Taking for granted that the state is always embedded in markets, and the market itself is a social construct how should we conceptualise the role of the state in creating a ‘market’ for labour? This question is particularly important in our current economic crisis when unemployment is at 11% and growing on a daily basis.
Labour markets function through the interaction of workers and employers. In the neo-classical economic perspective labour is an input into the production process and should be governed by the assumed logic of ‘supply and demand’. Labour is a key conditional (and ontological) requirement in the accumulation of capital (as is the contractual security of the state and supply of money via credit institutions). In ‘normal’ markets the equilibrium between contract (secured by the state), labour and the supply of money (credit institutions) facilitate the growth of business and thus, capital. Business-employers are taken as the given ‘micro’ driving force behind growth in the economy, and the main source of employment for labour.
This narrative is of course laden with assumptions, but necessary assumptions for institutional-political economists (as opposed to market-economists) to make logical arguments. But, taking the political construction of markets as a given assumption legitimises the possibility of public bodies (states, who can access credit easier than businesses in recessionary periods) actively creating demand for labour. Thus, the most important policy of government during an economic recession ought to be pro-active labour market policies. During a recession, aggregate expenditure is deficient causing the under utilisation of Labour. Aggregate expenditure (AE) can be increased, according to economists like Keynes, by increasing consumption spending (C), increasing investment spending (I), increasing government spending (G), or increasing the net of exports minus imports. However, what is most important socially as well as economically is ensuring that the productive ‘labour-power’ of workers is utilised to its full potential. This cannot be done in good nor bad times without active state involvement i.e active labour market policies.
During the past 20 years policy makers have become so used to understanding labour markets as optimal business equilibriums that labour market policy has (with much reluctance in some countries) been reduced to compensation payments, i.e. if a worker is unemployed they are guaranteed a certain floor of social rights that generally come in the form of cash payments, i.e. the job seekers benefit. This ‘decommodification’ of labour takes place in various forms but generically speaking it has been the core policy achievement of contemporary welfare states. However, I often wonder how creative-productive activity (work) could be if public policy was more pro active in ‘faciliating’ (only possible through a legislative basis) creative labour markets? This is all the more important now when ‘demand’ has dried up in business-employer markets.
To create demand and facilitate employment the state (and European policy makers) need to prioritise jobs over the public finances. This is not to deny the importance of ensuring that the fiances are stable but ultimately the ‘real’ economy can only function when social markets ensure that people are in work. Through active labour market policies the state (through a centrally agreed social pact) can introduce direct training schemes, apprentice schemes for a whole variety of skills. It can subsidy semi-state commerical companies (or even take over high skilled and productive assets like SR Technics) to guarantee an income for workers. These companies do not necessarily have to run at a profit. Employment subsidies and training schemes are two immediate and innovative ways to utilise the supply of labour in society. This pro-active and creative approach to labour ‘markets’, require a paradigm shift away from monetarist principles and back toward a prioritisation of labour in public policy. This should be top on the agenda at the G20 summit, and requires a European wide mechanism of coordination.