The "Reserve Army" of Unemployed Revisited Jeffrey D. Straussman

AMERICAN

Job rationing is the policy alternative to full employment.

he Employment Act of ! 946, once hailed as a legislative milestone, has now joined the list of political promises that have failed to deliver. It has become a symbol to those who are disappointed with the unwillingness or inability of the federal government to maintain full employment in the United States. The act did set the stage for postwar "growthmanship" policies that facilitated corporate growth and multinational expansion, but the goal of full employment was lost in the political shuffle. The most recent recession (the longest and deepest in the postwar period), and the Nixon-Ford policy responses to it, led liberals to reconsider the current viability of the Employment Act in an era of advanced capitalism. Reform is in order; consequently, full employment became a Bicentennial and presidential election slogan in a year that also included the celebration of the thirtieth anniversary of the Employment Act of 1946.

T

Reserve Army in Advanced Capitalism The failure of the federal government to maintain full employment comes as no surprise to radical political economists. Indeed, Marx identified the rationale for chronic unemployment under capitalism in his famous theory of the reserve army. How does the capitalist exploit the reserve army? Essentially the reserve army expands and contracts with the business cycle. Given this condition, the reserve army is used to " t a m e " labor, particularly when fear of an excess labor supply is used by capitalists as a tool to regulate wages and control labor militancy during a cyclical downturn. According to Joan Robinson, however, the empirical evidence on advanced capitalist growth would not support such a literal application of Marx's theory of the reserve army. What relevance, then, does the Marxian concept of the reserve army have for an understanding of employment and 40

unemployment in an advanced capitalist economy like the United States? The contemporary reserve army of advanced capitalism lies somewhere between the total number of those people potentially available for work (what we can call the unofficial labor supply) and those who are employed or seeking employment (the officially defined labor force). The gap between the potential labor supply and the labor force represents a labor reserve that is regulated, in effect, through government inaction. Why government inaction? Under conditions of job scarcity it is imperative to ration jobs as an alternative to full employment.

Indicators of Job Rationing Public policy is designed through conceptual lenses; consequently, the concepts used in the formulation of policy will often have much to do with the impact of policy. Moreover, concepts do not have a life of their own but, on the contrary, are a reflection of a particular political economy during a finite period of time. Employment policy is a case in point. Stanley Moses has traced the evolution of labor supply in terms of the demand for labor during capitalist industrialism. In the early period labor supply and population were considered roughly synonomous. Manpower information, according to Moses, was drawn from basic demographic data. Unemployment was not a concern of government policy. The expansion of capitalist industrialism in the latter part of the nineteenth century was accompanied by the occupational differentiation of the work force. Beginning in 1870 the concept of the "gainfully occupied" was established. It was essentially a skills inventory derived from the decennial census. Respondents listed their skills and occupations regardless of whether they were actually working at the time SOCI ETY

size of the nation's labor supply on the eve of the American entry into World War II. Why the conceptual change from the gainfully occupied to the labor force? According to Moses, "the orientation engendered by a job scarcity economy--a condition which was envisioned as a permanent state---created the need for a concept which would understate the degree of unemployment and thereby indicate the effectiveness of government programs of job creation in combating and controlling mass unemployment." While there may have been an implicit reason to understate the number of people unemployed, it seems more reasonable to assume that the primary motivation for dropping the gainfully occupied concept was its total uselessness for manpower planning. While it does seem that the labor force concept may have been partly adopted as a vehicle to minimize the appearance of mass unemployment, it is unlikely that a symbolic effort like concept re'formulation, by itself, would do much to placate civil disorder and contribute to the restoration of political stability. For that objective the government turned to work relief and poor relief.

Reserve army is used to "tame" labor.

ManpowerTemporaryEmploymentOffice, Kokomo,Indiana of the census. While the gainfully occupied concept was useful in tracking occupational changes in an expanding capitalist economy, it was useless as a vehicle for matching available labor supply to short-term policy objectives--had there been an inclination to do so. The Great Depression highlighted the fact that the gainfully occupied concept had little relevance for manpower planning inasmuch as it could not provide adequate information on unemployment. In 1940 the concept of the "labor force" was introduced and has remained the official concept for defining who is working or seeking employment in an era of advanced capitalism. The obvious advantage of the labor force concept is that it is a monthly series that allows policymakers to chart employment and unemployment. What is less obvious is that it does not attempt to measure the nation's potential labor supply. On the contrary, the labor force focuses on jobholders and active job seekers. Given unemployment rates during the depression--which reached 25 percent of the work force in 1933--it seems plausible to assume that many people who were gainfully occupied in 1930 would have stopped seeking employment between 1930 and 1940. This group---now called "discouraged" workers--would have been ignored by the labor force concept. If these assumptions are correct, then the labor force concept should have underestimated the March/April 1977

As it turned out, the labor force concept proved equally useless for manpower planning immediately after the American entry into the Second World War. The war-dominated economy not only rapidly reduced official unemployment to 1.7 percent by 1944; it also drew millions of new workers into the labor force. This reservoir of labor suggested that there had always been an untapped portion of the labor supply. The empirical question in 1944 was whether a capitalist economy could sustain an expansion without war or military spending. At any rate, two things became clear in the postwar era: (1) the United States was never to reach the 1944 rate of unemployment, and (2) the labor force concept would continue to determine who would be included among jobholders and job seekers. One could ask, at this point, why, given the large number of new entrants into the labor force between 1941 and 1945, the federal government did not at least adopt a two-pronged concept of labor supply which counted active workers and potential workers. Keynesians concerned with the negative effects of peacetime conversion on employment were prepared to design a government job guarantee in the proposed Full Employment Bill drafted in 1944. By implication, a job guarantee would expand the number of those willing and able to work for pay. Conceptually one could visualize under this condition a congruence between the officially defined labor force (active jobholders and job seekers) and the labor supply (the labor force plus potential jobholders). Such a condition would have produced full employment in the spirit of Sir William H. Beveridge--a situation where the demand for labor exceeds the supply, leading to a labor shortage. 41

"Tolerable" Unemployment

But this formulation of full employment was out of character with the political economy of the United States in 1945. More important, a concept of full employment which suggested the contraction of the labor reserve leading to tight labor markets was met with formidable political opposition. The Employment Act of 1946 which finally emerged from this legislative battle turned out to be silent on the fullemployment target as well as the definition of labor supply. What was the impact of this short period? The standard liberal critique is that the Employment Act was an emasculated piece of legislation. This statement is certainly true if the act is looked at as a job guarantee bill. Yet the Employment Act provided the groundwork for the postwar era of corporate expansion. "Growthmanship" was initiated by the Truman Council of Economic Advisors (CEA) and became established doctrine with the "new economics" of the 1960s. The Employment Act was the benchmark of advanced capitalist planning, American style. However, as the labor force artifact and the full-employment target became the vehicles for defining the available pool of labor, the World War II experience of a labor shortage was replaced by a form of job rationing which excluded millions of potential jobholders from those counted as able and willing to work. 42

Employment concepts define who is counted in the nation's labor supply. With the passage of the Employment Act of 1946 and the enshrinement of the labor force concept, only those who actively seek employment are considered unemployed. Meanwhile, full employment has been defined in relation to politically "tolerable" levels of unemployment, that is, levels that are compatible with the government's efforts to control inflation. Given the importance of this second major macroeconomic objective, government action in the United States has redefined tolerable levels upward and has ignored large portions of the nation's labor supply which could be encouraged to work, thereby maintaining a labor reserve. Most economists probably accept the validity of the longrun inverse relationship between inflation and unemployment as depicted by the classic Phillips curve; however, the short-run policy implications of this assumed relationship are less clear. During the 1960s, the Kennedy-Johnson C E A - the principal spokesmen for the new economics--accepted the implications of the Phillips curve trade-off by defining full employment as a condition when the unemployment rate dropped to 4 percent of the labor force. This figure became the official policy goal and was generally referred to as an interim target. Yet after a five-year period of price stability (between 1960 and 1965 the average increase in the consumer price index was only 1.3 percent), prices rose 3.4 percent between December 1965 and December 1966. This inflationary pressure signaled the retreat from the full-employment goal. In its 1967 annual report the CEA, while maintaining the rosy picture of an expanding economy, strongly hinted that the route to full employment utilized from 1961 to 1965 would have to be stopped given signs of inflationary pressure. The official unemployment rate has never returned to the 1966 low of 3.6 percent. Fears of inflation have led policymakers to withdraw from the 4 percent target so that the full-employment target has crept upward to 5 percent and even higher. Inflation rather than unemployment became a priority under the Nixon administration. The tenor of this concern was illustrated in the CEA's 1973 annual report. With the CEA's 1974 annual report the Nixon administration openly acknowledged that any achievement of " m a x i m u m " employment (which was implicitly held to be above 5 percent unemployment) would necessarily result in differential rates of unemployment for specific groups such as women, minorities, and teenagers because of the changing nature of the labor force. The Ford administration essentially accepted the adjustment in the full-employment target. In other words, with the exception of liberal Democrats in Congress there did not seem to be much enthusiasm for a redefinition of full employment in the style set by the new economics, despite the high levels of unemployment in recent years. These conceptual fumblings with the definition of full employment indicate that the federal government has not SOCl ETY

been prepared to reduce the labor reserve in the United States. It is perplexing to try to understand why this inaction has been so pervasive. The impact of this nonaction is job rationing, to be sure. Yet survey research does show that unemployment has consistently been a salient political issue. In particular, Douglas Hibbs has shown that the macroeconomic policies pursued by political leaders have classlinked constituencies. If so, why do the two major political parties in the United States not pursue full-employment strategies? Hibbs shows that the Democrats do. The Ford administration, by contrast, was clearly more concerned with inflation than unemployment. There are two possible explanations why the Republicans successfully avoided embracing full employment as a campaign issue in 1976. First, it was unclear that the saliency of unemployment would directly translate into votes. Put another way, are we sure that unemployment exerts an independent effect on voting behavior? Second, it may be true that change in the level of unemployment--an economic upturn--rather than the absolute level of unemployment determines voting behavior. If expectations rather than performance matter, then the position of the Republican party last year on full employment was not a determinant of electoral success or failure. Job rationing occurs when the federal government determines who is available for work. To the extent that there is a gap between those who feel that they have a right and an obligation to work, and those who are counted as either working or seeking work, we could identify--albeit in a rough manner--the unutilized or underutilized portion of the nation's labor supply. The empirical question is who is part of this group?

Prime Age Males and Work It is probably common knowledge that the labor force participation rate has been remarkably constant during the postwar period. In 1947, 58.9 percent of the noninstitutional population was in the labor force; by 1975 the rate had increased to 61.2 percent. Within this aggregate stability two important trends emerge: a decline in the labor force participation rate for prime age males (see Table 1) and an increase in the rate for females (see Table 2). Why this drop in the prime age male participation rate? To date there are no satisfactory answers to this question. Mainstream economists tend to accept the idea that this behavior is voluntary. Some of this decline can be explained by early retirement and a return to education. Some of the decline, however, may not be due to these voluntary reasons. Structural changes in the work force may make some workers obsolete, causing forced retirement. This pattern may indeed be the case in the declining industrial sector. Given the relatively high wages in such industries as mining, construction, manufacturing, and transportation, the effect may be one of job rationing for prime age males if there is, in fact, a scarcity of jobs in the declining industrial sector. Interestingly, the labor surplus in the predominantly male industrial sector has not depressed wages. In fact, Harry March/April 1977

TABLE 1 Labor Force Participation Rates for Prime Age Males, by Five-year Intervals, 1950-1975 Year

20-24

25-34

35-44

45-54

55-64

1950 1955 1960 1965

89.1 90.8 90.2 88.0

96.2 97.7 97.7 97.4

97.6 98.1 97,7 97,4

96.0 96.5 95.8 95,6

87.2 87.9 86.8 84.7

1970 1975

86.6 85.9

96.6 95.5

97.0 95.8

94.3 92.1

83.0: 75.8

Source: Adapted from U.S. Department of Labor, Employment and Training Report of the President, 1976. Braverman has shown that in these stagnant industries wages are higher than in the growing industries of the service sector. Moreover, it also appears that economic concentration coupled with strong unions protect real wage gains during recession. But high wage rates are no consolation for unemployed workers who have been pushed out of the labor force.

Women and the Potential Labor Supply At first glance women represent the best contemporary example of the reserve army--encouraged to work during economic expansion and forced out of work during the contraction phase. Actually, the data suggest otherwise. The steady increase in the size of the service sector since 1900 has been accompanied by increases in the labor force participation rate for women. By 1973 there was a significant increase in the labor force participation rate for all age categories, implying a changing orientation toward work among women.

TABLE 2 Labor Force Participation Rates for White Females, by Selected Years, 1950-1975 Year

20-~1

25-34

35-44

45-S,I

55-64

1950 1958 1960 1965

45.9 46.1 45.7 49.2

32.1 33.6 34.1 36.3

37,2 41.4 41.5 44.3

36.3 46.5 48.6 49.9

26.0: 34.5 36.2 40.3

1970

57.7

43.2

49.9

53.7

42.6

1973 1975

61.6 65.4

48.5 53.5

52.2 54.9

53.4 54.3

40.8 40.7

Source: Ibid. Given the noticeable change in labor force behavior, one wonders about the utility of the reserve army concept as applied to women. Yet it is also clear that sex segregation of work in the service sector, as well as the fact that many women are classified as secondary workers, means that a large portion of women in the labor force are considered expendable. Even with the changing labor force behavior of women, there are some data that show an undercounting of the number of women able and willing to work. Consider the two following categories: women who want to work but cite family responsibilities for not seeking employment, and female welfare recipients. 43

There is reason to suspect that the current population surveys underestimate the female labor reserve by their method of data collection. Frank Furstenberg, Jr. and Charles Thrall recently analyzed data on women between the ages of 30 and 44 who were asked, " I f you were offered a job by some employer in this area, do you think you would take it?" Furstenberg and Thrall found that one-sixth of the population interviewed answered yes without reservation; another one-sixth had some qualifications attached to a positive response. These findings suggest that approximately three million women not in the labor force are available for work. Bertram Gross and Stanley Moses guesstimate that approximately one-seventh of the 35.4 million housewives (five million) "would desire jobs if suitable employment were available." This guesstimate is based on the changing labor force behavior of women, especially younger women.

Liberals' retreat from full employment has become public policy. How employable are welfare mothers? Conventional wisdom assumes that the welfare system in the United States discourages the incentive to work. However, some recent research calls this view into question. Leonard Goodwin ends his study of work orientations of the poor by noting that "the data indicate that even long-term welfare mothers and their teen-age sons, though the sons have spent virtually their entire lives on welfare, continue to have a strong work ethic and do not need to be taught the importance of work." The AFDC program and effective tax rates, rather than the attitudes of the recipients, seem to be the major obstacles to the employment of AFDC women. Finally, studies of the Work Incentive Program show that local labor markets and employer attitudes toward the participants, rather than the work orientations of the participants, seem to affect employment. Questionable Estimates There are several other groups in the society who are either ignored or undercounted in the official estimates of the nation's labor supply. We do not know, for example, how many students would really prefer a job to school. In 1973 almost one-half of the men out of the labor force who wanted work (650,000) and one-fifth of the females out of the labor force but wanting work (580,000) were in school. Given the fact that these data were collected during a recessionary period, it seems plausible to assume that at least a portion of this 1.3 million population were in school because they did not think that they could find suitable employment. Similarly, there is reason to suspect that the number of people working part time but wanting full-time employment is underestimated by the federal government. The Bureau of Labor Statistics survey, by the very nature of its data collec44

lion, underestimates underemployment. If a worker is working full time during the survey week by less than thirty-five weeks in the year, he is counted as working full time even though such a worker is obviously an involuntary part-time worker. This method results in an underestimate of real unemployment and an underestimate of employment over a full year. Similarly, official estimates of underemployment minimize the severity of involuntary underemployment. A recent study of underemployment by Timothy Bates found that 54 percent of the part-time workers were willing to work but were unable to secure full-time employment. These various groups illustrate that official concepts used in determining who is working or available for work seriously underestimate the nation's labor supply. Obviously estimates of the nation's real labor supply depend on a reformulation of the official concepts. There have been two attempts to do so through estimates of real unemployment in the United States. Paul Sweezy and Harry Magdoff have estimated 1975 unemployment to be 13 million rather than 8.2 million. In an even more speculative vein, Bertram Gross and Stanley Moses estimated the real unemployment rate for 1971 to be approximately 25 percent of the nation's labor supply. They arrived at this estimate by making what they felt were plausible assumptions and guesstimates of the work orientations of discouraged workers, housewives, students, male dropouts from the labor force, enrollees in manpower programs, and older persons. The important aspect of these estimates is not their accuracy, but rather the extent to which they call official employment concepts into question and thereby bring political attention to the labor supply undercount. The mainstream critique of such speculative efforts is that they do not measure labor force behavior. At best, such estimates rely on work history and/or work orientations. These caveats may be true; however, the alternative--reliance on current labor force behavior--has a status quo effect on future labor utilization. The reconceptualization of the potential labor supply in the United States is merely a prelude to public policy formulation designed to reduce and ultimately eliminate job rationing in the form of a full-employment policy. Full Employment in Advanced Capitalism How politically feasible is full employment in advanced capitalism? The question seems almost nonsensical even from conflicting perspectives. Conservatives who launched an attack on the original Full Employment Bill and even the Employment Act of 1946 feared that a government-managed full-employment policy would necessarily means a toss in individual freedom. Friedrich Hayek's attack on economic planning was a formidable one; what contemporary spokesmen for his view either do not realize or do not admit is that economic planning--American style--has contributed to corporate growth and expansion. The liberal retreat from full employment is well known, and was first evident in the compromises leading to the SOCI ETY

Employment Act. The retreat became public policy during the new economics decade of the 1960s when semantic confusion labeled full employment as a condition when the unemployment rate dropped to 4 percent of the labor force. If a commitment to full employment ever existed, it dissipated with the rise in inflation beginning in the last quarter of 1965. Under the Nixon and Ford administrations full employment was never considered a pressing objective of public policy since it was considered incompatible with other macroeconomic objectives--particularly the fear of inflation. Radical political economists dismiss out of hand the possibility of full employment under capitalism. Marx, of course, dealt with the issue implicitly in his discussion of the reserve army. Perhaps the most neglected analysis of the relationship between full employment and capitalism is Michal Kalecki's famous article on the political aspects of full employment, where he established the principle of the political business cycle. Essentially a theory of class conflict, Kalecki predicted that the capitalist class would prefer cyclical downturns to sustained full employment with high profits as a method of controlling the working class. There has been some renewed interest of late in Kalecki's theory. Douglas Hibbs, for example, has shown that there is a strong inverse relationship between industrial conflict (strikes) and the unemployment rate, suggesting that workers are quite rational (are selective) in their use of the strike weapon. Raford Boddy and James Crotty have taken issue with one part of Kalecki's theory. Unlike Kalecki, they argue that there is a contradiction between full employment and high profits. According to B(xldy and Crotty, full employment produces a boom-induced profit squeeze as labor receives a large portion of factor shares. In sum, full employment is incompatible with the logic of advanced capitalism.

Humphrey-Hawkins Bill But liberals keep trying. Full employment became a campaign issue in the 1976 presidential election, focusing on the Humphrey-Hawkins Bill. The Humphrey-Hawkins Bill began as a platform for human rights to be realized through a policy of full employment. The first draft of the Humphreyttawkins Bill adopted inflated language that was quickly dismissed as unworkable. Economists like Herbert Stein and Alan Greenspan attacked the bill as being incompatible with free enterprise and the proper role of government. The specter of economic planning, reminiscent of the debates surrounding the Employment Act of 1946, has been raised in opposition to Humphrey-Hawkins. On the other side of the political spectrum, Kennedy-Johnson economists have criticized the bill for its overly optimistic employment projections and its lack of attention to the bill's probable inflationary impact. On March 10, 1976 a revised version of the HumphreyHawkins bill was introduced in the House. A close reading of the revised bill (and comparison with the earlier version) March/April 1977

shows the extent of compromise necessary to make it politically acceptable to various factions in the Democratic party. For example, the labor force artifact was reintroduced as the determinant of the nation's labor supply; therefore, persons not seeking employment are not considered unemployed in the revised bill. Similarly, provisions in the early draft for local planning councils (initially viewed as decentralized planning bodies that would determine local employment and output requirements) were dropped in the March 1976 version of the bill. Instead, persons unable to find work are eligible for jobs established " b y the President through reservoirs of federally operated public employment projects and private nonprofit employment projects approved by the Secretary of Labor." Conceptually this reasoning is a return to the idea of the government as employer of last resort, a view antithetical to the original intentions of the bill's sponsors. The Humphrey-Hawkins bill is long on promises but seems to lack vehicles for effective implementation. More fundamentally, it seems to include some basic flaws in logic and design. The bill, for example, does not propose a solution to the inflation-unemployment relationship. The reason for this gap, according to Melville Ulmer, is that the bill's drafters do not understand the causes of postwar inflation. According to Ulmer, inflation starts before full employment occurs because of the behavior of both oligarchic unions and industry. The solution, as far as many economists are concerned, is selective wage and price controls. Yet this position is anathema to organized labor, and it was difficult enough to obtain labor support for the revised version of Humphrey-Hawkins. The sponsors of the Humphrey-Hawkins bill are faced with a political catch-22. On the one hand, the prospects of passage are dependent on broad coalition building. However, this strategy will more likely than not make the bill easier for opponents to attack. Even if the prospects for passage improve, further revisions and amendments would make the bill almost unrecognizable from the original draft. In short, full employment is a policy whose time has not yet come.I--1 READINGS SUGGESTED BY THE AUTHOR: Beveridge, William H. Full Employment in a Free Socie~. New

York: W.W. Norton, 1945. Braveman, Harry. Labor and Monopoly Capital. New York: Monthly Review Press, 1974. Gordon, David M Theories of Poverty and Underemployment. Lexington, Mass.: D.C. Heath, Lexington Books, 1972. Kalecki, Michal. Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970. Cambridge: Cambridge University Press, 1971. Jeffrey D. Straussman is assistant professor of political science at Michigan State Universi~. where he teaches urban politics, public administration, and public policy. He is the author of The Limits of Technocratic Politics (Transaction Books, forthcoming). His research interest is concerned with the effects of fiscal scarcity on budgeting strategies. 45