Quite a few people are taking note of a recent report suggesting that the unemployment/underemployment that has come in the wake of the Great Recession may be permanent. From the report itself:
While there has been substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labour market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more speci cally, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.
The Wall Street Journal observes:
David Autor, an economist at the Massachusetts Institute of Technology who has studied issues of skills and education, called Mr. Beaudry’s thesis “provocative” but also “speculative.” There is no question, Mr. Autor said, that the wage premium enjoyed by college graduates hasn’t grown as quickly during the 2000s as in earlier decades. But whether that is the result of a glut of degree holders or some other explanation isn’t yet clear.
The advantages of superior intelligence and higher education have continued, even expanded. But more and more of those people have moved into positions that previously didn’t require those advantages, displacing those who would otherwise have held those jobs.
I think that Dr. Beaudry’s hypothesis is interesting but raises some questions. Why did employment continue to rise throughout the 2000s, only declining in 2007? Why is employment still growing in some sectors but not in others?
My own view is somewhat different from Dr. Beaudry’s. I think that
- Since the great decline in employment didn’t take place until 2007, technology doesn’t explain it.
- There’s been a lot of thrashing in technology but the biggest changes over the last ten years are the growth of social media and the rise of the smartphone. Those don’t explain the loss of jobs or their failure to recover.
- The number of people unemployed or underemployed since 2007 is around 20 million. If technology is the reason, why aren’t 50 million unemployed/underemployed? Why aren’t 80 million? Why, following Maxine Waters, aren’t 150 million?
- If technology has permanently eliminated jobs, why do some many manager complain they can’t find the people they need?
- The reason that jobs haven’t recovered is that economic activity is too slow for the number of jobs to grow.
- The reason that economic activity is too slow is that we’ve been throwing too much money at finance, healthcare, and education.
- Finance, healthcare, and education produce fewer jobs per dollar input or per output than any number of other sectors.
- Infrastructure spending (defined as building roads and bridges) produces relatively few new jobs. The contractors already own plenty of equipment and can execute the work with the crews they have.
- Healthcare and education in particular have been quite successful in preventing technological change from resulting in lower wages.
just as a start. In future posts some related topics like where will the jobs of the future come from and what happens if technology actually has eliminated a large number of jobs.
Let’s not conclude we’ve jumped into the 23rd century too fast.
Speculating here, but perhaps the bubble(s) economy masked the underlying factors until the bubble(s) popped. In other words, where would we be today in the absence of the bubbles?
Andy:
That’s a question that’s bothered me for a while. And the related question which is whether we are prisoners of expectations established during bubbles. In other words, despite our awareness of the bubble are we nevertheless wishing for a return to it?
When I look at either version of the graph what I see is a huge bubble followed by a return to more normal prices. If we dislike bubbles on principal, isn’t this good news? Isn’t it a healthy sign that prices seem to have returned to something like their earlier state?
And if all that drove high employment in the late 90’s and early to mid 00’s was a bubble then aren’t the employment numbers we now see similarly a return to a more normal state? Absent the bubble, would we have seen a longer, slower, but equally sad decline in employment? If so doesn’t that suggest that this is the new normal and said new normal is driven by factors other than the recession? Perhaps by technology’s effects in combination with a single-minded pursuit of productivity?
My key point in this post is that whatever its source increased economic activity means greater job growth. Can we have greater economic activity without having a bubble, too? I think we can but not as long as we prevent creative destruction by propping up failing sectors without charging those sectors for the service.
That can’t be axiomatic, can it? Isn’t it possible that if we could build 10 cars with 50 workers at year X we can perhaps build 10 cars with 5 workers at year Y? Couldn’t this same sort of change occur in numerous sectors at once?
It almost feels as if the reverse would be more true: Can we have more economic activity without more workers to provide demand?
But of course there’s an out there, too, if we had fewer people with more wealth creating more demand than would be created by more low level workers. Then you could have increased economic activity without more workers. 100 middle class people spending 100 grand a year vs. 1 billionaire spending a billion dollars a year.
Basically what’s to stop an economy consisting of the rich and the robots?
I don’t think that’s the question. I think the question is whether in year X we’re likely to have more jobs with economic activity Y or economic activity 90% of Y.
As suggested in the post, the question you’re asking is a good one but I don’t think it’s a good one now. I think it’s a good one for a century or so from now.
This is the graph to look at. There’s a dip in employment. Not a trend.
Well, I do like to stay at least a century ahead of my time.
Why, following Maxine Waters, aren’t 150 million?
Snort.
The reason that jobs haven’t recovered is that economic activity is too slow for the number of jobs to grow.
Amazing how many people don’t realize that.
“The reason that jobs haven’t recovered is that economic activity is too slow for the number of jobs to grow.
Amazing how many people don’t realize that.”
Its a lot more complicated than that. If we inspect “employment intensity” – employment per unit of GDP its going down. Yes, some of it is healthcare etc. Some is technology. Some is what I harp on – and I think a very significant factor – the cost to employ is being driven up by government costs and regs.
In perspective, we should look at it and say “why in the world would we let regulatory capture (healthcare/finservices), regulatory burden, taxes, etc hold down employment?” I thought the pro government crowd was for the little guy? Because they are not. They are men of zeal who have never run a business.
Let me relate just one anecdote wrt technology that is admittedly just that – a personal anecdote. We have owned many a plastic injection or injection blow molder. You compete on mold cavity design (exotic parts and throughput), throughput, scrap and general labor intensity.
On the ass end of every line we now automate what was formerly a labor intensive packing activity. It requires design skills. Do we do it because we don’t like employing people? No. We do it because if we don’t reduce our costs some competitor will, and then we are out of business. And we don’t want to be out of business.
My basic point is that the competitive nature of the world forces one to innovate and constantly get more competitive. Technology is one way to do it. “Caring” about labor is a nice throw away line, but competing because if you don’t you will be driven out of business is reality. And then all the labor is gone, or resides in China. In the context of those competitive realities I defy anyone to justify the majority of the regulatory burden placed upon business. And please spare me the juvenile sewage in the river or child labor stuff. No one is arguing that. Cost benefit applied to the majority of government regulatory burden wouldn’t stand a snowballs chance….
In the context of those competitive realities I defy anyone to justify the majority of the regulatory burden placed upon business.
Government should be focusing their energy on achieving a healthy, rational fulcrum point between incentives promoting business and restraints protecting the environment. So far, though, the over-zealous environmental groups, aided and abetted by the out-of-control EPA, have had the upper hand, crying foul and nitpicking the absurd in order to bully businesses into either costly submission or going out of business, altogether.
These economically unfriendly groups do nothing but powerfully bask in a fiscally poor environment, pulling out their hyperbolic accusations aimed at guilt-tripping as many people as possible, if their agenda is not followed. And then they blame a lack of revenue and the rich for a slow economy. It’s mind-numbing! But, when government continues to flavor the current day mood with more and more enticing entitlement/social program entrapments, you have a perfect storm brewing for a Cyprus-like clamp-down — which, IMO, will take many social progressives by complete surprise.
Aye, lassie…
Yes, but not via government.
Job loss due to technological advancement, innovation, etc. has been happening for decades, if not centuries. It has not resulted in increasing unemployment over the long term. Could it start, I suppose, but your example does not give a reason to think it should now.
Currently unemployed workers are resources that could be used in other productive means. Transitory unemployment due to technology advancement is expected, but longer term unemployment…no.
What we do see is that more and more resources are going into areas that are not nearly as good a creating jobs:
Education,
Health care,
Finance.
Of the three, two of them have a significant overlap with government. So see my comment above about how we can’t rely on government to provide ever more jobs. It just doesn’t work in the long run or when employment in government/government dependent jobs gets too large. In fact, I wouldn’t be surprised if there is a threshold when it is crossed that such a policy is detrimental to future employment growth.
There’s nothing inherent about healthcare that requires it to provide relatively few jobs per dollar input. It’s that it’s done on an artisanal basis that causes that. I can imagine a healthcare system with better outcomes with a lot more people employed in it for a lot less money than the current system.
But there would be losers as well as winners and so far the winners have been successful at ensuring that healthcare continues to be provided on an artisanal basis.
There have been some slow, tentative moves in the direction I’m talking about. You’ll know more is happening when the primary healthcare providers are clinics in Wal-Marts and Walgreens stores staffed by PAs, nurses, or some other sort of technician rather than emergency rooms in hospitals staffed by docs.