Capitalist-Worker Conflict and Involuntary Unemployment

We study a simple model of the determination of the level of employment in which a capitalist decides how many workers to hire, and then bargains over the wage with those whom he hires. If the capitalist hires all the available workers, his position is weak since, in the event of a strike, he is unable to hire strike-breakers; for this reason he chooses to leave some workers ("involuntarily") unemployed. An increase in unemployment benefits which raises the cost of hiring strike-breakers affects the bargaining power of both capitalist and workers; under some conditions it leads to a reduction in unemployment. Casual observation suggests that in every advanced capitalist economy a significant portion of the workforce is persistently unemployed, yet in the dominant formal model of such an economy ("Walrasian equilibrium theory") such a situation is never a point of rest of the system. Beginning with Clower (1965) and Leijonhufvud (1968) on the one hand, and with Dreze (1975) on the other, there has recently been a number of attempts to modify this theory in such a way that there can be unemployment in "equilibrium". All these attempts ("non-Walrasian models") retain from Walrasian equilibrium theory the view of a capitalist economy as a system of markets which passively mediates the conflicting desires of the individuals in the economy. In the Walrasian equilibrium analysis this mediation is successful, while in the non-Walrasian models it is not. However, in both cases the basic image is of an economy in which the individuals interact passively rather than antagonistically. Both approaches also begin with an exchange economy. In some cases the analysis can be extended to incorporate production, but it is never the case that the way production is organized is of any consequence: it makes no difference whether capital hires labour, or labour hires capital. To this extent these models do not incorporate a distinguishing feature of a capitalist economy. Here we study a very simple model in which the struggle over the distribution of output is the centre of attention, and in which the fact that capital hires labour, rather than vice versa, is essential. The model views a capitalist economy not as a system for allocating resources, but as a way of organizing production which involves a particular set of power relations between its members. Our premise is that such a viewpoint illuminates some aspects of the phenomenon of unemployment which are otherwise obscured. In the model we construct, unemployment arises not because the system is incapable of performing the task of coordination, but because the capitalists, who can decide how many workers to hire, are in a better position to secure a large fraction of the output if some workers remain unemployed. This sort of reasoning is certainly not new-Marx's argument concerning the "reserve army of the unemployed" is perhaps similar-though apparently it has not previously been formalized. At the basis of our model is the bargaining process between a capitalist and the workers he chooses to employ. There are other models of unemployment which are based on such a bargaining process.