A short lesson about the history of U.S. employment

by on July 17, 2012 at 6:41 am in Data Source, Economics | Permalink

From Ray Fisman:

The wages of less educated men—which had been in decline since the 1970s—also enjoyed a brief reprieve in the late 1990s and into the following decade. Working with University of Chicago colleagues Kerwin Charles and Matthew Notowidigdo, Hurst found that these aggregate statistics for the United States as a whole have played out in miniature across the country (PDF), as one would expect if the housing boom were really behind the short-lived uptick in the employment and salaries for the bottom 20 percent. In regions where the housing booms were greatest, the employment prospects of low-skilled workers fared the best, while in places that the housing bubble passed by, the job prospects of such workers continued their inexorable decline. (The researchers also found that the increase in construction employment was only part of the explanation: Low-skilled service employment also went up in places with housing booms as local residents, feeling wealthier as a result of the increased value of their homes, spent more at restaurants, barber shops, and local retail establishments.)

Overall, Hurst and his co-authors estimate that roughly 40 percent of the increase in nonemployment (those who are unemployed but still looking for jobs, as well as those who have given up and exited the labor force entirely) since 2007 involves manufacturing jobs that were already lost during the earlier part of the decade. But the loss of these jobs was temporarily obscured by the housing boom that allowed low-skilled individuals to find work. (For the college-educated, there was at most a modest connection between the housing booms and employment.)

Once again, we are not as wealthy as we thought we were.  And there really is a significant structural component behind today’s sluggish labor market.

liberalarts July 17, 2012 at 7:04 am

During the boom the decreased proportion of young men as college students was hypothesized to be because they had a chance at solid incomes without college, and young women did not have a parallel opportunity for high wages. Has the proportion of college freshmen who are males ticked back up?

Right Wing-nut July 17, 2012 at 10:11 am

No, because that was never the cause. The aggressive feminization of the education environment is driving out males, coupled with the aggressive targeting of females for recruitment.

mulp July 17, 2012 at 11:22 am

A more likely explanation is young women look around them and no matter what your personal philosophy, you must act in your self interest as it is a dog eat dog work where women must be prepared to step on men and claw at men to survive, and never ever imagine an Ozzie and Harriet world where the man provides for the women and children. As much as conservatives talk about the virtues of family, they are only using the talk as a weapon against women to force women to work to support the family.

Women aren’t driving out men, it is just men understand the deck is stacked against them. Workers are required to give their all to their employers and be completely loyal, but their employers just dump them in an instant without any loyalty. No matter what the circumstance, the worker is always to blame. Work hard and really deliver for 25 years and get purged in a downsizing or outsourcing, and now you are to blame for having a high wage from high performance, for being so loyal you stayed one place for 25 years, for not having just graduated from college with three free internships, for not being willing to move a thousand miles to start work on Monday, for obviously not being able to move because you have a family and a fully paid off home. When you look at your dad who did everything right and got screwed over, and he is claimed to be the wealthiest and best off in society who deserve to lose their Social Security because they are so rich, how can you believe you will be better off?

JoeDog July 17, 2012 at 9:37 pm

Rather than blame an “aggressive feminization of the education environment,” we might be better served by examining incentives. There certainly are better opportunities for men straight out of high school. Those kinds of jobs are either dangerous or strenuous but those characteristics come with a wage premium. Granted, the long run prospects aren’t as great but neither are tens (maybe hundreds) of thousands of dollars in student loan debt. Certainly some men are sacrificing long-term potential for short-term gain.

ThomasH July 17, 2012 at 7:17 am

This set of facts seems equally consistent with the idea that low aggregated demand is bad for the relative price of unskilled labor. The “structure” of demand is not independent from the level.

Right Wing-nut July 17, 2012 at 10:24 am

I’m not buying this. Wages for craftsmen continue to rise, even through the recession. We are now talking about a critical shortage of truck drivers. (Brought on in part by increased restrictions on CDLs.)

It’s not even been a year since these pages were talking about the fact that it is an error to shove everyone into college. Now this? Both cannot be true at once.

The problem is that no one is teaching the Ant & the Grasshopper any more. Kids are being fed a message that they deserve the good life, whether they work for it or not, so no one wants to do the low-prestige work. The real killer is that employers are shying away from training because the risk of losing that investment after a year (or less) has increased at the same time that the legal liability for hiring someone has been rising. Twenty-five years ago, “Will train the right person” or “No experience necessary” was a part of almost every ad in the wanted pages for the low-prestige positions. No more.

mulp July 17, 2012 at 11:34 am

Let’s see, conservatives say taxes are too high so by cutting taxes and deregulating the budget surplus will get larger and growth in the economy will create jobs faster and result in higher wages. That has been the free lunch promise since the 70s and has been the active government policy in spades since 2001.

And since the 80s, the employers have been told they will have a better workforce at lower costs if the dump pensions and switch to 401Ks because workers will be more mobile and you will be able to get the best workers. And workers were told, pensions are bad because they lock you into one employer for life so you want a 401K so you can job hop. Employers asked workers who spent 25 years with one employer: “what is wrong with you that you didn’t change jobs five times? You must be lazy, go away”.

Geez, it seems the loudest and dominant economic message has been:
- think short term
- wealth comes without sacrifice

Thank god conservatives have destroyed the evil liberal ideology of twenty-five years ago: “Will train the right person” or “No experience necessary” which smacks of FDR’s CCC which was a boot camp of employed workers.

The Anti-Gnostic July 17, 2012 at 12:24 pm

There is much I can agree with in your populist rants, but I hope you realize that Democrats, Labor, and the Left in general have tiptoed well away from the working class.

The breach started around the time of the Hard Hat Riot in 1970.

Rahul July 17, 2012 at 7:41 am

Is the demographic fraction of less educated men declining too since the 1970′s or merely their wages? One ought to mitigate the other.

Steve Sailer July 17, 2012 at 8:23 am

There has been a big surge in Hispanics attending junior college since the popping of the housing bubble. Also, the Hispanic birthrate has plunged.

Silas Barta July 17, 2012 at 10:26 pm

Is there *anything* you can’t blame on Hispanics?

Steve Sailer July 17, 2012 at 8:25 am

“Is the demographic fraction of less educated men declining too since the 1970′s or merely their wages? One ought to mitigate the other.”

Illegal immigration and the offspring of the illegal immigrants have kept the percentage of less educated men from declining as fast it would have if immigration laws had been enforced. Like they say, ceteris paribus.

Non Papa July 17, 2012 at 8:58 am

How so? Ceteris paribus, would each each job filled by an illegal immigrant (or offspring thereof) in the last, say, 50 years, be filled by an equally unskilled American? If so, the percentage of less educated men would be roughly equal. Or would those jobs have gone undone because American reservation wages are/were too high?

Rahul July 17, 2012 at 9:19 am

Maybe he’s saying that those (low wage) jobs exist only because those men (illegals) exist.

@Steve

If less educated men (getting low wage jobs) are mostly illegal, serves them right! Right?

Careless July 17, 2012 at 12:51 pm

They’re not mostly illegals, there aren’t enough illegals for that to be true.

Anyone else live in a town where men mowed their own lawns or paid boys to do it 25 years ago but fewer than 1% do so now?

Firat Uenlue July 17, 2012 at 7:52 am

Turns out in a globalized world with one price for many goods low-skilled people in America cannot really command multiple times the purchasing power of a professor at an elite Chinese university, an Indian engineer with decades of experience for serving each other beer and washing each others clothes. I am truly shocked.

It’s all demand and freshly printed electronic money, if only the government gave everyone money such trivial things wouldn’t matter. Darn! Thank god we didn’t waste our time and capital on a debt-binge but rather tooled up and educated our workforce.

Firat Uenlue July 17, 2012 at 7:53 am

The same applies to you periphery Europe, suck it up and reform or be left in the dust by the likes of Malaysia soon.

Ritwik July 17, 2012 at 9:13 am

The ‘global labour glut’ and globalization of labour is surely a compelling factor and an important part of the story. There is a macroeconomic policy, however, that is consistent with both re-aligning *against* the labour glut and boosting AD/ printing money in the developed economies – massive currency devaluation wrt the emerging markets. In a first best world this would be achieved through global coordination between central banks. If that’s not possible, developed economies should just go ahead and debauch the currency through money-financed tax cuts/ transfers. And yes, one of Germany/ Greece should leave the Eurozone. I’d say Germany.

go July 17, 2012 at 8:01 am

As far as I’m concerned, the question of “What will low-skill/low-intelligence people do for work in the future?” is the most important question facing the United States, the entire first world, and eventually the entire world.

And it’s moving up the food chain now (paralegals, CNC machinists) as we start to leverage the Internet and Watson-like searching systems, plus increasingly automated CNC machines and now even additive machining for some applications. Those are just two examples.

Two things I think everyone should read:

http://www.quora.com/Jobs-1/What-jobs-will-low-intelligence-people-do-in-the-future

http://www.fredoneverything.net/Commentators.shtml

Thinking a lot about this over the past year or so. I wonder if the eventual endgame isn’t some sort of guaranteed minimum income (welfare writ large), and the productive class will just have to get over their distaste at paying a bunch of people just to exist.

Steve Sailer July 17, 2012 at 8:27 am

Thank God we imported all those illegal immigrants to keep stoop labor wages low.

msgkings July 17, 2012 at 12:49 pm

You know, Steve, net immigration from Mexico is almost zero now. The closed border paradise is here!

msgkings July 17, 2012 at 12:52 pm
celestus July 17, 2012 at 9:10 am

A number of people with upper middle class parents will simply live off their parents.

As a general rule, the best way to create jobs is to better satisfy the wants of people who have money. House cleaning and food prep for the stressed-out 60-80 hr/week knowledge worker (was it here I read that restaurant employment is on a clear upward trend?), drivers in the vein of Uber for people who want to work/surf the Web as they travel, legal prostitution for men (or women) who want more/better sex, child care for the Ann-Marie Slaughter crowd (and maybe hire a surrogate to have your babies in the first place so you don’t have to take time off from your career), personal trainers/assistants are always nice. Entertainment in general- greater variety of smart TV/movies, please! The actors and set crew and caterers and costumers and makeup artists don’t have to get the jokes. If you are a natural entrepreneur, think of it as “how can I make an investment banker’s life better?”

A couple other ideas. Nurses tend to be more middle intelligence but apparently are highly overworked, we could use more of them (including men who should just get over it already). And some American cities need more people picking up trash.

Michael July 17, 2012 at 10:37 am

More generally, “wherever rich people are exchanging money, get in the middle of it.” It’s not a new tactic.

“Most people working as servants for a few elite rich,” is one possible equilibrium, but I’m not convinced it’s the only possible one.

And I say that as someone who charges rich people $150 / hr to do a really silly thing. I make a decent living working part-time at that rate, but even as a beneficiary of such a system, it strikes me as an absurd way to do things. I don’t plan on being able to do it forever. Eventually someone’s going to figure out it’s ridiculous, but it pays better than my other options. Unfortunately, it acts as an impetus to me doing something of more social value. But hey, if some guy who makes $15 Million a year is too busy to do simple things himself and considers $150/hr chump change, I’ll gladly take it.

I just don’t think it’s sustainable in the long-run, nor do I think it’s socially optimal.

Rahul July 17, 2012 at 10:45 am

OTOH, neither is it sustainable nor optimal to pay an American to stitch a shoe that a Sri Lankan will stitch for 1/5th the wages.

Anthony July 17, 2012 at 1:01 pm

The American can keep making 5 times as much *per hour* if he can stitch 5 times as many shoes per hour. If stitching shoes only requires a $200 sewing machine, the Sri Lankan will have that sooner rather than later. If the work requires machines costing $10,000 or more, or more reliable electricity and transportation, then the American job has potential for quite a while.

My father-in-law in Iowa earns, farming, at least 20 times what an average Bangladeshi farmer does, but that’s because he, and Iowa, has substantially more equipment dedicated to growing food and getting it to market.

Bruce Cleaver July 17, 2012 at 12:58 pm

A little off-topic here, but still….

” Nurses tend to be more middle intelligence but apparently are highly overworked, we could use more of them”

Sure, we could, but for reasons that are opaque to me, we don’t get more of them. In the early 1980s I was dating a nurse, and the local hospital and surrounding region hospitals were advertising like mad for nurses. Nurses were in short supply, and my girlfriend was overworked and burnt-out. The obvious solution would be to raise wages for nurses to entice more folks into the profession, correct? Nope. No one did that, and signing bonuses were insultingly low.

A decade later I met my wife (an ex-nurse, now pharma executive) and her story was precisely the same.

Cliff July 17, 2012 at 3:10 pm

But nurses are paid very well, in the metro D.C. area often $60/hr…

AD*M July 17, 2012 at 11:11 am

The problem is not what to do with the non-productive people. The core problem is the mismatch between female hypergamy on the one hand (preference for male types that were very productive 10000 years ago) and male characteristics that signal productivity in 2012 (IQ, conscientiousness).

‘Dread’ might nudge women in a different direction, but the state is step-by-step eliminating dread.

Look at Mark Zuckerberg, he is one of the most productive males around (whatever you think of the value of Facebook personally). But 99% of women feel zero attraction for him.
So they have plenty of babies from drug dealers instead.

go July 17, 2012 at 11:25 am

Jesus, you Game people are a plague. These trends are driven by globalization and technological development, not the fact that women want to sleep with bad boys.

Brian Donohue July 17, 2012 at 12:19 pm

so the problem is that successful dorks still have trouble getting laid?

doctorpat July 18, 2012 at 12:18 am

Well that’s the major problem for us successful dorks.

Unskilled laborers might have some different problem. Like I care.

msgkings July 17, 2012 at 12:54 pm

If Zuck wanted to he could get about 100 women to have his babies. For the same ‘game’ reasons you obsess about: resources.

AD*M July 17, 2012 at 1:32 pm

Thank you. I was responding to “As far as I’m concerned, the question of “What will low-skill/low-intelligence people do for work in the future?” is the most important question facing the United States, the entire first world, and eventually the entire world.”, not the TC’s OP. That is why have the “REPLY” on comments now, don’t we.

So please don’t blame TC for REPLY’s to comments.

mulp July 17, 2012 at 11:44 am

“And it’s moving up the food chain now (paralegals, CNC machinists) as we start to leverage the Internet and Watson-like searching systems, plus increasingly automated CNC machines and now even additive machining for some applications.”

Written by someone who thinks manual machining and all the other manufacturing process were low skill – CNC is easier than manual machining – less skill and knowledge – just like 95% of “computer programming” is easier today than it was before the toolkits for building apps to be sold in app stores for mobile computing or building an integrated order and distribution and order processing and receivables and payable system in the cloud for eCommerce.

Floccina July 18, 2012 at 9:59 am

People can compete with machines in many cases. The machines take maintenance and it costs to build them. Low skilled labor is bid down but simultaneously machines make things cheaper.

dearieme July 17, 2012 at 8:42 am

“the productive class will just have to get over their distaste at paying a bunch of people just to exist”: could be – but will they be prepared to pay for them to breed? Happily, they will find some hypocritical euphemism to disguise that blunt question.

Floccina July 18, 2012 at 10:17 am

1. The world population will start to decline soon anyway.

2. But I think that there will be sufficient low skill work to be done for a long time. I think that replacing most welfare with some kind of wage subsidy would help greatly with this.

Never the less I think that there is a real danger that they will pay them to not have children, and I am not comfortable with that. I could see a push to structure welfare systems in such a way that the more children you have the less welfare you receive. Or a push to make it mandatory to be on Norplant to receive any welfare. These measures seem to coercive to me but some people already forgo having children because they think that they cannot afford them.

RPLong July 17, 2012 at 9:04 am

If I read TC correctly – and I often do not – then he is coming further and further around to a “Kling-ian” diagnosis of the causes of the recession.

At the same time, he has been consistently Sumnerian with respect to the prognosis.

To me, these are two difficult positions to reconcile.

Ritwik July 17, 2012 at 9:25 am

I’d say Tyler is halfway between Arnold Kling and Jim Bullard (wealth as capacity). The Sumnerian prognosis can be reconciled with this midway position – monetary easing often works through boosts in expected wealth. Though AD analysis only looks at the demand aspects of wealth, one can easily formulate a broader conception of wealth as supply. The Greenspan put’s effectiveness at maintianing low unemployment rates can be understood through this framework.

To the extent that we are not as poor as we are now thinking we are, the Sumnerian prognosis works. If you think that in the calculation of wealth through discounting of expected future income, the expected future income is more out of whack than the discounting, then you have even more reason to agree with the Sumnerian prognosis, even while disagreeing with the ‘the real problem was nominal’ diagnosis.

RPLong July 17, 2012 at 10:39 am

Unless, of course, the “out of whack” expectations are driven by Klingian resource misallocations, in which case greater spending won’t be a very powerful incentive to continue along an unsustainable resource utilization path.

Ummm ... July 17, 2012 at 9:15 am

… doesn’t their argument fail to take general equilibrium into account?

Let me rephrase the last, parenthetical sentence of the first paragraph Tyler quotes:

Low-skilled service employment also went up in places with housing booms as local residents, feeling wealthier **for whatever reason**, spent more at restaurants, barber shops, and local retail establishments.

Or, to put it another way, this does not stand up to the Sumner analysis.

Bill July 17, 2012 at 9:20 am

A little late in discovering the obvious.

If you want to look at the demographics of this, pick up “Patchwork Nation”, and look at the chapters regarding unemploynent by previous occupation, current location, etc.

What I thought was interesting were some chapters describing, for example, a communities (in Colorado and California) that grew rapidly with new housing developments, how many of the houses were later purchased, as the good times got rolling, by persons employed as carpenters, real estate agents, and mortgage brokers, and how it all fell apart when the housing boom busted.

Looks like job retraining.

mw July 17, 2012 at 9:41 am

and the explanation for why inequality rose during every boom, 2000s included, of the past 30+ yrs *except* clinton’s is…?

Lou July 17, 2012 at 10:07 am

I think we need to define some terms a little more carefully. So these people are structurally unemployed, but they’re able to get jobs in a different sector, but when the economy goes into recession we find out that it was just “masked” structural unemployment? What is the different between masked structural unemployment and cyclical unemployment? Is it simply cyclical unemployment that’s unlikely to end soon because the economy is in a prolonged recession? It seems to me if they can transfer freely between manufacturing and construction they could transfer just as freely to any other manual work if the economy were strong enough.

Bernard Guerrero July 17, 2012 at 1:48 pm

But that’s kind of the point, though, there isn’t all that much manual labor required at prevailing rates. The secular trend has been been moving against the low-education crowd for decades. The “different sector” that they found temporary refuge in, in this case, was not a cyclically booming one but rather one associated with the Bubble. I don’t think we can consider that cyclical masking unless we intend to inflate new bubbles every few years.

go July 17, 2012 at 11:34 am

Ah, whenever there’s an article about any negative trend in society, here come the swarms of HBDers and Game followers to shit up the comments! When all you have is a sociological hammer, every trend in need of an explanation looks like a nail!

Let’s try an analogy. A good party host tries to have people to their house who are fun, good conversationalists, who don’t show up super-late or leave early, who can handle their intoxicating beverages, and who treat your home with respect. You don’t want to invite people who will break your stuff and steal your CDs, or who will bum out the other guests.

Tyler, your blog is like this party, and you should try to cultivate good guests. You’re getting overrun with the bad ones.

msgkings July 17, 2012 at 12:59 pm

Can you please tell me the average hip-to-waist ratio of the females and the average height of the males at this party?

Steve July 17, 2012 at 1:59 pm

What does it mean to be a HBDer or Game follower? Just trying to figure out if I am stealing your CDs.

MD July 17, 2012 at 5:31 pm

HBD stands for “Here Be Dragons” and Game refers to Game of Thrones, a show which has dragons. Basically, the point is that people should save that dragon stuff for Comic-Con.

Jason July 17, 2012 at 12:49 pm

How is it structural to have excess unemployed people who used to work in manufacturing until the early 2000s but shifted quickly into construction in the mid 2000s and then out of construction when the bubble burst the late 2000s such that now we have a deficit of houses?

Movement from manufacturing to construction in a few years: easy.
Lack of movement from construction to construction in a few years today: structural unemployment problem!

Are you seriously suggesting no one is building houses because there aren’t any unemployed construction workers around?

msgkings July 17, 2012 at 1:01 pm

We’re about to find out: builders are revving up again.

Steve July 17, 2012 at 2:03 pm

Agree. Would like to hear why this is not major problem with the structural argument. These folks moved from manufacturing to construction because there was demand to do so. Now there is no demand for them to move anywhere so they are stuck unemployed.

Brian July 18, 2012 at 2:03 am

We probably shouldn’t be surprised someone from the University of Chicago discovered that our current problems are structural in nature. if your only tool is a hammer, everything looks like a nail.

Philo July 18, 2012 at 9:30 pm

Tyler’s mantra, “we are not as wealthy as we thought we were,” presumably means (letting t = now and T = then):
(1) The wealth we have at t is less than the wealth that, at T, we thought we had at T.
But sometimes it seems he has this in mind:
(2) The wealth we have at t is less than the wealth that, at T, we thought we would have at t.
And there are many related theses that seem at least as interesting as either of these; for example:
(3) The wealth that, at t, we think we have at t is less than the wealth that, at T, we thought we had at T.
(4) The wealth we have at t is less than the wealth we had at T.
(5) The wealth that, at t, we think we have at t is less than the wealth we had at T.
(6) The wealth we have at t is less than the wealth that, at t, we think we had at T.
(7) The wealth that, at T, we thought we would have at t is less than the wealth that, at t, we think we had at T.
(8) Etc.

His telling us whether he agrees with (2)-(8) would be (slightly) more interesting than his endlessly repeating (1).

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