Wanted: Ten Million Jobs

» What plans should we make to avoid widespread unemployment when the war ends? Here are some figures to help in the planning.

by ALVIN H. HANSEN

1

IN wartime every normal adult discovers that he is useful and wanted. That is a great thing. If we could learn to carry this experience over into peacetime, it would contribute enormously to human happiness.

The problem of employment, which baffled us so long, will again confront us, though profoundly altered by the impact of the war.

For some time after the war there will be an excess of demand over supply for certain durable goods. In addition, there are at least three other areas in which the effective demand will be great. Inventories all around will be low, and there will be a tremendous demand, for some time, to build up these inventories. Exports — especially of agricultural products—can be relied on to remain at very high levels in view of the European relief requirements. Finally, in many lines, including transportation and manufacturing industries, there will be a large demand for equipment.

There will also be an extensive demand for construction; this I shall discuss in detail later.

According to a widely accepted view, the accumulated demand for consumers’ durables will ensure the re-employment of war workers and the demobilized armed forces. This thesis needs examination: the excess demand will not, in itself, cause the reabsorption of the demobilized forces.

At this point it may be of interest to remember the role of each of the categories I have referred to — consumers’ durables, inventory accumulations, net export surplus (commodities and “invisibles”), equipment, and construction — at the end of World War I.

In Table 1 appears the absolute dollar volume expended on each of these categories, for the years 1919 through 1922; 1919 and 1920 were the years of the post-war boom, and 1921 and 1922 the years of post-war deflation and depression. Note particularly the enormous role played by inventory accumulation and net export surplus in the post-war boom, and the almost complete disappearance of these items in the two years following the boom. No doubt this latter circumstance was heavily responsible for the depression of 1921-1922. With the exception of equipment, the other items held up very well in the depressed years.

TABLE 1

Table 2 shows the ratio of expenditures in the various categories to net national income. This table should be illuminating in considering the possible role of each of these categories in the reconversion period following World War II.

TABLE 2

As a first rough basis for discussion, let us assume that each category plays a corresponding role in the first two years following this war. We can expand these percentages to fit a national income commensurate with our current working population and our increased capacity to produce. I think we can conservatively estimate that a good level of employment will produce a post-war national income of 120 billion dollars at 1942 prices.

The following expenditures will accordingly be made in each of the categories enumerated for the first two post-war years, in the event that each plays as large a role in income creation, proportionately, as it did in 1919 1920: —

TABLE 3

These figures need some qualifications. The figures for consumers’ durables, while large, may well be exceeded in the first two post-war years. In 1941 (the year of greatest buying in our history) expenditures on consumers’ durables amounted to 9.1 billion dollars, about one billion below the magnitude indicated in the table. Nevertheless, I think it reasonable to assume that in the post-war years expenditures on consumers’ durables may reach 12 to 14 billion dollars.

2

ONE of the causes of the speculative inflationary movement in 1919 and 1920 was the accumulation of an excessive inventory. It ought to be a part of any post-war stabilizing policy to check excessive inventory accumulation and hold it to a more moderate figure, and thus to forestall the sudden cessation of inventory accumulation which will be inevitable if stocks of goods are allowed to reach an abnormally high level. A more moderate figure (which may still be excessive) ought to be aimed at — say, 5 or 6 billion dollars a year. Remember that in the boom years of the twenties, in no year did inventory accumulation exceed 3 billion dollars. Business inventories — retail, wholesale, and manufacturing -are currently about 28 billion dollars, a figure well above peacetime levels. A moderate accumulation could be expected to bring stocks up to normal from a seriously depleted level within a two-year or three-year period.

The figure set down for equipment may be too high. In the peak year of 1941, equipment outlays privately financed amounted to only 8.9 billion dollars, and in the earlier peak year of 1929 to only 6.9 billion dollars.

If, therefore, the same stimulating effect is to be provided to reabsorb workers as at the end of the last war, it is evident that there would have to be a very large construction program. A construction program no greater than that following the last war (after correcting for increased working population and increased productivity) would amount to nearly 11 billion dollars in each of the first two years. At the end of the war, however, the industry will be at a low ebb, and it is believed by competent persons in it that the organizational difficulties and probable equipment shortages will retard rapid expansion. No more than 6 to 7 billion dollars of construction is believed possible in the first postwar year.

Except for agricultural exports and construction, all the areas which would be stimulated by the large demands referred to (consumers’ durables, inventories, and equipment) are included in manufacturing. It is just this point that requires careful scrutiny. The manufacturing area will be enormously inflated at the end of the war. At the end of 1943, manufacturing will employ some 18 million workers. But even though the expected high demands materialize, it is unlikely that anything like this number of employees can be retained in manufacturing industries.

The companies in the area of consumers’ durables, far from absorbing labor, will certainly be compelled to discharge a substantial number of employees. Thus, for example, the automobile companies (not including the new bomber plants but only the plants formerly used for automobile production) will employ probably at the end of this year 900,000 to 1,000,000 workers. After they have retooled and have again come back into full-time peace production, they are not likely to employ more than 750,000 workers — a figure considerably above any previous peacetime employment in this industry.

Similarly, it is well known that the companies producing electrical appliances, such as refrigerators, vacuum cleaners, and the like, will have at the peak effort a highly inflated payroll, and that after conversion to peacetime production a substantial net discharge of workers must occur. Popular reasoning has assumed that these consumers’ durables will absorb the demobilized workers. Quite the contrary. Precisely in this consumers’ durables area there will be very considerable discharges. It is, however, true that a large demand for consumers’ durables will stimulate employment elsewhere.

Manufacturing as a whole can hardly be expected to employ more than 14 million workers. This means a net discharge of about 4 million workers after reabsorption into some industries where employment will [JO low at the peak of the war effort. The industries that are likely to discharge the largest number of workers are: —

If these figures are reasonably accurate, then the net discharge would be about 4 million.

Transportation payrolls will be inflated and there will probably be a discharge of 0.4 million. All the temporary agencies of the government imply a high inflation of government payrolls and there will occur a considerable dismissal—probably well over a million. Add to these a discharge of, say, 8 million from the military forces (leaving 3 million still in the forces) and we have a total net discharge, from the areas indicated, of 13 to 14 million even after taking account of the reabsorption in manufacturing in the industries where reabsorption is possible.

In contrast, both the reconversion of industry after World War I and the dismissal from the military forces were relatively small. The military forces did not exceed 4 million; and industry continued throughout the war pretty much on a “business as usual" basis.

3

WHERE will these 13 to 14 million workers go? To begin with, perhaps 3 to 4 million women, younger persons, and older persons will drop out of the labor market. This leaves about 10 million to be absorbed. Clearly we cannot hope that unemployment will be so low as in the peak of the war effort . We may assume that unemployment will rise from, say, 1 million at the top of the war effort to, say, 3 million, at realizable full employment. This would leave then 8 million net to be reabsorbed. Where will they go?

One million may be expected to go back to agriculture. If we may anticipate high levels of income and employment, trade should be able to reabsorb considerable numbers above the relatively low employment in this area at the peak of the war effort — say a total of 2, or possibly 3, million. Other service industries (including finance), servants, and selfemployed can be expected to absorb 3 million under favorable conditions.

If construction can absorb 1 1/2 to 2 million we shall be able to account for the 8 million that must be absorbed on the basis of the analysis just given. Construction at the peak of the war effort is expected to employ half a million workers. If construction absorbs 1 1/2 to 2 million, employment in this area would rise to 2 or 2 1/2 million. For every million employed in construction, the typical value of construction is 5 billion dollars. Employment of 2 to 2 1/2 million in construction would, therefore, involve a program of about 10 to 12 billion dollars.

We cannot expect the manufacturing area, in all its various ramifications, to employ as many as 14 million workers, considering the enormous increase in man-hour productivity, unless a large public and private construction program feeds employment back into the whole range of manufacturing industries that are stimulated by construction.

Trade and the service industries are not likely to absorb any such numbers as indicated unless the income level is high and the nation is prosperous. A large construction program would help to ensure this condition.

It may he argued that a large construction program will not in any way interfere with the absorption of labor in the other areas indicated. One consideration militates against this view and needs to be carefully looked into: transportation might constitute a bottleneck for a period, especially when one considers the draft that will be made upon transportation to continue the high level of food and agricultural exports. And there will be the transportation requirements involved in the program of building up inventories all over the country. We must consider the condition in which transportation equipment is likely to be at the end of the war. On the other hand, the railroads are doing a magnificent job and are enlarging their transportation facilities, so that transportation may not in fact prove a serious bottleneck.

It is difficult to see that there will be significant shortages of the materials which enter into construction. If materials are abundant, then construction will not interfere with the reabsorption in areas which compete for the same raw materials.

So far as the workers are concerned, the construction workers belong mainly to a category quite different from the areas that must absorb a larger part of the demobilized force — namely, agriculture, trade, and the service industries. Thus, construction will not create a bottleneck in the labor market for specialized kinds of skill.

Certainly the problem of absorbing 8 million workers net, not to mention the shifts taking place within manufacturing industries of which we are taking no account, is a tremendous task. It is clear that the gross discharge will be enormously greater than 8 million if we include inter-industry transfers. But even taking the figure of 8 million, which is an understatement of the absorption problem, we must realize that we have never absorbed into productive employment in any one year more than 3 to 4 million workers. We absorbed into the military forces and industry from the beginning of 1940 to the end of 1943 — a four-year period — only 16 million workers, though again the gross absorption was much greater if we include the inter-industry shifts.

Under war conditions the problem of labor absorption is relatively easy. But the organizational problem of fitting large masses of workers into productive and profitable employment in peacetime is tremendous. If we once allow large mass unemployment, however, there is danger that it will cumulate into a serious depression.

4

WHAT are the prospects for total construction, public and private, of a magnitude of 10 to 12 billion dollars? Private business plant construction is not likely to be very large at the end of the war because of the enormous construction of plant during the war period. In the good years of the twenties, when whole new industries were being built and plant construction occupied an important place, the annual business plant construction, including public utilities, railroads, manufacturing, mining, agriculture, trade, and commercial structures, averaged only 3.9 billion dollars a year. In 1936-1939 private business plant averaged only 1.9 billion dollars; and in the high year, 1941, privately financed plant amounted to only 2.5 billion dollars.

Residential building under favorable conditions is not likely to exceed 5 billion dollars and may be considerably less. In 1941 it was less than 3 billion. Recently a building unit has cost around $5000, so that a 5-billion-dollar program would mean a million or more units a year — a figure far in excess of the good years of the twenties.

To ensure an adequate construction program we should, therefore, be prepared with Federal, state, and local public works of 4 to 5 billion dollars. We can assume that the standard public works which have been deferred during the war will be considerable, and there are many productive public development projects which should be planned now so that construction can be undertaken when idle resources of equipment and manpower become available. If housing or business construction should exceed the figures indicated, the volume of public works could be reduced. But we should have plans and specifications for a sufficient volume and range of public projects, both short-term and long-term, to provide adequate flexibility.

Following the period of high inventory accumulation and net export surplus, construction would have to be stepped up to a substantially higher level — 15 to 18 billion dollars. In this period, housing ought to be lifted to a considerably larger volume — say, 7 to 8 billion dollars. There are various ways, in addition to the Federal Housing Administration program of insured loans at low rates of interest, by which private housing can be stimulated. Moreover, plans should be available for a general program of urban redevelopment involving needed types of public works and public utilities, business structures, and private and public housing.

Such a high level of construction cannot and should not continue for any long period. It is essential that our increasing productivity shall permit us more and more to progress toward an economy that lays relatively less stress on “brick and mortar” and places more emphasis on educational, cultural, recreational, and service activities, including public health, social security, and public welfare programs. In one way or another it is important to develop a high-consumption economy so that we can achieve full employment and utilize effectively our increasing productive power without undue reliance on constructional projects, public and private.

We must raise the propensity to consume and do it not merely by the traditional method of the advertiser through increasing the urgency of wants, important as this method is. A higher propensity to consume can in part be achieved by a progressive tax structure combined with social security, social welfare, and community consumption expenditures; and by achieving continuous high levels of employment at rising wages commensurate with increasing productivity. The assurance of sustained employment tends to make people spend a larger proportion of their current income.

Moreover, sustained levels of high national income, by utilizing plant capacity more fully, will enable business units (a) to sell their products at lower prices, or (b) to pay higher wages. Either or both of these policies tend to spread increased purchasing power throughout the community and to promote an economy capable of matching mass consumption with mass production, But the process of achieving a high-consumption economy will take time, and in the interim it will be necessary to sustain the national income by a large volume of construction.

Clearly the role of construction is important not only in the immediate reconversion period but even more so in the period immediately following the heavy inventory accumulation and the abnormally large net export surplus. Subsequent to this second period, construction will continue to play an important though declining role, while we undertake policies designed to raise the propensity to consume, and gradually move forward toward a high-consumption economy with emphasis on appropriate leisure and on cultural and recreational activities.

5

ONE of the unknowns about which it is particularly difficult to form a judgment is the use that the general public is likely to make, at the end of the war, of accumulated savings of war bonds.

These savings may be disposed of in one of four ways: (a) they may be largely held and possibly even added to as permanent investments intended to be used mainly for emergencies and unforeseen contingencies—in other words, a nest egg of security; (b) they may rapidly be disposed of and spent on non-durable consumers’ goods, such as clothing, amusement, travel; (c) they may be cashed in order to purchase household equipment and automobiles (consumers’ durables); (d) they may be used to make a down payment on a new house.

One thing is clear: the vast mass holding of savings in the form of bonds provides considerable security against serious depression. A large proportion of the population will have the means to carry them over unemployment and sickness, and thus total consumption expenditures will not fall so drastically as they otherwise would. Nevertheless, while mass holdings of bonds tend to insure against as serious a collapse of effective demand as we experienced from 1929 to 1932, they do not automatically guarantee a sufficient volume of spending to produce full employment.

A special case arises with respect to expenditures on household equipment and automobiles. Doubtless a great many people will earmark a part of their war savings for such purchases in the post-war period. Many will cash in bonds to buy automobiles, refrigerators, and furniture. This fact, however, does not ensure full employment, but only a high volume of sales of these commodities for some years following the war. In the first post-war years, we can be certain that effective demand in this area will outrun available supply. But companies producing these products will not necessarily expand their capacity enormously merely to satisfy what will surely turn out to be an exceptional and temporary demand.

In the first post-war years, much of the demand will simply go unsatisfied. This situation will, however, ensure a longer period of high sales volume and high utilization of plant capacity for these products than would otherwise be the case. The demand will contribute to a high level of employment, but will by no means ensure it for the economy as a whole.

The most important single question with respect to the use of war savings is this: Are these savings likely to be converted into an investment in homes and, particularly, new houses?

There is no assurance that this conversion will automatically take place. If, however, the private construction industry succeeds in offering attractive new homes at reasonable prices, and if really low rates of interest are offered through the FHA, and if assurances are provided against default in the case of unemployment or loss of income, then there is reason to believe that the large volume of mass war savings could contribute effectively to produce a vast housing construction boom extending over a couple of decades. Thus the accumulated war savings again leads us back to the post-war role of construction with special reference to housing as a means to promote full employment and rising living standards.

In what I have said, I have not intended to convey the impression that I can foresee how the postwar economy will develop. Most forecasts will doubtless prove wrong. What is important is that we be prepared for all eventualities. On the one side we must be prepared, through fiscal, monetary, and direct measures, to control inflation. The purchasing power of money must be preserved. On the other side we must be prepared to overcome mass unemployment and dangerous deflation.