The ZMP idea is gaining wider currency

by on September 2, 2011 at 12:57 pm in Economics | Permalink

… the gap between where unemployment stands now, at 9.1%, and full employment may not be as wide as it appears. But it also means more expansive monetary policy won’t be as effective in curing what ails the labor market, Andreas Hornstein, Thomas A. Lubik and Jessie Romero argue in a new paper from the Federal Reserve Bank of Richmond. “After a long period of unemployment, affected workers may become effectively unemployable,” the paper states. “If a large portion of long-term unemployed workers now finds it difficult to transition to employment, this suggests that the natural rate of unemployment may have increased.”

Here is more.  The paper itself has plenty of hypothesis-specific evidence.  For the pointer I thank David. M. Wessel.

1 Max Tower September 2, 2011 at 1:06 pm

People went back to work after the depression though.

2 pshrnk September 2, 2011 at 2:15 pm

That was a less educated and less specialized work force.

3 mulp September 2, 2011 at 4:42 pm

But they were trained by government in industries driven by government industrial policy.

If you think jobs like welding, machining, metal working, electronics assemble, engine assembly, etc are simple, try running a business in any of those trades with untrained workers – and none of those fields are much different today than in the 30s in the skills required, except in some cases less skill is required.

it turns out even farming is too complicated for most people today with a lot more education than in the 30s – today people just haven’t learned the skills needed to grow and harvest food to put on the table. And the quality of the food has pretty universally declined. When was the last time you had a really great tomato like almost everyone could afford in the 30s, and took for granted.

4 Veridical Driver September 2, 2011 at 5:15 pm

You are forgetting something:

There is no manufacturing to put these people to work doing even if they where trained, because:

1. The foreigners would rather spend their money buy U.S. debt rather than U.S. products.
2. We have a regulatory system that is outright hostile towards industrial production.

5 quadrupole September 3, 2011 at 12:23 pm

3. Technology improvements in manufacturing have radically improved manufacturing productivity, and made many manufacturing jobs higher skilled (if much less numerous).

6 Scoop September 5, 2011 at 11:31 am

People in the 30s had fabulous tomatoes — for about four weeks a year. The rest of the year they had canned tomatoes.

The whole notion that food has gotten worse — without any compensating virtues — is a pretty silly myth.

7 Peter September 2, 2011 at 3:06 pm

Yes, but a huge number of them went back to work in the form of the military. Something like 8% of the total population of the US were enlisted in the military at some point during World War II, and military service was a good boost to job-hunting postwar. That is, if you didn’t die.

8 yoyo September 2, 2011 at 1:10 pm

So the zmp argument is that insufficient demand for long enough can destroy human capital?

9 foosion September 2, 2011 at 1:37 pm

That’s it. It lets some people pivot from “no need to do anything” to “it’s too late to do anything.”

10 Wimivo September 2, 2011 at 2:35 pm

The unfortunate thing about the ZMP argument is that it becomes truer and truer the more time passes, despite having been avoidable to a large degree. Even so, things are still nominally “out-of-whack” enough that it’s unlikely ZMP workers are the primary cause, yet.

11 Bernard Guerrero September 2, 2011 at 3:31 pm

Que? Explain how that might be true for, say, a construction worker laid-off at the popping of the housing bubble. Their human capital is not deteriorating rapidly over time; there are no major advances in framing or roofing that are rendering them suddenly obsolete. If anything, the gradual removal of the overhang caused by the boom might make them worth something again in the future. The trouble is that once the bubble popped, they _immediately_ became largely useless to the system, step-function-like.

12 CBBB September 2, 2011 at 3:34 pm

WHen people don’t use a particular skill for a long they tend to forget specific things and become “rusty” – technology doesn’t need to advance at all for people to lose human capital over time if they aren’t work. This is pretty common sense stuff are you being purposely obtuse?

13 Bernard Guerrero September 2, 2011 at 3:44 pm

CBBB, you are not answering the question. In the specific (and rather realistic) case I cited, there isn’t going to be any great increase in “rustiness” in using a hammer, table saw or nail gun over the course of, say, a year, and that presupposes that the unemployed worker won’t have non-employment reasons for using said tools at some point during that period.

14 CBBB September 2, 2011 at 3:45 pm

Sure in the specific case maybe but I think the idea that it’s all bunch of low-skilled construction workers out of work is a red herring.

15 Bernard Guerrero September 2, 2011 at 4:03 pm

But your denial of the idea is easy to counter! Exhibit 1: Construction’s easy lead in job losses during the recession – http://www.bls.gov/opub/mlr/2011/04/art1full.pdf

16 CBBB September 2, 2011 at 4:46 pm

So what? What about all those university graduates of the past couple of years who never even got picked up into the labour market or were forced into crappy McJobs? I’m pretty sure they’re not even counted in the unemployment statistics. There’s a bunch of unemployed construction workers out there – there’s also a lot of younger workers with educations totally locked out of the job market because the requirements bar for entry level careers keeps rising out of control.

17 Bernard Guerrero September 2, 2011 at 6:32 pm

Hey, I understand why the plight of the highly-educated grad might be painful. If I found myself looking at a wall of baby Boomers not wanting to retire any time soon I’d be pissed, too. But you guys aren’t the largest numerical cohort by a longshot. It’s the HS grads (and non-HS grads) in industries like construction and low-value-added manufacturing that are suffering the brunt of it.

18 sp6r=underrated September 2, 2011 at 10:59 pm

pretty much

Tyler Cowen

2008: no recession
2009: The govt. should be cautious and avoid aggressive interventions into the marketplace.
2010/11: unemployed are mouthbreathers and can’t be trained to do anything

19 sp6r=underrated September 2, 2011 at 6:43 pm

+ 1

“After a long period of unemployment, affected workers may become effectively unemployable.”

This is the critical sentence. We tolerated needlessly two years of high cyclical unemployment and as such we raised the structural unemployment rate. That isn’t support for Cowen’s stupid ZMP hypothesis.

20 Andrew' September 2, 2011 at 8:53 pm

You really think people forgot how to put up with workaday bullshit?

21 CBBB September 2, 2011 at 10:29 pm

It’s not so much whether people actually forget – if companies just decide they aren’t going to bother looking at anyone’s resume if they’ve been out of work for a year or more then that’s that. It might have nothing to do with whether these people could actually do the job or not – with so many people looking these days companies have the luxury to put in whatever arbitrary cut off they want.

22 Ben September 2, 2011 at 1:17 pm

It could be really helpful if we would think of ideas to solve this problem rather than continue to debate on its existence.

Would introducing more publicly funded job training be a bad thing?
Could you offer ongoing incentives to companies that higher ZMP workers and spend those first weeks or months training them to be net positive workers?
Wouldn’t most of these ideas be part of a comprehensive “Jobs Plan” anyways?
Would this be better or worse than a second large stimulus? Even if a Keynesian solution is needed, do these policies offer a net benefit to the economy?

I don’t know the answers to these questions.

23 CBBB September 2, 2011 at 3:02 pm

You know there’s tonnes of university graduates such as myself who graduated in the last couple of years (in scientific/technical fields mind you NOT basket weaving) and just can’t find jobs because these days an entry level job means no less then 5 years experience in a similar position. I mean if Tyler (and other academic economists) knew anything about job hunting he would realize that just because companies SAY these workers are unemployable doesn’t mean they are. It’s clear to me that a lot of companies out there just expect a supply of labour that cannot possibly exist.

24 Bernard Guerrero September 2, 2011 at 3:36 pm

Lemme know what sort of degree you graduated with and I’ll let you know whether you’re employable or not, my man. I have jobs open, and basket weaving is in the eye of the beholder…..

25 CBBB September 2, 2011 at 3:42 pm

CS and Math

26 Bernard Guerrero September 2, 2011 at 4:05 pm

Email me your resume. I can be found on LinkedIn.

27 CBBB September 2, 2011 at 4:53 pm

Well as of now I’m done with looking I’ve had enough of traveling around to these ridiculous 4,5,6 round interview processes, I’m enrolled in a masters program my resume is too stale and out of date now. But as I say, whatever problems employers are having these days finding quantitative people or developers – it’s All, ALL industry-created supply problems caused by a general adoption of crappy hiring practices. No one was coming after me with jobs two years ago, maybe some long term perspective is needed in terms of hiring?

28 bluto September 2, 2011 at 5:03 pm

What if almost everyone is ZMP, but not politically tenable to release? If large firms are driving most of the economic gains, but derive most of their gains in output from technology and automation, and smaller firms aren’t able to grow because they weren’t large enough to invest in enough automation.

29 George Selgin September 2, 2011 at 1:20 pm

Right. And in the very long run they’re all dead.

30 foo September 2, 2011 at 1:52 pm

So, if the idea is that somewhere around 10m otherwise able-bodied people are unemployable, and we should just get over it, what’s the plan? Does anyone think it’s wise to have 10m increasingly alienated, possibly desparate people in our midst? Maybe Republicans and libertarians have a secret plan to ship these people to Australia like the Poms did long ago? Who thinks you can live a comfortable, secure life when you cast aside a large number of people as worthless, lazy, good-for-nothings? There are historical precedents that this kind of attitude doesn’t usually end well…

31 Bernard Guerrero September 2, 2011 at 1:59 pm

I dunno, man. There’s only 10MM out of 300MM+, and I have a great deal of suburbia & high gas prices betwixt me and them. :^)

32 CBBB September 2, 2011 at 2:50 pm

It’s way more then 10 million affected – there’s a large number of technically employed people forced into jobs below their skill level, there’s huge numbers of people who have given up looking for work and hence are not counted, then there’s a drag affect on wages having such a large number of unemployed/underemployed people has on the wages of many other workers.

33 Bernard Guerrero September 2, 2011 at 3:19 pm

“technically employed people forced into jobs below their skill level”

Who seem like fairly unlikely rioters….

“then there’s a drag affect on wages having such a large number of unemployed/underemployed people has on the wages of many other workers”

If ZMP is true (the premise for the whole post), then these folks really shouldn’t have much impact on the employed, eh? They can’t, after all, be hired cheaply enough to be worth it.

34 CBBB September 2, 2011 at 3:29 pm

ZMP is not true though – I mean Tyler’s been pushing this theory for a while but it’s a crock.

35 Bernard Guerrero September 2, 2011 at 3:34 pm

I’ll quit believing it when I suddenly find an untapped well of dirt-cheap statisticians and SAS experts to hire. In the meantime, it fits what _I’m_ seeing perfectly well, at both ends of the labor spectrum.

36 CBBB September 2, 2011 at 3:39 pm

If companies trained people in SAS it wouldn’t be a problem. There’s literally $h!t loads of people with the proper quantitative educational background who could be trained – this is the issue though companies bitch and moan about how they can’t find qualified people but in fact it’s just because they have a completely unrealistic expectation that workers are going somehow train themselves on every, single, piece of technology that the employer might want to use – including expensive commercial software packages like SAS.
If you’re not training new people then clearly you don’t really need these workers all that much.

37 Bernard Guerrero September 2, 2011 at 3:50 pm

Not at all, sir. To begin with, even rudimentary training in the field in question would expose you to the software in question. In the second place, decent knowledge of any other package (R, MiniTab, MATLAB, SPSS) would suffice, because it would make the candidate trainable. In the third place, if this mythical “$h!t load” of quantitatively trained candidates were available, I’d at least get the chance to reject them. This is patently not the case.

38 CBBB September 2, 2011 at 3:55 pm

This actually gets to the heart of the matter. This is why I condemn Tyler for not knowing anything about job hunting when he talks about his ZMP BS. You see at my university they used R not SAS and you are correct that knowledge of R or some similar package would make the person trainable but hiring these days generally does not work this way.
In general when you send a resume to a company it goes through either an automated keyword search system or through HR – either way if SAS doesn’t show up on the resume (and say R, MATLAB, something else does) then the resume is automatically rejected – it’s all box checking these days if you don’t have connections.
I don’t know what your situation is but the vast majority of employers operate this way.

39 mulp September 2, 2011 at 5:12 pm

“To begin with, even rudimentary training in the field in question would expose you to the software in question. In the second place, decent knowledge of any other package (R, MiniTab, MATLAB, SPSS) would suffice, because it would make the candidate trainable.”

Right, because obviously all colleges have millions of dollars to spend annually on licensed software which they then hand out freely to their students to run on their personal computers because no one would ever consider it acceptable to have a limited number of computers running the software which require a computer room supervisor to oversee!

And every unemployed or under employed person can easily afford full-time student status at a four year college to qualify for paying hundreds of dollars for the crippled time-limited student editions with all sorts of purchase restrictions.

40 CBBB September 2, 2011 at 5:21 pm

@mulp

Bingo!
It should also be noted that “Exposure to SAS” is never a requirement on jobs, it’s ALWAYS something like “minimum 3 years experience with SAS” kind of makes you wonder how new graduates are expected to get this experience. I know of no university program which spends significant amounts of time training people on particular software packages/languages.

41 Bernard Guerrero September 2, 2011 at 6:26 pm

Mulp, both of your objections are ridiculous.

a) In most cases, for expensive stuff what you _do_ get is access to a server-based system – just like the one we use at work…..

b) In other cases, like MiniTab, a student version is all you would need to become qualified to do the work. You don’t need a Ferrari to learn how to drive.

c) R is shareware, dude.

42 GinSlinger September 2, 2011 at 6:33 pm

OFFS. There are open source clones available for all the stats packages. That includes SAS. I was trained on SPSS at a third-tier state school, so I doubt the licences are really the hang up, especially given signalling models of higher education. When job postings are looking for three years of experience, it actually seems to support ZMP, companies have decided that training employees in the software (and it’s more likely the problems in training are at a more fundamental level) outweigh the marginal product for that worker over some time span (approaching three years).

And, CBBB, have you ever considered it’s not them, it’s you? How much time do you spend in tailoring your CV/resume and cover letter for each posting? Or, do you just spam and blame?

43 sp6r=underrated September 2, 2011 at 7:05 pm

Gunslinger

I doubt the problem with CPPB is that he doesn’t put effort into his application. Young college graduates have an unemployment rate of almost 10% and are facing horrific levels of underemployment. When there are 4 1/2 unemployed individuals for every opening getting a job is mainly about luck.

44 CBBB September 2, 2011 at 7:33 pm

Gunslinger – yeah yeah it’s ALWAYS the job hunter’s fault, I forgot the fundamental axiom of Marginal Revolution “The little guy is always to blame” – I tailored each cover letter and resume to the posting and generally applied to jobs that I would be qualified for.
Also with respect to packages like R – if the posting says SAS and your resume says R the automated filter (or know-nothing HR rep) will just throw your resume in the trash NO ONE sits there considering “Hey R Is like SAS this guy might be good”.
Besides I’ve gone into interviews where I’ve said I know language or package X because I learned it on my own – DOESN’T FLY if you didn’t use it in a professional setting no one cares. Keep Making excuses for Tyler though.

45 NPW September 2, 2011 at 9:03 pm

I have a degree, 3 years into a second one, 11 years in military from private to 1LT, ten years experience in various fields, and I am doing work that a highschool graduate is capable of doing. I am making a third of my salary from three years ago. I apply to several positions every week, and on a few I have made it through multiple rounds of interviews to be dropped at the end due to “Business needs changing.”
It is a naked lie that businesses can’t find people capable of doing technical work. Businesses refuse to find and train people who are capable of doing the work.

46 CBBB September 2, 2011 at 10:35 pm

NPW,

I don’t know, see if only you had reached a rank like Brigadier General you might be more employable – as it is you’re just ZMP. If you don’t believe just ask all the libertarians around here.

47 GinSlinger September 3, 2011 at 9:54 am

@CBBB
Since you’re incapable of even recreating my name in your response, I do wonder about your cover letters.

48 quadrupole September 3, 2011 at 12:38 pm

CBBB,
I suspect part of the problem is the rise of the HR departments. You see, and please do not take offense at this, on paper, a new grad and a 30 year old loser are almost indistinguishable. Except a new grad is *not* a loser. He’s just young, and hasn’t had the time to accumulate a breadth of skills and experiences. If you get to 30 with as thin resume as a new grad, its not even worth looking at his resume.
So when you write a job description for the HR weenies to filter on, you tend to write it to filter out the 30 year old losers of the world, and inadvertently wack the new grads. Which is really unfortunately, because honestly, bright new grads are *fantastic* employees for many positions. They tend to be bright, eager, and quick to learn. They haven’t internalized the conventional wisdom about what’s impossible. They bring fresh outlook and ideas.
But except for specific programs to recruit new grads, they are going to be consistently filtered out by the HR weenies, in order to exclude the much larger pool of folks you can’t afford to waste time doing deeper screening on.
I think part of the problem may be that we need to figure out how to do a more effective job of filtering applicants. I actually *do* believe there are ZMP workers out there, I think it’s a real problem, but I also think that we’ve got a breakdown of our labor allocation system as well. I just think a lot of it is driven by the glut of ZMP workers gumming it up and overwhelming the capacity of the labor market to sort people to appropriate jobs.

49 CBBB September 3, 2011 at 2:19 pm

Hey I absolutely blame the HR profession – this is an area completely ignored by economists because they simply assumed companies are too rational to put up with dysfunctional employee procurement processes – this isn’t really true though companies can be quite bureaucratic and when there’s no real pressure to grow a business these bad practices can persist for a long time. When you put hiring decisions in the hands of, let’s face it not particularly intelligent people, who have no background in the business they’re hiring for you’re going to get problems.
But I don’t think the problem is due to these supposed huge numbers of useless workers. This is in many ways sort of an ideology – the poor hiring practices are the result of a general devaluing (and almost dehumanizing) of workers (and I would say particularly technical workers) that has been going on for a while. All these companies want “just-in-time” employees that they can bring in the second they’re needed and cast away the second they aren’t. This might be able to work in things like construction if you need a bunch of low-skill workers. The problem is MANY companies want this model for engineering, software development, scientific research, etc. This cannot work – you can’t expect to swap in and out developers/engineers and maintain quality on a project. But many MANY companies feel this is the way things should be (not the top companies like Google or Amazon, but lower down the tier this is the way things go). As a result of this the companies themselves have destroyed the labour market. I’ve seen it with friends who all they can get are these short-term contracts at these companies with dysfunctional management.

As for me I’m not really a new graduate any more, I’ve been out for a couple years and when I graduated I sent out countless applications and not a single interview. Later on I started getting interviews but at the end of these long interview processes a lot of employers don’t want to actually take the plunge and hire. If there were more pressure on businesses to expand they wouldn’t have this luxury to hold off for months to fill a position. I’ve gone back to school with an eye to getting out of the whole IT/technology field I think it’s a horrible industry – unless you’re superstar or get lucky there’s no real path in and unlike other fields (accounting, finance, non-software engineering) there’s pitifully few graduate training scheme programs. These companies complain and bitch about how hard it is to find people but they seemed to have tried their damnest to scare off entrants to the field with ridiculous hiring practices.

50 sp6r=underrated September 3, 2011 at 2:32 pm

Quadrupole

I agree that there is a certain percentage of workers that can be classified as losers but it is a major societal problem that people cannot turn their life around. It is impossible for people to turn their life around when you as a hiring manger will not consider a 30 year old person with a crappy resume for even an entry level 25k-35k.

I’ll use a hypothetical person as an example:
Age 18: drops out of HS
18-24: mostly unemployed/bounces around at McJobs
24-25: Gets GED
25-26: works MCJOBS while attending community college
26-28: graduates from mediocre university with 3.2 gpa. Completes first real jobs when he has several internships with respectable local employers
29: tries to find permanent real job

How is this individual supposed to get a job and support himself if you won’t even consider him for an entry level position? Should his life be permanently ruined because he was a screw-up at 17-24?

51 CBBB September 3, 2011 at 2:39 pm

This is another issue, some people make mistakes (I think my choice of major in university has proven to be a huge mistake for instance) and even due to changes of economic circumstances good decisions can turn into bad ones. How can we have a society where employers are SO narrow minded in their hiring practices and then turn around and blame the worker – EVEN if he/she has tried to do everything to gain the right skills?!

52 sp6r=underrated September 3, 2011 at 2:52 pm

CBBB

This is another issue, some people make mistakes (I think my choice of major in university has proven to be a huge mistake for instance) and even due to changes of economic circumstances good decisions can turn into bad ones.

Exactly. Like you I made a bad choice. I decided to attend law school in 2006-09 instead of continuing on with my pre law-school career. At the time the decision was a strong one. My law school was always ranked in the top twenty of the country and sent most of its graduates to major law firms. However, the legal economy collapsed and is now undergoing awful structural changes. I and many other people like me have to leave the field.

If these structural changes occurred during a normal economy I have little doubt I would be working a real job right now. Instead I’ve bounced around odd jobs for 13 months now and many employers won’t consider me for work because I only have 18 months of full time work experience (pre-recession) and am in my late twenties. Should my life be ruined because of decision to go to law school?

We aren’t even in that bad of shape compared to the hypothetical person I described earlier. Must his life be ruined because at age 19 he didn’t understand the importance of building up a resume? I don’t think so but the popularity of the do nothing to address unemployment position, supported by the dubious positions of Mr. Cowen, ensure that that person’s life will be ruined.

53 quadrupole September 3, 2011 at 3:19 pm

sp6r=underrated,

I have a lot of compassion for folks who’ve made a mistake and are having trouble getting back on the train. I have relatives who did, who are fundamentally good people, but made poor choices in their youth.

The problem is, the world is getting more and more competitive all the time, and your leading competitive differentiator is the quality of your people. Even if your hypothetical 29 year old has mended his ways… he’s still going to be a far less desirable employee than the 29 year old who made good choices, or even a 22 year old who made good choices.

The problem is, your choices pay (or charge) compound interest, and thus the ones you make when you are young (when you are least likely to make them well) are by far the most expensive. I agree this is a serious social problem, and one I’d like to see solved… but trying to solve it by hiring such people is just going to put me out of business, as my rivals hire folks who’s quality of choices was more consistent.

This is the problem with being in a field where the top 10% of performers produce 90% of the output…

54 quadrupole September 3, 2011 at 3:21 pm

Oh, and CBBB… do you contribute to any open source projects? That’s one way to build up your resume and your reputation capital even if you can’t find a job. Additionally, it’s a *really* hot hiring field. I was up at OSCON in Portland in July, and there were about a dozen booths on the exhibition floor that weren’t selling or marketing any product, they were *purely* recruiting hires. The reason is because OSCON attracts a large number of open source contributors, and they are usually very desirable hires.

55 CBBB September 3, 2011 at 3:46 pm

This is the problem with being in a field where the top 10% of performers produce 90% of the output…

Isn’t this almost every field now a days (except specific services like hair cutting or surgery)? And mistakes these days don’t necessarily mean high school drop out – like I said I feel my degree was a mistake (even though it’s considered a supposedly good field) – I have essentially the same career options as a high school drop out. Going to Law School is a mistake. Almost everything these days becomes a potential disaster unless you follow every single step perfectly. Many friends of mine from my university program tried to become actuaries (a supposedly great field) – some made it but others passed exams but because they didn’t get good internships are pretty much screwed, the field is now so bloated particularly at the entry level. This is becoming a problem in the vast majority of professions now.
I think social policy is going to have to change massively – large scale government hiring or just guaranteed incomes – something like that, unless you’re a superstar acquiring the “right” skills gets you a big debt and a job at McDonalds along side high school drop outs.
As for Open Source projects, no I don’t do that – like I say I’m back in school transitioning out of the entire tech field, I’m not bothering with it any more. And I’m not so sure about the hiring climate being hot – yeah I’m sure guys with 10 years on their resume and experience in a dozen language are doing great but I went to interviews as recently as 5 months ago and getting into 4th, 5th round (so if it were that my skills were really weak I think I would have been weeded out by then) and they were all busts (some of these jobs are STILL posted). Another thing is you get to the end of these interview processes – 5 rounds in and suddenly they want up-to-date letters of reference from 4 previous employers – I mean honestly how desperate are they for employees when they insist on EXTENSIVE background checks on someone like me who has a limited employment history any way?

56 dirk September 2, 2011 at 2:32 pm

Sure, but was it the failure of monetary policy in 2008 which led to this period of long-term unemployment in which worker’s skill have deteriorated? ZMP may be the case now but may not have been in 2009.

57 Andrew' September 2, 2011 at 8:54 pm

This is ridiculous to me. I will never use the same skills in two subsequent assignments, let alone for different employers.

58 dirk September 2, 2011 at 9:49 pm

I think “skills” is a euphemism. What people really lose are things like contacts and sobriety.

59 dirk September 2, 2011 at 2:40 pm

Let’s say the Fed forgets about the rate of unemployment and worries instead about “the economy”, you know, that “economy” that the stock market tends to be a good predictor of. Let’s say the economy got back to its long term trend as measured by the long term trend of the stock market. I’d bet dollars to donuts that if that happened somehow magically the full employment rate would fall back to its historical average.

60 dirk September 2, 2011 at 2:44 pm

Is the theory now that the stock market was a super-bubble back in 2008? I thought it was the real estate market that was the bubble. I’m so confused…

61 CBBB September 2, 2011 at 2:48 pm

ZMP is a self-fulfilling prophecy, it’s not really an explanation of anything it’s more of a means for people who favour doing nothing to cover themselves in some kind of seemingly reasoned argument. The fact that it’s gaining currency just shows how persuasive bad ideas are.

62 sp6r=underrated September 2, 2011 at 6:57 pm

yup.

I recognize what you are going through and especially sympathize with you having to go back and get a graduate degree mainly to get out of long-term unemployment.

Honestly, I want to kill Cowen when I read this stupid thesis. I graduated from a top twenty law school and have recommendations from federal attorneys and judges. My supervisors have all credited me with having advanced analytical research and communication abilities. Still, I have been unemployed for a year now.

I haven’t been strictly applying for legal jobs either. I’ve applied for HR jobs, business regulation and compliance jobs, and position in other fields. I’ve applied for jobs that pay in associate level degree wage but no one will hire me.

When I apply for legal jobs I get rejected because the field is flooded. This is fair. The legal industry is going through difficult structural changes.
When I apply for HR jobs I get rejected because they feel I am either overqualified or will leave even though there is nothing out there.
When I apply for business jobs I get rejected because employers now demand 5 years of experience for entry-level jobs.
Finally, now that I have been unemployed for over nine months employers won’t consider my resume because I’m long-term unemployed which must mean I am a ZMP worker.

Cowen just refuses to admit his beloved market place is needlessly destroying the lives of millions of workers and doesn’t want to do anything to help us.

63 CBBB September 2, 2011 at 7:25 pm

YEAH – I go crazy when I see one of these retarded posts up on this blog – I want to tear Cowen a new one. This guy doesn’t know a THING about job hunting outside academia. And of course it’s ALWAYS the worker/job hunter’s fault they MUST be doing something wrong because there’s supposedly all these jobs out there all these companies can’t find a decent worker!
Yeah it’s BS. I’ve been through a lot of interviews, many of them 4,5 rounds – I’ve had to fly around the US going to different interviews in California, Texas, New York, New Jersey and in the end I get told crap like “You’re skills are good but we just didn’t feel you had the level of passion for our product we’re looking for”, “you’re not the right fit” or similar BS. Yeah these companies are REALLY desperate for employees when THESE are their excuses – and guess what? I can go to many of these companies websites right now, look up the job I interviewed for – it’s still there, UNFILLED months – even a year later for some of them. All these employers have this Lake Woebegon complex – even the humblest company thinks it deserves to hire elite-caliber candidates at rock bottom wages. I’m not the best around, like I say I graduated and have limited experience – but you basically have to be the cream of the crop to get ANYTHING more then burger flipping job now. And this isn’t ZMP – these companies could easily find productive workers – but because there’s no demand in the economy, there’s no pressure to expand they come across one good guy and they figure “hey with the economy this way we could just hold out for someone even better’ and they do for months upon months – sometimes years.
Man I wish I could have Tyler Cowen’s job of sitting around pontificating about reasons why nothing should be done to help the unemployed.

64 sp6r=underrated September 2, 2011 at 9:15 pm

Oh god, you’re bringing up awful memories with talks of 3-4 round interviews. I’ve applied for numerous jobs, which could be clearly classified as low to moderate skill, that required me to go through 4 rounds. Most of the 80k+ libertarians on marginalrevolution are shockingly ignorant about how bad the job market is.

I figure you’ll enjoy this since you’re as annoyed with Cowen’s inaccurate pontifications as I am:

Economic update

by Tyler Cowen on May 4, 2008 at 7:48 am in Economics | Permalink

On Intrade.com, the probability of a formal recession (two successive quarters of negative growth) in 2008 has fallen from the 70 percent range to the 30 percent range.

Some time ago I had proposed “the N word” economic indicator, namely that things would be really bad if lots of people were talking about the idea of nationalizing the banks. That hasn’t happened and indeed the people who predicted widespread solvency problems seem to have been wrong.

Paul Krugman has had numerous good posts on the Ted spread as an indicator of ongoing problems in financial markets. I’ll say this: during the Great Depression no one had to cite a spread to convince anyone that things were going very badly.

Economic knowledge is always subject to revision, but so far the evidence points in the direction of a mild recession, in the informal sense, and that The Great Moderation is still with us.

http://marginalrevolution.com/marginalrevolution/2008/05/economic-update.html

65 CBBB September 2, 2011 at 10:26 pm

HA!
Burn down the GMU Economics department BURN IT DOWN NOW! (Sounds a bit like Brad Delong – if Brad Delong went too far)
Maybe I should be going for a PhD in economics seems like you can just sit around and come with little theories that have no basis in reality and you don’t get called on your mistakes. There’s no such thing as a ZMP economist right?

With respect to the interview rounds – it now can take easily 3 months from the time you get your first interview with a company to the end of the interview process. It’s always 4,5 rounds spread out over many weeks.

66 JonF September 3, 2011 at 10:48 am

I’ve never had more than two interviews for any job (even counting initial phone interviews). I would posit that any company that does more than two interviews, except maybe for the most exalted positions, is not serious about filling those jobs.

67 CBBB September 3, 2011 at 12:18 pm

Well SOME of the companies I’ve interviewed with have been big-name companies and I always understand those positions are somewhat long-shots – but I also find many smaller, more obscure companies I’ve interviewed with insist on at least 3 rounds usually more. Most companies AREN’T serious about filling their empty positions, this is what I’ve been saying – if they were serious there are people out there who are good enough or can be trained in a relatively short time. Many companies just want to keep a pool of potential hires in place just in case – also if a superstar candidate emerges they’ll hire.
Many jobs I’ve been rejected for are still posted on the company website as open – months, a year later.

68 sp6r=underrated September 3, 2011 at 2:37 pm

JonF,

Have you been applying for work during the recession?

When I graduated from college in the middle of the decade it was very easy to get a job with only one or two interviews. But during the recession things have clearly changed and employers are now demanding significantly more interviews before hiring.

I think your last sentence explains it “I would posit that any company that does more than two interviews . . . is not serious about filling those jobs.” Right now a lot of the openings that exist at companies are really just bait to see if a company can find an obvious superstar. If they find one they’ll hire him but they won’t even consider the B + applicants they were hiring pre-recession.

I think this is something that is lost by economists who are surprised at how long some openings are going unfilled. Even counting the phony openings we still have 4 1/2 unemployed persons for every opening.

69 CBBB September 3, 2011 at 2:42 pm

Economist are surprised because guys like Tyler Cowen don’t know anything about job hunting so they just take these companies’ words at face value

70 quadrupole September 3, 2011 at 12:44 pm

CBBB,
Please consider that *you* don’t have to be ZMP for ZMP to negatively impact you. The ZMP workers can sufficiently overwhelm the screening and filtering process that it makes it much harder for you to find a job.

As someone who hires, I can tell you that it’s insane how hard it is to figure out who’s going to work out or not. And for higher leverage jobs (aka, the ones you are looking for where your skills can be highly leveraged) the cost of a bad hire is insane. So we interview more, and are more selective.

This is *really* tricky when hiring programers, because, honestly, two programmers, with the same number of years experience, who look the same one paper can be completely different in practice just because one has good taste and the other doesn’t. It’s maddening from a hiring perspective.

The other thing that may not be obvious is how geography at entry level impacts the market (at least in tech). The Bay area is on *fire* jobs-wise. Most of the rest of the country, not so much.

71 CBBB September 3, 2011 at 2:04 pm

People are just twisting themselves in knots to try and keep this ZMP crap alive. Yeah maybe there’s some unproductive workers out there but productive is a relative term and depends on what projects/businesses are being pursued and what skills are needed. This all just comes back to the simpler and more realistic explanation – a lack of demand in the economy. If businesses were expanding, starting new projects – if there was real pressure to grow then individual companies wouldn’t have the luxury of puzzling over candidates for months on end (to ultimately not hire any of the people being interviewed).

72 jonm September 3, 2011 at 5:46 pm

From my perspective of hiring programmers in NYC (where the tech market is also hot), I agree with everything quadrupole wrote.

For me the single biggest risk is of hiring someone who is simply not up to the job: on tricky projects they will be zero or even negative productivity (they’ll get some stuff done but the time managing them and fixing their bugs will be worth more than what they produce), and it really hits morale in a team to have someone who can’t keep up with the others. This is harder than one might think, and it’s a very time-consuming process – people taking candidates through multiple rounds of interviews are almost certainly taking them seriously.

Resume experience of the “X years experience with Y” form is almost entirely irrelevant for many (maybe most) positions, and I’m sure most hiring managers know this. If someone demonstrates that they like programming, are smart enough to program well and get things done, and doesn’t come across as a total jerk, then that’s pretty much an offer unless someone better was available at the same time.

There are things candidates can do to stand out: working on open source projects is indeed great; asking for feedback from interviews (maybe obliquely: asking what skills to work on is much more likely to get a useful response than asking the reason for a rejection); joining local interest groups; contacting people directly to ask about openings / advice, etc.

73 CBBB September 3, 2011 at 7:34 pm

Yeah but to you guys ANYONE not in the top 10% is totally useless you’re just insanely picky – and you can be, the economy sucks there’s no real pressure to expand and hire a lot more developers. But this is a serious problem if you’re not the best of the best then your career options are pretty much burger flipping at McDonalds.
See if you don’t have years of experience then it becomes a real problem getting jobs – professions like accounting have nice, clearly defined entry paths – with development it’s this BS luck-of-the-draw hiring system. This is why it’s a godawful field unless you’re elite.
And just being a smart enough programmer who gets things done with a good attitude is enough to get an offer? HAHAHAHAHAAHA
Sure, Sure.
HOT market in New York City for developers is also BS. Not too long ago I was interviewing with a NY-based company; two phone interviews and then they had me do a little project, I submitted the project and they had me do another phone interview to discuss what I did, why I did things a certain way and what not – then they fly me down there for another interview. Well I NEVER heard another thing from them – I tried emailing, I tried calling – NOTHING no feedback even of what happened. Yeah so SO much for getting feedback – it’s pretty much a rule amongst hiring managers to cut off all communication with failed candidates didn’t you know that?

74 Steven Kopits September 2, 2011 at 2:59 pm

This is moronic. If you been unemployed, your unemployable! I know any number of investment banker types who have been unemployed a long time. None of them are unemployable.

What we have here is an old-fashioned oil shock. Not more, not less. We called the recession for the fall in April, based on the historical relationship of oil prices to the economy. To date, that call is looking pretty good.

It’s not that these folks are unemployable. It’s that–on average–they aren’t allowed to use any more oil when they’re employed. We’re supply limited, just as I said we would be in my October 2009 piece for Oil & Gas Investor. There is nothing obscure going on. People are not unemployable. We are unable to form new jobs because we haven’t got the energy to do so.

75 Benny Lava September 2, 2011 at 4:07 pm

Can you post some links to these predictions? I take the claim that we are in a resource (oil) constrained world and it will limit growth very seriously.

76 dirk September 2, 2011 at 4:26 pm

The oil shock theory sounds plausible, though as I look out my window it appears that half the people are still driving SUV’s and large trucks. If we’re experiencing an oil shock it seems that there’s plenty of low-hanging fruit swinging on the energy-efficiency tree. Do you have a prediction about how long it will take for most of it to get picked?

77 Newman September 2, 2011 at 5:56 pm

So in your mind the biggest contributor to our current economic condition is a shortage of oil?

I can see an argument that spiking oil prices in 2008 may have been the straw that broke that camels back, and that a weakening dollar forcing up the prices at the pump continues to be a hurdle to sustainable growth, but to suggest that the main cause for the recession was due to an oil shock seems like a difficult case to make. How did that cause the real estate bubble to burst and subsequent deleveraging brought on by the collapse of the MBS/CDO industry?

78 dirk September 2, 2011 at 10:06 pm

You’re buying the popular narrative that the bursting of the real estate bubble and deleveraging in the financial industry are what is still causing a recession 3 and 4 years later. Who is to say that popular narrative is correct? The superspike in oil this past half-decade seems a more robust theory to explain our lasting recession than all this talk about ZMP workers, wage-stickiness, etc. Maybe it’s the elephant that’s shitting in the room that’s causing that smell.

79 dirk September 2, 2011 at 10:13 pm

Two facts: the US economy is languishing while world oil production is at a record high. Ceteris paribus, for the US economy to grow from here world oil production must also grow. Can oil production grow any faster than it is? That is the question.

80 Mike September 2, 2011 at 4:07 pm

“Unemployable” doesn’t sound “natural” based on either on economic or social sense of the word.

There is plenty of cotton and letuce to pick, plenty of hotel beds to make, and plenty of food to be cooked. Those jobs are being taken by illegal.

Maybe the illegals deserve the jobs more through skill, experience, and hard work. That would be fine by me IFF we could ship our “unemployable” to Mexico, El Salvador, China, Ireland, or wherever else the illegals come from.

81 Donald Pretari September 2, 2011 at 4:34 pm

“Never before in the postwar period have the unemployed been unemployed for so long.”

Why would anyone assume that each Recession is the same? I think this, whatever we call it, featured Debt-Deflation. Did the others? This comparison seems dubious on its face.

“Possible”, “Can be thought of”, “Research generally shows”, “Depends mainly”, “Using a Model”, “A simplifying assumption”, “Might be quite persistent”, “Might become more likely”, Might become more willing”, “Might be related”, “Might be why”, and on and on. This many Qualifiers is a Red Flag for me.

Also, what does “Unemployable” mean? Could you produce a few such specimens, and it won’t do to claim that you know some. I want to hear what they say.

82 dirk September 2, 2011 at 4:37 pm

Tyler, a month ago you basically capitulated on the ZMP hypothesis:

http://marginalrevolution.com/marginalrevolution/2011/07/what-does-the-new-gdp-report-imply-for-structural-explanations-of-our-current-troubles.html

Now you say it’s gaining currency. I missed the part where you asked “Why on earth is the ZMP hypothesis gaining currency now??”

83 Stefan September 2, 2011 at 4:52 pm

Both ZMP and what CBBB is saying can be true at the same time. If a business has no way of differentiating between the majority of ZMP workers and the trainable productive ones (easy to imagine, people themselves may often be clueless as to whether they will be productive in a position until they actually start doing the job and they supposedly have asymmetric information…), then when things are going well the company will first hire the +MP workers they can differentiate (those with demonstrable experience) and a pool of non-differentiable workers. Over time you eventually get rid of the workers who are obviously ZMPs.

When the rate of return on the non-differentiable pool falls or the cost of diffentiating rises, you simply stop hiring those workers and only hire the ones with much higher probability of being very productive, i.e. those would already have similar jobs. There may be a large pool of intelligent trainable productive workers and no ability to hire them in a cost effective manner at large companies. There may even be smaller companies who have the ability to differentiate better but do not have enough productive opportunities to hire all the skilled workers they can identify.

84 CBBB September 2, 2011 at 4:58 pm

Right but this is all just caused by a general lack of demand in the economy – if policies were pursued (and I’m not saying I know exactly what they should be) that created a situation in which companies were forced to ramp up output and hire more workers – they couldn’t be so damn picky. We want to create a situation were companies don’t have the luxury to spend a year to fill a position (I’ve seen it).
But the way Tyler makes it sound is as if nothing can be done – these so-called “ZMP” workers are all hopeless, uneducated, gorillas or something.

85 Stefan September 2, 2011 at 5:05 pm

Yes but those policies may be either difficult to identify a priori or not work as effectively in a period significant deleveraging.

If someone with a CS and math background could invent a better (legal and cheaper) way to differentiate ZMPs from truly productive workers, they might become a rather wealthy person while increasing efficiency and making us all better off 😉

86 CBBB September 2, 2011 at 5:06 pm

Yeah – Step 1 should be to fire all these HR idiots and get people who actually know a thing or two about the business they’re hiring for to make the hiring decisions.

87 Stefan September 2, 2011 at 5:14 pm

So you’re saying HR idiots are ZMP? Maybe you should be a Bob consultant…

“What would you say ya do here?”

“Well look, I already told you! I deal with the goddamn customers so the engineers don’t have to! I have people skills! I am good at dealing with people! Can’t you understand that? What the hell is wrong with you people?”

88 Walter McGrain September 2, 2011 at 10:32 pm

It seems hard to believe that the only thing standing between a large group of skilled workers and businesses starved for talent is a wall of incompetent HR departments.

89 stefan September 2, 2011 at 10:44 pm

It may be hard to believe… but from first hand experience I have been in multiple situations where a manager (who determined me to be qualified) wanted to hire me, only to be told by HR (who has no experience in that field) that I was not qualified to do the job and could not be hired.

The managers each were forced to pick among less qualified candidates because of incompetent corporate hiring practices.

90 CBBB September 3, 2011 at 1:11 am

Two points:

1) Like Stefan, I’ve also known this to happen – not to me but friends of mine have had similar experiences of HR overruling hiring decisions based on internal corporate regulations which they blindly follow – contrary to what libertarians like to believe corporations and businesses can be quite creaky and bureaucratic

2) Companies are not really starved for talent, there is low demand in the economy and hence no reason to undertaken new projects or increase output – they complain from time to time about not being about to find people but in reality they aren’t really pressed to hire anyone right now and are often just holding out for a dream candidate

91 quadrupole September 3, 2011 at 12:46 pm

Dude, if I find someone who knows a thing or two about the business, I can’t afford to put them in HR, I need them in the trenches. Plus, nobody who knows a thing or two about the business will *take* a job in HR.

92 JonF September 3, 2011 at 10:44 am

One problem: productivity is often not an individual attribute, but only emerges (in a way that can be assessed) in the entire flow of the job across muliple workers.This whole concept of “ZMP” applied to individuals is assuming that everyone works in some sort of assembly line where you really can count their production per hour. For many jobs that is simply not the case.

93 CBBB September 3, 2011 at 12:14 pm

Yeah this is another issue. The concept of Marginal Productivity makes some sense in the setting of a 19th Century textile mill but I don’t see how it applies much to a modern work environment.

94 sp6r=underrated September 3, 2011 at 2:41 pm

Great post.

95 sp6r=underrated September 2, 2011 at 7:04 pm

Again another great comment.

High levels of cyclical unemployment make it harder to address structural unemployment. As long as there is massive unemployment employers have no incentive to engage in even one week of training for a new position. Like you I have run into countless job advertisements for positions that have been open for over six months. Employers are simply not hiring unless they get a dream candidate.

That means the workers who are unemployed for structural reasons, a minority in my opinion, are effectively shut out of the work force.

96 stefan September 2, 2011 at 10:29 pm

Completely agree. The whole ZMP thing is an easy concept to understand and makes sense with many of the ZMP workers you meet. However ZMP workers have always existed and always will, it’s not like there have never been structural adjustments before or people never learn supposedly new complex skills fairly quickly when put in the right situation. In fact, with the right incentives, the technology available today should counteract much of the difficulty learning complicated tasks. Remember trying to learn something new when you had to go to the library and search for a book that probably didn’t exist to find maybe a paragraph on the topic you were trying to learn about?

Been there before too… It is quite frustrating to be assumed incapable of doing the very type of work you excelled in school for and received advanced degrees in. Though once I did find a job, I found it much easier to differentiate myself, despite rarely doing work where I would have been considered a dream candidate before hand.

How about the postings requiring 6 years of experience with software that has only existed for 3? Now that’s a dream candidate… the only people who could be remotely qualified are the creators of the software. Wait I forgot it must be because of all the ZMP workers out there.

97 sp6r=underrated September 2, 2011 at 11:06 pm

Completely agree. The whole ZMP thing is an easy concept to understand and makes sense with many of the ZMP workers you meet. However ZMP workers have always existed and always will, it’s not like there have never been structural adjustments before or people never learn supposedly new complex skills fairly quickly when put in the right situation. In fact, with the right incentives, the technology available today should counteract much of the difficulty learning complicated tasks. Remember trying to learn something new when you had to go to the library and search for a book that probably didn’t exist to find maybe a paragraph on the topic you were trying to learn about?

This is basically correct. There has always been a small percentage of the population that isn’t capable of being trained and holding down work. Cowen has failed to present sufficient evidence that ZMP is a significant factor in the elevated rates of unemployment crippling the developed world.

98 Bill September 2, 2011 at 8:19 pm

Two points:

1. If you set your standards low enough–arguing that the natural rate of unemployment should now be higher because of the longer term unemployed are unemployable–you will exceed the new tolerable unemployment level.

2. You can now see that with these issues Diamond would have been a good member of the FRB.

99 al Brown September 2, 2011 at 10:11 pm

Unemployment is a measure of how many people are unable and/or unwilling to make a deal with an employer. If wages are held artificially high, fewer people will find buyers for their labor.

And the costs of hiring matter too. And the costs and risks of firing do as well. These costs reduce how much money we take home, especially if our labor has to compete with laborers that don’t face the same costs.

People imagine that whatever restrictions and regulations the government imposes on their employer, that has nothing to do with them. And when times are good, these effects aren’t devastating.

But when things go sour, the effects fall like a ton of bricks on the very suspecting souls they were meant to help.

100 Ed September 2, 2011 at 11:55 pm

Its amusing to see these postings on a day when the government released the information that zero net new jobs were created last month.

101 Bill September 3, 2011 at 9:39 am

Yep, 17 k new private sector jobs and a loss of 17k public sector jobs = 0

102 Bill September 3, 2011 at 12:03 pm

Accepting the ZMP hypothesis does not lead to a hands off, desperation attitude.

To the contrary.

It means that if prolonged unemployment leads to ZMP workers (losing skills, etc.) government policy must be to INCREASE stimulus faster, have more of it, AT AN EARLIER stage.

In addition though, I am not a big believer in this because there are other countries which do a better job at both stimuluating employment, subsidizing employment at reduced hours during a recession, and supporting training. Cross country comparisons tell you something about other countries. They do not have ZMP, but, apparently we do, at least according to what is said here.

Now, why is that? Are they doing something different and better than we are?

103 quadrupole September 3, 2011 at 12:50 pm

Given that the entire downturn we are dealing with is a massive misallocation of supply do to improver government stimulation of some sectors… do we really want to go down that road even further?

104 Bill September 3, 2011 at 9:10 pm

Your premise: “entire downturn we are dealing with is a massive misallocation of supply do to improver government stimulation of some sectors…” deserves some discussion and analysis on the weekend that the federal government and others are suing banks for misrepresenting bond portfolios.

If you believe the Bush administration was the one that gave us a massive misallocation of supply leading to the great recession, that is your view. I view it as a failure of regulation that could have prevented a financial crisis. Either way, it happened.

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