Labor and Employment Post the implosion of the Wall Street Model of Capitalism Richard B. Freeman, Harvard, NBER; CEP, LSE New School Conference on Economic.

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Presentation transcript:

Labor and Employment Post the implosion of the Wall Street Model of Capitalism Richard B. Freeman, Harvard, NBER; CEP, LSE New School Conference on Economic Recovery May 19, 2009

The usual pattern in financial crisis: labor loses Korea – Asian flu – not due to labor but increased inequality, decline in formal sector jobs. Irregular work. Argentina – IMF poster child of WC globalization – not due to labor but jump in poverty, unemployment, inequality, risk of populist economic harm Sweden – Poster child of welfare state – not due to labor but housing/banking crisis, no rise in poverty, modest rise in inequality, continued high unemployment with longterm jobless US – Great Depression, other cyclic crisis. US - Current situation – rising unemployment, loss of retirement income, housing loss. Test of the US labor market.

Three Problems in Recovery 1) Employment increasingly laggard in recoveries over the past 30 or so years in the US and in at least some other countries (Sweden, Korea). Swedish employment has never recovered fully from early 1990s economic crisis. If jobs recovery slow and unemp compensation and social insurance could drag out overall recovery. (Vs Administration hope that rapid fall  rapid rebound) 2) US inequality may be too high for long term sustainable growth; need major structural changes away from the Wall Street model to rebuild economy with “shared prosperity”.

3) Need unions or other organizations to provide countervailing power to management and finance in economic decisions – corporate governance, regulatory laws, etc – necessary for reformed economy. Wall Street is trying to restore old order Since financial markets can destroy real economies, US cannot leave regulation and monitoring financial markets to Wall Street quants, the Fed Reserve, Treasury, financial experts. What they do is the jobs issue.

What might we do in a 2 nd stimulus? 1) Increase support for public sector so retain police/teachers etc.-- perhaps loan to states with payback when they recover tax base 2) Education/scholarship money to increase counter- cyclicality of human capital formation: more schooling in high unemployment period 3) Smooth RD stimulus so that it does not produce a large drop in funding that will create havoc with careers of STEM workers 4) Push green job/infrastructure/ new industries/ retrofitting houses, etc even more –> zero energy buildings, water supplies, etc etc

What might we do to rebuild the economy? Corporate Governance Reform Inspector Generals for companies Green gallows for crooked bankers Best and brightest into real economy Cut Finance down to size. It can/will destroy economies and jobs …

As yes not a glimmer of slowdown in growth of joblessness Jobless Rate: 7.6% in January Jobless Rate: 8.1% in February Jobless Rate: 8.5% in March Jobless Rate: 8.9% in April Jobless Rate: 9.3% in May ??? Jobless Rate over 10% in July/August ???

What does the prediction market say?