Employment and Income

Section II

Political-economic stability

If we invest 25%of the GNP to expand the production of goods and services, the total output will grow. Everyone is potentially better off. The problem is maintaining an income distribution which promotes political stability. Empirically, the political stability of industrial democracies is based on two factors. First, most groups in society must have rising real incomes; and second, the society has considerable social mobility. When real incomes are rising the majority will support the pro business party. Japan is a classic example of the workforce supporting the business party. With social mobility, the ambitious from poor parents will concentrate on achieving personal success rather than revolution. The issue remains: Will real incomes keep rising for most people and will social mobility continue?

Stability of previous industrialization

Consider first the industrial revolution in England, which began in the later part of the 18th century. Prior to the innovation of textile mills, merchants brought textile work to cottages. Cottages specialized in one function such as spinning or weaving. The merchant organized transportation from one function to another. Production was part time artisan work which complimented agriculture, for example winter work. Initially, the industrial revolution applied water and then steam power to the production process. To gain economies of scale, the new industrialists had to organize large numbers of machines in one plant. This required bringing the worker to the industrial town.

Life in textile towns was the basis for Marx's observations on capitalism that conditions in factories and factory towns were terrible by the standards of the middle class. Certainly, textile workers were worse off than the textile artisans that they displaced, but this is not the correct comparison. Textile workers may have actually been better than the standards of the unemployed agricultural worker or the urban resident in a poor house. In 19th century Great Britain, real wages did gradually rise contrary to Marx's theories. The rise of the factory and factory town created new social issues such as child labor and worker safety. The factory town created the need for city government to provide services such as clean water and education. While the wealthy can avoid the slums, they can not avoid a germ. England was politically stable because real wages rose and the worker obtained the vote so that any changes in the political economy could be made through the ballot box and not revolution.

In the United States until the end of the 19th century, workers had the option of going West and becoming farmers on new agricultural land. Consequently, labor costs in the US were higher than in Great Britain thus inhibiting the growth of industrialization. The issue of industrialization was a policy issue in Washington's administration. Jefferson and most agrarians opposed while Hamilton was in favor. Industrialization in the US was a gradual process starting around 1800. Employment trends in the US

a. Agriculture

b. Nonagriculture

In this table mfg includes mining and construction and services includes government, services, finance, insurance, real estate, wholesale and retail trade, and transportation. Currently within the mfg firm approximately 1/3 the employees are not direct labor.

In the US the male worker always had the vote. (In eastern states some restrictions on male suffrage existed until the 1820s.) As a consequence of growing industrialization, the income distribution from 1860 to 1900 became much more highly skewed. From 1900 to about 1970, the income distribution became less skewed with the growth of the middle class. The US was the first country to educate the masses with high school the then college.  Up to 1970 the US had the best education system in the World. Prior to WWII Europe just educated the elite. Nevertheless, for most workers real wages increased continually since 1790 and in the 19th and 20th centuries services expanded to create new jobs. Consequently, the US has always been a model of political stability in spite of the civil war.