Now we reach the part I was keen to explain. All along I've been speaking of the labor market in a conventional way; that there are cohorts of workers for whom there is a supply of labor, and markets for that labor which are driven by price. A complicating factor is segmentation—the fact that most humans are in "labor markets" which are segmented, and often "crowded."¹ But the notion of a labor market with a natural inclination to "clear" is still a notion I've been operating under. I've tended to assume there exists such a thing as a "natural" rate of employment, which is a macroeconomic concept; there's a level of unemployment such that any further job growth leads to inflationary pressures, and if that level is to get any lower, it's a microeconomic issue.

James K Galbraith argues in the paper linked above that this is a fallacy. Labor markets don't behave as predicted in the neoclassical theory because wages cannot adjust in any plausible way:

The idea that people can readily be switched from one line of work to another would appear to stem from the idea that labor time is a commodity with a coherent meaning, and this notion is an extension of nineteenth-century abstractions about labor that have lost their slight purchase in real world conditions over the course of the present century. The manual worker with general skills hired out by the day for odd jobs at a negotiable wage is a fringe case. Everybody else is linked to a social network that dictates within broad bands terms of employment specific to his or her skills and background. The small actions that lend intuitive plausibility at the micro level to the concept of a market for fish (“Atlantic Salmon $5.99! Special Today!”) are never observed in the so-called market for labor. Wages are not set in response to the short-term variations of supply and demand, but rather by a complex process of relevant comparisons, within and across occupations, industries, and the characteristics and qualifications of the worker. ("Dangerous Metaphor", Galbraith, p.11)

What are the political implications of this? Galbraith points out there are two basic attitudes. One is the "naturalist" who spouts free market shiboleths; the other is the NAIRUvian, the "neo-Keynesian" for whom

the persistence of unemployment above the natural rate is a legitimate possibility. It may reflect a failure of relevant markets to clear with satisfactory speed, a disorder that NAIRUvians acknowledge to be possible. That being so, there may be no harm in policy measures to speed the return to the NAIRU as long as a “soft landing” at the NAIRU is carefully engineered. (Ibid., p.13)

It is a historically, socially, and politically specific set of status and pay relationships in the economy, within and between firms, within and across industries. I will assert here that a job structure always exists, and has to exist, in every society. Otherwise, relative pay would be wholly underdetermined—market forces being insufficient to do the job of setting wage rates and job characteristics—and chaos would prevail. (Ibid., p.15)

Galbraith now turns to the question of understanding this concept of the job structure. He did a study of the labor force by dividing workers into six cohorts; readers will consider other methods of dividing the cohorts (I have some ideas already!). I thought his categories were analogous to treating the sectors of the economy as six different national economies that have various advantages and disadvantages with respect to each other. His main point seems to be that wages must move in formation to each other, rather than balancing as a typical economist would assume. He also rejects the position economic and political liberals usually share, that possession of a good educational system and infrastructure affect economic growth.

The educational system of the United States is unquestionably deficient in important respects. It includes large public school systems in which resources are starved and education is said not to occur. These failings are a social and political tragedy and a cultural crime. They have much to do with the persistence of race-based differences in the earnings and opportunity structure.

But do they matter, much, for the average level of economic performance? Are American schools a drag on productivity? That question turns on whether there is a shortage of skilled labor in the present-day United States. There is no such shortage! To the contrary, our economy is full of highly educated and skilled people.

But Galbraith's broader point is entirely valid—that business, while it has a great influence on American education policy, exerts it in ways that benefit business and fellow members of the managerial cohort, not the vast majority of Americans. Galbraith also makes some very good points about infrastructure spending, which shall require a longer quote:

Public works are the fastest, most direct way to put the unemployed to work. They have direct and multiplier effects on total employment. They have the side benefit that the works themselves remain useful for many decades after they are completed [...]

But the liberal supply-siders* make an entirely different claim for public works spending. Renaming it “infrastructure” [...], they argue that it contributes in definite ways to the productivity of the private business economy. The jobs created directly, in doing the work, are immaterial to this argument. What matters is how the finished work contributes indirectly to cost reduction and output in the private sector. The evidence for such effects rests almost entirely on aggregative statistical relationships, essentially on the bare fact that measured productivity growth declined during the years that saw falling gross public investment. Almost no evidence rests on detailed analysis of the contribution of particular objects to business efficiency (a high-tech boom in Appalachia following the Great Society’s road programs there, for instance). (Ibid., p.20; a liberal supply-sider is here someone arguing that public works enhance productivity—JRM)

The remainder of the essay is dedicated to the argument that relative wages are a political issue, not a market one; in fact, Galbraith doesn't offer another analytical tool so much as the surmise that one does not exist, and the real answer is political institutions. Galbraith outlines his views of an ideal economy, which are less interesting because they require hyperactive benevolence and that's not a feature of this society. However, I will be returning to the parts that do interest me—namely, how to think about the job structure.

PERSONAL NOTE TO FREQUENT READER: Yes, as a matter of a fact I was thinking of Karl Polanyi. He did indeed argue that the chimerical market for labor was shared by an equally chimerical market for land and money [finance capital].