Unemployability

Socio-economic systems have to have some features that cause individuals to want to be productive and contribute to the society in which they live. What works?

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Employability is used here to mean that a person has the ability to work in the current location and time. It is a slippery concept, and deserves to have some details added to it so that it can be sensibly used. Let’s start with very simple examples to clarify the concept. Suppose there is a country, Simpleland, with only ten kinds of jobs. An individual in the population is employable if he can perform one of these ten jobs to the minimum standards. This individual may be employed if he has a slot to work in, and unemployed if he does not. So there are really three levels here, employed, unemployed but employable, and unemployable.

The economy of Simpleland produces benefits which are distributed to the population. The distribution of the population into these three levels makes a great difference in the standard of living. If 90% of the individuals are workers, they produce some total quantity of benefits, T, which are allocated to the population. On the average, everyone gets T/N, where N is the total population. If only 45% of the individuals work, only T/2 is produced, and everyone gets T/2N, half the amount of the previous example. Between these two examples, there are two possibilities. One is that in the second, 55% of the population in unemployable. Then T/2N is all that the average will ever rise to. If in the second, 45% is unemployed but employable, the average could rise to T/N if additional production facilities were saved for and built.

Productivity is not a savior in this case. If productivity, p, rises, we can consider what happens. Then in the first case, the average benefit is pT/N, and in the second pT/2N. No relative change between the two cases happens. There is no way in which Simpleland 2 can ever catch up with Simpleland 1 as long as there remains a large fraction of unemployables.

The socio-economic system is likewise unable to change the average received. All it can do is change the allocation of the total amounts of benefits. If the employed receive R times as much as the unemployed, then the employed in either country would receive RpT/N(R – u(R-1)), and the unemployed, pT/N(R – u(R-1)), where u represents the fraction of unemployed.

Allocation systems can compensate for a lack of human capital in the sense that they can raise the living standards of one group at the expense of another. For example, if Simpleland 1 has a socio-economic system strongly supporting consumerism, and it had R = 1, but Simpleland 2 has a socioeconomic system strongly supporting production, and it had R = 11, the employed in Simpleland 2 would have just as high a level of benefits as the employed in Simpleland 1. Of course, the unemployed in Simpleland 1 live at the same standard as the employed, but in Simpleland 2, they are in relative penury.

For amusement, one might make other comparisons between Simpleland 1 and Simpleland 2 when they have different productivities and allocation fractions, but that solely would serve to obscure the point. Nothing replaces human capital. Any nation with significantly less human capital is going to have an average level of benefits significantly less.

Investment might change productivity, p, or reduce the number of employable but unemployed. A different socio-economic system might change the allocation fraction, R. But if the number of unemployables is large, these changes do not overcome this difficulty at all. There is no way that a country like Simpleland 2 can ever match the average standard of living of Simpleland 1, provided that information and investment flows allow both of them to reach their maximum values. The implications of this are that human capital is the dominant variable, more important than productivity or allocation fraction, in determining how well the population lives. Socio-economic systems, such as Just Deserts, just move around benefits, affecting principally allocation.

This is a static picture. Any change in the percentage that is unemployable will be reflected in the average benefits received, and if it goes up, then things will get worse, on the average. If the percentage goes down, things will get better, assuming everything else stays the same. Birth and death statistics change that number. If there is an age difference between the employable and unemployable fractions, time alone will change it, assuming the categorization of an individual is immutable. If, for example, the employables are older, their retirement and death will increase unemployability. If birthrates are higher among unemployables, and there is a good correlation between employability of parents and children, unemployability will likewise increase. If employables migrate out, this will also increase unemployability, as will the immigration of unemployables.

Another dynamic is the movement of individuals between the two sides of the employability category. If employables become unemployables, obviously the fraction of the population that is unemployable will go up. This particular change can come from disability, or some emotional change which takes away an employable’s will to work. Perhaps periods of unemployment can do that. The reverse motion, from unemployables to employables, might come from training, rehabilitation, or having enough time to overcome emotional changes that negatively impact will to work. This dynamic fuzzes the distinction between the unemployed but employable and the unemployable. Perhaps the unemployable category might be further divided into temporarily unemployable and permanently unemployable. The worst situation a country can find itself in is if the permanently unemployable fraction is large and rising. Living standards must go down from this effect.

Having non-productive work for the unemployed does not change the average living standard at all, and reduces it to the extent that non-productive work has costs involved, which must be subtracted from the total production of the economy. Let us leave the binary world behind, and suppose that work can range from maximally productive to totally non-productive. If the benefits for the productive end of the scale do not motivate individuals to try to move to those jobs, then the same phenomena happens. This finally is a point at which socio-economic systems have an effect. What is necessary in a benefit ratio for an individual worker to strive to become very productive? What else is necessary in order for workers to want to do this?

It would appear that a socio-economic system could encourage or discourage individuals to become highly productive, but there may be other factors, psychological and cultural factors, which predominate. Just Deserts is being designed with the idea that huge differences in rewards are not necessary, and a more balanced reward system will work as well or almost as well. But without understanding the psychology of the worker, we might not understand if rewards can be diminished, or if rewards are not the most important variable in setting worker determination and motivation.

For most of history, the majority of workers were in the agricultural sector. There also was little by way of stored inventory of foodstuffs, so motivation was by fear of starvation. Much of the world was also in the grip of a landed oligarchy, so fear of bosses was present. In more recent times, employment has shifted into industry, and mankind’s instincts for altruism and sympathy have become more expressed, so the fear of starvation and of bosses has declined relative to earlier eras. Desire for consumer goods has replaced fear as a principal motivator. This may not be a permanent feature of a modern economy. Recall that consumer goods have only exploded in volume and complexity over the last century, and the interest in them may well die back to a lower level. Altruism can cause individuals to seek more productive employment, if the rewards are sufficient. The Soviet Union and other communist countries, when there were few consumer good rewards for highly productive workers, used media propaganda to encourage altruism. This worked to some extent, but like consumerism, it seemed to have lost much of its strength as a motivating factor. What is left for a Just Deserts economic system to use to cause motivation among workers?

Another related issue is that if the economy has many non-productive jobs, for whatever reason, and there is a spectrum of benefits available from them, for someone who is motivated to seek personal benefits or benefits which are altruistically distributed to closely related individuals, seeking a highly remunerated but non-productive employment position may be just as attractive or more attractive than a potentially highly remunerated productive employment position. Any economy needs such positions in some numbers, but a Just Deserts system must be designed to reduce the attractiveness of such positions in accordance with improving production. Yet such jobs may actually fulfil extremely important functions within the economy. Perhaps a maximum term for someone in this type of position would serve to reduce the attraction away from productive employment. In some military forces, there is a mandatory employment rotation system which limits how long an individual can stay in one type of position before moving on to something else. This may provide some insight into how to maintain a highly motivated and employable population, concentrating on productive work.

Law-Evaders Beat Law-Writers

A just deserts economic system, in which everyone is limited to their earned income, has inherent abilities to reduce corruption, largely because of the necessary economic transparency that is implicit in the system.

Everybody is somewhere on the spectrum between totally opposed to corruption, cronyism, nepotism and the like, and totally committed to tolerating a situation where certain people are using these political means to advance their own goals. You might say the extremes represent the optimists and the pessimists, with most people in between. At certain periods the center rises up to join the optimists, and some new laws get written for whatever system exists that will outlaw or make more difficult some form of corruption that was exposed. Then comes the long period during which the corrupt people figure out ways to evade the laws, come up with new ways for corruption to flourish, and after some time, things are right back where they were before the orgy of anti-corruption activity took place.

Law-writers work with an irremovable disadvantage, and perhaps more than one. Everything they do is open and clear to everyone, so that anyone seeking a loophole in the law can take advantage of them. The law is static and slow to change, but law-evaders can sometimes move quickly. They work in unseen ways, and can try anything they think of to evade the law.

Corruption is sometimes a ‘quid pro quo’ and sometimes direct nepotism. Direct nepotism is where a corrupt person with influence or decision-making authority decides that some individual will gain a benefit, such as a lucrative, do-nothing position, or a high-profit contract, or some other benefit where the personal slice is large. The individual chosen would not have received the benefit except for the actions taken by the corrupt person. In many cases, there would be no such benefit except for the actions taken by this corrupt person; in other words, the lucrative position was created solely for the purpose of satisfying the corrupt person’s wishes. This differs from a ‘quid pro quo’ example in that the person receiving the benefit receives it because of who he or she is, not because of what he or she will provide back to the corrupt person.

The other type of corruption is easily understood as a hidden trade of benefits. In the simplest instances, the corrupt person provides something to a donor, such as a tax break, a waiver of requirements for an activity that increases the profit on it, a pardon of some wrong-doing, a minimization of fines paid or time served, access to someone else corrupt, a re-writing of laws relating to monopolies or cartels or an order to not prosecute these, or any of a myriad of other things; in return the donor provides something to the corrupt person, such as a immense lecture fee, or a book contract with little requirements but a large advance, the ability to participate in a mock investment designed to be lucrative, the elimination of someone either physically or contractually, high-profit contracts for a company owned by a spouse, sibling or child, and many, many other options.

The last of these might be labeled indirect nepotism, especially if the beneficiary is not financially connected with the corrupt person, but it is better to draw the primary line between types of corruption between direct nepotism and ‘quid pro quo’ corruption as the distinction is more clear and more useful.

These are only the simplest options. There can be delayed benefits, such as a lucrative, do-nothing position for the corrupt person himself following his tenure in the decision-making role which affords him the opportunity for corruption. There can be three-way arrangements with a donor providing benefits for corrupt politician 1, who is the donor providing benefits to corrupt politican 2, who closes the loop by writing laws or making regulations or restricting law enforcement relating to the original donor. There is no limit on the variations in these schemes, and therefore, a group of law-writers who are interested in limiting corruption can outlaw some schemes, but more will immediately spring up. Where there are corrupt politicians, there will be corruption. Morality might prevent some individuals from corruption, but corrupt people will use corruption to replace these moral ones with others more amenable to the corrupt schemes.

Fortunately, the economic system of just deserts provides a substantial remedy for this situation. If total income is limited for every individual or household to some small multiple of the average income in the governed region, then there will not be enough in any single person’s pocket to make any substantial corrupt payoff. To see the extent and inherent limitations in this bulwark against corruption, it is necessary to consider how it might be evaded.

First, could there be small instances of corruption, where the amount involved was an almost negligible portion of the average income in the jurisdiction? This is certainly true, and indicates that what is done by a just deserts income limitation does not change morality, only the practical, over-all effects of it. Large corrupt contributions make the disparity between those only receiving their earned income and those who arrange systems within the economy to provide them with ten, a hundred, or a thousand times as much as any human being could rightfully earn. Morality is something effected by teaching people, often the young, about what is considered right and wrong within the society. Efficiency in the society is effected by establishing laws limiting income to earned income.

Second, could there be cabals which get together to amass enough resources for a large bribe, or its equivalent, which would allow them to receive some benefits beyond, perhaps far beyond, their earned income? The amassing of resources could certainly occur, but with a limitation of income to earned income, there are no avenues for moving large amounts of benefits to the members of the cabal. There are no avenues because to enforce a limitation of income, income must be known, as well as other data. This means economic transparency has to be universal.

Economic transparency has been the bane of corrupt people ever since there was central data systems which allowed it to be possible. There have been litanies of protest against economic transparency, by invoking trigger words such as ‘privacy’, but they do not amount to anything other than pleas to allow unearned income to be received without anyone being aware of it. Transparency does no good unless there is some means of using it for detection of prohibited income, and then taking some sort of action, judicial or otherwise, which overturns the forbidden process and reverses its effects. This means that there must be some agency which has the power to access this data, meaning that transparency is available at least to this agency if not to everyone, and which is motivated to find and reverse the results of prohibited activities.

It must be very obvious that if there is only one such agency, and only this agency has the authority to inspect economic data, they would be immediate targets for corrupt offerings. Once the agency concerned with ensuring has been ‘fixed’, then there is no further barriers to non-earned income enriching those who cause this corruption, as well as others. The situation would seem to be dependent on the degree of transparency, but it may not work that way. If the ability to examine income and other economic data is more widespread than just the agency charged with enforcing the economic rules of the society, and that agency does not take action, the population will very quickly come to realize that these rules are simple paper only, and have no meaning in the actual activity that underlies the society. The number of pessimists, as defined at the beginning of this post, will soon rise as more people become tolerant of what has become the unwritten rules of the economic life of the society.

So, if this agency is the keystone of any barrier against, not only corruption, but against any usurpation against the economic rules of a just deserts socio-economic system, how might it be shielded against corruption offers, as well as threats of a more diverse type? How might it also be protected against apathy, born of years of success in imposing these rules, both on the part of the enforcers, and on the part of the population? When a population passes through a revolution or a large change in the economic system, it might be largely enthusiastic about the new system, for a period of time, but then, as difficulties arise, or simply as years pass by, the enthusiasm dies away, and corruption begins to find a way to slowly infiltrating the system. Those who are in charge of enforcing the new rules grow tired of their tasks, and begin to think of the pleasures that a little unearned income might provide them. Thus, the aspects of disparity that were so striking and unappealing, which led to the imposition of a just deserts economic system, would fade away, and the very local considerations of a small amount of corruption seep in and begin the process of undermining the rules.

Thus, the problem of maintaining a just deserts, non-corrupt economic system may be just as difficult as the process of setting one up in the first place. Any effective socio-economic system must have some processes, like rotation of personnel, that militate against the boredom that would inevitably set in.

Debt and its Administration

If there are to be public agencies involved in capital formation, they need to have some method by which corruption can be avoided. Perhaps there is only one.

In a different post, debt was debunked as an important consideration in economics. It is just one of many accounting rules that affects, along with the others, what the distribution of the products of a society is. Debt may have an interesting history, but that does not make it special in the bin of things that affect distributions. Why it is singled out for such prominence does not appear to be obvious.

Like every other transaction, debt is a two-sided one. Some access to society’s products is transferred from one individual to another when some new instance of debt is thrown into the accounting mix. In other words, some products, perhaps unspecified, are transferred from one individual to another. Since society is composed of individuals, they are the only consumers of products in the final analysis. Groups of individuals can be given many different names, and then the group can be the recipient, but the group’s allocation is transferred further to its members, according to whatever rule the group has chosen to use. The ramifications of some group’s ownership of rights to some of society’s products can be onerous to list, involving contingencies, inheritances, rights of refusal, and anything else clever people can think up. These do not need to be considered in the overview of a new economic theory. The point is simply that there are products and individuals to whom they will be distributed.

One of these groups can be a nation, meaning some geographic body of land, and all those who have rights to some products owing to the nation. Those who have rights is a group which is figured out by those who have rights to do so, and these typically are the same thing. In other words, it is a circular loop. Citizens, if we use that term to represent the individuals with claims to the products of this particular piece of land, determine in one way or another, their own membership in the group. Again, clever people can think up all types of ways to make such a membership complicated, but again, it is of no consequence to the creation of a novel economic theory. Most groups have some rules by which existing membership controls new membership, so nations or other blocks of land are not much different from other types of groups. The labels for membership are different, but the concept of membership is simply that.

Debt is a transfer of some particular formulation of product access rights from one individual to another individual, or perhaps groups of individuals on either side of the transaction. It is a curious thing that when the groups are large, like nations, or with obscured membership, like banks, there are statistical lists of the amount of debt granted. Likewise, for individuals and most groups, there are lists of debts owed that can be accessed under some conditions. The other side of the picture is not so transparent. Individuals who have granted debts to others do not have this publicly listed and available to anyone wishing to enter into a transaction with them. Thus it is hard to know what the average creditor has for debt. This means that while some statistics are available on debts owed, there are less on debts owned. Although this may be curious, it does not affect any development of an economic theory.

One aspect of debt that may differ from some other rules is the clear specification of timing of transfers. All transfers have some timing requirements, for example, taxes need to be paid by some deadline. Debt has deadlines for making some payments that can be more extended than others. This has use for some business arrangements, and for some personal situations.

An economic theory needs to cover capital formation, motivation, efficiency and productivity, and distribution arrangements. There can be no debt granted if there has not already been some capital formation. Capital formation comes from distribution arrangements. If some individual or group has not been granted an excess of society’s products, they will not have the capital to grant a debt. So, prior to the institution of debt, there has to be some arrangements for some individuals or groups to accumulate more than an equal share of society’s products, or else some individual or group has to reduce their consumption below what their allocation is, and thus save some capital. This is the heart of capital formation: some individuals or groups must consume less than they are allocated, either by them receiving an excess of their consumption rate, or by them reducing their consumption rate below the allocation rate.

Debt is granted for charitable causes, to assist some individuals or groups, or for profitable causes, so that the grantor can in the future possess even more of an excess of goods over his consumption rate. This latter situation is one of the positive feedback loops that leads to ever-increasing disparity in the distribution of society’s products. Determining how to adjust these loops so that the goals of maintaining and improving motivation and efficiency is a principal goal of any economic theory. One way, no limits at all, has been experimentally tried for a few centuries and it leads to extreme disparity which stifles both motivation and efficiency, as well as undermining the stability of whatever social arrangements were used to support this process. Another way has been tried for a few decades in a large arrangement, and in small situations for much longer, and that is to abolish it. This leads to shortage of capital formation, as well as eventual motivation disarray. So it is clear that some middle way is necessary.

Middle ways have been tried, and they can only be tried when some governance exist with the power to overrule any arrangements made between individuals and groups, so as to further efficiency, motivation, and capital formation. This typically proves to be unstable, as the governance tends to be corrupted as disparity grows, which is exactly where it should be uncorrupted and working to regulate it. This, of course, is the second famous positive feedback loop, which involves more corruption of government when disparity increases, and the corruption tends to increase disparity even more.

These obvious and well-known points indicate that economics and politics cannot be treated separately in a theory. Thus, an economic theory must be as well a political theory. Exactly what a political theory would include is not clear. One aspect is capital formation, just as the economic theory must include it. Capital formation can occur as part of the first positive feedback loop, where debt is used to increase disparity, or as part of the second positive feedback loop, where political corruption is used to increase disparity. However, it is not necessary for there to be large disparity for capital formation, if the political theory side contains some feature which will make it work. Note that capital formation is not solely the accumulation of capital, but also its use, meaning its allocation and management.

Corruption is possible on the part of whoever is in charge of capital collection and allocation within a governance agency involved with capital. Corruption means simply that some individual has two agendas, one being the agenda of his position, which is to improve the productivity of society by allocating capital under some rules for its return, in other words, debt, and the other being a personal agenda, which is to improve his own position, the position of some others that he favors, or some group that he is a part of. If a political theory is to be created, it must cover how to deal with this most common situation, of the administrator of capital with dual agendas.

Some obvious alternatives for the management of the administration of capital and debt are to have multiple individuals involved, to have watchdogs monitoring the behavior of those individuals, public scrutiny of those individuals, transparency of the personal situations of those individuals, clear and strict regulation on how such individuals are to make their choices, and others. Each of these is also subject to corruption, and it is certainly possible to conceive of a whole league of the corrupt, each aiding and abetting the others in the concealment of it. For every device that is used to prevent corruption, there is a counter to it, involving yet more corruption. Since corruption was or is rampant in most societies, historical and current, there is no clear miracle cure for it. One thing is clear, however, corruption takes time to install itself in any administrative organization. If there were regulations stating that those involved had something like term limits, or were subject to some periodic review or vote to stay in the position, then this might be another defense against corruption.

One idea might be universal term limits for anyone in a position where corruption might be an issue. Term limits are typically despised by individuals involved in some administrative position, as climbing to a high level in an administrative hierarchy takes a long time, as does becoming efficient at the position, as does finding and training good subordinates, as does many other miscellaneous tasks. However, term limits is the only solid defense against corruption, provided it is close to universal.