Here is an excerpt from an article written by Umair Hague for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.
In lieu of a catchy opening line, a hammer-blow of a chart [click here]. The median duration of unemployment is, today, more than double what’s it been at any point in the last half-century, at 6 months and counting. It’s what you might call the dwindling of the American Dream [click here].
Reviving the ghost of the great John Maynard Keynes, economists from Paul Krugman, to Brad DeLong, to Martin Wolf, to Bruce Bartlett, are chalking up a jobless recovery to a lack of aggregate demand [click here]. I’d like to advance a suggestion: it’s not just the quantity of demand that’s problematic — it’s also the quality of demand.
So let’s talk about jobs — how they’re created, and, conversely, how they vanish. Here’s a company that caught my eye this week. Knights Apparel, top supplier of clothing to universities, is pioneering a factory called Alta Gracia where workers earn a living wage — 3.5x the minimum wage, to be precise. In an industry premised on rock-bottom pricing, that’s an awesomely courageous move that rocks the status quo.
So will it succeed? Maybe, maybe not. Here’s the bigger point. Knights is far from the first proponent of higher wages. One of its pioneers? None other than card-carrying communist…Henry Ford. Most know him for making cars, but in fact, he innovated something much bigger than a mere product: the institution of the “job” as we know it today. Not only did this radical innovator institute perhaps one of the first minimum wages, he did it while cutting working hours. Working 40 hours a week for at least a minimum wage? It’s a fixture of American society today.
Surprised? Yet, Ford explicitly said that if he paid his workers above the norm, and gave them more leisure time, not only would he gain greater commitment and dedication, in a industry marked by quick turnover — but, more importantly, he’d also spark more, better demand for novel relatively expensive durable goods, like cars, amongst a still relatively poor middle class.
So one might raise their eyebrows, then, and reasonably wonder whether it’s American preferences that are killing the American dream. If America has changed so much that what Henry Ford thought was eminently practical is now seen as hopelessly naive — well, then perhaps it’s not just bankers, bonuses, and bailouts that are really behind the Great Crash.
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Low quality demand, then, means that we buy cheap, but the price is invisibly steep: it ignites a global race to the bottom, what a complexity economist might call a dynamic equilibrium of negative consumption externalities, consumption that results not just in joblessness but a loss in the quality of jobs. The quality of a job is sparked by higher quality demand; or, valuing more than just the dollar price of a thing, but also its human and social impact.
When we have low-quality demand, we have low-quality jobs. When we value McDonalds, the result is McJobs.
A living wage is a small, halting — and perhaps even thoroughly misguided — step in a great reset of those self-destructive preferences. Yet a step it nonetheless is.
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To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.
Umair Haque is Director of the Havas Media Lab. He also founded Bubblegeneration, an agenda-setting advisory boutique that shaped strategies across media and consumer industries.