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Capitalism’s reserve army of labour

Full employment is not the normal state of capitalism

When Ramsay MacDonald’s second Labour government came to power in 1929, unemployment had been at a steady 10 percent of the working population for several years, around 1 million.  Within a year, the effect of the Great Depression was to send unemployment rocketing to 2.5 million, causing the collapse of that second Labour attempt to reform capitalism.

MacDonald held steadfastly to classical economic views.  He frowned on the dole as a cause of indolence and unemployment, and believed that equilibrium in the jobs market could be found.  That is, full employment will come if barriers to wages finding their “natural” level are removed.  He was, thus, content to agree to the May Report which included cutting the dole to those two and a half million, in order to balance the government’s budget.  That was the move that caused his government to collapse, and for MacDonald to go down in Labour Party history as the great traitor, as he jumped ship to form the National Government.

Manifestly, this did not work, and unemployment remained steadfastly high.  Dole or low dole, workers were simply unable to find jobs because the capitalists of the time held steadfastly to their principle of “no profit, no employment”.  Their mistake had been to cling to the myth, exploded by Karl Marx more than 60 years before, that full employment is the normal state of capitalism, and unemployment the exception.

Entirely to the contrary,  demonstrated that not only was a pool of unemployed workers the norm under capitalism, it was in fact intrinsic and essential to the workings of the wages system for there to be such a pool.  He referred to it was the “industrial reserve army”.  For Marx, the relative size of this reserve had a direct effect on the level of wages – as it increased, wages shrank, and vice versa.  The upward limit of wages was the point at which they began to unduly impact on profitability.  High wages would lead employers to either discover labour-saving processes, or simply lay off staff and cut back operations.

This indicates how the industrial reserve army works both ways.  Economic historians attribute the rise of the United States as an economic and industrial power house to the relative scarcity of skilled labour in the nineteenth century (exacerbated by the fact that workers could strike out to find frontier land, rather than accept unemployment).  This compelled American capitalists to improve the intensive exploitation of their capital in order to be able to effectively use the labour resources to hand.  That is, that capital has an incentive in not letting the reserve army get too large. 

Another feature of Marx’ theory was that the unemployment is not a function of population.  That is, it is not simply growth in the number of mouths to feed that causes unemployment, but that it is a wholly determined variable based on the state of the investment of capital.  As more capital is brought into play, so too is more labour.  Unemployment is a relative phenomena based simply on the ratio of employees to those seeking work.  This can clearly be seen in UK statistics.  In 1900 the population was around 38 million, and unemployment stood at around 5 percent, at the end of the Twentieth Century the population was close to 60 million, and unemployment was still only around 5 percent, its changes do not track population growth.. 

People can be taken out of this reserve army.  For example, in the 1960’s Harold Wilson’s Labour government had to seriously debate whether the country could afford to raise the school leaving age to 16, drawing all those young workers out of the labour force at a time of nearly full employment.  Nowadays, under the current Labour administration, they have a policy of keeping at least half of school leavers in full time education until they are 21.  Many commentators have noted that incapacity benefit has become prevalent in areas of large stagnant unemployment over the years.  That, and the dole, allow some sections of the workforce to become economically inactive, and thus no longer contributing to the labour pool and the reserve army.

Interestingly, the latest figures from the Office for National Statistics in the UK suggests that as times become more straightened, these economically inactive people are entering the labour market.  At the same time, underemployment has grown.  People are working fewer hours (and thus making less money) in order to retain some sort of employment.  Although they are not unemployed, they are part of the reserve army, in as much as many of them would, if they could, convert to full time work if it was available.

The latest figures, for January, show that unemployment in Britain has now passed the 2 million mark. Although in absolute terms those numbers are similar to the level of unemployment that destroyed MacDonald, because the total and working populations have increased it is not yet as drastic.  Those figures, though, only represent a return to the levels of the late 1990’s.  Indeed, in the Thatcher years, figures of nearly three and a half million were seen (and that resulted in collective bargaining by riot in some particularly hard hit areas).  It should also be noted, though, that national figures vary regionally, and poor areas, like inner city London, the North East and Glasgow, say, already had higher than national average unemployment, and are likely to be more swiftly affected by the current rises than elseplace.

One new aspect of the current round of unemployment is the role of EU migrant labour.  As a highly mobile workforce with little by way of invested roots, it may well soak up some of the costs while leaving the resident workforce of the UK less hard hit, although the figures above seem to indicate, so far, otherwise.  Indeed, British citizens are emigrating less, and this off-sets any trend.  In the days of the Empire, one way of regulating the reserve army of labour was emigration, and it seems the EU fulfils a similar role today.  That said, unemployment is unevan across the EU, and is itself growing.