QUALITY EMPLOYMENT:
CHALLENGES FOR THE
FUTURE
Joseph E. Stiglitz
Bilbao, April 20, 2007
Why Quality Employment is so
Important
• Individuals spend large fraction of their
lifetime on the job
• The quality of the job thus is one of the
most important determinants of the quality
of life
• Job affects life outside the workday
– Economic security
The Many Aspects of Quality
Employment
• Quality of job
– Workplace environment
– Opportunity for individuals to participate in relevant decisionmaking
• democratic workplace
• More inclusive governance
– Beyond shareholder maximization to stakeholder participation
– No theoretical basis for “shareholder maximization”
• Security of employment
– Individuals are risk averse, and care about security
– High levels of unemployment mean that there is a risk of long
term unemployment
– When individuals lose their job, standard of living is threatened
Quality Employment: Decent
work…but more than decent work
• Flexibility of employment
– Meeting family needs
– Balance between work and other aspects of life
• Compensation
• Inclusiveness
– Equal opportunity for all
– But true equality of opportunity may require “affirmative action”
– Special programs to integrate new members of labor force
Objective: Overall improves in Quality of Life
Caution: do not confuse means with ends
Efficiency Wage Theory
• It pays to treat workers well
– Work harder
– Less turnover
– Invest more in job-related human capital
• But does that mean we can just leave it to
the market?
– Will the market balance out various aspects of
jobs
Why the market can’t be relied
upon
•
Markets may exploit especially vulnerable groups with limited opportunities
– Migrants
– Unskilled
•
Modern corporations may be especially short sighted
– Focus on this year’s (this quarter’s) bottom line
– May mean that they are not concerned with long term profit maximization
– Problems exacerbated by stock options and changing mores
•
Social externalities (“spillovers”)
– Especially important in creating a cohesive society
– Markets focus on lowering labor cost (e.g. through labor saving innovation)
• Any resulting unemployment viewed positively as exerting downward pressure on
wages
• Social returns to innovation markedly different
– Dynamic externalities even more important
• Learning
• Societal benefits of getting new entrants into the labor force integrated into the market
Problems may be getting worse
• Increased focus on short term profits
– Change in corporate culture
• Globalization is putting more pressure on firms
– And weakening bonds of social solidarity
• Management of MNC shifting from one plant to another
• Loyalty to corporation more than community
• In many parts of the world weakened unions
But the problems are not inherent
in globalization
• Globalization does result in downward pressure
on wages of unskilled workers
– Increasing inequality in advanced industrial countries
• In U.S., debate is about loss of jobs
• But U.S. has been able to maintain a high level of
employment
• But at a large cost-- wages at bottom have been declining
• But in many places, globalization is being used
as an excuse for further weakening job
protections, lowering wages
Scandinavian countries have
responded differently
•
•
•
•
Heavy investments in education and job retraining
High levels of employment
High levels of investment in technology
High levels of success
– Economically
– In penetration of new technology
– Socially
• Higher scores on Human Development Indicator than U.S. (broad
measure of individual well being)
• All of this in spite of high taxes
– Or more accurately, because of high taxes and high levels of
investments and social services that those taxes financed
But responding to globalization
does require changes
• Changes in the provision of social support
– From the firm to the community (country)
• In U.S., automobile companies may go bankrupt because of health
care costs
• In U.S., when individuals lose their jobs, they also lose their health
insurance—more than 50 million Americans without health
insurance
– Dynamic economy requires flexibility
• Workers will need to move from job to job
• Portability of pensions and other insurance
• But cost to society of firing worker is different than cost to firm
– Cost is greater than zero
– Implying that some severance pay may be desirable
• “Provident Fund”—individuals can use for a variety of purposes, e.g.
helping them through short period of unemployment
– Combining good incentives with risk reduction
• Changes in the structure of the economy
– Increased role of tertiary (service) sector
– But service sector jobs can be “good jobs”
• Even better than manufacturing sector jobs
– Both in terms of compensation
– And in terms of quality of employment
May require a larger role for
government
•
•
In providing social support
In helping individuals adjust, move from job to job
– Through processes of life-long learning
– And educational systems that focus on learning to learn
•
In helping new individuals get integrated into the labor market
– E.g. through training programs and through earned income tax credits
•
In helping create a more dynamic society and economy, through investing in
education, technology, knowledge
– Knowledge is a public good
– Many of U.S. successes based on heavy government investment
• Internet
• Even Browser
• Biotech
– Many mechanisms
• Direct investments
• Partnerships
• Subsidies to education, technology, research, certain types of employment
Europe has been getting some
things rights
• Most countries have better health care systems
– More security
– Better outcomes
– At much lower costs
• In some countries, high rates of productivity growth
– Americans work far more hours per year
– Enjoying less leisure
• And even though average incomes have been increasing
faster than in Europe, most Americans today are poorer
than they were 5 years ago
– Median income down
– All gains have gone to the rich
But there are problems
• High rates of unemployment
• Less innovation(?)
• Lower rates of overall growth
Explaining problems
• Macro-policies
– Central bank focusing excessively on inflation
– Growth and stability pact limiting the use of
countercyclical deficit policy
– Central banks “blame” structural rigidities
• Are important in some places
• But cannot explain marked changes since 2000
– Rigidities have not become worse
Explaining Problems
• Long term concern
– Free capital mobility may limit ability to impose taxes on capital
• Real problem asymmetry between mobility of labor and capital
– Forcing burden of taxation to labor
– Undermining welfare state
– Race to bottom in competition for capital/jobs
• But advantages of a well designed and well run welfare
state mean that, even with these handicaps, it can still
compete
– Evidenced by successes of Scandinavian countries
– But imperative to design and manage welfare state well
Corporate Social Responsibility
• Can CSR address the problems?
• Can make things better
• But in a globally competitive market place,
firms may not have adequate scope to do
all that they would like
– Need for appropriate regulatory/legal
framework, to limit race to bottom
– CSR can help promote the appropriate
framework
Role of international institutions
• Asymmetries (e.g. in capital and labor market
liberalization) have exacerbated problems
• Even more so in developing countries
– Where loan conditionalities may even impose impediments to
implementing even core labor standards
– IMF/World Bank put more emphasis on labor market flexibilities
than on enforcing labor standards and enhancing security
– Single minded focus on inflation results in too little attention to
problems of unemployment and quality of work
– And more emphasis on inflation than on unemployment
– Attempts to restrict abilities of governments to pursue affirmative
action programs and other programs designed to promote
inclusive growth
• Including through bilateral investment agreements
But it doesn’t have to be that way
• Trade agreements could reduce race to
bottom
– By restricting tax competition
– And by enforcing core labor standards
• (But cautionary note on U.S. approach—requiring
countries to enforce their own labor laws—which
may lead to lowering of standards)
• Surveillance could look not just at inflation
but at unemployment and quality of work
– Jointly done by IMF and ILO
Concluding Remarks
• Full employment is the most important
social program
• Quality employment is necessary to
achieve high standards of living
• And essential for creating a cohesive
society
– Aspects of well-being not well captured by
standard measures, like GDP per capita
• Markets by themselves will not necessarily
produce the kind of quality employment
that society needs and deserves
• There is an important role of government
– At every level—from the local community to
the international
• Working with the private sector
• Through a variety of mechanisms
Globalization
• Has heightened the challenges
• Without effective responses and concerted
action there is a risk of a deterioration of the
quality of employment
• Globalization does not mean that social
protections should be reduced
• On the contrary, globalization has increased the
need for a strong welfare state
• But it has made it even more imperative that
there be careful thought to what the government
does and how it should do it
• The kind of dialogue that this Congress is meant
to encourage is essential
• With this dialogue, and with the actions which
hopefully will ensue, I believe that we can
achieve a labor market which provides high
quality employment—in the broadest sense of
the term—for all
• This is essential if we are to achieve the
cohesive society and high standards of living for
all that we are striving to achieve