{"id":1097,"date":"2014-01-14T16:12:07","date_gmt":"2014-01-14T15:12:07","guid":{"rendered":"https:\/\/blog.iese.edu\/economics\/?p=1097"},"modified":"2015-04-07T10:44:08","modified_gmt":"2015-04-07T09:44:08","slug":"squaring-the-circle-growth-employment-and-inequality","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/economics\/2014\/01\/14\/squaring-the-circle-growth-employment-and-inequality\/","title":{"rendered":"Squaring the Circle: Growth, Employment and Inequality"},"content":{"rendered":"

I need to confess to the reader that I have problems, but not solutions<\/strong>.<\/p>\n

Specifically, there are three problems<\/strong>. First, the rate of growth is decreasing in several countries<\/strong>: certainly in Europe, but also in Japan (my generation can still recall the years of the Japanese \u201cmiracle\u201d), in the U.S. (what today is considered growth would have been completely insufficient several years ago), in China (forget the rate of 10% from a few years back), and in many other countries.<\/p>\n

Some countries continue to boast high rates<\/strong>.\u00a0 However, this is because they are still in the initial stage\u00a0in which growth is taking off<\/strong>, where it is easy to grow fast taking advantage of a wealth of natural resources or cheap labor, plus external capital and technology.<\/p>\n

A reduction in the rate of growth is of course not news; we have been experiencing this phenomenon since the beginning of time.\u00a0 The traditional path to growth, through labor and capital, becomes depleted due to the law of diminishing returns<\/strong>.\u00a0 In other words, short of a miracle, every subsequent euro or every new worker produces inferior returns. \u00a0\u00a0The \u201cmiracle\u201d is also known as technological progress.\u00a0 Therefore, those countries that are losing growth capability know that they will no longer be able to enjoy the same high rate of growth.\u00a0 Yet they do hope that the \u201cmiracle\u201d will at least allow them to maintain a decent rate<\/strong>.<\/p>\n

\"problems-2\"<\/a><\/p>\n

And here is where the second problem comes in<\/strong>: \u00a0It turns out that technological progress is not likely to create employment, or at least not the secure <\/span><\/a>, life-long employment with high, increasing salaries that we are used to (at least those of us in Western countries who are by now going \u00a0grey).<\/p>\n

And here we behold the third problem: \u00a0There are people who are very high earners and others who barely scrape by because their job is now in Vietnam, or because a computer has taken it over<\/strong> (there are algorithms that can easily take over a financial analyst\u2019s responsibilities). And those jobs aren\u2019t coming back.<\/p>\n

So, what are we to do?\u00a0 If the cause of all of this is a temporary recession, the best thing to do is to sit tight and wait for the cycle to run its course.\u00a0 But I am afraid that what we have before us is not a temporary problem; it is<\/strong> probable that, once we begin to grow again, it will be at a lower growth rate than before and that employment generation will be more limited <\/span><\/a>.\u00a0 And we cannot really count on technology to resolve the problems, as I pointed out earlier.\u00a0 Nor can we count on education, which is often sought out as the panacea for every single labor problem.<\/p>\n

Of course you could cut-off your local labor market from outside competition and technological progress.\u00a0 But that would mean closing yourself off from the rest of the world and losing competitiveness; the cost of this approach would be excessive in the short-run.\u00a0 The decline of labor unions is proof enough.\u00a0 When our competitors are in the town next door, unions are effective.\u00a0 Yet when competitors are in Indonesia or are lurking inside a computer, and our companies compete with others all over the world, protectionism fails.<\/strong><\/p>\n

What is left is redistributing income<\/strong>: higher minimum wage, a progressive tax and a more developed welfare state.\u00a0 Fine, but the numbers still don\u2019t add up<\/strong>.\u00a0 It reminds me of a comic strip I read a few years ago.\u00a0 In a country in the midst of turmoil (probably Spain in the 1930s), a group of people shows up at a rich landowner\u2019s home demanding that he redistribute his wealth.\u00a0 The landowner agrees: \u201cI have so many millions, and in this country there are X amount of people, therefore it would come out to this much per capita.\u00a0 Alright, here is what each of you would get.\u00a0 Good day.\u201d<\/p>\nRedistributing income is only a lasting solution when that income is increasing <\/span><\/a>.\u00a0 However, as I pointed out earlier, there is plenty of reason to be skeptical about income increasing in the future<\/strong>.\u00a0 A few years ago, some economists on the left proposed to implement the necessary reforms so that the GDP could grow and then redistribute wealth accordingly.\u00a0 But of course, please do not touch the goose that lays the eggs, especially the golden ones, i.e., do so without slowing down growth.\u00a0 Doesn\u2019t work, sorry.<\/p>\n

OK, so I already confessed that I don\u2019t have any solutions.\u00a0 But outlining the problems well is still necessary<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

I need to confess to the reader that I have problems, but not solutions. Specifically, there are three problems. First, the rate of growth is decreasing in several countries: certainly in Europe, but also in Japan (my generation can still recall the years of the Japanese \u201cmiracle\u201d), in the U.S. (what today is considered growth […]<\/p>\n","protected":false},"author":172,"featured_media":1112,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1411,969],"tags":[90828,121,585,90840],"class_list":["post-1097","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-unemployment","category-labour-market","tag-crisis","tag-economic-growth","tag-employment","tag-inequality","megacategoria-mc-economics"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/posts\/1097","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/users\/172"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/comments?post=1097"}],"version-history":[{"count":15,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/posts\/1097\/revisions"}],"predecessor-version":[{"id":1591,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/posts\/1097\/revisions\/1591"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/media\/1112"}],"wp:attachment":[{"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/media?parent=1097"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/categories?post=1097"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.iese.edu\/economics\/wp-json\/wp\/v2\/tags?post=1097"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}