Where Did the Jobs Go?

I want to resurrect a comment from the comments of this post and put it on the floor for discussion. In response to my question about the high rate of employment prior to the financial crisis, frequent commenter Ben Wolf wrote:

So many were employed because there was demand for their services. Now we have large numbers of disemployed who can’t signal demand to firms and the communication circuit can’t re-establish itself.

The first sentence is tautologically true. It’s not distinctive of the period prior to the financial crisis. It’s always true. I find the second sentence interesting but I honestly don’t think it tells the whole story.

Let’s try this additional (not alternative, additional) explanation on for size. Divide those who’ve lost their jobs since the financial crisis into two groups: those involved in direct production and those involved in services or indirect production.

Those who were engaged in direct production were largely producing houses. Now their numbers are about what they were fifteen years ago and I doubt they’ll return to the level of 2007 any time soon. Note how large a proportion of present unemployment they constitute.

As to those engaged in non-production services and indirect production, I think that many of them were producing what’s referred to as “institutional capital”. I would define institutional capital as the roles and services that make organizations function as they do. When how an organization functions changes, the nature of the production of its institutional capital changes, too.

While I think that over time companies will re-build the staffs they destroyed in the panic of 2008 and 2009, that doesn’t do much to help the people who were thrown out of work. I honestly don’t know what to do. My solution has been a lot more direct production which would inevitably employ some more people.

I do know that our present situation in which state and local governments, constrained by revenue growth slower than the growth in their payroll expenses, are firing people rather than forgoing pay increases for the rest. That’s probably the worst of all possible worlds.

3 comments… add one
  • steve Link

    AFAICT, firing people rather than forgoing pay increases was the norm in the private sector. To be honest, I dont quite understand some of the pay increases. While most of the docs in our facility have taken some sort of pay cut, they keep giving raises to the nurses. At a time when finances are tight, and there is an abundance of labor, especially in many of the specialty nursing areas. They just keep granting raises, regardless of conditions. The joys of health care.


  • Ben Wolf Link


    We know we had a massive credit expansion prior to the crash which focused in the mortgage market, resulting in rapidly growing construction employment. Why were these people employed in construction? Because government pursued the policy of housing growth to fuel the economy. The neo-liberals who came to dominance decades ago enacted the same pump-priming strategy of the Keynesians they replaced; the difference was their preference of basing the expansion on debt rather than government spending, on the theory that credit growth would eliminate distortion of markets caused by public expenditure.

    There’s nothing that would technically prevent us from re-employing construction workers again through spending, if we wanted to build Chinese ghost-cities and further devastate our environment while enriching firms that position themselves to extract rents. We would also be preserving skill-sets which serve no useful social function rather than assisting the workforce to transition.

    Almost all politicians and mainstream economists support a centralized command economic model rather than a decentralized approach to spending, so in that context the jobs will be wherever government wants them to be.

  • Ben Wolf Link

    A more simple way to say it is that workers can’t find employment because government hasn’t signaled itsdemand, while the unemployed and the middle class no longer have the capacity to do so on their own.

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