The prudent approach to deal with unemployment.

by Dr. Leonid Sakharov

There are only two parameters directly affected unemployment - labor participation coefficient and productivity. There are two methods for society to mediate continues growth of productivity - invention artificial needs and shorten working hours.

History teaches us that majority of intellectuals are the same loosely in prediction of future and presenting solutions as majority of general population. The inherit deficient of professional thinkers is a limitations of their imaginations only by such solutions these are embraced and expected by their masters who pays salary for brain product of such intellectuals. In simple words the job of paid intellectuals is to put in mambo-jumbo pseudoscientific language or sound bites same excuses for miserable failure of society leaders to act in interest of we the people. Their task is to advocate establishment, not to fight for well-being of crowd of paupers.

Modern situation of high unemployment on the planet Earth and specifically in its most developed countries can be presented by very simple equation that can be analyzed and the only one available solution can be found. Even more interesting is the fact that easy to show that most popular among politician approaches had to result in catastrophic outcomes.

The formula for unemployment rate can be presented as follow:

Unemployment = 1 - Nemp/Nw

where Nemp - number of employed peoples, Nw – work force ( number of peoples who want or/and must to work). The formula is mathematically equal to more common presentation: Unemployment = Nunemp/Nw , where Nunemp – number of unemployed workers. Although as was said before such presentation is mathematically correct it is misleading for farther analysis because implies that solution for unemployment is in helping unemployed folks to find job. It is obviously nonsense if number of needed workers is constant. Let’s presume that somebody currently unemployed got perfect professional training and as great professional can be as productive as two currently employed workers. He is hired and two bad workers are fired. Ironically result of better education will be rising of unemployment. Funny, isn’t it?
Thus a right parameter to concentrate on is number of employed workers:

Nemp = C *Np /P

where C – average products needed to be created per one person in given society to support his normal life, Np – population (number of whole people in the society), P – products that one average employed worker can do.
We can transform equation for unemployment into:

Unemployment = 1 - (C/P) * (Np /Nw) = (P*Nw – C* Np)/ P*Nw

Last formula has very simple explanation – if whole working force is capable to produce more than whole society is needed some part of working force is unwanted help and will be unemployed. As simple as that, very common sense. Let’s define cp = Nw /Np as coefficient of participation in labor force and p = P/C as productivity measured in number of peoples that one worker could provide with all necessity for leaving. The formula for unemployment will be:

Unemployment = 1 – 1/( cp*p)

Let’s presume that exact half of population participates in labor force (it could be same imaginative after total war society with mothers and underage kids one per mother in average, for specificity sake of hypothetical). The value of participation will be cp = 0.5. If labor force in such society will be able to support all its members in full - productivity will be p = 2.0 (one working person can support two, self and child). Unemployment calculated by formula will be 0%. After all children will became adults and will join labor force the participation coefficient will be cp =1.0; presuming that average productivity will remain the same and no woman retire – unemployment will be 50%. If young adults will be twice more productive than their mothers, p=4.0, unemployment will be 75%. If all mothers retire and participation rate will drop to previous 0.5 but productivity of new generation stays 4.0 the unemployment will drop to 50%. This is pure illustrative situation that could clear demonstrate direct connection between participation rate, productivity and unemployment.

The larger participation of population in labor force the more severe unemployment is. The higher productivity the worse employment picture is also. If any society has happened to be in situation of unacceptable unemployment rate the only these two parameters are available to affect unemployment, all other policy moves will be effective or not only indirectly; via effect on these two parameters – labor participation coefficient and/or productivity.

Participation in labor force coefficient is very conservative parameter that is depend on cultural traditions and demographic. For example during industrialization and wars hot or cold a need in additional work force drives big part of marred woman from housewife status into labor force. The transformation took several generations, year to year general participation rate of whole population did not change more than one percent at any given year. From start of systemic crisis in 2000 participation rate dropped precipitously from 67% to 63% for ten years that can be considered as very significant comparable previous 35 years prior to big job crisis of year 2000 when participation rate rises from 59% to 67%. Unemployment rate was all around from 3% to 10% for this period of history that clear demonstrate sort of secondary influence of participation rate on current unemployment rate. Absent some dramatic change of social habits like tax credit for being housewife or househusband or jump in birthrate or involuntary retirement at early age participation rate could affect unemployment rate only marginally on a short run, noticeable generation to generation, strongly from one history age to other. If we will in situation of urgent need to do anything with unemployment more or less instantly it will leave us with only available option - to play with productivity.

Productivity in its narrow, conventional definition as ability of one worker to produce some amount of goods, steady and exponentially grows since industrial revolution about three century ago. There is nothing to do with it. Luddite movement, anti-science politics or obscurantism could slightly break growth of productivity but nothing ever could completely stop it. Even after great employment crisis at the edge of third Christian millennium when desperate attempts under pretense of war on terror to slow down any activity in advanced, non classified science, any research in area of artificial intellect or robotics, even after all concerted efforts of this sort, the natural development of mobile phone devices and online marketing increase productivity in such dramatic way in broad areas of mass professions like real estate agents, social communications, retail, marketing, bookkeeping and consulting that after mass laid offs unemployment doubled and settle steady on unacceptable level despite any conventional measures to stimulate economic growth.

The doomsday scenario of that would be if instant growth of productivity makes big part of population extra people is so obvious that it scares a hell out of all conventional politicians and mainstream media servants to the point of self-censorship. They just afraid to spell out what could be. Let presume that growth of productivity as result of invention of servant robots these can replace waitresses, retail and storage workers together with cleaners and farm workers leads to jump in whole productivity at 20% in a period of several years. It will lead to comparable jump in unemployment rate. Average income of populations will diminish in slightly less rate but quite substantially anyway. Collection of taxes by government will diminish as well limiting its ability to assist unemployed. The desperation of the situation will be amplified by the fact that all other mass human occupations will be affected by revolution in robotics and artificial intellect too. Great unemployment affects all corners of society maybe except same mass professions like prostitutes, scientists, anarchists, reality show artists, security guards and prisoners of jails these will became de-facto assisted leaving institutions.

No reeducation will be available for most of population to restart a career as soon all above fortunate occupation demand more talent and drive rather than training. Most of houses will foreclosed but as soon every bank is bankrupt too nobody will care to file eviction petition. Diminish of payable demand will lead to new mass firing in automobile industry and housing construction… Vicious circle of jump in productivity, mass laid offs; shrinking consumption, mass laid offs and so on will continue until mass population outbursts and adaptation new cultural and social paradigm by society.

Ask not how to prevent new brave world, ask how to avoid chaos on the way. Human society proves to be extraordinary adoptable.
Transition from one economic system like capitalism into socialism and back to capitalism took less than century for Russian. Transition time itself were on the time scale of one generation or even less and was accompanied with many human tragedies in form of wars, immigration and broken dreams.

The shorter time of society transformation should be the more traumatic it will be.

So when we are talking about joblessness problem the real question is not how to avoid a transition from slavery into free, the real question is how not to force liberated person to became ignored, homeless and hopeless. The right question that any self-aware and concerned society must to ask is how to make unavoidable transition as painless as possible.

The unavoidable growth of productivity that must eliminate need in 90% of labor for all professions related to producing non-discretionary goods will bring mass structural unemployment. The only variable that such society can affect via their government representatives is the time of metamorphosis into new economic and cultural system gradually changing laws fitting new realities.

There are two reasonable tools to directly slow down average productivity in rather short period of time.
First one is that spontaneously used by society in happy times of expansion into new territories or discovery of useful natural resources. It is creation of artificial, nonessential needs.

Cinematography particularly and show business in general is most distillate example of such product that anybody can leave without and most of population stayed alive for millenniums not familiar to; but now it occupies millions. Tourism, computer games, cell phones, cosmetics, bigger and bigger houses; all of such products adopted by society as improvement of quality of life lifted the value of C (products needed for normal life of one person) in equations for productivity and decrease productivity. That is good. The limitation for moving along this road indefinitely is fineness of resources like energy and fertile land that put bound for uncontrollable expansion of population and discretionary consuming. But it is the right way anyway. If everybody will play computer games on internet as legitimate occupation and all dirty jobs will be made by robots it will radically solve the crisis of unemployment. Propaganda of family planning with mandatory sex education and tax burden on extra children after second one could bring population of society into stable level that is much lower than present one. It is matter of personal taste of course how attractive brave new world will be for modern person but conflict of generations is most trivial literature scenario of all ever.

In the spite that creation of artificial products is the right approach in dealing with unemployment, as an only recipe it is not enough. Mass excitement for fashion is too unpredictable to relay on as the single tool of social engineering. One can bet on success of new entertainment approach like 3D movies and television for example but nobody can be sure on timing when invention becomes occupation.

It will lead us directly to second tool of social engineering that is labor law. Easy to understand that such component of labor law as minimum wage is ineffective if goal is to slow down productivity. Level of compensation in monetary form is extremely ineffective to affect productivity that is matter of our interest. The main reason for it is great deal of elasticity in real value of money. Inflation, deflation there and here. The only element of labor law that has direct connection with productivity is working time.

Let’s take as fact, for argument sake, that 40 hours per week working time is a law. If society experiences unemployment of 10% and want to reach full employment one can offer to set working time to be 10% less going to 36 hours per week with the same salary as for 40 hours. It is reasonable to expect that not all business enterprises have enough reserves in human resources to deal with such law without hiring additional staff. Obviously productivity is nonlinear function of official working time and could be elastically massaged for creative tasks squeezing last drop of blood from employees.

One can observe even more paradoxical response for some individuals whose output will increase if they will work less hours.

But in average according Parkinson Law all managers will request additional personal at least proportionally to lose of working time. Some of them will get what they ask. All managers want more influence that measured by number on people under his supervision. Productivity will go down, unemployment will reduce, and people are healthier.

Everybody happy. Until next jump of productivity now because better health of workers.
Then we can cut work time once more and more keeping unemployment on low enough, acceptable level.

Legislatively it can be done by delegating to Federal Reserve System the right to regulate working time. Fed already has dual mandate to care about maximum employment and price stability. But the only instrument that available for Fed namely monetary policy is far from enough to influence unemployment in any decisive manner if economy suffers structural dis-balance due jump in productivity. Stimulation of economy via cheap money policy can be effective only to the point of hitting the wall of limitation of natural resources such as oil, land, metals. At that point gross product in material terms stops to grow; actually it will start shrinking, then inflation, starving, anarchy. If Fed will be able to regulate working time as a direct instrument to ascertain full employment the structure transformation of society could happen evolutionary, without mass tragedies of social violent unrest. Fed could vote on specific number of permitted working hours per week for nominal payment, and then overtime has to be paid double for its first hour, triple for second and so on.

As was said above transformation of society into low density populated bucolic farm base extended families in wideness of natural environment with several mostly automated industrial zones these produce robots for farmers is inescapable. The solution above has only one but most important for every potential victim of coming anarchy goal to buy time to minimize human tragedies during transition period.

Text above is initially published at Jun. 30, 2011; 15:49

After time passed from publication several remarks could be appropriate.

The urgent need to deal with catastrophic unemployment was solved.

A first labor force participation rate was dropped from 64% to 62.5% and sort of stopped. 1.5% of diminishing labor force participation helped with roughly 2.5% of unemployment. So absent drop in labor participation the unemployment rate should be above 6% - politically uncomfortable and how people feels.

On average productivity was stagnant. It helps with unemployment too.

We have no reliable data about hidden factor of undocumented labor force. If some illegal immigrants left country it would open position they did. And there is no mystery why lots of American citizens want to stop illegal immigration and strongly against amnesty for anybody illegally in the country by their will or innocent as children brought by illegal parents. It is limited number of job positions. If somebody kid takes one it is not available for yours. Compassion is good only for friendly neighbors not for invaders.

What about future? Near future is completely unpredictable and depends on success of anti-Trump conspiracy lead by CNN, CIA, FBI and DOJ. If they will be successful and legalize millions of illegal immigrants - USA wait civil unrest. If Trump prevail country has only couple decades to be prepared to life in word when robots makes all dirty job and all not creative positions extinct. It would be welfare country or no country at all.

Nov. 15, 2017; 16:53 EST

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