12 Direct Employment Measures


Direct Employment Measures

After the measures discussed in Chapter X are put into operation so that full advantage is taken of all of the jobs that are already available in the economy, the simplest way of reducing the amount of unemployment still remaining is to take steps of the kind recommended in Chapter XI to decrease the loss of existing jobs. It cannot be expected, however, that these measures will take care of the entire problem. There will still be some jobless individuals, and in order to enable implementing the positive guarantee of employment that was listed in Chapter II as one of the essential elements of a fully satisfactory employment program, we must be prepared with a direct means of placing these unemployed individuals in jobs. As brought out in the theoretical discussion, this will require a selective lowering of the survival limit to make the additional jobs possible.

In the normal operation of the individual enterprise system there is a definite guarantee that labor will be used only on the production of goods that meet the current standard of values, as determined by the judgment of the consumers in the markets. The private producer in effect insures the general economy against any waste of productive effort, as the owners of the business stand the loss if any mistake is made that results in inadequate production of economic values. This production guarantee makes it possible to set up an auxiliary employment program on a definite and positive basis, devoid of any guesswork as to the costs involved or the results that will be obtained. It is rather strange that this big reservoir of potential jobs has remained so long unnoticed. Only within the last few decades have the first timid suggestions as to the opening up of this prolific source of additional employment begun to make their appearance, and, as might be expected, these initial proposals have been so badly handicapped by being tied to current economic misconceptions that they have not received the attention which the potentialities of private industry as a source of additional employment actually deserve.

One type of program that is occasionally proposed contemplates the subsidizing of private construction projects. The backers of such proposals deserve some credit for recognizing the possibility of accomplishing a substantial increase in employment by means of a relatively small contribution toward the construction costs, but their program is based on the erroneous idea that the proportionately heavy drop in durable goods production which accompanies a business recession is a causal factor. They are therefore proposing to subsidize an increase in private construction as a means of reestablishing the “balance” between durable goods and transient consumer goods. This present study indicates that the presumed causal relation does not exist; that all goods are alike so far as the general economy is concerned; and that the relatively greater decrease in production of certain types of goods in times of economic stress is not due to any “maladjustments” but to a natural and logical process of selection whereby purchase of the least essential and most durable goods is curtailed in preference to reducing the buying of more essential and less durable goods. Correcting these presumed defects in the economy is merely treating symptoms, just as if we were to attempt to cure smallpox by covering up the spots.

Several suggestions along the line of reduction of taxes to encourage employment have made their appearance, and a proposal by Nicholas Kaldor in 1936 actually reached the point of recommending a direct subsidy for private employment.62 Unfortunately Kaldor made the common mistake of assuming that the volume of employment is a function of the wage level (he states that this is something upon which economists of all shades of opinion can agree). As a result of this misconception he proposes subsidizing all private employment in times of depression. If such subsidies are paid from tax funds we will have a Social Credit scheme in reverse, and nothing at all will be accomplished. The total income received by the producers will remain unchanged, as the amount available to the consumers for purchases in the markets will be decreased by the amount of taxes levied to meet the costs of the subsidy. If the funds for the purpose are raised by inflationary borrowing, the scheme would inject purchasing power into the system and it could be used as a business stabilization device. But it is a very awkward program compared to those already considered and it deserves no attention from this standpoint. As an employment program it is worthless.

The Papen Plan, tried out in Germany between September 1932 and April 1933, also attempted to reach the objective by subsidizing employment directly, producers being paid a specified sum for each new employee hired. The plan was a failure in practice, as could be expected, since both this and the Kaldor plan fail to recognize the differential character of the factors that cause unemployment. It is the enterprises whose productivity is too far below the average that are forced to close their doors and add their employees to the unemployment rolls. A measure which helps all enterprises still leaves these sub-standard producers in the same relative position—still too far below the average to continue operating. Any general action (other than a general reduction of the survival limit, which is actually a differential action as it has no effect on any producers other than those at the lower end of the productivity scale) is of no avail, since it is the relative position of the enterprise that determines whether or not it can survive. Blanket subsidies are therefore ineffective. The pioneers in this field must, however, be given credit for recognizing the employment potentialities inherent in private productive operations.

Some signs of a realization of the need for a differential type of action are beginning to appear. Garth L. Mangum, in a recent article, undertakes to discuss the possibility of creating “jobs in the private sector”.63 But his development of this theme goes no farther than a proposal for subsidizing employment of substandard workers; in effect simply a means of circumventing the minimum wage laws. This is, in a sense, a differential measure, but it is not the kind of a differential measure that will selectively lower the survival limit, and it therefore will not reduce unemployment, a point which Mangum specifically admits in saying that if some such program is adopted, “Employers are unlikely to hire more people than they otherwise would, but they can be persuaded to hire different people”. Hence this is a sociological program, not an employment program.

R. I. Nowell, in outlining a proposal similar to that advanced by Mangum, stresses the need to confine the subsidies to “new” jobs “to avoid having subsidized labor replace or compete with labor now being employed at the minimum wage rates”.64 But the weakness of all such proposals lies in the fact that new jobs are not ordinarily additional jobs. Because of the steady rise in average productivity and the shifting of consumer preferences there is a continual reduction in the number of jobs available in existing production operations, and activating the total number of potential “new” jobs of a profitable nature does no more than make up for the jobs that have terminated. In order to get additional jobs in private industry it is necessary to dip into the big reservoir of potential work that is not quite profitable under ordinary conditions, to lower the survival limit so far as this particular work is concerned, and by so doing to raise it from the unprofitable status up to the point where it will be profitable to undertake. Subsidizing the sub-standard worker does not accomplish this objective; it is merely another way of sharing the unemployment burden, as Mangum admits: another way of reducing the damaging and demoralizing effects of the minimum wage laws.

From British sources we get a suggestion that is definitely on the right track, but the coupling of this sound proposal with an unsound one indicates that here, again, the underlying principles have not been recognized. John H. Williams reports that “There are now suggestions in Britain that the way to get more work is to tax-exempt wages for specific kinds of work or beyond some standard schedule of work-time”.65 The second half of this proposal is simply another version of the Papen Plan, and would be equally ineffective, but the idea of granting tax advantages for “specific kinds of work” is definitely in order, providing that these “specific kinds” are properly selected. The essential requirement is that the tax benefits should be applied to those operations, and only those operations, which would not be able to produce sufficient values to make them feasible without this help.

Probably the underlying reason for the lack of any more extensive and widespread efforts to explore the possibilities of developing additional employment of an auxiliary nature within the field of private enterprise is the same curious public attitude toward business that we encounter so often. The individual citizen demands that he be adequately compensated for his labor, and would be highly indignant if his claim to such compensation were questioned, yet when the owners of a business enterprise attempt to operate their business in such a way as to secure equally legitimate compensation in the form of profits for the use of the productive facilities they have furnished, this same individual citizen feels that there is something immoral about the transaction; the kind of a thing that will be done away with when the millennium finally arrives and the forces of evil are overthrown.

However illogical it may be, this reaction is not particularly surprising in view of the continual barrage of propaganda devoted to the vilification of the motives and methods of business that is poured into the public ear by would-be reformers, radical theorists, well-meaning but impractical visionaries, and opportunistic politicians. Here, again, it must be emphasized that the expectation of gain is not peculiar to the businessman or the owner of capital, it is the motive power behind all economic life. Every voluntary economic transaction involves gains to the participants, either financially or in satisfactions—that is, an increase in the economic values—otherwise there would be no transactions. If we want to get results in any economic activity we must make it profitable for individuals to contribute toward the desired objective. We stimulate research and invention by granting patent rights which enable inventors to profit from their discoveries. We encourage education and training by paying higher wages and salaries to those who learn skilled trades and professions. We get high productive efficiency in private industry by rewarding efficiency with greater profits. And when we want to expand employment we must make it possible for those who put forth the efforts that are required in order to make the program a success to gain by so doing.

Altruistic motives play an important part in the operation of our social organization, but they do not provide the sustained and unremitting pressure that is required to meet the steady grind of economic life. The same reformers who are so loud in condemnation of money madness and the quest for profits would be the first to rebel if we asked them to work without pay. In this world of scarcity, where man must continually struggle to satisfy his wants, something for nothing is an illusion wherever it appears. It is just as futile to expect employers to continue operating and providing employment at a loss as to expect the workers to put forth their efforts for nothing. If we want the services of competent producing organizations to help us provide employment of an efficient character that will be self-supporting, then we must be prepared to pay for these services just as we have to pay for anything else of value.

In spite of all of the loose talk about “abundance”, earning a living is still a full time job for all but a very few, and the amount of time or effort that anyone can devote to a non-paying activity is strictly limited. But once a program is set up whereby it becomes profitable to contribute toward the employment objectives, activity in connection with this program becomes part of the process of earning a living, and a whole army of employment promoters comes into being, each individual on the alert to detect any oppor­tunities to participate in the program and to receive the compen­sation for so doing. Whether or not we approve the dominant role of self interest in matters of this kind is totally irrelevant. This is the way things are. William Vickrey summarizes the situation in these words: “No large-scale high-productivity society has yet been successfully operated that has not relied to a large extent on self interest as an organizing force”.66

When we add up all of the foregoing points we arrive at a very clear and definite picture of what the auxiliary employment must be in order to meet the essential requirements and serve the de­sired purposes. It must consist of more work of the same kinds that private industry is now handling, under the same strong competitive pressure for efficiency, and subject to all of the auto­matic controls that govern our normal economic life. To make this additional self supporting employment possible, the community must forego at least a part of the contribution toward the general overhead expense, capital costs and taxes, that would normally be exacted from the products of that additional labor. Essentially that is all. The rest is detail.

Of course, it would be impractical to make the deductions from the overhead expenses directly, but this can be accomplished conveniently and effectively by collecting the full amount and making the appropriate rebate through the employment agency. In other words, after all of the expedients available for placing workers in normal jobs, including the promotional activities pre­viously discussed, have been exhausted, and there is still more labor available, the employment agency should be authorized to offer this surplus labor at a discount for purposes which will con­stitute a bona fide addition to total employment. The amount of discount necessary to place the workers will vary in accordance with the existing circumstances and the agency will raise or lower the rate periodically, just as would be done with prices in any other market, keeping it at the minimum which will be just suffi­cient to accomplish the purpose.

From one point of view this might be called subsidizing em­ployment, but it should be noted that, unlike the usual subsidy, this special employment discount does not call for any contribu­tion from the community as a whole. The additional jobs are fully self supporting, and the discount is merely a means of rebating the payments which the auxiliary work has made toward the overhead expense of the community. Since this expense must be borne by the general public if these special jobs are not made available, no additional burden is placed on anyone by waiving the overhead contribution in order to provide work for those who would otherwise be unemployed.

Just how large a discount could be offered, if necessary, without taking the program out of the self supporting category is somewhat uncertain in view of the lack of adequate statistics bearing directly on this point. On the basis of the previous estimate that the net values produced in normal business operations amount to approximately 125 percent of the expenditures for labor, a discount of 25 percent of the total labor cost would be allowable. It should be realized, however, that the total new employment created includes the labor expended in the production of the materials that are utilized, as well as the direct labor, and since the workers producing the materials will not come under the discount plan, the allowable discount on the direct labor will be equal to 25 percent of the combined direct and indirect labor. The percentage of direct labor to material cost is extremely variable, but in private industry, where there is every inducement for the employer to make the use of labor as efficient as possible, the cost of materials normally exceeds the direct labor cost. It is therefore probably safe to estimate that a discount in the neighborhood of 50 percent of the direct labor cost would still leave the average job in the self-supporting range.

This amount should be more than ample for the purpose. The number of unemployed to be handled by this special auxiliary program will be relatively small if we take advantage of the various means of avoiding unemployment discussed in the preceding chapters, and since the use of these workers will be profitable, competition will keep the price down. But it should be remembered that this 50 percent is merely the self support limit, not the limit of usefulness of the program. Inasmuch as the only alternatives that are available involve maintaining the unemployed on welfare, public works, or unemployment compensation at a very heavy expense to the community, it is clear that this program would be much less costly than any alternative even if a larger discount is offered to meet some temporary situation. This employment program will not be operating on a narrow margin; it is so far superior to anything else that it has tremendous reserve strength for any emergency.

Ordinarily two pertinent questions are asked about economic proposals. First, what benefits do we get? Next, what does it cost? We then go through a process of comparing one with the other, and if we conclude that the benefits outweigh the cost, and if we have the resources to enable undertaking the project, we put the stamp of approval on it. This present program, however, is in a different class. The financial operations that it requires are merely bookkeeping transactions that do not constitute any net expenditures, and there is actually no real cost at all. Part of the “overhead” benefits accruing from the program take the form of additional tax collections, and these obviously offset an equal amount paid out in employment discounts. The balance of the gain to the community goes into capital payments (interest, rent, and profits) and theoretically it should be necessary to levy some additional taxes to divert this money back into the employment funds, but a very large amount of tax money is now being expended for unemployment compensation, welfare, and other activities designed to ameliorate the consequences of lack of employment, and since the need for most of these activities will be eliminated by guaranteed full employment, a portion of the present expenditures can be diverted to finance the new program. The balance will be a net gain to the taxpayers. The mechanics of handling these fiscal transactions are immaterial from the standpoint of the present discussion, and they are therefore outside the scope of this work.

The immense superiority of the proposed discount plan over current means of handling the situation created by unemployment is shown by the following tabulation. In this comparison the amounts shown are relative to the wage payments in normal employment, which are arbitrarily taken as 100 percent. Unemployment compensation has been assumed to be approximately half of the normal wage. The figures for values produced are the net amounts after subtracting the value of the materials used (that is, they are “value added” in the language of the economists) and they are therefore directly comparable to the labor figures. In accordance with estimates given earlier, the community “overhead” expense—taxes and capital costs has been taken at 25 percent. Net production of values on public works undertaken for employment purposes has been estimated at 20 percent of the normal competitive standard (125). This estimate is probably too high but public works make a very poor showing as an employment measure even on this liberal basis.

  Net values Labor payments Net gain

by employer

from tax funds to community
Normal employment 125 100   25
Unemployment insurance     50 50 (loss)
Public works 25   100 75 (loss)

Normal employment is preferable, of course, since it gives the worker his full wage and in addition contributes a percentage toward the community overhead expense. But where normal employment cannot be provided, the discount program is by far the best of the available substitutes, as it maintains full wages and produces enough net values to cover these labor payments. It is self-supporting, in the sense that it calls for no contribution from the public.

Unemployment insurance only gives the worker half as much, and the entire 50 percent is a net loss to the rest of the community because no offsetting values are produced. Public works projects usually pay the prevailing hourly wage scale, or somewhere near it, but when called upon to combat unemployment are generally unable to provide full time work, and the worker is not much, if any, better off than he is when drawing unemployment compensation. Meanwhile, the community at large is subject to an even greater burden than that which would result from maintaining the worker in idleness. The figures used in the comparison are, of course, approximations, but it can readily be seen that no reasonable variations in any of the items would change the picture to any significant extent as the superiority of the discount plan is so outstanding.

One of the principal merits of the program is that it does not disturb the ordinary routine of economic life in any way. All of the manipulation is behind the scenes, and so far as the general public is concerned, the even tenor of business and industry is maintained unchanged regardless of whether the auxiliary employment program is being used extensively, sparingly, or not at all. To the worker the auxiliary employment will be indistinguishable from normal employment. Those who are employed under the plan will be subject to the same working conditions as any other employee of the respective producers, including the provisions of existing labor contracts. They will receive the regular wages or salaries in the normal manner, and will not be parties to the discount transaction. In fact, the only difference between this and normal employment will be in the arrangements between the employer and the employment agency that make the work possible.

Placing the surplus labor in the regular area of employment greatly simplifies the problem of fitting the worker to the job. One of the major weaknesses of the public works and “work relief’ programs that have heretofore been the only alternative to idleness, in addition to the serious waste of productive effort, is their inherent inability to utilize skilled and specialized labor. After all, public works construction and maintenance constitute only one small sector of our economic life, and it is out of the question for this restricted type of work to do justice to the many special skills developed in the numerous other fields of endeavor. It is not only a waste of human resources to put a highly skilled mechanic or a professional man out with a wheelbarrow; it is a definite blow to community morale. To be sure, the employment agency should not undertake to provide everyone with exactly the job for which he is best fitted. There may be more piano tuners or wild animal trainers out of work than can be used at the moment, and it is not sound public policy to incur additional costs to give a person something more to his liking when a reasonably suitable job is available. But on the whole, the range of jobs that will be opened up will include most of the major categories of gainful occupations, and it should be possible to fit the workers to the jobs within satisfactory limits.

To complete the coverage of the requirements of an ideal auxiliary employment plan, it should be mentioned that the program as outlined will not be susceptible to political manipulation. This is not the entering wedge of an expensive subsidy program, the kind of a measure that the legislators are under continual political pressure to liberalize. The plan contemplates full employment at full pay from the very start, and there is no room for any enlargement of its benefits. Furthermore, the worker who has been guaranteed continuity of employment by society as a whole can hardly be made to feel any special gratitude toward the political party that happens to be handling the governmental machinery at the moment. This is no trivial matter. A further growth of the political philosophy that developed during the depression of the thirties would have some ominous implications for the future.

As indicated in the earlier discussion, any measure or combination of measures that accomplishes a reduction of the survival limit will increase employment, and consequently there is considerable latitude for choice in the formulation of an employment program. But the more general types of measures, such as those discussed in Chapter XI, will inevitably leave some residue of unemployed individuals, and in order to implement a positive guarantee of continuous employment the program must contain some feature which provides for the direct placement of these individuals in specific jobs. The proposed discount program is an effective and efficient means of meeting this requirement.