Arnold Kling summarizes his explanation for why jobs have not returned with the recovery:
- There is no aggregate production function any more
- Health insurance costs have more than doubled over the past ten years. Wages have not fallen far enough to offset this…
- The ongoing trend to use less labor in the manufacturing sector has continued or even accelerated…
- Two potential leading sectors–education and health care–are sclerotic because of credentialization.
- Many people are operating at a different point on the labor-leisure trade-off than was the case in past recessions.
Read the whole thing. To that I would add that education and healthcare both suffer from bureaucratization as a consequence of which they’re actually producing fewer outputs with each additional unit of input. A each of them grows, they drag the economy as a whole farther down. And when the means of production are themselves portable Ricardian comparative advantage doesn’t work any more.
Re: Explanation 3 – That’s dead wrong. Manufacturing is growing faster than any other job category in the country right now, and has been since 2008.
Alex, I think he means that labor in proportion to manufacturing output is declining. Something along these lines:
http://www.bls.gov/news.release/prod4.t01.htm
A quick hit:
I’ll have to read the whole article, but do not understand #1.
#2 is absolutely true, as any businessman knows its the total cost to employ that counts.
Speaking of dead wrong; on #3 the goal of many manufacturing businesses, including those we own, is to drive productivity so high as to insulate the business from the labor cost advantage. Its been 19 years ago, but one executive told me “our goal is to reduce labor costs to below their shipping costs. Then, without govt subsidy, we’ve got’m.” That’s exactly what they did.
On #4, I’d add subsidy, and its corralaries – govt involvement and elimination of the consumer/provider price negotiation.
#5 is true by definition, but the left will never acknowledge it. In a humerous give and take on a program recently callers regailed the hosts about employees, in particular women, attempted to get released so they could get unemployment and stay home with the kids………………………and then do it all over again. Of course, I know this is impossible, the left tells us so.
Alex,
What data are you looking at. I went to BLS and here is what I found:
2008 Jan 13,721
2008 Dec 12,822
2009 Jan 12,543
2009 Dec 11,534
2009 Jan 11,556
2009 Dec 11,670
Granted it has started going up since 2009, but 144,000 jobs? Mining and logging is showing a proportionally larger gain over 2010.
So just curious, where are you getting your data?
” Its been 19 years ago, but one executive told me ‘our goal is to reduce labor costs to below their shipping costs. Then, without govt subsidy, we’ve got’m.’ That’s exactly what they did.”
That sure would explain why jobs are being sent from us to China. I’ll tell you what somebody to me many more than 19 years ago: There’s no way that the American worker will be able to compete with the Chinese worker — the wage differential will be too great. This was, if memory serves, in 1975.
“That sure would explain why jobs are being sent from us to China.”
Actually, no. It explains how the executive was going to keep the existing manufacturing footprint and its associated (productive and compatitive) labor in the US.
That’s not to say that jobs and manufacturing haven’t gone to China. But do you know how hard and risky that is? Its done to survive. To not do so is suicidal. And if you want culprits, spare us the “business is bad” rhetoric. Consumers will always tell you they want US jobs, US products etc. Then they largely buy on price. See: Wal-Mart.
On 5, I don’t dispute the dynamic, but I just don’t see it as a big reason why jobs haven’t returned. Kling’s explanation:
“For some fraction of the unemployed, a full-time job is a nice-to-have, but it is not a must-have. Those in this category will take a long time to search for jobs, and they will turn down (or rule out) jobs that they would take if full-time work were more of a necessity.”
That sounds like a pretty small fraction; it might be typified by one of his commenters, a sixty-five year old paralegal who has been downsized to a 20 hour week. She’d rather collect unemployment, spend more time with her grandchildren, and doesn’t see the long-term benefit of the job experience since she planned to retire at 67.
Her age seems to be a pretty big part of her personal dynamics, but employment participation rates for those 55 and over have increased, while those under 55 have decreased. So, I don’t think she’s necessarily typical. And even if she were, it doesn’t explain why her boss has made the job into a 20-hour job; I think the answer to that lies elsewhere.
On #4, could I have Arnold come help me hire new people, ones w/o credentials?
#5- This is always presented w/o data to back it up.
Steve
Also, how does Kling manage to ignore debt?
http://www.frbsf.org/publications/economics/letter/2011/el2011-02.html
Steve
Wow, #5 cuts both ways, doesn’t it?
Yes, we have some people with funded retirement accounts, plus paid-for homes, plus excess for pleasure.
But they sure aren’t most people. It is a horrible mistake to think that people tapping underfunded retirement accounts for involuntary sabbaticals are making any kind of “leisure-labor trade-off.”
Depends on what you are talking about to some extent. If it is low skill labor, you’re right there are way more Chinese than Americans so if they wanted too they could dominate such a market. Also, I’m not nearly as convinced as Dave that comparative advantage no longer holds since I don’t thinks are as portable as he implies.
Uhhhmm yeah, that is his point. Whether or not the new hire is qualified or not he must be credentialed.
Again it depends. If you think there is a non-zero and possibly growing probability that money might not be there in 20+ years, that you really are holding out for just the right job, then yeah, that is exactly how you’d describe it. Is it a “good thing” not at all, it highlights the perverse incentives that have built up in regards to such retirement accounts.
I think #5 is at least partially possible due to the rise in dual-income families. Losing one income can be really hard for two-income families, but it’s preferable a single-income family losing the sole breadwinner. And for families who have to pay for child-care, it will often make economic sense for the spouse who is laid off to say home rather than take a lower-paying or part-time job. Decent child-care is over $8k a year per child in my area, for example, but it can be a lot more expensive in other places.
Andy, adding dual incomes into the mix makes the scenario more credible. I’m still struck though by the notion that we’re explaining the behavior of the worker and not the absence of the job.
Why was the 65-year old paralegal’s job shifted to a 20-hour part time job? (It’s interesting that she’s Medicare eligible, and might be comparatively cheap employee) It may simply be the demand for legal work in her area or her employer’s area has dropped fifty percent. But she wasn’t fired?
Maybe it’s because her job was better suited as a part-time job before the economic downturn and now the employer believes he can place this as a part-time position, even if she doesn’t want to work part-time. Paralegals are not exempt professionals under the FLSA, so they can’t simply be salaried, and used flexibly as a less expensive attorney.