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.

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.  

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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.

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.

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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.

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.  

The Disutility of Work

Why do we work? Just for the money? Or do we also work for other reasons such as the ability to socialise with friends and to use and develop skills? According to recent research, we work simply for the money it brings. When we are at work, our thoughts are on the things we could be doing instead and we long for the time when our work is done. In the language of economics, work is a "disutility" that all of us would prefer to do without.

This view of work as a painful activity raises certain issues, however. There is no doubt that much work is experienced as a pain, but to classify all work as painful seems to be stretching things a little too far. Did the authors of the above research really experience their work as all toil and trouble? Or were there periods when they enjoyed the challenges thrown up by their work? During such periods, work may well have proved more alluring than leisure.

The idea of work as a disutility has figured not just in economics but also in Christian and Classical thought. The Bible represents work as the punishment for the original sin of Adam. Ancient Greek philosophy sees exemption from physical work as the route to human fulfilment. These views support the idea that work is to be seen and experienced as a purely instrumental activity devoid of intrinsic satisfaction.

In economics, the disutility of work has at least three separate meanings: (1) the pain of work itself (both Adam Smith and Jeremy Bentham regarded work as an inherent pain); (2) the opportunity cost of work time (in neoclassical economics, the cost of work (time) is defined in terms of the lost opportunity for leisure time: here, paradoxically, the disutility of work is defined without consideration of work itself – instead, it acts as a proxy for the utility of leisure time); (3) the natural laziness of workers (modern principal-agent theory assumes that workers are effort-averse by nature: this definition of the disutility of work shifts attention away from the nature of work and towards the allegedly faulty genes of workers). Each of these meanings carries different implications, but all assume that workers must be goaded to work by some kind of extrinsic reward.

The point I would make is that work means more to us than just the money it brings. Work can be a source of creative expression and a route to self-realisation. Even where work lacks creativity it can still bring the benefits of social interaction. The problem with seeing work as just a disutility is that it fails to capture the dual-sided nature of work in human life. It misses the worth of work both as a means to an end and an end in itself.

To be sure, work is often endured by workers but this does not reflect anything intrinsic to work as such, rather it reflects on the way that work is organised. To see work as just a disutility is to abstract from the influence of the structure and organisation of work on the way that work is experienced by workers. To see workers as incorrigible “shirkers”, likewise, misses the endogenous roots of work resistance. It also lets employers off the hook by blaming workers for low productivity.

There is a deeper issue here with regards to the conception of human nature. The portrayal of work as a disutility presents humans as consumers with no interest in work other than as a means to consumption. It misses the needs of humans as producers. The fact that as human beings we have creative capacities that can be met through the activity of work is not recognised. But it is evident from our own life experiences that work can be so much more than just a way to earn a living. Our fear of unemployment stems in part from the loss of opportunity to participate and contribute in work. Our desire to keep working is related in part to non-monetary factors such as the need to be productive and creative. This speaks to the deeper importance of work in human life. It also highlights the necessity to create and widen opportunities for people to experience their work as fulfilling, rather than as just a disutility. If we accept that work is a disutility, we risk creating a counsel of despair that ultimately undermines the case for progressive work reform.

In sum, work has a profound influence upon the quality of our lives. To reduce work’s importance to a feeling of pain is to miss the fundamental role of work in the fulfilment of our needs both as consumers and producers. The finding that work makes us “unhappy” may be headline-grabbing, but it does not speak to the role that work can and ought to play in human life. 

Labour, Financialisation, and the Nature of Contemporary Capitalism

Frances Coppola has written a thought-provoking piece drawing an eye-catching parallel between wage labour and slave labour to help describe the contemporary phenomenon of “The Financialisation of Labour”. Here I will argue that the major trends noted but not fully explained by Coppola – such as deteriorating labour conditions and the failure of corporate investment – are due to the very nature of contemporary capitalism as a whole, that I will describe as financialised capitalism. I will argue that we need to see the “big picture”, the specific nature of contemporary capitalism, if we want to explain the reality that Coppola keenly observes in her piece, and this big picture is best understood through the notion of “financialisation”.

The term “financialisation” originates in political economy and is used to describe in a systematic way the dramatic rise of financial activities and financial institutions within economy, society, and culture. Financialisation has been a secular and global process over the past 30 years or so, recently encompassing the global financial crisis and ensuing period of austerity in capitalist societies. It has been fuelled by deregulation policies and it has occurred often at the expense of the real economy. Financialisation has been particularly associated with rising levels of household indebtedness and higher levels of inequality. Workers have borne the brunt of financialisation, suffering lower pay, higher unemployment, and worse terms and conditions of employment.

These outcomes reflect the fact that financialisation has weakened the bargaining power of labour. At one level, firms have become more flexible in their investment decisions. They have invested not just in real assets but also in financial assets and have looked to invest beyond the shores of their home country. This increased flexibility has enabled firms to drive much harder bargains with labour: threats of plant closure have been used by footloose capital to check the pretensions and aspirations of workers. At another level, the nature of corporate governance has changed. The claims of shareholders have come at the expense of the interests of workers. The so-called “shareholder value” model has put pressure on firms to treat labour as a cost rather than as an asset. Wage cuts, job losses, reductions in pensions, and the casualisation of work, have been demanded in order to maximise shareholder returns.

The result of these shifts, at the macroeconomic level, has been a decline in the wage share in capitalist economies. Financialisation has been shown to be the key reason for this decline. Those who have benefited from financialisation have been among the 1 per cent at the very top of the income distribution. At the microeconomic level, work has become more insecure and more precarious with the increase in temporary work and latterly “zero-hour” contracts. Involuntary part-time work and enforced self-employment have also risen in recent times. These outcomes are a benefit to capital whereas they represent a clear burden to labour.

Of course, unequal bargaining power between capital and labour is endemic to any form of capitalism, as Coppola explains. But the balance of power has shifted further in favour of capital under financialisation. Capital has gained power in part by creating a workforce that is debt-ridden. Borrowing to consume has become a way of life for many. This has occurred partly due to slowly rising or falling real wages; however, it also reflects on the wider marketing of credit and loans. The demand for and supply of credit has risen giving rise to an explosion of consumer debt. This increase in debt has further eroded the power of labour.

There is also the impact of the financial crisis and the policy responses to it. Workers have faced increased job insecurity and also increased unemployment. They have also had to accept lower real wages to stay in work. The assault on labour has been magnified by austerity policies that have taken away welfare benefits or made them more difficult to access, raising anxiety about unemployment for those in work and increasing the economic hardship of those who are unemployed. Workers did not create the financial crisis, but they are suffering the most from its aftermath.

The fact that life is so hard for the modern “free” labourer reflects on the financialisation of capitalism. A financialised capitalism is both brutal and ruthless towards labour. Firms want to get workers on the “cheap” to maximise shareholder value and prefer not to enter into long-term employment relationships. Many of course are forced to do so, but they face continual pressure to remove entitlements, reduce pay, erode terms and conditions of employment, and shed jobs, in the name of shareholder value.

So, while the processes that Coppola describes in her piece do reflect pressures inherent to capitalism as such, what is novel is the way that these pressures have been intensified under financialisation. It is financialised capitalism that has turned firms into demanders of expendable labour. It is financialised capitalism that has made firms focus on the short-term and neglect the long-term. It is financialised capitalism that has made firms demand that governments enforce austerity policies even if their effect is to reduce economic growth.

If “the major problem with the UK economy” is “a failure of corporate investment”, as Coppola suggests, then the underlying cause is a failure of a financialised system of capitalism. Financialisation has encouraged financial speculation over real investment and has made firms increasingly subject to the maximisation of shareholder value which has biased corporate policies away from the pursuit of long-term productivity and profitability. Any significant revival in corporate investment would require no less than the reversal of financialisation; a prospect that seems highly unlikely at the present time.

The processes of financialisation must be put at the centre of the explanation of the changes in labour in modern capitalism. Employment protection has been eroded and “unstable, insecure and short-term jobs” have risen in number, specifically due to the financialisation of the economy. There is a powerful connection to be made between the processes of financialisation understood in the broadest sense and the immiseration of labour outlined in Coppola’s piece.

Financialisation is not just pernicious but also contradictory. For its ultimate effect is to reduce the prospects for sustainable economic growth and for enhanced well-being. The stress on the financialisation of labour, in short, raises the broader need to challenge and overcome the financialisation of capitalism.

***This post was orginally posted on Pieria. It was then reposted on the Work in Progress blog of the American Sociological Association's Organizations, Occupations, and Work Section.

The jobs and productivity puzzles: not just falling real wages

Despite flat-lining output, employment in the UK has risen. This is good news in the sense that many workers have been saved from unemployment. It is bad news in the sense that labour productivity has fallen. Low labour productivity makes it even less likely that real incomes will rise in the future.

Several different theories have been offered to explain the ‘puzzles’ of rising employment with sluggish output and falling labour productivity. One simple and plausible explanation is that these puzzles can be explained by falling real wages. In the last two years, nominal wages have grown more slowly than inflation. This trend of falling real wages, it is argued, has meant that UK workers have ‘priced themselves back into work’ and in line with the now cheaper price of labour firms have switched to more labour intensive methods of production. Using this argument, it is claimed that the labour productivity slowdown is a temporary phenomenon and will be resolved once demand in the UK economy picks up.

Three problems can be raised with the above explanation. First, the idea that workers have ‘priced themselves back into work’ suggests that workers have some choice over whether they work or not. This idea is a basic premise of the standard economic model of the labour market. Yet, the reality is that employers have driven down real wages. There is no element of choice in UK workers taking work: rather they have been forced to accept lower paid work.

Second, falling real wages mean lower aggregate demand and lower sales for firms. It is a supply-side fallacy to think that firms will necessarily hire more workers when real wages fall. Firms will hire more workers if they expect to sell more output by hiring the additional workers. It is one thing to say that lower real wages have helped firms to retain workers despite stagnant output. It is quite another thing to say that lower real wages have induced firms to hire more workers when there is low confidence about future sales growth. The existence and persistence of low real wages creates a barrier to present and future growth in employment.

Third, if the explanation of falling real wages is true, it should be observed that those occupations with the most pronounced falls in real wages have been growing the fastest in recent years. Yet, there is little evidence that this is happening. Of the fastest growing occupations in the last two years, high paid occupations (e.g. managers and senior officials, and professionals) rank near the top. In these occupations, real wages have not declined by any great amount.  Some other occupations (e.g. sales and customer services) have witnessed falling real wages, yet total employment in these occupations has fallen. The fastest growing occupation is personal services encompassing an array of low paid jobs; however, real wages in this occupational group actually rose in the last two years. Overall, there is no clear evidence that falling real wages have been the main driver of the growth in employment across occupations.

The fall in real wages may have helped some firms to hang on to labour for longer. It may have also induced firms to defer investment and to hire more workers in order to meet current sales. But it cannot be the only explanation of rising employment. Some firms have employed more expensive labour – perhaps these firms are hiring more managers in order to restructure production and to cut costs. Employment growth in personal services reflects wider changes in the economy – for example, the growth of low paid care work due to an ageing population.

The shift to a services-based economy more generally may have helped to embed a low productivity environment in the UK. Historically, manufacturing has been the engine of productivity in the economy. Its secular demise may have undermined the ability of the UK economy to deliver and sustain productivity gains.

One final point can be made here. The fall in real wages reflects the broader weakness in the bargaining strength of labour. The decline in union power coupled with the financialisation of labour has made it more difficult for workers to prevent falls in real wages. Employment may be higher than if real wages had not fallen but that is cold comfort to the many millions of UK workers now struggling to make ends meet in a harsh labour market. Until its position is strengthened, it is difficult to see how labour will be able to secure the employment and pay it needs and deserves.