Paul Krugman links jobs and inequality in yesterday’s New York Times column. He notes that job instability has led to deepening inequality because workers do not feel confident to search for higher paying employment. At the same time he points to the work of Steven Fazzari that shows that inequality was a contributor to the economic collapse in 2007. Fazzari shows that simple job creation — especially at the bottom of the income distribution — led to significant increases in debt and the ultimate crash.
The relationship between inequality and jobs is “bi-directional” where changes in one influence the other and likely create a reinforcing feedback. Wages cannot be so unequal that lower income workers have to borrow to get by — when households reach their borrowing maximum, recessions happen (part of Fazzari’s point). We need a job creation system to get people back to work as well as an inequality strategy that helps workers benefit from economic growth.
Getting people back to work isn’t enough, nor is simply solving inequality. Jobs and inequality are hand in glove. The goal, as daunting as it may sound, is to “grow the pie” to solve unemployment and inequality, not just “re-slice the pie” (borrow the analogy from Chris Benner and Manuel Pastor’s Just Growth).