18. Method of passing productivity gains towards free time

Opposite to the problem of outsourcing where there is impossible without subvences to achieve standard level of productivity (wages, prices) and maintain jobs in country of origin there is another phenomenon represented by industries, where productivity is rising rapidly because of industrialization and computerization.

As a result, more and more people are getting unemployed not because they are “expensive”, but because their work is not needed in such scale as before. This trend is even reinforced when mechanization is bringing in additional savings in costs and that is as mentioned many times a strong driver of any business trapped in lack of demand and trying to sort it by cost cutting.

If such trend would be continuing ad absurdum, we could end up in society run by robots and 99% unemployment. The Skynet would have won. Terminators of the future do not need machine guns and atomic weapons to wipe out the human race, all they need is standard work rationalization equipment.

Of course, that does not mean at all that industrialization is a bad thing. Absolutely not. We have moved a great deal from medieval ages through use of steam and later electricity and oil based industries. We have passed a great deal of gained productivity to the people in the form of 5 days working week, 4-6 weeks off and significantly shortened daily working time.

But it seems that we have somehow stopped short of passing the gains of last 2-3 decades and are again at the fork what to do with the people whose work is simply not needed any more.

Are we going to slip to fascism again and let them die on the streets jobless and homeless?
In many countries this seems to be the choice of the day and it is a very dark and unimaginable future. The problem is not just a current financial crisis, but what lies ahead is most likely future where fossil fuels will be significantly depleted and there will be no immediate replacement if there will be any at all. This would lead to significant decline in economic activity with results similar to that of greatest recession we ever encountered.

How are we going to treat the millions of unemployed, then?

Are they going to be discarded without any consideration?
Or shell we implement further reduction of working time, job sharing?

Already today there are many voices advocating splitting the workload between people as a means to combat unemployment. By reducing the working time by introducing more time off, there will be more jobs directly in industries affected and even more indirectly in leisure, travel and healthcare which will gain enormous boost by extra customers available.

The only problem associated with this solution is that by reducing the productivity by cutting the working time fond by additional time off we would be increasing the costs of companies employing these additional workers. They would need at least an average salary of particular company and that money would not fall from the skies. If these additional costs would be passed to the final prices, that would not work.

Here comes again an irreplaceable role of the government which can coordinate productivity across industries without forcing them to incur additional costs. With help of subvences towards working time reduction in connection with periodic taxation of saved capital the government can easily implement such measures.

As is visible from chart, with more time off and more employees compensating lower productivity, there is a need to offset increased total costs with corresponding subsidy.

That subsidy must come in the form of extra money from central bank and then being redistributed to companies operating with this lower productivity by government according to calculated key:

Subsidy   =       ( new time off – current time off)
                     x      number of employees
                     x        average salary in industry at current time off per unit of change if time off


What it means is that additional time off and so costs associated with it (wages of new employees covering for additional time off) is supplemented by government. That way companies giving their employees 6 weeks off would have same costs as those offering only 4 weeks or even 2 weeks.

The output at affected companies would be unchanged as they are now producing the same volume as before the productivity change and it is indeed the same(substantially higher) than before introducing mechanization which caused this unemployment,

After the money used as subsidy makes its way through the system and ends at some accounts, it is eventually taxed as described in chapter Periodic taxation of accumulated capital. After some time, there will be a new equilibrium with more money in the circulation enabling this lower productivity, but higher employment.

The equation here is :

The lower the productivity (higher employment, more time off) the more money is needed to facilitate the economy at standard prices.

The problem here is the really the problem of finding the common multiples between wages and money mass.
You can have 4 people working 6 days for 100$ each = 400$ or 6 people working 4 days for 600$ with 200$ subsidy. Obviously the business class is able to find and finance by itself only this first common multiplier characterized by lowest wage costs because it has no access to subsidies without the help of government.

So you see the importance of government in upgrading the society to the next level. The businesses themselves will never be able to move there without subsidies.

It is important to point out that simply lowering the productivity by altering the working law and introducing more time off to fight unemployment would not provide the same result. Without additional money facilitating the productivity change businesses would have to raise prices and that would cause further diminishing of available of buying power. Even providing flat transfers to citizens to compensate for these higher prices would not be an ideal solution. As there are different labor requirements for different industries and different availability of skilled workforce able to join the companies in time the subsidies at company level are really the best options.

As companies will find suitable employees, they can ask for subsidy based on amount of time off they are giving to their staff. That can change in time and so more and more companies will join the new standard while maintaining the competitiveness with those that are still operating on lower level because they were not yet able to find additional staff.