Anwar Shaikh’s Classical theory of wages and unemployment

9780199390632Anwar Shaikh is a Professor of economics at the New School for Social Research in New York. His ideas, in his own words, draw mainly but not exclusively on the ‘Classical tradition’ of Smith, Ricardo and Marx. Marx himself was a critic of classical political economy, so in some ways Marxist political economy could be considered as a separate school of thought.

In Shaikh’s 2016 magnum opus, Capitalism, he also draws on Keynes and Kalecki, two economists who greatly inspired the post-Keynesian school. For Shaikh, the Keynesian/Kaleckian emphasis on aggregate demand remains important, but so too does aggregate supply, which is emphasised in mainstream neo-classical economics. According to Shaikh, the classical tradition is not so much demand-side, or supply-side, but ‘profit-side’. The rate of profit is central to his work, and it affects both demand and supply in the capitalist economy.

In this post I want to outline Shaikh’s theory of wages and unemployment, which is covered in Chapter 14 of Capitalism. He covers a great deal of theoretical and empirical ground in the book, not least in this chapter, and it makes for stimulating reading. To avoid making this post too long, I will focus on Shaikh’s own particular theory, rather than spending much time comparing it to alternative theories, which Shaikh does in the book. Continue reading

Dean Baker: Fed inflation target keeping wages low, people out of jobs – Radical Political Economy

This nine-minute interview with left-Keynesian economist Dean Baker discusses the wisdom or otherwise of the Federal Reserve’s interest rate hikes and their effect on jobs and wages. He notes that despite a low unemployment rate in the US, other measures of the ‘tightness’ of the labour market indicate that there may be more slack in the system and more room for job creation than allowed for by the Fed.

via Dean Baker: Fed Inflation Target Keeping Wages Low, People Out of Jobs — Radical Political Economy

Lies, damned lies and living standards

Money-poundsThere is a disconnect between economic growth and living standards in the UK and ordinary workers are bearing the brunt. While politicians seize on data showing that the economy is growing at a reasonable pace, average real wages have largely stagnated for the past decade.

Simon Wren-Lewis illustrates here the uniqueness of the UK economy among rich countries, in that it experienced positive overall GDP growth and falling real wages between 2007 and 2015. This implies of course that job growth has been strong, and indeed it has, with record numbers in work. Unemployment has fallen, but there has also been significant population growth. So while our political masters crow about record employment levels, they keep fairly quiet about the fact that this has been made possible by the immigration flows that they claim will slow after Brexit. Continue reading

Benefits of the new higher minimum wage

social care hands imageA piece here from today’s Guardian newspaper about the benefits to thousands of low paid workers in the social care sector of the recent rise in the national minimum wage. It is now called the ‘Living Wage’, which typically reflects the highly political nature of the policies of former UK finance minister George Osborne. His policy was simply a decent rise in the minimum wage, but of course he had to rename it. The name was stolen from those campaigning for an even higher minimum wage which would ensure that its recipients had enough income to live on.

There were fears that the level of the new Living Wage would damage the care sector in particular, which employs a huge number of low paid workers. But the new research suggests this has not come to pass. The pay bill has apparently risen by nearly 7%, and there has been some compression of wages at the bottom of the pay scale in the sector.

It should be noted that the majority of local councils commissioning social care have raised the fees they pay to providers so that the overall impact on society is partly redistributive, away from taxpayers and towards the low paid. But overall it represents a significant positive change.

Wage falls in the UK as ordinary workers suffer since the recession

workersEvidence here, once more from the UK’s TUC (Trades Union Congress) that real wages here fell by 10.4% between 2007 and 2015; in other words, since the financial crisis and recession. This is the worst record in the group of rich OECD countries and roughly the same as Greece.

On the bright side, employment growth has been relatively strong in recent years, although putting the two together suggests that a large proportion of the jobs created pay low wages. This means that job creation is less likely to reduce poverty for those already struggling.

As I have written previously, strong population growth has flattered the GDP growth figures so that per capita growth in incomes and output has been poor since the recession.

Stagnant or falling wages should boost the profits of firms, at least for a while, which could feed through into rising investment, which is necessary for productivity growth. But if real wages do not at some point pick up, then the only way that consumption can grow is for people to take on more debt, which will eventually prove unsustainable, especially from today’s already high levels.

Of course, the government will put a positive spin on the figures by distracting from them with the employment figures and overall GDP growth rather than the per capita evidence. But the picture is clear. We have a lot of ground to make up on productivity and real wages compared with our fellow OECD members and it is these variables which play a big role in determining living standards.

How to end the excesses of executive pay

An interesting post from Paul Ormerod on how to curb the excesses of executive pay, following the new Prime Minister’s announcement that she would legislate to do so. CEO pay has risen dramatically in proportion to that of shop floor workers since the 1980s, particularly in the US and UK, and less so in other countries. This trend has little economic justification in many cases and has become a social norm with its own self-sustaining dynamic.

Ormerod suggests a more subtle approach than legislation: withhold the awarding of honours such as knighthoods, or a seat in the House of Lords, to bosses who behave ostentatiously with regards to pay. Who knows, it might work. But something needs to be done as part of a package of policies to promote greater social justice.