Straight Talk About...: Part 8 - Full Employment without Any Loss of Income is not a Pipe Dream

Fifty years ago, in order to calm Labour's fear of automation, the then U.S. President J. F. Kennedy made the following statement: "We believe that if men have the talent to invent new machines that put men out of work, they have the talent to put those men back to work."

Well, in Canada, Prime Ministers apparently have shied away from making such a bold pledge. Nevertheless, the grim reality is though that ‘men’ apparently don't have what it takes to deal with the unemployment crisis here, or elsewhere in the world, for that matter.

In the views of many observers of the North American economy, the events of the late 1960s started a new era that could be characterized by simultaneous unemployment and inﬂation rates running amok. A phenomenon that appears to have contradicted the revered Economist J. M. Keynes‘ "General Theory of Employment, Interest and Money".

Leading Canadian economist, Dr. John Kruger, summed up the narratives of that period as follows: "The world has changed but the economists have not caught up with it. It's like a technician walking around with a standard manual on repair and maintenance and all of a sudden he ﬁnds the machinery, he was accustomed to repairing, has been replaced and his book does not give the proper answers anymore. So he is lost." Since then nothing has really changed.

However, a few nonpartisan, interdisciplinary thinkers suggest that anyone, seriously concerned about the socio-econo-ﬁscal state of this country, should focus on reducing the high rate of unemployment. They recommend that approach of scrutinizing the relations between three basic economic factors: Productivity, Consumption and the Average Number of Hours Worked per Week.

In the collective view of the latter group, unemployment is a totally unwarranted phenomenon. It could have been entirely avoided had government, business and labour leaders recognized the need for adjusting the duration of the workweek, to compensate for the high productivity rate and the saturated market conditions that have been so prevalent for the past 40 years, or so.

In a recent interview, Dan Akerson, -- CEO and Chairman of General Motors -- was asked how to deal with the ongoing economic stagnation. In essence his response was: Corporations should invest in innovation and R&D activities. That should eventually lead to economic expansion and job creation, but it could take a few years to see the results.

The trouble though is that, business consultants had already found a way to increase the GDP, without creating new jobs. And they even dubbed the highly proﬁtable process "jobless recovery", to the delight of business owners and stockholders. At this point in time, the responsible approach is not to manipulate, but to solve the age-old unemployment problem. A problem that has, throughout the decades, grown into a gigantic socio-econo-ﬁscal crises.

Indeed, the solution could be based on the need to harmonize the aforementioned three basic economic factors: Productivity, Consumption and the Average Number of Hours Worked per Week, in order to maximize the size of the country's Active Labour, and Consumer Force.

The table below, -- detailing step by step this job creation process, -- was originally designed to address this country's 1992 unemployment enigma, the same premise could serve as a viable formula to deal with the current problem of crisis proportions, as well.

Analytical Summary

Canadian Unemployment Related Economic Indicators

Economic Indicators	Economic Indicators Viewed from
	The 1992 Unemployment Rate of 11.3%	An Unemployment Rate of
		8%	5%
		and an Economic Expansion Rate of
		2%	4%
1. Population	27,402,200	assumed static	assumed static
2. Labour Force 2.1 Total 2.2 Employed 2.3 Unemployed	13,797,000 12,240,000 1,556,000	assumed static 12,693,200 1,103,800	assumed static 13,107,200 689,900
3. Gross National Product 3.1 Total 3.2 Per Capita	$664,092,000,000 $24,328	$667,373,840,000 $24,815	$690,655,680,000 $25,301
4. Personal Income 4.1 Total 4.2 Per Capita	$619,293,000,000 $22,687	$631,670,860,000 $23,140	$644,064,720,000 $23,595
5. Wages and Salaries 5.1 Total 5.2 Per Person (Employed)	$390,741,000,000 $31,923	$398,555,820,000 $31,399	$406,000,370,640 $31,004
6. Income Tax Paid by All Employed Persons 6.1 Total 6.2 Per Person	$83,893,600,000 $6,854	$85,571,472,000 $6,742	$87,249,344,000 $6,657
7. EI Benefits Received by All Unemployed Persons 7.1 Total 7.2 Per Person	$17,599,441,000 $11,311	$12,485,081,800 assumed static	$7,803,458,900 assumed static
8. Average Wage and Salary Net (After Income Tax) (line 5.2 minus line 6.2)	$25,069	$24,657	$24,347
9. Average Number of Hours Worked per Week	37.7	37.1	36.6
10. Tentative Average Wage Loss Due to Shorter Work Week (line 8)	N/A	$412	$722
11. Reduction in Government Expenditure Due to Decrease in EI Benefit Payments (line 7.1)	N/A	$5,114,359,200	$9,795,982,100
12. Tax Credit Payable to All Employed Persons Due to Reduction in Government Expenditure (line 11 divided by line 2.2)	N/A	$403	$747
13. Increase in Government Revenue Due to Rise in Total Income Tax Paid by All Employed Persons (line 6.1)	N/A	$1,677,872,000	$3,355,744,000
14. Tax Credit Payable to All Employed Persons Due to Increase in Government Revenue/b> (line 13 divided by line 2.2)	N/A	$132	$256
15. Actual Net Income Gain for All Employed Persons per Year (line 12 plus line 14 minus line 10)	N/A	$123	$281
16. Increase in Government Revenue Due to Rise in GST/PST	N/A	$1,004,000,000	$2,008,000,000
17. Potential Gross Budgetary Saving (line 11 plus line 13 plus line 16)	N/A	$7,796,231,200	$15,159,726,100
18. Total Tax Credit Payable as a Compensation for Wage Loss Due to Shorter Work Week (line 10 multiplied by line 2.2)	N/A	$5,229,598,400	$9,463,398,400
19. Potential Net Budgetary Saving (117 minus line 18)	N/A	$2,566,632,800	$5,696,327,700

For further details as to how the aforesaid objective could have been fulfilled earlier, let's refer to Analytical Summary above, line by line with the ultimate aim of:

Either, reducing the 11.3% unemployment rate to 8% or preferably to 5%, and accepting a corresponding "average yearly wage loss“ of $412 or $722 respectively (line 10). In doing so, the government of the day would have had access to a potential gross budgetary saving of either $7.796 billion, or $15.159 billion (line 17).
Or, decreasing the 11.3% unemployment rate to 8% or 5% and compensating for the "average yearly wage loss" (line 10) by the "actual net income gain" per year of $123 or $281 (line 15). In the latter instance the government would had ended up with a "potential net budgetary saving" of $2.566 billion, or $5.696 billion (line 19).

In a nutshell, this brief presentation clearly illustrates that the 1992 Canadian unemployment problem could have been eliminated by simply reducing the average number of hours worked per week from 37.7 to 37.1 or 36.6 (line 9) with a slight gain in yearly income.

Now, that the establishment has seemingly no more plans in reserve to revive the long ailing economy, it's time to resort to the aforementioned scientifically proven formula to resolve what has become a socio-econo-ﬁscal crisis, for the following reasons:

Employers cannot be expected to hire new employees, unless there is a significant, specific and long term demand for some products or services. And it's difficult to argue such position.
Governments are unable to balance their budgets due to a rapidly shrinking tax base and the ever increasing demand for unemployment and welfare benefits. Therefore, in the interest of all stakeholders, provincial governments -- in consultation with business and labour leaders -- would be wise to sensibly reduce the average number of hours worked per week, via legislative means. This would lay a foundation for a socio-econo-fiscal system that is noted for its ability to provide full employment without any loss of income along with a balanced budget.

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