Blaming the Victims

Glenn Hubbard muses over why, despite the nonminal recovery, total employment is lagging so badly. He proposes a number of explanations, I think they’re all inadequate, and I’ll answer them in turn.

The Baby Boomers are retiring

Actually, the Baby Boomers are continuing to work in record numbers. They can’t afford to do otherwise:

“The fact of the matter is that this aging-but-not-yet-aged segment of the baby boomer class can’t afford to retire,” said David A. Rosenberg, the chief economist of Gluskin Sheff, a Canadian firm, noting that overall household net worth was 15 percent lower than at the prerecession peak. “Dreams of the 5,000-square-foot McMansion being a viable retirement asset have morphed into nightmares of a deflationary ball and chain.”

The accompanying charts show the percentage of various age groups with jobs since the end of 2006, when the overall percentage of people with jobs hit its cyclical peak. Each of the charts has a different range, but the same spread between the top and the bottom, so that a move of a given size represents the same gain or loss in percentage points.

For the first time since the government began keeping track of the numbers in 1981 — and probably the first time ever — one in nine American men over the age of 75 was working in April. About one in 20 women over that age have jobs.

Dr. Hubbard doesn’t believe that explanation, either:

A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of baby boomers.

Baby boomers can’t be the whole story, though, since the participation rate has declined for younger workers too.

There are too many malingerers

That the number of people who are on Social Security Disability has grown enormously over the last half dozen years is indisputable. Dr. Hubbard presents no evidence that those who’ve enrolled are fraudulent. He merely assumes it.

Quite to the contrary I think a better explanation is that SSDI is the unemployment insurance of last resort. The long-term unemployed who no longer qualify for unemployment insurance payments and who qualify for it go on disability as a desperate means of bringing some money into the household. Rather than proving that there are a lot of malingerers out there, I think it proves that a lot of people who are tired and sick just keep working anyway.

Inadequate schooling and training

There is practically no evidence of this. Dr. Hubbard merely takes the assurances of the multi-billionaires who want to hammer down the wages of their skilled workers by importing workers from overseas who’ll work for less and over whom they have a hold into the country.

If this were actually the case, you’d expect to see rising wages in the technology sector. That hasn’t been the case for years.

It’s also unclear to me how much effect this will have when in our cities 50% of kids don’t graduate from high school. The one thing we can be confident it will do is boost the incomes of people in the educational sector. Since Dr. Hubbard is the Dean of the Columbia School of Business that may appear to him to be an unqualified good. Increasing incomes in the educational sector are only good for the country as a whole if the sector is actually producing more education and the evidence for that isn’t particularly good. There’s actually more evidence that education has reach the point of bureaucratic displacement and less education is being produced for every dollar spent.

Bad policies

In this Dr. Hubbard and I are in agreement. The stimulus was poorly timed and structured. But let’s not limit the list of bad policies to bad economic policies. We have bad security policies, bad healthcare policies, bad trade policies, bad immigration policies, and bad financial policies.

Workers are discouraged

They should be. There are too many long-term unemployed and not enough jobs for them.

Here are Dr. Hubbard’s prescriptions:

  1. Increase the Earned Income Tax Credit
  2. Tax reform
  3. Make it harder to receive disability payments
  4. Stop extending the duration of unemployment insurance
  5. Block grants to states to support training and educational development
  6. Eliminate the “retirement earnings test”

I agree with #1, #2, and #5 and disagree with #3 and #4, both of which assume that Americans are lazy layabouts. I don’t think that #5 will do much to boost employment but it might make life a little easier for seniors in the second and third income quintiles.

To Dr. Hubbard’s list I would add:

  1. Impose a duty on imports from countries who don’t have environmental and labor laws as strict as ours in the estimated amount of their cost to American businesses
  2. Encourage energy production in the United States
  3. Impose the commonsense reforms to immigration that I’ve mentioned around here any number of times.
  4. Healthcare reform

Our trade deficit is around a half billion dollars a year. As I’ve mentioned before that’s a drastic underestimate since it doesn’t take into account intracompany transfers, many of which are in fact imports. Producing more here would mean more jobs here.

Manufacturing demands energy and, frankly, renewables don’t produce enough energy to meet the needs of manufacturing. Rather than discouraging energy production here we need to encourage energy production. If you’re worried about carbon production, limit its production by raising the tax on gasoline to European levels. Limit road production. After transportation and energy, cement production is the largest producer of greenhouse gases.

We need healthcare reform that will lower the cost of employment.

We need measures that will actually incentivize job creation here. Americans aren’t lazy layabouts and policies that assume they are are misguided.

14 comments… add one

  • michael reynolds

    I don’t mean to shock you on a Sunday morning, but I think I agree with all of that.

  • It doesn’t shock me. I think that we agree on most things except in detail or in emphasis.

  • ...

    As of March 1 2014, we were 3,872,000 full goldmine below where we were in November 2008. Haven’t had the chance to update that number with the job report from last Friday. Why were those people good enough to have full time jobs then but not now?

  • TastyBits

    What should be happening is that older folks should be retiring, selling their McMansions, purchasing a smaller home, and saving/investing the profit. This would create a job opening, a new house, and capital for investment.

  • ...

    Who’s supposed to buy all the McMansions, Tasty?

    Sorry to be so rushed, but any explanation that doesn’t answer the question in my first comment is obviously inadequate. Did people suddenly become malingerers? Why has the participation rate gone down for every age bracket under 55 but gone up for every group over 55? How did the skills and training that were useful in 2007 become completely worthless on January 1, 2008?

    And why have these conditions persisted for more than half a decade even if the people running the country profess to have concern face while sucking the nation dry?

    At what point can we assume that this is in fact the country the ruling class wants?

  • michael reynolds

    Pushing for liberal immigration, tax breaks for off-shoring, breaking unions, keeping minimum wage falling relative to inflation, regressive payroll taxation, a single-minded obsession with profit that rewards CEO’s who cut workers, taken all together it does rather sound like a conspiracy to screw the working man.

  • Let me offer one reason that many of those over age 54 are reluctant to downsize their homes: they’re unwilling to take the loss or what they perceive as a loss. People are much more willing to fight to avoid taking a loss than they are to achieve a reward. It might be irrational but there you have it.

    I’ll offer another reason: their adult children are living with them.

  • TastyBits

    @Icepick

    Pre-housing crash, the post-college graduates would be purchasing the pre-owned McMansions, but now, these college graduates are under/unemployed and have too much student debt. In addition, many of the houses are underwater, and the sellers would need to take a lose they may not have.

    By saving the financial system from collapse, the pain is being dragged out, and it is being paid for by the middle and lower income income people.

  • michael reynolds

    I’ve never been happier to be a renter. We barely escaped our last purchased home as the world was crashing down. It was like a really boring Indiana Jones moment.

  • Ben Wolf

    Dave,

    I think it unlikely that environmental restrictions will have a significant impact on the trade deficit. Most environmentally deleterious production in China is for domestic consumption, while higher-tech goods bound for the American market is usually produced at plants using the latest standards given they’re paid for by American investment.

    Scandinavia has low unemployment and high wages, which of course we all know. What often gets overlooked is that their economies are even more open to trade than ours is and yet they don’t suffer for it. In Sweden for example it is simply forbidden for domestic companies to engage in any activity that undermines the wage structure; they compensate for this with high productivity and thereby maintain competitiveness.

    I think if we added such a strategy to your sensible list we’d have everything we need for more broadly shared prosperity.

  • Guarneri

    I don’t think we have to limit our selves to the harsh dichotomy of malingerers vs good, but tired, folks.

    If you make it palatable enough a certain fraction of the people will take the dole vs work.

    BTW – for those, including Obama and other known economic illiterates, who believe increasing the minwage to $10.20 or whatever will bring bliss and harmony……….you can package tomatoes for $12/hr in Florida. Funny thing. Packers can’t get US workers to do the job. Just Haitians and Cubans.

    About the option of the dole……..

  • I think it unlikely that environmental restrictions will have a significant impact on the trade deficit.

    In particular I’m thinking about things like rare earth refining and coal-fired power plants. The reason we import rare earths isn’t that we don’t have any or labor costs. It’s environmental regulations. The administration’s war on coal is pretty obvious.

    Nearly all of the food additives used in the U. S. are imported from China. If what you’re eating is artificially colored or flavored, texture- or vitamin-enhanced, the odds are very good that it contains additives made in China (under whatever regulations the Chinese have seen fit to enforce). That isn’t due to labor costs, either. It’s due to environmental regulations.

  • ...

    Finally, a chance to type at a real keyboard….

    I don’t see how Hubbard’s third and fourth suggestions would actually help. We have 3.8 million fewer full-time jobs now than we have six and a half years ago. That isn’t because people are living the high life on $275 a week from UEC. I wonder if Hubbard would be happy seeing the Fed stop propping up the markets by cutting their QE program to zero dollars immediately. But I guess he isn’t worried about the super-rich guys on Wall Street malingering.

    Also, I remember before Bill Clinton imported Haitians in numbers into the USA. (I still think that was a large FUCK YOU from Clinton to Florida because of what happened in 1980. But of course, Bill Clinton being a Democrat means he never did anything except for the most humane and righteous reasons, so I guess I’m just a h8r.) And I even remember a time before the Marielitos showed up. My dad even remembered before Castro came to power. As I recall, tomatoes still got packaged, somehow. Dad told me it used to even happen when he was young, back before WWII. They must have packaged themselves by magic. Amazing, that.

  • ...

    It should be noted that magic is more expensive than cheap foreign labor.

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