Business leaders tend to oppose sustained full employment even when it raises profits, because it weakens the threat of dismissal and shifts power towards workers.
Kalecki argued in 'Political Aspects of Full Employment' (1943) that the obstacles to keeping full employment were political rather than economic. He listed three sources of business opposition: dislike of government intervention in employment as such, dislike of the direction of public spending, and dislike of the social changes full employment brings, above all that the sack stops working as a discipline. He predicted a cycle of expansion before elections and retrenchment after.
In practice
- A tight labour market raises quit rates and pay demands, and employers' groups warn of overheating before inflation has moved.
- A manager who once ended arguments with a remark about the queue of applicants finds that the remark no longer works.
- Possible explanations
- One explanation is bargaining power: when jobs are plentiful, workers can leave, so employers lose leverage over pay and conditions. Another is political: an economy that depends on business confidence gives business a veto that publicly guaranteed full employment would remove.
- In its favour
- Anticipated the political business cycle literature, and is consistent with evidence that quit rates and worker bargaining power rise in tight labour markets. It accounts for opposition to full-employment policy that purely economic arguments do not.
- Against it
- Businesses have often supported expansion, and several post-war economies sustained low unemployment for decades. Mainstream economists attribute retrenchment to inflation risk rather than to class interest, and claims about motive are hard to test.
- Standing
- Accepted in post-Keynesian and Marxian economics and disputed in the mainstream. Compare the reserve army of labour and the political business cycle, Nordhaus's electoral version.
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money