"Do People Care about Inequality?"

Lane Kenworthy says there is evidence suggesting "that inequality matters to people":

Do People Care About Inequality?, by Lane Kenworthy: A question in the International Social Survey Programme’s 1999 survey offered respondents pictorial illustrations of various income distributions and asked “What do you think the distribution in your country ought to be like — which do you prefer?” The choices were depicted as follows:

A relatively small share, fewer than 20% in most countries, said they preferred type A, B, or C. This isn’t surprising; each of those three has a large share of the population at the bottom. The bulk of respondents selected either type D or type E.

D and E are identical in their population shares at the bottom. The difference between them is that D has a larger share in the middle, whereas E has a larger share at the top. Average income is higher in E. Inequality is lower in D.

Interestingly, more respondents in the ISSP survey preferred D than preferred E. The results are strikingly similar across countries, even among nations that seemingly have very different orientations toward affluence and equality.

I wouldn’t go so far as to conclude from this that people tend to value low inequality over high incomes. Other ways of posing the question might yield different results. But it does suggest that inequality matters to people.

I chose E.

Comments

[a student of economics]

The question is a bit ambiguous. Perhaps respondents thought that there was the same total income in all cases but only a question about how to distribute it, i.e. the means were assumed to be the same, with appropriate rescaling for the graphics. In that case, case e does not (by definition) have a higher mean income.

[Mark Thoma]

I think that's the initial assumption I made when I chose E, i.e. that income was the same, just distributed differently. But then I realized that wasn't consistent with higher average income if population size was the same. I assumed there was more detail in the actual question.

Given the ambiguity, I removed this and just left the first sentence in the post:Uh-oh. I chose E. If you like D, why not start with E, redistribute income, and give everyone everything they have in D, and then some? That is, use use the income available in distribution E to blow up the distribution shown in D so it is a little larger, but retains the same shape. One answer is that the redistribution would lower the incentive to produce so that income would fall once it became known that it would be redistributed, but there's little evidence that GDP growth rates are lower under moderate redistributive policies.

[RW]

The survey rather looks like an instantiation of Rawls' veil of ignorance doesn't it? If you don't know what your status in society will be but can chose the characteristics of that society then most would probably chose one characterized by a Type D income distribution.

Agree there is some ambiguity in the graphics. I assumed that wealth was the same in all categories, that the question was one of distribution, even though that does not make as much macroeconomic sense since a wider distribution of wealth ought to augment incentives to produce and, io ipso, increase the wealth of a society overall making D and E type societies more wealthy than A, B or C

[Phil]

"a student of economics",

Bingo. You beat me to it. And to add to what you said, the (possible) oversight or major limitation -- and possible misuse -- of this study's findings are that it (apparently) asks for a preference regarding income distribution in a vacuum, meaning without considering the fundamental trade-off that we usually face: between a more even distribution of income and a higher aggregate income (and often a higher income for the majority). It would have been more interesting and useful if they added this important trade-off and THEN ask for preferences for pairs of respective levels of aggregate income AND income distribution. If they did so, I'd be much more interested in those results.

[gc]

Is this a Rorshach test?

[Paul G. Brown]

Sorry. I choose D.

My reasoning is simply that human 'talent' -- however you may define that -- follows a normal distribution. From the point of view of an individual, the most 'equitable' outcome is the one where they all receive some measure of 'justice'; reward for their effort and no penalty for their circumstances. I think the preference for D is the result of that intuitive 'fairness' test.

But! What I would insist upon is that the level of income at the lowest end of the distribution is sufficient to support a dignified existence.

[ken melvin]

Can we see a distribution curve?

[Phil]

If asked to choose, I would probably tell the researchers they were wasting people's time and probably producing results that would be misused. A preference of a particular income distribution without any consideration of the trade-off with aggregate income level (and/or income level for most people) is almost meaningless and useless if the goal is to factor people's preferences into policy choices. Which is a nice way to say the study is dumb at best, and a tool for misleading people at worst.

[Rich]

Oh, and to add to my comment above, while ignoring the consideration of the trade-off between income distribution and income level (aggregate, or for most people, and absolute and relative levels between segments) is enough in itself to make the study fairly worthless and susceptible to misuse as a factor in policy choices, a couple of other important considerations are also ignored, although these probably wouldn't have been as easy to address in a study:

- Trade-off between income distribution and merit/individual opportunity. Maintaining an egalitarian state would preclude the latter.

- Degree of individual upward/downward mobility. Is everyone stuck at the level in which they are born (e.g., caste or feudal system) or do many individuals move up or down over the course of their lives and from generation to generation in their respective families, based in large part on merit?

[save_the_rustbelt]

D is about as good as we could get.

There is a role for high earners, break through entrepreneurs and other with special talents.

What happens to the other 95% is really important.

[Gil]

D seems how a meritocratic society would look like. A is my suspicion of what life would have looked like in the Medieval Era. But E would the best of those diagrams at more people are wealthier than in D.

[wjd123]

Wouldn't history suggest that the closer we get to E the sooner we move to A. I'd choose D.

[Rahul Deodhar]

Just a question -

would presence of " E" indicate impending inflation?

I mean if everyone can afford things then things tend to get costlier don't they? Consequently (if yes) wouldn't "E" look like a bad omen (early warning indicator)?

In that context doesn't "D" seem to ideal "target income distribution"?

RD

[reason]

E is D with the top cut off. Does that mean you are in favour of very high marginal rates of income tax for the very rich?

[Farrar]

I chose D for two reasons -

1. The most important is political rather than economic - recent history suggests that democracy works best with a strong middle class.

2. I assumed that the figures represented DISTRIBUTION before REdistribution. After redistribution some of the X's would ideally be squeezed toward the middle. Isn't this what actiually happened in the 50's thru 70's when we had a stronger middle class

[Real Person from the Real World]

If I had no idea where I was going to be, I choose D, because it seems a fairer distribution. I guess E seems to suggest more people have more $ and a few have less, but it is the comparison that makes income meaningful. In a balanced D, most people are in the middle, some getting more, some less. The topmost can enjoy their MdMansions, and the bottom can get charity, while you are ensconced comfortably in the middle somewhere. In E, if everyone has lots of money, everyone can buy, buy, buy, and how do you differentiate between all those with the lifestyle of Bill Gates, or Bill Gates minus 10% and the tiny number of those on welfare? This is why marketers are sooo successful. They blur comparisons to make their product look so much better.

[Lafayette]

MT: I chose E.

A sensible choice in that we should want as many families as well-off people as possible. A not so sensible choice if we ask the question: How does that come about?

Remember, we are choosing in the exercise. We are not waiting for empirical evidence to show what is possible. And politics, in terms of economic choices, is the art of the possible.

I suspect that even with the most advanced taxation and redistribution, that only Type D is possible. (Or, something a bit beyond Type D but less than Type E.) Type E would depend upon a number of implausible factors:
* A great majority of the nation being sufficiently skilled to take the escalator up to well paying jobs in necessary. I doubt the innate intelligence is there to propel most people (more than fifty percent of the population) to the top skill-set level. Besides, our population is trending towards doing the minimal necessary to “get along” rather than undertaking ambitious challenges to obtain “the very best”.
* Our economy should become wholly hi-tech, spinning off products that are world-champions perpetually. When, in fact, it is laden with grunt-work, from agriculture to transportation to construction / public works to eating out -- sectors which will never command very high pay-scales.
* We maintain perpetually a skill-set that is "ahead of the curve", meaning has little or no competition. As global trade and commerce expands, more and more people will be competing at higher levels of skill-sets, thereby dampening the wages to which any particular country can aspire.

Methinks. It's an interesting thought-exercise.

[Lafayette]

RD: I mean if everyone can afford things then things tend to get costlier don't they?

Not if supply equals demand and supply is continually provided with enhanced efficiency or lower cost.

This is happening today, with cheaper imports giving more legs to the dollar/euro and therefore going farther in terms of purchasing power.

Which creates other distortions, that don't show up in the Income Distribution models proposed. Like who pays for a nation that imports a lot and exports little, in terms of overall value. The US is paying, via T-notes, for the Chinese overhang in exports to the US. Interest on the T-notes must be paid for by federal taxation, which reduces our disposable income -- meaning, amongst the models, preventing a country from developing from A to E. A country with a chronic imbalance of payments exports its wealth in order to sustain the debt employed to pay for its imports.)

The exercise is thought provoking but it is not real. Remember, it was used in an experiment to solicit a narrow opinion.

[JRossi]

I chose D. A middle-class world, the world I grew up in. When I saw E I immediately thought of the Bay Area before the bubbles burst--too many nice cars, too much traffic, too much air pollution, too damn much. Life out of balance. Some say we can redistribute E wealth, get to D, have some wealth left over and all be better off. But better off is only better off if you spend the money on stuff that really makes you better off. And we often don't, regardless of what the economists say. But E is clearly better than ABC.

[swells]

I chose D. I chose it because I assume that talent / work ethic is distributed in a more or less bell shaped curve and D would seem the best fit and what one would expect if parasitism (i.e., priviledge) were removed from the equation.

I've commented before that few people are disgruntled by being subject to the force of gravity. It's not something that is imposed on them by someone, it is "impersonal" and applies to all. I also think few people would be disgruntled by an "impersonal" income distribution. That isn't what we have and as a consequence the degree of "gruntledness" is rising.

[Karl K]

Of course, this "experiment" assumes that each pie -- or christmas tree, or whatever the heck it is -- is the same size across all configurations, or across time. Configuartion "Type A" could be equivalent to a feudal system in the middle ages -- then again, it could be equivalent to a modern system where we have a few REALLY wealthy folks at the top end, and everyone on the bottom rung has indoor plumbing but isn't destitute.

And it also assumes that each pie -- or christmas tree, or whatever the heck it is -- is zero sum aross each configuration. What if the bottom rung on Type A had REALLY big Xs compared to the others?

And it also assumes...well, the heck with it.

You get the idea. It assumes a lot.

[Brooks]

Karl K,

exactly.

[ken melvin]

Wonder why the right doesn't argue with the bell curve when it comes to wealth and income distribution.

[Lafayette]

One guess

KK: Configuartion "Type A" could be equivalent to a feudal system in the middle ages

Not just the Middle Ages, but today as well. Many Asiatic nations have, still, such a structure and -- the study finds, interestingly enough -- their peoples think it is right and proper.

Cultural Diversity is peeping through this "experiment". There are cultures that have never progressed from the rigid hierarchical system, some despite their advent into the modern world of trade and commerce. China is just such a country.

Can you imagine a country where centralized power suppressing a rebellion ruthlessly in a province (that it occupies) would enjoy popular national support for that policy. Well, that's China today.

We take democracy for granted, just as five hundred years ago, Europeans took feudal aristocracy as a way of life. It was considered "normal", simply because it had always been that way.

Many American consider their democracy "normal", because they vote every two years to elect their representatives. That is a great stride in advance compared to the Chinese who vote in a Party Hierarchy, but not by plebiscite. A hand-picked meeting of Communist party members rubber-stamps the election. Centralized power remains concretely in place.

And, yet, if one looks at Income Inequality (as expressed by the Gini-coefficient here) one is surprised to see that they are roughly the same (US:45; China 47). Whereas the EU is at 31.

So, what is a "normal" democracy? That all citizens vote for their political representatives or that they all have a fair share of the economic pie?

You have one guess. Just one.

[Lafayette]

KK: It assumes a lot.

Of course, but it had to. The experiment was simple. It wanted an answer of people coming from all walks of life across the globe.

The question was narrowly put in order to facilitate an easy, fairly instinctive answer. But, hey, that's a good first look at the question.

If you want to confuse everyone, delve into the details. Which will provoke a tremendous polemic that results in a lot of talk ... but no answers.

[Pat]

Inequality is a luxury a soundly constructed and soundly administered government can afford to work against.

Many immigrants and groups have suffered inequality in its history. While not trivial, America has managed to absorb most in its quest toward autonomy and social independence along with prosperity. Inequality cannot hold a candle to prosperity; to indulge one without the other commits America to a certain tolerance for inequality, and most Americans are aware of it.

Rome wasn't built in a day, and neither was America expected to be. Throwing the baby out with the bath water to achieve equality has failure written all over it. No one should know better than Warren Buffet and Bill Gates.

[johnchx]

Lane Kenworthy writes:D and E are identical in their population shares at the bottom. The difference between them is that D has a larger share in the middle, whereas E has a larger share at the top. Average income is higher in E. Inequality is lower in D.

The first sentence is flatly incorrect, and the last two sentences appear to be simply made up. (Yes, I've read the original questionnaire; no, the information needed to calculate averages or Gini coefficients isn't given. It actually doesn't say anything about income or wealth; the diagrams could be interpreted as depicting a much more abstract notion of social status, rank or class. These are "types of society", not "types of economy" or "income distributions".)

In diagram D, 3% of the population is in the bottom tier; in E, only 2% is. The bottom three tiers of D account for 33% of the population; in E the corresponding figure is 21%. I don't see any plausible interpretation of these diagrams that is consistent with the claim that D and E are "identical in their population shares at the bottom."

As to the reason D is widely preferred to E, I think the key is a fact which Lane chooses to omit: each of the diagrams is accompanied by a verbal description. Diagram D is described as, "A society with most people in the middle," while E is characterized as "Many people near the top, and only a few near the bottom." (Descriptions are given for the other diagrams as well.)

Spot the difference? The description of D doesn't mention the population near the bottom. In fact, diagram D's description is the only one of the five which doesn't mention people at the bottom.

My conclusion: people prefer a society in which those at the bottom aren't mentioned. We like our poor invisible.

[reason]

Johnchx...
I guess the problem I have with E (and I think most people here) is that we assume that the world is much like the world we know it and the opportunity exists to make very large incomes, for a very few people. To stop it, you need to have extremely high marginal rates of income tax. We did that before, and it just caused very high income earners to move to tax havens. For most people it just seems that in order to acchieve such a world you require levels of state interferance that most people won't like (and as for the bottom - lets face some people really do choose to fall through the cracks - welfare state or not). The diamond shaped world is the best most people can imagine being realistic. Treating it just as an imaginary exercise (say on some other planet) is not something most people will like to think about. Most people probably guess we are in something like a mixture of Type A and Type B and think D is much preferable. (David Brin for instance talks explicitly about a diamond shaped society as something that was once acchieved, and is now unfortunately being replaced again by a pyramidal shaped society.)

[cm]

Lafayette: "When, in fact, it is laden with grunt-work,"

Which is why in any society, regardless of "education levels", somebody has to clean the toilets (metaphorically speaking of course; there are surely worse jobs).

Even in the (hypothetical) high-tech version where everything that today qualifies as "grunt" jobs is automated, somebody has to design, produce, install, and service the toilet-cleaning equipment, and those will then be the "grunt" jobs.

In today's (high?) "tech" software and equipment industries, there sure are pecking orders associated with differing status and pay levels.

[Lafayette]

jchx: My conclusion: people prefer a society in which those at the bottom aren't mentioned. We like our poor invisible.

Quite right. It denigrates the image of a country as "economically dynamic", so it is not trumpeted about. Still, its there and the rot (of poverty) is eating gradually in to the bottom of the middle-classes.

Especially when that class has little or no voice, which means an ineffective union representation. In Europe, these people in the bottom rungs of a social class are typically unionized and they get into the streets to vociferously demonstrate their opinion (which is a euphemism for "a squeaky wheel gets oiled".) In France, illegal migrant workers can be and are unionized.

American unions are timid by comparison. Of course, trucking a hundred thousand demonstrators onto the Mall in Washington and arranging media coverage is not easy.

But, if that is what it takes to shake a nation out of its torpor ...

It is one thing to lambast in a forum an economic system's taxation policy that virtually assures Income Inequality by accumulating riches at the top. But, that's just words. It is far more effective to have Union Action with a voice larger than cat's meow.

The balance between the Supply of labor and its Demand, in terms of bargaining power, could be better equilibrated in the US. But, that will take legislation that not even the Dems dare pass.

The history of the trade union movement is interesting and worth reading, here.
Even, Adam Smith had his word to say about it:
We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate...

When workers combine, masters... never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen.

Interesting, dontcha think?

[reason]

P.S. Everybody, it is not just the shape, it is the amplitude of the differences that count (how flat the diamond or pyramid is). Type C is actually my real preference, but with the diagram as it is, you can't see how low the floor is (or how high the ceiling).

[Lafayette]

cm: Which is why in any society, regardless of "education levels", somebody has to clean the toilets (metaphorically speaking of course; there are surely worse jobs).

In fact, in both the US and Europe that is rarely the locals. It is typically immigrants who do it, and they do so in an economy that has historically demonstrated high unemployment level.

Which means what? Those on the dole are NOT moving into jobs they can do. The dole is sufficient for them to "hang around" till something interesting shows up.

And, the only way to correct that is by introducing new unemployment regulation as France announced this week (copied in fact from elsewhere). Three strikes and you're out -- that is if you refuse three job offers and you are deemed suited for them, the you are off the dole.

This works wherever instituted -- and lets hope there are fewer skinheads on welfare all the while shouting obscenities at foreign immigrants, who are actually cleaning up their sh*t.

[cm]

Lafayette: Whether it works, or just "works", depends on the suitability criteria. How are they defined?

The potential problem you are inviting is that with "three strikes" it takes approximately three shitty jobs to clean the unemployment rolls of all non-takers. (Offer job one, job two, job three, you're out, on to the next guy. When anybody bites, backfill the job "basket". Of course I'm exaggerating a bit, but you get the idea. The incentive will be there once case workers are held to "enhanced" performance quotas.)

A different but related problem is that part of the skilled workforce can be irreversibly "burned" -- a degreed professional or certified tradesperson who has to accept what is considered a low-brow job will quite likely never again work in a capacity of their training, paid or otherwise -- they will become untouchable. It can be a more effective career terminator than a (relatively short) unemployment spell. Of course, the mileage varies greatly as to what people consider low-brow, for a given reference occupation.

Also in practice most employers will still want to choose their personnel and will interview prospects. They will quite likely sense that somebody is not eager for the job, and try to avoid those candidates. (If the candidate doesn't tell them so outright.) I have a good enough body of evidence for this from back in Germany where there are also penalties for non-acceptance of jobs.

But then threatening to cut people's dole will do "wonders" for "motivation", and quite a bit affect the reference for what a "living wage" is, for all workers not just the unemployed -- which is rather the point.

In the next discussion, we will be dealing with what to do about weakening internal consumption, sagging sales, and the inexplicable emergence of "working poor". That's what has been happening in Germany, and it will happen (or the phenomenon will expand in scope) in France too.

[Lafayette]

cm: Offer job one, job two, job three, you're out, on to the next guy. When anybody bites, backfill the job "basket". Of course I'm exaggerating a bit, but you get the idea.

No, I don't get it. You are intimating that because that sort of mischievous manipulation of the unemployment system CAN happen it therefore WILL happen, just to degrease the dole roll.

Where the "3-strikes" discipline is in place, it is not being abused. The professionals working in such National Employment Offices bend over backward to find someone a job that fits their credentials. Let's give them the credit that's due.

But, let's presume that someone has a Doctorate in Sanskrit. And, lo and behold, there are no jobs going either in teaching Sanskrit or textual translation or employing the language. So, what do you do ... refuse to take a job as a taxi driver when you are fully capable of driving (since you have a license)?

Well, that DOES happen -- particularly in Europe. People feel that menial work is below their professional dignity (if they have a university degree). And they feel that way because they can afford to do so. Rather ample welfare payments allow them to wait ... to "shop around". (The average wait on the dole from one job, through unemployment, till the next job is nearly three times that in the US. It is costing Big Bucks that could be better used elsewhere.)

Let them drive the taxi, be gainfully employed, AND shop around as well.

[cm]

Lafayette: Yes many people probably think certain jobs are beneath them, but (1) it's not restricted to academic/professional degree holders, and (2) it's in good part a function of how others judge a job, and how that job will permanently affect your record.

"Rather ample welfare payments allow them to wait ... to "shop around"."

As pointed out before, that's a feature not a bug, and in a system without minimum wages and strong unionization is the only thing that puts a floor under wages. In Germany (pre "reform") the major line of attack by industry groups was "they won't accept our wages (that is our wages we are prepared to pay to them) as benefits are too high" (translation: benefits are designed to provide baseline living, but we are not prepared to pay more than that).

"Let them drive the taxi, be gainfully employed, AND shop around as well."

Please, Lafayette. You have been a manager and cannot claim innocence in these matters. I have yet to see the manager who will hire e.g. an engineer after the guy has driven taxi. (But you are free to claim you would, and would convince your peers and superiors how this was the best choice you could make.)

[Lafayette]

cm: … it's in good part a function of how others judge a job, and how that job will permanently affect your record.

Yes, I agree wholeheartedly.

But, once again, you are assuming the bad faith of hiring officers who are looking for the “fault line” in an job seeker’s CV that has no undisrupted linear advancement.

Do you realize how difficult that linear advancement is to find in a person, nowadays? I have been in such a position – not having had all that much linearity in my employment record. I jumped around a lot, looking for different types of challenges. That was not thought to be courageous but … uh, "typical of an unsettled personality”. I.e., total bullshit.

To the point that I took my chronological CV and tossed it. I then reformed it along lines of competence (at certain types of responsibility) to show clearly what I was capable of doing. That got nowhere, except trash-caning from the Personnel Department. They were soooooo keen to know my age … and therefore “classify me” from the get-go. Prejudicial, to be sure.

So, I agree, there IS prejudice amongst managers and DHRs, many of whom have always known linear progression and so they expect it in the CVs of others – or have decided that ONLY a person of a certain age could possibly be right for the job. Or, worse, have decided that the job should be decided on sex, or colour or any of a thousand pet prejudices they may have of the moment.

But, that was the past and, as I tire saying, the paradigm has changed. There is absolutely NO guaranty of a linear progression in one’s career any more … and Personnel Departments are beginning to finally understand that simple fact.

Still, it will take a bit more time for that fact to sink into a common mentality durably -- particularly in Old Europe.

PS: Besides, the prejudice was typical of period where the "buyer"" had preference, not the seller". That may be changing from what I hear nowadays.

[Lafayette]

cm: ... As pointed out before, that's a feature not a bug

And, as I said before, I'm not buying that "feature". Not when it leads to perpetual short-term employment contracts, or it condemns people to the dole for a lifetime.

Some people, both stupid and intelligent, need to be pushed and not comforted. We've been, in Europe, cocooning them for far too long.

Cocooning is not, I believe fundamentally, conducive to their ultimate well-being.

[cm]

Lafayette: Thanks for your detailed response on hiring practices. It shows you have been on the receiving end too, and know the issues.

"But, once again, you are assuming the bad faith of hiring officers who are looking for the “fault line” in an job seeker’s CV that has no undisrupted linear advancement.

Do you realize how difficult that linear advancement is to find in a person, nowadays? ..."

I think this is the crux of the issue, or a large part of it. And yes, based on empirical evidence from hiring managers, mid-level to upper management, and HR types, I have to make a default assumption of such bad faith (with the caveat that I know mostly midsize and large organizations, and/or people who have spent some of their career in such).

Actually, it is not so much that people specifically seek out flaws, but in most occupations that go beyond trivial or settled subject matters, expected job performance is difficult to judge even with a thorough interview, and transaction costs are relatively high -- having to spend several months and not just days to get somebody up to speed before you see whether it is working out, so people put more emphasis on "track records" and looking for the "best match" of (supposedly) many.

And also recruiters and hiring managers will be judged on hiring "former taxi drivers", and managers by who is reporting to them. Having the cream of the industry reporting to you looks better than people with irregular track records.

The issue underlying all of it is of course that in any organization or society that is sufficiently "developed" or established (stagnating?), prestige is increasingly decoupled from actual merit and tied to perception management. Here we come back full circle -- when nobody knows how to attribute or judge merit (either because it is beyond their intellectual capability or they don't care for reality), they have to rely on reputations, perceptions, superficial indicators, etc.

[cm]

"And, as I said before, I'm not buying that "feature". Not when it leads to perpetual short-term employment contracts, or it condemns people to the dole for a lifetime."

The short-term (non-perm?) employment contracts have nothing to do with unemployment/welfare benefits, but "managing" the transaction cost of involuntary separation, or in the form of subcontracting/temping shifting business risk outside the organization. And in both cases, company perks and benefits exclusion (where applicable) -- pension, company bonus, stock incentives, ...

Otherwise, I'm rather condemned for life to the dole than to a sequence of marginal jobs with miserable labor relations.

And when I say marginal, what I mean is I don't see what productive use the millions of unemployed can be put to in the current economic paradigm, and I mean all of them, not just enough to man unfilled essential positions. The only thing I have heard even from industry pushers is low-key "services" and "one euro jobs". It appears to me we are surviving well enough without them.

Neither am I convinced by all the supposedly unfilled positions exceeding the unemployed workforce. There are many positions that are plain unrealistic, and at least part of all positions are duplicates as they are also advertised through recruiters and/or unsolicited recruiters jump on them. I see this in my field where I can often trace recruiter job ads to the original company ad.

In part that's the "market" in operation -- what jobs are essential and deserve to be filled is not, and should not be, up to the industry to decide. If nobody wants to pay good money for a marginal service, who's to say policy makers have to enable the transaction for cheap money? It's not like it's a matter of public health/safety, national security, or competitive technology.

[Lafayette]

cm: what I mean is I don't see what productive use the millions of unemployed can be put to in the current economic paradigm, and I mean all of them, not just enough to man unfilled essential positions.

One must believe in Keynesian economics to see the productive use.

Current investments, justified by what, where and how companies provide that investment, decide not only who gets employed but how many. That easily leads to high unemployment because business investment reacts naturally to the laws of aggregate economic Supply and Demand.

Presuming that we have an inordinately high level of unemployment and presuming that much more than half of it is in semi-skilled workers and not university-trained specialists, then it is the state that must pick up the slack.

I have proposed in this forum, thought not this thread, the sorts of national infrastructure programs that America should be investing in -- and were that the case, employment would be stimulated. Perhaps even the kind that brings training with it. (It is only too easy to hitch a government contract to the condition that employees MUST obtain paid retraining during the year.)

Infrastructure projects were at the heart of the New Deal. Why not a New Deal 2? They are ideal, because they have the capacity of absorbing great amounts of unemployment - if managed correctly

[cm]

Lafayette: I don't disagree. There is no dearth of useful infrastructure potential. That's why I said "in the current economic paradigm", which I don't think includes that, and generally most things that don't have (private) "ROI".

But the "employment" policies that you are recommending are taking place in an environment where those infrastructure and public investment are not happening. At least those are not the jobs people are forced into, right?

[Lafayette]

cm: But the "employment" policies that you are recommending are taking place in an environment where those infrastructure and public investment are not happening

Yes, I know.

But, think like a CEO. Why in heaven's name should they invest in training people when they can get along quite well enough with the workforce they have presently (which they have nicely downsized).

Profits aren't that bad, even if the stock market is not demonstrating such. CEO's aren't fools. Why change a paradigm that, for them, satisfies their objectives.

They must be coerced into doing something else and that something else is provocation by means of government contracts for infrastructure projects.

But lead-head so drained dry the Treasury with his stupid war over in the sandbox, plus the subprime mess that has frozen investment of all kinds, there is no easy way out.

Bush has been a catastrophe ... and we are only beginning to see the proportions of the calamity brought on this country during his watch.

[cm]

Lafayette: Of course, spending for the public benefit by and large has to come from "big government".

Regarding the motivations of business leaders, while I can understand (in the sense of rationalize) them, I prefer to not become apologetic on their account, and to view things from the perspective of myself and my peers (in a generalized sense). I would think you are in that category too.

As for social/economic policies, being controversial is often in their nature, but of late I'm increasingly favoring a pragmatic stance. When considering whether something works I have to consider the situation/environment not as I would like it to be, but as it is.

I would like certain things on principle in my favorite brand of world, but if they don't work like that in the world as it is, I have to settle for something that I find unappealing or even objectionable on principle, but which will achieve desirable results in the real world.

I would favor the type of policy you are recommending in an environment in which it is helpful (i.e. "engaging" the "surplus" workforce for projects that benefit the broad public, and that will not otherwise be done). I don't believe the current environment to be such.

For example, when conscripting welfare receivers to clean city parks or do light maintenance of city properties on a casual basis (note I'm not talking about regular jobs, so it's technically a different category from what you have been discussing), this can plausibly have the side effect of cutting business from professional cleaning firms, and in a sense is tantamount to replace employed workers by "captive labor" maintained on welfare (perhaps even the same people, if in turn the landscapers have to let some people go). I'm not sure that's exactly helpful.

[cm]

One anecdote I would like to offer -- in past visits to the US (more than a decade ago) I noticed that people are being used to hold signs instead of mounting the signs on a portable stand, and I thought to myself such would never happen in Germany (due to labor costs, and their support by safety net benefits).

Sure enough, on a recent trip through a German airport (post unemployment "reform"), I saw a bored and rather unhappy looking young woman holding a "stationary" sign (not an ad, and by appearances she was an airport employee or contractor).

[Lafayette]

cm: when conscripting welfare receivers to clean city parks ... this can plausibly have the side effect of cutting business from professional cleaning firms

This is not the way it works. It's more like "all boats rise with the incoming tide".

What happened when Kennedy announced his Go To the Moon program? The money, dispensed by NASA, went to private contractors who started hiring. Yes, they hired more engineers than cleaning ladies ... but they hired. Besides, expenditures have a way of cascading, in terms of employment, throughout the economy.

Even Bush's Iraq war, with its expenditure of billions, had originally the same effect. But, it was too concentrated in a limited number of sectors.

The New Deal worked because of its vastness. It got people back to work. But, what was its follow-up? WW2, meaning that without a war to have continued prompting the investment cycle, it would have petered out.

We are facing the same challenge. Because the present unemployment is not cyclical but permanent. These people are not going back to high-paying jobs in Detroit assembly shops. And, even if hired in Keynesian infrastructure rebuilding, that too will inevitably end. There must be follow-up and that can only come by some pretty imaginative expenditure programs.

The constant economic challenge is to find new ways to employ people and I am not sure governments think in this manner. It would help to see some thinking akin to what I witnessed in hi-tech companies -- which knew full well that products are cyclic and when they come to an end of their product life, they must be replaced with something newer, better.

The problem is this: That newer, better product is being manufactured abroad. We have to find a way to produce products at home. And, I think it can be done if we apply robotic production techniques.

The other element is the Service Industries. As we transit out of the Industrial Age, we shall invariably need more Information Workers, that is, people who sit in front of a PC manipulating information towards fulfilling some service for a customer. This, I suspect, is going to happen fairly naturally. This requires training at particular service industry types of work, and businesses typically deliver that training themselves.

I am more concerned with the manufacturing side that genuflects fairly automatically to cheap production in the Far East. Such production will not remain cheap forever, let's hope.

And, as I stated elsewhere, if Tupperware can make its products on a full automated assembly line in higher-cost France and still sell them competitively -- then it can be done in the US as well.

[cm]

Hmmm, are we not seeing how services are offshored too, esp. the part where somebody is "sitting in front of a PC"?

I don't see how anything other that personal or "brawn" jobs can be kept in jurisdictions that are subject to regulatory or living wage "overhead", except by government fiat, e.g. excluding "offenders" from from public contracts or loading them up with fines and tariffs, AKA "protectionism". (BTW the New Deal jobs were largely brawn jobs -- nothing wrong with that.)

Even the local brawn jobs are heavily penetrated by illegal immigrants. Looks like taking in each other's laundry doesn't work among living-standard peers.

Barring energy limits (from either dwindling inputs or pollution/warming concerns), the natural trend with rising (if so) living standards is increasing automation, which naturally leads to surplus "brawn". There is only so much of coveted-enough productive activity that people can be put to.

The "service economy" recommendations seem to largely amount to enabling servitude in marginally productive activities (low-key services) in which market clearance at living wages is difficult to achieve.

I'm not sure that's helping anybody. In the end, a commodity-labor scheme can only exist (at scale) when there is a differential of living standards that enable one side to be willing and able to pay the other for a service they would prefer not to do themselves, at least in an economy based on some kind of exchange medium.

One real concern is maintaining a degree of social attachment by work. But that doesn't have to be full-time or unpaid-overtime work. A lot of commodity jobs (not just the brawn but also the brain variety) probably lend themselves fairly well to part time and work sharing. I for one wouldn't mind to work only let's say 2/3 of my workweek.

I don't think it would negatively impact the GDP/GNP, as roughly the same amount of product and service is generated (and probably more), expending roughly the same amount of resources. As long as the supplies of food, healthcare, shelter, and other staples are adequate, I don't see how anybody would have to suffer a reduction in their living standard and quality of life, except those who can no longer lord it over others.

Of course, it's not quite that trivial. And I don't see a "market mechanism" path leading there.

BTW, I will be off the Internet for the rest of the month. I may read your response, but may not reply.

[Lafayette]

cm: are we not seeing how services are offshored too, esp. the part where somebody is "sitting in front of a PC"?

There's a limit as to how much "personal services" can be offshored. Speaking English from India of French from Morocco will not work in all circumstances, other than the most basic Customer Service functions.

I won't be pleased to talk to such people, for instance, to discuss my Net Asset portfolio. Or with a health care professional. Or even with an insurance agent.

[cm]

Lafayette: I'm not sure you want to entrust your confidential data to some shanghaied, marginally-employed, and likely undercompensated, domestic person working in a high-churn, high-pressure environment either. And make no mistake, the hire-and-fire paradigm that is associated with a lower degree of (un)employment protections leads to more churn and more precarious positions. The threat of being fired for privacy violations or misconduct (and being found out to begin with) is only effective when it removes or bars you from gainful employment, i.e. a position of stability and comfort.

[Lafayette]

cm: And make no mistake, the hire-and-fire paradigm that is associated with a lower degree of (un)employment protections leads to more churn and more precarious positions.

No, thank you; I'm not buying that. What "hire-and-fire paradigm"?

It seems you have this fixation about "the absolute lowest cost" and that companies are perpetually seeking it, such that it is a race to the bottom. Cost is not the only criteria in the market equation. Quality is another and, perhaps, more important attribute of a product or service. Customers who want quality will pay for it.

The point I was making is that dislocating back-office operations to Bangalore willy-nilly will prove ultimately foolish, because sooner or latter, as one dislocates work that is increasingly more sophisticated or important to the customer, someone in Bangalore is going to make an awful error. They are culturally disjointed from the customer, who is just a voice over the phone.

Maybe an example will help: I had a problem with my computer and (since it was sold here in France, the After Sales Service is in French only). So, when I called, I found myself somewhere in francophone Africa talking to a hotline specialist. The guy, unable to diagnose the problem, when straight to the ultimate solution, meaning reloading Windows, meaning wiping out EVERYTHING on the hard-disk ... meaning if I did not have a full backup of my files when the problem arose then I was up that famous sh*t-creek without a paddle. When I refused to do this, the guy hung up on me. In fiddling with the system, I ultimately found the problem and fixed it.

And, that is just one tiny, tiny example of how things can go wrong. Just because someone speaks English does not mean they are adept in understanding the American, or English, or Australian cultures. So dislocating back-offices, to my mind, can only go so far.

And, I'll bet that dislocated back-offices have reached their peak. I hear far too many complaints from friends who have used them.

[cm]

Lafayette: I'll have to make this short -- competition is about being better by a noticeable margin, along some dimension. Aside from that you only have to be good enough to not completely discredit the product/service. If competitors can get away with less, they will. Time will show how the gradual removal of (un)employment protections, and other business "deregulation" will affect staff morale, business processes, and quality. Recent trends in trading off price vs. quality and short-term vs. long-term perspectives don't give me much hope, but I'm not going to pretend should it turn out things improve.

[reason]

cm, Lafayette...
no I think you guys are missing the point. It is all about intra-office politics. The impact on the ultimate business is pretty irrelevant because when the shit hits the fan, those responsible are somewhere else or get a golden parachute. The real problem is the agency problem. (P.S. cm - I know you know that, but maybe you haven't expressed it clearly).

[Lafayette]

cm: competition is about being better by a noticeable margin, along some dimension. Aside from that you only have to be good enough to not completely discredit the product/service. If competitors can get away with less, they will.

Competition is a tremendously large and complex subject.

Let's agree to disagree on this. OK?

reason: The impact on the ultimate business is pretty irrelevant because when the shit hits the fan, those responsible are somewhere else or get a golden parachute.

That happens, of course. But, the heady days of the dot.com boom where people would be nonchalant about their work because they could find another one at the drop of a hat are gone.

Does anyone expect business managers to take people seriously if they are gone with the wind at a moment's notice. If that is the prevailing attitude, then businesses are right to treat employees as if they are replaceable because that is exactly the same attitude employees display towards their employers.

It's just tit for tat.

[cm]

reason: But those things are not independent. Even the most self-dealing (but smart) office politicos will recognize, and make this the guideline of their actions, that their (sustained, at least for a while) success is entirely based on the perception of how the product/group they are "leading" performs. And that perception is always rooted in some kind of reality (for organizations that actually produce something at least). As long as the product performs at least OK, things can be spun and/or "explained". If it goes to shit, it cannot usually be helped, and the leeches will not survive inside the organization (but they will often fall on their feet as you mention). And as Lafayette hints at, most people cannot just jump around from one failure to the next, they have to stay at least a while and show some (perception of) success (unless their job is managing failure, e.g. liquidators).

In summary, regardless of the amount of graft and politics, managers will still be pretty much interested in seeking out competent enough workers.

And in reality, the impact of management incompetence and corruption is in most cases not sinking the organization, but "only" limiting its upside potential or effectiveness, and/or preventing it from adapting to change (e.g. by denying employee training/growth).

[cm]

Lafayette: The "new" competition paradigm was once in all seriousness described to me in the form of this joke:

Two guys wandering the arctic on snow shoes are spotted by a hungry bear who starts trotting towards them. One of them unfastens his snow shoes, and the other says, "this will not help you to run faster than the bear". He replies, "I only need to run faster than you".

While this is certainly not the whole truth, it is a large part of it. And it noticeably applies in all areas where the product or service is not quite discretionary, and where there are barriers to entry. You have to buy from somebody, and these guys are monitoring their competition closely.

Often in such environments organizations are heavily hampered by office politics, just executing the regular daily business consumes most of the capacity, and making strides to compete more effectively is so exceedingly painful on everybody, most notably the actual workers, that any extra mile will be walked only with a dire business need (like the threat of losing a customer). Not to speak of the phenomenon that usually most of the benefit from walking the extra mile does not accrue to the guy doing the walking.

As for your response to 'reason', that's precisely part of the agency problem -- most corporate managers are not owners of the business and its long-term success, but only its executors for a limited term. Of course they want the best guy for the pay they can get, but they will settle for somebody like themselves.

And it's also a two-way street -- it's not like if as a contributor or a manager you take a long-term view, you will not be dismissed on a moment's notice if it suits somebody's "plans".

Of course, that does not help "competitiveness" either micro or macro wise. But who wants to be the idiot advancing contributions and then being stiffed? It's the classic prisoner's dilemma.

[reason]

Lafayette, cm ...
plausable deniability - short term vs long term. The perception is often, if you are not there you are not to blame. The "manager" often has only a short term planning horizon, but he will move on if the project appears to be a success (as a result of this success). If it isn't he will want to change firms anyway.