciences. But economics has evolved according to the strictures of its dominant theory and method. Behavioural economics and other new perspectives bear the imprint of neoclassical economics. These perspectives reject the assumptions of perfect information and perfect rationality, but at the same time retain other core aspects of orthodoxy at least in part such as the concept of individual optimising behaviour and, more generally, the insistence upon methodological individualism and mathematical formalism. They also draw on other social sciences in a manner that fits with the framework of neoclassical economics: for example, the psychological and social dimensions of behaviour are incorporated into the utility maximisation model, and models of individual behaviour are estimated using econometric methods. Interdisciplinary research is then pursued with a view to extending, at most modifying but not otherwise questioning, neoclassical economics. Research has had to take this form in order to get published in top economics journals and gain access to the profession. Compliance with set codes of behaviour has stifled real dissent.

What economics refuses to do is give a voice to heterodox economists. Heterodox economics spans a variety of approaches including “old” institutional economics, post-Keynesian economics, feminist economics, and Marxian economics. These diverse and sometimes conflicting perspectives have for many years offered an approach to economics that situates the economy in a broader social, historical, and political context with greater attachment to realism. They have by their nature and often by their design sought to develop links with other social sciences and to push economics in a more interdisciplinary direction.

Academic economics continues to operate as if heterodox economics does not exist. It marginalises rather than confronts dissent towards neoclassical economics. Alternative thinking is permitted as long as it accepts and uses the same formal and individualistic method and set of concepts. Economic journals continue to publish the same kind of work and offer no place for alternative schools of economic thought. Economic degrees at all levels are relatively narrowly defined – neoclassical economics still defines the core of the economics curriculum – and economic students leave university with no real knowledge of the history of economic thought and economic history.
On economic policy, economists can sound progressive and even radical. Many mainstream economists have taken a stance against austerity policies, for example. But this dissent is to be set against their acceptance of the status quo within the economics profession. Academic economics remains closed to thinking other than that which supports or extends neoclassical economics. Those defending a progressive politics may at the same time defend a non-progressive and closed economics. Dissent within politics coexists with conservatism within academia.

Yet, there remain tensions in the development of economics. As economics reaches out to other social sciences, its insistence on a barren core of methodological individualism, mathematical formalism, and individual optimisation is exposed to those who have long recognised that the real social structures, institutions, and norms that shape economy and society cannot be reduced to an individualistic methodology. The outward expansion of economics – or process of “economics imperialism” – opens it up to criticism from other social sciences who do not accept its ideas and method.

It is here where heterodox economics has an opportunity to develop and progress. It offers the potential both to stem the tide of economics imperialism and to build a better economics that is more applicable to the real world. Heterodox economics can reach out to other social sciences in ways that are not possible with recent developments in economics. Indeed, it can aid other social sciences in deflecting and contesting economics imperialism and more constructively can help to craft a different foundation for interdisciplinary research. Heterodox economics has much to offer other social sciences, not least in terms of the theorisation of the place of the economy in wider society, but also in respect of its openness to different methods and support for a critical research and policy agenda, that recognises the irreducible efficacy of social structure and the weight of history.

But after years of marginalisation of heterodox economics, and of the separation of economics from the social sciences, an alliance of heterodox economics and other social sciences is not an easy task. It cannot be achieved within economics given the current narrowness of the economics discipline. It is better achieved outside of economics where debates on economic matters and economics are ever more pressing. History, sociology, politics, and human geography offer potentially fertile ground for a renewed “political economy” approach that can fuse the insights of heterodox economics with those of other disciplines and mount an exciting alternative to mainstream economics.

What is ultimately needed, then, is for economics to give way to political economy, where “political economy” denotes an open and interdisciplinary approach to the economy, one that considers society and history as a matter of course and one that integrates the insights, methods and concepts of other social sciences with heterodox economics. The renewal of a political economy approach is particularly germane at the present time given the heightened concern within other social sciences of the economic realm and economic reasoning, considering the pressure on other social sciences to confront and understand the nature and impacts of the crisis and austerity policies. The challenge for modern-day advocates of political economy is to meet this demand drawing on expertise that still exists in heterodox economics and catalysing critical resources within other social sciences. A renewed political economy remains essential if we are to understand better the functioning, development, and crisis-prone nature of modern capitalism.

Wednesday, 14 August 2013

Why Reported Job Satisfaction is a Poor Guide to Job Quality in Britain

The much-publicised and much-criticised rise of zero-hours contracts has raised wider questions about the quality of work life in Britain. These contracts have been viewed by many as a sign of the precariousness of work faced by many workers. The broader concern is that workplaces in Britain are characterised by fear and loathing; they are inhabited by discontented and unfulfilled workers.

This concern though is not necessarily backed up by all available data. Some evidence suggests that most workers in Britain, far from facing real hardships, are enjoying the work they do. This evidence drawn from the British Household Panel Survey suggests that by far the majority of British workers are “somewhat, mostly or completed satisfied” with their jobs (see table below). If these data are to be taken at face value, they imply that “happiness at work” is the norm in Britain.

Moreover, job satisfaction data suggests that the economic crisis has had hardly any impact on the well-being of workers. The crisis may have destroyed jobs and led to heightened job insecurity but according to these data it has not led to any decline in reported job satisfaction. On the contrary, reported job satisfaction has actually increased in Britain since 2007. This result is also found in other data, including the 2011 Workplace Employment Relations Study.

The above results fit with other evidence that shows that reported job satisfaction tends to be higher in “busts” than in “booms”.1 They are also in line with other evidence that shows that reported life satisfaction has flat-lined in Britain over the last few years; this despite the worst economic crisis in living memory.

But before we conclude that recessions and crises are good for the quality of work we need to think more carefully and critically about what job satisfaction data are telling us. What I want to argue is that job satisfaction data does not tell us how good or bad workers’ work lives are going (see here for an elaboration of this argument). One reason is that these data are affected by what workers expect to get from work. A high level of job satisfaction may simply reflect the low expectations of workers – workers may get little from their jobs but if they expect to get little in the first place they may still report relatively high job satisfaction. A rise in job satisfaction may simply reflect a downward adjustment in workers’ expectations about work – if workers expect the very worst to happen and a slightly less bad outcome occurs then their reported job satisfaction may rise even though their work situation has become much worse. The point is that reports of job satisfaction offer a very noisy and potentially misleading signal of the quality of work life. They cannot and should not be accepted at face value.
In Britain, workers have been led to expect hard times in the years following the crisis. They were told by the government as well as employers that times would be hard and that sacrifices would be necessary. Job losses and pay cuts were seen as part of the “new normal”. Compared with their less fortunate peers who have lost their jobs, those still in work may view themselves as the lucky ones. This experience of having survived the worst of times may explain why many workers have continued to report high job satisfaction in spite of their facing increased hardships at work.

In time, the inferior conditions faced by workers at work may feed through to lower reported job satisfaction. But this may await a sustained fall in unemployment as workers’ expectations about work rise and they gain the confidence to express their dissatisfaction with their jobs. While unemployment remains high and expectations about work remain low, reported job satisfaction may continue to mask the real hardships of workers’ lives at work.

There is a more general problem with job satisfaction data as a measure of the quality of work. This is that job satisfaction data implies that the quality of work can be reduced to a feeling; in this case, a feeling exhibited by a score in a survey. This fails to get to the heart of what work means to people. I have argued elsewhere about the meaning of work. Here I want to stress that job satisfaction data fails to capture the importance of work in terms of the requirements that people have to lead lives of meaning and purpose. We lose much of the significance of work in the lives of people by reducing it to a measure of job satisfaction. We also run the risk, as argued above, of condoning work that in fact inflicts real harm on the well-being of workers.

There may still be a place for job satisfaction data. Better questions that probe the norms and expectations of workers may help to improve the quality of job satisfaction data. But even then job satisfaction data alone cannot be relied upon to measure in a fully accurate way the quality of work life. To gauge the quality of work we need different data including objective data on things like the extent of zero-hours contracts. Research using more sophisticated data, in fact, has shown that worker well-being has declined in recent years.  
So, while the government and employers may like us to believe that high and rising levels of job satisfaction are a sign of high and rising job quality the opposite may well be true. High and increasing levels of reported job satisfaction, in reality, may hide the fact that urgent action is needed to protect and promote the quality of work. In other words, they may prevent us from seeing and resolving real hardships at work.

1 Clark A. “Worker Well-Being in Booms and Busts”, in The Labour Market in Winter: The State of Working Britain, Wadsworth, J., and Gregg, P. (Eds.), Oxford: Oxford University Press, (2011), pp. 128-143.

Tuesday, 30 July 2013

Underemployment as a challenge to orthodox economics

The UK is suffering a total jobs deficit. But it also seems to be suffering from a deficit of jobs that match with the wants and needs of workers. Many in work want and need to increase their work hours and are also prepared to do so for no extra pay, but they are confronted with employers who will not grant them longer work hours. These workers are hours constrained and in technical terms they are to be classified as underemployed.
Here I want to address some key issues concerning the existence of underemployment. These issues will allow me to identify some surprising basic defects in orthodox neoclassical economic theory. I have pointed out some of these defects elsewhere; below I want to show the inadequacy of orthodox economics in terms of understanding the problem of underemployment. This is, I will argue, a vital ground-clearing exercise if we are to provide better theory and better policy recommendations.
The presence of underemployment reflects the relatively weak bargaining power of UK workers. Many workers are faced with the need to work longer hours in order to make ends meet. The reduction in real wages has added to the pressure on workers to extend hours at work. The need to service outstanding debt – a problem magnified by falling real wages – has placed even more pressure on workers to work longer hours. The consolidation of a debt–based culture – linked to the processes of financialisation – has made longer work hours a necessity for many workers. Coercion more than choice is behind the increased willingness of UK workers to work longer hours.
The fact that many workers remain willing to work longer hours without the requirement for an increase in the hourly wage rate may be a reflection of workers wanting to show commitment to employers when times are hard. Workers face the stark choice of being compliant at work or losing their jobs. This fact creates a willingness to work longer hours but it is a willingness based on fear and insecurity.
The constraint on work hours raises important issues for economic theory in the sense that it implies that the labour market is not an idyll of free choice. Orthodox neoclassical economics assumes that workers "choose" the hours they desire based on their preferences. If workers want to work more they can do so. They will also be rewarded for the disutility of longer work hours with higher wages.
This fantasy world of free choice runs contrary to the reality of the labour market that exists in the UK and elsewhere. Workers are not “free to choose" the work they want but instead confront constraints both on their ability to secure paid work and when in work on their ability to work the hours they need and desire. Employers set work hours not workers and often employers will deny workers the work hours they need and desire. Workers can suffer not just involuntary unemployment but also involuntary underemployment.
Neoclassical economics fails to recognise and indeed denies the unequal bargaining power between capital and labour and its influence on labour market outcomes. Contrary to what neoclassical economics assumes, in the real world, workers are not able to realise their preferences at will; rather they face having to take jobs on a take-it-or-leave-it basis. In work, workers must settle for hours decided upon by employers. Employers will not accede to the demands of workers for longer work hours unless they stand to gain higher profits from doing so. They will also be liable to impose longer work hours against the will of workers if they find it profitable to do so. While some workers will be denied longer work hours, others will face being overworked. 
Just as involuntary unemployment poses a challenge to neoclassical economics so too does involuntary underemployment. The latter exposes the fiction of neoclassical economics in relation to its depiction of workers as "free agents" who are able to decide their work hours at will. As a tool for understanding how the labour market operates including the creation and reproduction of involuntary underemployment, neoclassical economics is dangerously mistaken. Only by going beyond neoclassical economics can we grasp the importance of power and the lack of free choice that feature in the actual labour market. There is no shortage of alternative perspectives: institutional, post-Keynesian, feminist and Marxian economics being obvious examples. It is to these alternatives to orthodoxy that we should look in understanding and combating the problem of underemployment.