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Some Macro-theoretical Foundations of Jobless Growth

C Saratchand (chandcsarat@gmail.com) teaches at Satyawati College, University of Delhi.

An alternative heterodox explanation of the phenomenon of jobless growth is advanced, involving an interaction between demand and technical change. A mathematical condition is derived whose satisfaction ensures that both a high and low rate of growth of output results in a fall in the rate of growth of organised sector employment. During an output boom, the high rate of growth of labour productivity overwhelms the high rate of output growth, while in a period of slowdown the low or negative rate of growth of output more than compensates for the reduction in the rate of growth of labour productivity, resulting in persistent jobless growth.

An earlier version of this article was presented at the XII Global Labour University Conference on “Reincarnation or Death of Neoliberalism? The Rise of Market Authoritarianism and Its Challenges for Labour,” 4 to 6 October 2017, Jawaharlal Nehru University, New Delhi. Non-incriminating thanks are due to the anonymous referee.

The neo-liberal era has been characterised by jobless growth (Patnaik 2007b). In countries at the capitalist periphery, such as India, a period of high economic growth since the 1980s has not been accompanied by an increase in organised sector employment after 1991 (Tejani 2016). Instead, there has been a creation of jobs in the unorganised sector. Unorganised sector jobs are characterised by lower wages, longer working hours, limited social security, more adverse work conditions when compared to jobs in the organised sector (Chandrasekhar 2016). In what follows, jobless growth refers to a process of growth of output where organised sector jobs do not increase significantly.

A neoclassical argument about jobless growth would emphasise that labour market rigidities result in the adoption of techniques that employ more non-labour means of production and less labour. However, this argument is theoretically untenable (Sraffa 1975). Even if other postulates of neoclassical economics are admitted, there need not exist an inverse relation between relative input proportions and relative input prices. Besides, those labour laws that make firing difficult stabilise aggregate demand, output, investment and employment by reducing fluctuations in the wage bill of the economy. In other words, wages are a component of both cost and demand in the economy (Bhaduri and Marglin 1990). Neoclassical arguments in this respect are also contradicted by empirical evidence (Unni and Rani 2008; Kannan and Raveendran 2009; Tejani 2016).

A heterodox explanation of jobless growth would draw on the work of Kalecki (2013). A directly proportional relation between output and organised sector employment is readily comprehended within the framework of Kaleckian macroeconomics (Lavoie 2014) since:

(i) A rise in output ceteris paribus increases the demand for labour.

(ii) A rise in the rate of (organised sector) employment increases the bargaining power of workers and therefore the wage rate. If the real wage rate rises then the corresponding rise in aggregate demand increases the degree of capacity utilisation and therefore investment and (organised sector) employment.

Let the rate of growth of labour productivity () be an increasing linear function of the rate of growth of output (gt):

... (1)

The rate of growth of organised sector employment () may be expressed as:

c ... (2)

The rate of organised sector unemployment will be constant if organised sector employment grows at the same rate as the labour force (n)1 which implies that the rate of growth of output will also be a constant (denoted by g):

g – dg – c = n ... (3)

A necessary condition for a positive g is that:

d 1 ... (4)

By inspection of equation (3) it is evident that for a sufficiently high rate of growth of output (gt), organised sector employment will rise.

But, the experience of countries like India is that there is jobless growth during all phases of the business cycle (Patnaik 2011a). An explanation of this phenomenon requires the Kaleckian macroeconomic framework to be modified. Patnaik (2011a) proposes one such modification where the peripheral capitalist economy is divided into an agricultural and a non-agricultural sector. The former is peopled by peasants, part of whose land is bought by capitalists each year. Even if aggregate demand problems are assumed away, the faster rate of growth of labour productivity in the non-agricultural sector relative to that in peasant agriculture will result in an increase in the rate of unemployment. This would be so even if it is assumed that the peasants who sell land obtain a rate of return on these funds which equals that obtained by capitalists. Patnaik (2011a) does not consider the dichotomy between the organised and the unorganised sectors but highlights the important point that in a neo-liberal setting land acquisition by capitalists could increase unemployment. In this paper, this phenomenon is assumed away for the sake of simplicity.2

Model of Jobless Growth

In countries at the capitalist periphery, it has been argued that in the neo-liberal era, the incorporation of formerly dirigiste economies in the ambit of imperialist globalisation where international finance capital predominates, results in a number of changes:

(i) Due to the dislike of fiscal deficits by international finance capital (except when it benefits the latter) in a setting where there are no capital controls, the capitalist state seeks to maintain a low or zero fiscal deficit as a proportion of output (Patnaik 2011b; Chandrasekhar 2016). Thus, the neo-liberal state in peripheral capitalist economies is unable to employ fiscal policy to influence the rate of unemployment.

(ii) Monetary policy in the form of interest rate adjustments is ostensibly used to target inflation (Chandrasekhar 2016).3 This policy involves many problems even in a closed peripheral capitalist economy (Azad and Saratchand 2015). When there are no capital controls, the central bank’s interest rate must be set at a level that ensures that the rate of return that accrues to international rentiers induces a certain magnitude of capital inflows (Patnaik 1994). High real interest rates tend to decrease investment and therefore, ceteris paribus, increase the rate of unemployment.

(iii) Technical change that originates in the capitalist metropolis is labour-saving (Duménil and Lévy 2003; Marquetti 2003).4 A peripheral capitalist economy that is incorporated into the ambit of imperialist globalisation witnesses a faster adoption of this labour-saving technology. For a given real wage rate, an increase in labour productivity reduces the share of wages in output resulting in a ceteris paribus fall in output, investment and organised sector employment. Alternatively, a higher import intensity of domestic production will also reduce ceteris paribus output, investment and organised sector employment. Most of the incomes that are generated in such a setting, namely profits and salaries of organised sector workers are spent either on imported means of production or consumption or domestically produced means of production or consumption, which are both labour-saving and have a higher import intensity. Patnaik (2007a) therefore postulates that the rate of growth of labour productivity () in such a peripheral capitalist economy is an increasing quadratic function of the rate of growth of output (g), that is, the technical progress function5 is non-linear:

... (5)

The rate of growth of organised sector employment () by definition equals the difference between the rate of growth of output and the rate of growth of labour productivity:

... (6)

Here ϵt is the magnitude of organised sector employment.

Equation (6) may be expressed as follows:

... (7)

The rate of growth of organised sector employment will be negative for any rate of growth of output if:

... (8)

Clearly the second of the inequalities set out in equation (8) is the decisive one. This inequality is likely to be valid for high values of c f. A high value of f represents a situation where the cumulative process of diffusion of imported inputs and labour-saving technology is significant. A value of d that is close to unity is also conducive to the maintenance of the second inequality set out in equation (8).6 Unlike in the case of a linear technical progress function, in the case of a quadratic technical progress function which satisfies the inequalities set out in equation (8), no rate of growth can ensure an increase in the rate of growth of organised sector employment.

If the rate of growth of organised sector employment is negative, then for a non-negative rate of growth of the labour force (Lt) the share of organised sector employment in the labour force (vt) will tend to fall. The share of organised sector employment in the labour force may be defined as:

... (9)

The rate of growth of the labour force (n) may be defined as follows:

Lt+1 = Lt(1 + n) ... (10)

The relation between vt and gt may be expressed as follows:

... (11)

By inspection of equation (11) it is evident that since the RHS is negative it
follows that:

... (12)

 

Any macrodynamic model that contains equation (11) cannot have a non-zero steady state with a constant ratio of organised sector employment to the total labour force as is evident from an inspection of equation (11). If in equation (11) one sets νt+1 = νt = ν it is clear that the LHS of the equation would be positive while the RHS would be negative. The two sides of the equation would be equal only if it is the case that νt+1 = νt = 0.

A positive steady state would be possible only if the role of unorganised sector workers is incorporated into the discussion. Though this is outside the scope of this article, a few remarks in this regard are offered here. If the ratio of unorganised sector workers to the labour force rises over time it is possible that the ratio of total (organised and unorganised) employment to the labour force could be a constant under certain circumstances.

If there is a cyclical trajectory, then the ratio of unorganised sector workers to the labour force could also vary cyclically. The existence of a cycle would require other macrodynamic processes to be taken into account. The recovery from a downturn could be the result of monetary or fiscal policy if such policies are not constrained by other factors.7 The end of an upturn could be on account of balance of payments difficulties in peripheral capitalist economies, such as India, which are chronic current account deficit economies through changes in exchange rates either through policy design or the activities of international rentiers.

The empirical evidence presented in Tejani (2016) and Chandrasekhar (2016) is consistent with the results of the model presented here. Further work on the lines of the model of the current paper could try and incorporate the following aspects:

(i) An explicit representation of the role of the unorganised sector and its workers which has been briefly mentioned above.

(ii) A more detailed specification of the different components of aggregate demand, including investment, consumption, government, trade and capital flows.

(iii) A consideration of embodied technical change whereby technical change is incorporated into the new elements of the capital stock (or means of labour).

(iv) A more explicit consideration of the distinction between unorganised sector employment and unemployment which will also require a reckoning with the impact of capitalist acquisition of peasant land on unemployment.

Conclusions

This article presents the argument that the problem of jobless growth is not related to the magnitude of the growth rate of output. As long as the peripheral capitalist economy is incorporated into the ambit of imperialist globalisation wherein international finance capital predominates, an alternative to the path of jobless growth cannot be established. When there are no capital controls, any policy move by the state that is not acceptable to international rentiers will result in rapid capital flow and a significant economic setback (Grabel 2011).

After the institution of a system of capital controls, an employment guarantee programme needs to be set up. The case for an employment guarantee programme has been advanced by many (Flaschel and Greiner 2012; Murray and Forstater 2013). In terms of the model of this article an employment guarantee scheme would reduce the value of f, c, and possibly d to an extent that the inequalities mentioned in equation (8) are reversed. Further public investment, financed in the main by direct taxation of profits, would be required to overcome supply-side bottlenecks which if unresolved may give rise to inflation that is unrelated to wage increases (Chandrasekhar 2016).

If the employment guarantee scheme is comprehensive and effective then the bargaining power of workers would increase resulting in a rise in inflation if the price-making power of capitalists
is not restrained even if there are no supply-side bottlenecks. Moreover, this alternative process of development will require changes in the trajectory of labour-saving technical change in the capitalist periphery.8 These measures are not attainable by a bourgeois state and will require to be instituted by a participative social movement of which a state led by the workers and peasants must be a constituent part.

Notes

1 Patnaik (1997) has argued that in the capitalist metropolis the rate of growth of the labour force is an increasing function of the rate of employment due to migration from the capitalist periphery.

2 For the purposes of this article, the agricultural sector is assumed to be part of the unorganised sector.

3 Inflation targeting monetary policy, if it works, requires changes in the rate of employment and capacity utilisation in response to changes in the policy interest rate as determined by the central bank.

4 Though there is some debate about whether the non-labour means of production required per unit of output increased secularly over time there is no doubt that the productivity of
labour has risen over time under capitalism. Since both labour and non-labour means of production are heterogeneous, propositions about the changes in the ratio of means of
production per unit of input require a procedure to aggregate these non-homogeneous
entities. According to Fine and Saad-Filho (2016), Marx (2010a, 2010b) developed the concepts of the technical, organic and value compositions of capital to deal with this issue. The technical composition of capital is a relation between the heterogeneous vectors of labour and non-labour means of production. The organic composition of capital expresses this relation as a ratio in terms of magnitudes of value that existed prior to the onset of a round of technical change. The value composition of capital expresses this relation as a ratio in terms of magnitudes of value that come into being after the onset of a round of technical change.

5 Kaldor (1957) introduced the concept of the technical progress function into macroeconomics.

6 The first inequality in equation (8) could be satisfied even if the value of c is zero.

7 As mentioned above, one such constraint on monetary policy could be a rise in the world (or United States) interest rate. In that case the domestic rate of interest would have to rise in order to bring about a certain alignment between both rates (Patnaik 1994).

8 Marglin (1974) points out that the trajectory of technical change under capitalism is determined by the requirement of capitalist control of the labour process. An alternative to this process would involve a decisive role for participation of workers in the organisation of the labour process.

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Updated On : 8th Apr, 2019

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