What's employment all about?

Business

What's employment all about?

Never mind the quality... feel the width

BY DENNIS JONES

Friday, March 06, 2020

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The title draws on a phrase used to persuade you that quantity is more important than quality, and originated from unscrupulous London backstreet tailors palming off with cheap material instead of the good stuff for your suit.

I am going to try to discuss a few things to do with jobs; I hope to keep it simple. Though I'm writing in Jamaica, my points are almost universally applied as far as economics understanding goes. I'll cite some things specific to Jamaica, because I'm seeing much confusion there.

My objective is simply to point out that looking at trends in employment and unemployment (even or especially compared to some other metric, like GDP growth) is fraught with problems.

First, let me not get bogged down with precise definitions as applied in preparing statistics. Let's just treat employment as work people do, physical or mental, mostly for pay. That caveat is important because many statistical series for employment do not include work done in your home, so have long ignored homemaking (parenting, housework, etc). We know that's not helpful because if we employ someone to do the same tasks, what they do can be included in employment data. It's a distinction that has long been criticised for its devaluing of the important contributions made by women.

That kind of shift is important to remember because, if that happens we will see employment rise, unemployment fall (assuming the employee is registered for work). We may also see measures for income and output change because this work has moved into the measurable area.

So, we have a basic measurement problem: what does a number today tell about what people might have been doing yesterday?

This feature is important in countries like Jamaica that have large informal sectors, because the movement in and out of measurable activity is significant. That movement affects many things and if we ignore that then we will head down blind alleys or make wrong turns. So, part of the necessary assessment of employment data for Jamaica is how much represents a shift from informal to formal.

We aren't helped by the fact that many informal activities are by definition outside our ability to measure them. But, we have to accept that changes in employment may be fictitious — some people have always been working but now we can count it.

DISSATISFACTION

Next, we have to accept that a job is worth something to the postholder and the employer, if relevant. So, let's put aside the arguments sometimes seen that we should not discount what a job means to someone who did not have one before. (It's a bit of a straw man or red herring.)

However, the relevance of that is also not so simple. We know that a job may not meet a jobholder's needs in various ways, but the person continues in the post. We may sense or see dissatisfaction in various ways, including faster turnover in the labour market as people seek the 'right' jobs. We may also see lower productivity as people do, say, 'only the minimum' or simply 'take money for old rope', ie not give a good day's work for a good day's pay.

Those are industrial relations issues that can be tackled in a range of ways and places. Their resolution may not alter jobs data. We may also see emigration, as dissatisfaction is expressed by selling labour in another market. These things may not be evidenced in all sectors or at the same time. So, teachers and graduates migrating are part of that ' dissatisfaction' story, and they may never find jobs to satisfy them in Jamaica. But, it could also be what's going on when we see foreigners take jobs in Jamaica, ie our situation suits them better.

Next, we need to understand what employment may mean for some other important economic variables.

First, growth: We need to look at how much that changes for each new worker and how much is produced for all workers — these are measures of productivity. The jobs matter to us all if they increase our total income/output, but more so if that happens at a rate at least as fast as the new worker is employed. This output per worker has been in decline for Jamaica for around a half-century. So, we have more people being applied but getting less output from them each. Some will argue that this is indicative of the country being impoverished.

Whether it's a result of misapplying capital/technology with the labour, or other features of how work is done, the result is the same — we get less out of people than we should or others do.

Second, what's financing the jobs? I'll simply say that jobs 'created' by government spending (covered by more borrowing or taxes) are not the same as jobs 'created' by more private investment (domestic or foreign). Why that's so should be clear, but let's say that the former places burdens on future generations; the latter comes from economic success represented by profits.

We can get into a discussion about how private profit is generated and if it involves some exploitation, say, along the way, but I'll just say that the financial sources underpinning jobs is important. Now, we may not be able to quantify separately those things easily, but we can get a good idea from our economic aggregates.

Third, what do the jobs mean for our external sector, ie imports and exports? Simply put, if the new jobs create income for people with a high propensity to import, and that income comes wholly from within the country, we will see a worsening balance of payments. If the new jobs create income for people and that comes from 'export' of their labour, then whatever their import propensity, the negative balance of payments effect would be less.

So, for Jamaica, we may not have a clear idea about all aspects of employment (old and new) but we can make some broad assessments of the source of income (for example BPOs get paid from abroad; vendors get paid out of domestic sources). So, we could take different views if we knew that the job growth was in BPOs/tourism, versus, vendors. That's not to get into any discussion about 'real' or 'quality' jobs — whatever that means, the consideration is essentially the same. But, how that plays out is in the foreign exchange market, so we must always be mindful that whatever movement we see in employment has some counterpart in the exchange rate and its stability, levels, and trends.

Finally, we need to consider where employment and unemployment levels and rates are, and how much scope they have for improvement. Sorry, time for some economics.

UNEMPLOYMENT

At the natural rate of employment, all those wanting to work at the prevailing real wage rate have found employment and there is no involuntary unemployment. There remains some voluntary unemployment as some people remain out of a job searching for work offering higher real wages or better conditions.

The natural rate of unemployment is defined as the equilibrium rate of unemployment ie the rate of unemployment where real wages have found their free market level and where the aggregate supply of labour is in balance with the aggregate demand for labour.

Put simply, people are working for the amount of money they think best suits them. But, what it also means is that anyone who is still unemployed wants to be that way or cannot do work (at any price), and we may call them 'unemployable'. So, any hope of getting higher employment/lower unemployment is now up against a barrier.

For Jamaica, the relevance of that barrier is what it may say about a section of the population that is viewed as an 'underclass' and may be closely parallel to what can be seen as 'inclined to criminality'. This is a group of people who may or may not be registered to work.

What policymakers often hope is that economic growth will spur employment and suck up many types of labour, even temporarily, and remove them from, or reduce their desires to be involved with crime. For that to really work, though, the society has to be sure that crime does not pay.

There are many variations on the last category, though not necessarily fully applicable to Jamaica, for example those who are on welfare and would jeopardise that by taking on paid work. Likewise, people who take on work but it costs them more than they earn, so they may be no worse off as unemployed. Or, it could cover many who are beneficiaries of remittances, who can survive adequately without having to consider taking on employment, as they are a form of 'welfare' dependents.

So, when I look at the employment reports and ask, 'And what?' you can understand better what the 'and what' is that I think needs to be understood. For many people, I think this would all seem a lot easier to understand if they knew that 70,000 more people were employed (a) digging holes and filling them in, demanded by Members of Parliament and paid for by the budget or (b) assembling mobile phones for a Japanese company that were then exported to the rest of the world. I'd hope with those examples, no one would accept that the jobs increase were moderately the ssame.

Dennis Jones is a JP and an economist


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