Why are so many people still out of work?: the roots of structural unemployment

by on April 6, 2014 at 7:07 am in Economics | Permalink

Here is my latest New York Times column, on structural unemployment.  I think of this piece as considering how aggregate demand, sectoral shift, and structural theories may all be interacting to produce ongoing employment problems.  “Automation” can be throwing some people out of work, even in a world where the theory of comparative advantage holds (more or less), but still this account will be partially parasitic on other accounts of labor market dysfunction.  For reasons related to education, skills, credentialism, and the law, it is harder for some categories of displaced workers to be reabsorbed by labor markets today.

Here are the two paragraphs which interest me the most:

Many of these labor market problems were brought on by the financial crisis and the collapse of market demand. But it would be a mistake to place all the blame on the business cycle. Before the crisis, for example, business executives and owners didn’t always know who their worst workers were, or didn’t want to engage in the disruptive act of rooting out and firing them. So long as sales were brisk, it was easier to let matters lie. But when money ran out, many businesses had to make the tough decisions — and the axes fell. The financial crisis thus accelerated what would have been a much slower process.

Subsequently, some would-be employers seem to have discriminated against workers who were laid off in the crash. These judgments weren’t always fair, but that stigma isn’t easily overcome, because a lot of employers in fact had reason to identify and fire their less productive workers.

Under one alternative view, the inability of the long-term unemployed to find new jobs is still a matter of sticky nominal wages.  With nominal gdp well above its pre-crash peak, I find that implausible for circa 2014.  Besides, these people are unemployed, they don’t have wages to be “sticky” in the first place.

Under a second view, the process of being unemployed has made these individuals less productive.  Under a third view (“ZMP”), these individuals were not very productive to begin with, and the liquidity crisis of the crash led to this information being revealed and then communicated more broadly to labor markets.  I see a combination of the second and third forces as now being in play.  Here is another paragraph from the piece:

A new paper by Alan B. Krueger, Judd Cramer and David Cho of Princeton has documented that the nation now appears to have a permanent class of long-term unemployed, who probably can’t be helped much by monetary and fiscal policy. It’s not right to describe these people as “thrown out of work by machines,” because the causes involve complex interactions of technology, education and market demand. Still, many people are finding this new world of work harder to navigate.

Tim Harford suggests the long-term unemployed may be no different from anybody else.  Krugman claims the same.  (Also in this piece he considers weak versions of the theories he is criticizing, does not consider AD-structural interaction, and ignores the evidence presented in pieces such as Krueger’s.)  I think attributing all of this labor market misfortune to luck is unlikely, and it violates standard economic theories of discrimination or for that matter profit maximization.  I do not see many (any?) employers rushing to seek out these workers and build coalitions with them.

There were two classes of workers fired in the great liquidity shortage of 2008-2010.  The first were those revealed to be not very productive or bad for firm morale.  They skew male rather than female, and young rather than old.  The second affected class were workers who simply happened to be doing the wrong thing for shrinking firms: “sorry Joe, we’re not going to be starting a new advertising campaign this year.  We’re letting you go.”

The two groups have ended up lumped together and indeed a superficial glance at their resumes may suggest — for reemployment purposes — that they are observationally equivalent.  This discriminatory outcome is unfair, and it is also inefficient, because some perfectly good workers cannot find suitable jobs.  Still, this form of discrimination gets imposed on the second class of workers only because there really are a large number of workers who fall into the first category.

Here is John Cassidy on the composition of current unemployment.  Here is Glenn Hubbard with some policy ideas.

leftistconservative April 6, 2014 at 7:41 am

we have to get these long term unemployed back to work!

GDP Uber Alles!
Seig Heil!

Age Of doubt April 6, 2014 at 11:07 am

If a person has been looking for work for a long time, their skills are clearly not in high demand. If they don’t have the ambition rectify that, to get retrained for example, then the stigma is justified. Imagine you’re an employer faced with the following narratives: “Woe is me, I’ve been out of work through no fault of my own and have just been waiting for someone to hire me” or “My job was eliminated so I retrained, and I am ready to hit the ground running in a new career”. Who, in their right mind would hire the first?

Engineer April 6, 2014 at 5:56 pm

If a person has been looking for work for a long time, their skills are clearly not in high demand. If they don’t have the ambition rectify that, to get retrained for example, then the stigma is justified

Where I live, it won’t help a 50-something Windows developer very much if he takes a 6-month course in mobile application development. Employers will prefer the 20-something or 30-something who has the same amount or larger amount of pertinent experience.

Marie April 6, 2014 at 8:57 pm

That was the last recession, not this depression.
Maybe.
A lot of people have put a lot of time and resources into retraining, under the reasonable assumption that this is the key to re-employment., and have found that’s not necessarily the case, and now they have lost those resources.

Retraining is fine in a healthy economy where you have transient unemployment, the jobs are there but the people have to retool themselves to fit the jobs.

When there are no jobs, it doesn’t matter if you are very competitive. It’s like a bunch of people running a race with no prize, you can be the winner, but you still don’t have a job.

Z April 6, 2014 at 11:45 am

Thank goodness your cult liberated so many from wage slavery.

leftistconservative April 6, 2014 at 12:19 pm

jawohl, mein herren

Joseph Hertzlinger April 7, 2014 at 12:51 pm

A quote from Marx might be appropriate: “But what makes wage slaves? Wages! ” — Groucho Marx

If wages are so terrible, maybe you can send me your paycheck.

dead serious April 6, 2014 at 7:56 am

So in other words, darts at a dart board.

Technology? Wages? Inefficient production? Unfairly perceived inefficient production?

Who the eff knows?!

Rahul April 6, 2014 at 10:28 am

Of all the factors one under-discussed point is redtape & legal hurdles. Frankly, doing anything about automation replacing jobs etc. is quite hard but making it easier for people to do business in the US might be a better goal.

In the partisan debates corporate tax rates are oft discussed & contentious, but in reality the non-tax hurdles are a bigger disincentive. Try siting even some fairly innocuous plant in the US and count the number of approvals you need.

Targeting long delays, NIMBYism, the regulatory thicket, overlapping laws, too touchy regulators etc. might be the best line of attack in this war.

RZ0 April 6, 2014 at 10:40 am

Mr. Occam tells me the economy hasn’t created many jobs since the recession ended.

Michael April 6, 2014 at 8:10 am

Why do you need an overarching theory to explain the unemployment of millions and millions of people? Yes, some of them may be ZMP. And some people still currently employed are ZMP–the Whale Trader was employed after the global financial crisis and was negatively productive to the tune of billions of dollars, for example. I doubt a lot of econ profs who tout ideologies are terribly productive either…

So some were unemployed because companies took a harder look at who was truly productive. Some are still unemployed because of sticky wages. And some are unemployed because of automation. Yes, that’s the likeliest case, but the way Cowen presents the issue is effectively to stigmatize the unemployed. Why does he insist on this?

Craig April 6, 2014 at 8:51 am

“The way Cowen presents the issue is effectively to stigmatize the unemployed. Why does he insist on this?”

Because if he acknowledged that good people are unemployed through no fault of their own, then it could happen to Cowen as well. But if they’re unemployed because they are lazy, ignorant, or worthless, then it can’t happen to him.

prior_approval April 6, 2014 at 9:05 am

‘then it could happen to Cowen as well’

No, Prof. Cowen is a tenured member of the GMU faculty, and he cannot be fired for being ‘lazy, ignorant, or worthless’. And I am not snarking – he literally cannot be fired for any of those reasons (theoretically, such a faculty member can have other difficulties, of course – bad class assignments, no approval for grants or travel, etc.)

And it seems fair to point out, the previous points do not apply to Prof. Cowen professionally. After all, he is the one defining others as ‘ZMP,’ and he gets a paycheck while doing it, thus proving he isn’t one of them.

Michael April 6, 2014 at 9:50 am

Just getting a paycheck doesn’t prove you’re ZMP. It just proves you’ve convinced someone else you aren’t ZMP.

prior_approval April 6, 2014 at 9:54 am

Well, I wasn’t the going to be the one pointing that out about one of the hosts of this web site.

Age Of Doubt April 6, 2014 at 11:14 am

Perhaps the current state of the economy is that people are getting paid what they’re worth. If some overpaid deadwood gets let go, and they can’t find any good-paying jobs for their minimal skillset, then that seems like a reasonable reflection of reality. In other words, maybe the shortage of jobs is really a structural intolerance for useless people.

prior_approval April 6, 2014 at 12:38 pm

‘In other words, maybe the shortage of jobs is really a structural intolerance for useless people.’

I do wonder how many of the graduate students mentioned below would be in full agreement with your perspective -

‘It will come as no surprise to observers of graduate education that the report documents the fact that foreign students make up the majority of enrollments in U.S. graduate programs in many STEM fields, accounting for 70.3 percent of all full-time graduate students in electrical engineering, 63.2 percent in computer science, 60.4 percent in industrial engineering, and more than 50 percent in chemical, materials and mechanical engineering, as well as in economics (a non-STEM field). However, the report, which analyzes National Science Foundation enrollment data from 2010 by field and institution, also shows that these striking averages mask even higher proportions at many individual universities. For example, there are 36 graduate programs in electrical engineering where the proportion of international students exceeds 80 percent, including seven where it exceeds 90. (The analysis is limited to those programs with at least 30 full-time students.)’ http://www.insidehighered.com/news/2013/07/12/new-report-shows-dependence-us-graduate-programs-foreign-students

Marie April 6, 2014 at 9:04 pm

@Age of Doubt, I have to wonder what you and the employed people you know do that is so exceptionally useful? Just in general terms, not trying to invade privacy, but I don’t think I know hardly anyone who does not have any useful skills, if you take a common view of that. For example, many people I know can cook a meal, or dig a garden, or man a cash register, or work on an assembly line. Many can do what seems less useful to me but what seems in large demand in our new, superior economy — write a report, draw traffic to an internet site, whatever. A few have incredibly useful skills — can dig a septic system or suture a cut. Many of the folks I know have demonstrated the useful skill of defending a position with arms, or piloting a jet.

I really can’t think of anyone that can’t do some of this stuff, although there are a few injured or sick folks I know that can’t do them as well as most others can.

So what constitutes useful?

Bill April 6, 2014 at 9:12 am

It couldn’t happen to Cowen as well. He has tenure.’

So, let’s do a little rewrite, and imagine that States who employ tenured profs no longer had to respect tenure.

Quoting Tyler and rephrasing:

“Before the crisis, for example,Deans and Department Chairpersons didn’t always know who their worst workers were, or didn’t want to engage in the disruptive act of rooting out and firing them. So long as State Revenues were brisk, it was easier to let matters lie. But when money ran out, many Colleges had to make the tough decisions — and the axes fell. The State’s financial crisis thus accelerated what would have been a much slower process.”

Of course, that never happened.

I wonder if tenured faculty ever have any sympathy, or understanding of the problems of, the unemployed, even though they may be more ZMP than the people they write about.

Michael April 6, 2014 at 9:51 am

“I wonder if tenured faculty ever have any sympathy, or understanding of the problems of, the unemployed, even though they may be more ZMP than the people they write about.”

If you want sympathy for the unemployed, Paul Krugman has that in spades. And he’s called evil and literally worse than Hitler in exchange for his concern.

Libertarians are weird.

Marie April 6, 2014 at 10:20 am

There’s a difference between having sympathy for someone in trouble and using that trouble to further your own interests.

Especially because in the first case you want their trouble to end.

andrew' April 6, 2014 at 3:18 pm

This is true. Krugman said so

Locke April 6, 2014 at 3:45 pm

It’s not only Krugman’s crocodile tears that he is scorned for, but his arrogance and dehumanization of anyone who doesn’t conform to the absolutism of his worldview.

ChrisA April 6, 2014 at 9:28 pm

Can’t you people get the distinction between describing a phenomenon and being an advocate of it? All Tyler is saying is that phenomenon called ZMP may exist. And any who had tried to run a business will know that there are some people who definitely cost more than they are worth. And that’s a possible reason that long term unemployment exists because potential employers hypothesize that long term unemployed people have a higher potential to be ZMP. He is not saying that everyone unemployed is somehow useless, or that people should be fired, or that this is a good or bad thing. We can all feel sympathy for such people while acknowledging that such people exist.

Anyhow, in my view, one of the reasons for long term structural unemployment is that people adapt to their situation (this is a well proven result in psychology similar to hedonic adapation). If you are long term unemployed you by definition have had time to get used to it and be more comfortable in it. And so motivation to get employed is less. In other words, long term unemployed people have to more incentivized than short term unemployed to find and take employment. So they don’t get employed until the economy is really booming and 1) finding a job is really easy and 2) pay rates have significantly risen.

ummm April 6, 2014 at 8:14 am

This is gonna be a huge discussion because everyone has their own theory

The financial crisis gave employers a good excuse to thin the herd and automate/outsource the rest. Before the crisis too many people were being overpaid to perform redundant work that could otherwise be automated, outsourced, or eliminated. A lot of the manufacturing and financial services jobs that were lost weren’t necessary to the functioning of the economy. Even as the economy booms there’s no need to companies to re-hire, simply because all needs are being met. Being rich is the best solution to getting by in the economy. Also being smart gives you more opportunities than being average, those are the people that will continue to pull ahead of everyone else.

Boonton April 6, 2014 at 8:32 am

Before the crash there was plenty of offshoring and automation. I recall Bank of America, for example, proposing to charge account holders for seeing a teller so that as many transactions as possible would go through ATM machines and online banking. Call centers, processing centers and more were aggressively outsourced to India during all phases of the ‘boom’.

Assume I put you in charge of a med. sized company back in time during the boom. Why would you insist on keeping redundant people on the payroll? Even if you were making good profits, you’d make better profits than your competition and be able to expand into their markets. In fact even if you didn’t run the company, you could do this. The productive people could leave the company, form a start up, and reap profits without having to pay the overhead of the so-called ‘ZMPs’.

In fact, I’d like Tyler to explore why ZMPs were not solved during the dot com boom? Wouldn’t start ups and new company formation be the perfect mechanism for the typical firm in the economy to shed ZMPs?*

* Note I’m not talking about existing firms but all firms. Imagine firms are weighed down by 15% ZMPs, 70% good workers and 15% highly productive super-workers. Keeping the ZMP’s on payroll either because you don’t know who they are or because you don’t want to cause a ruckus downsizing in a good economy is essentially imposing a tax on your firm. Why wouldn’t new firms form by some of the 15% superworkers leaving to start their own companies hiring only other superworkers or good workers as they need them. Not being burdened by the ‘ZMP tax’ they enjoy higher profits which means they expand while the older companies contract.

ummm April 6, 2014 at 8:43 am

“Before the crash there was plenty of offshoring and automation.”

these are long standing trends that were accelerated by the crisis

If everyone thinks the economy is doing well and you layoff a bunch of workers it’s gonna make you look worse than if everyone thinks the economy is weak.

Boonton April 6, 2014 at 8:55 am

Not buying it, in the late 80′s and 90′s ‘downsizing’ became common and the idea that a company could lay off workers when it was actually making good profits went from being an absurd sounding taboo to an accepted reality.

Someone from the other side April 6, 2014 at 9:39 am

Even so, management can only undertake so many projects at once (often subsumed under management bandwidth or some such). While you are growing profitably, it is quite likely better for your bottomline to focus precious management resources on capturing that growth rather than trying to reduce costs. It is a relatively rare case that companies manage to grow while radically increasing efficiency (with the potential exception of occasional innovations that provide efficiency boosts vs. more pedestrian cost management).

Even if not, since everyone prefers growth programs to cost programs (management included), you likely won’t launch a cost program before there is substantial pressure to do so.

msgkings April 6, 2014 at 1:57 pm

“Being rich is the best solution to getting by in the economy.”

It’s the best solution to a lot of things actually.

Pure gold.

Boonton April 6, 2014 at 8:22 am

Krugman’s puts a problem with this theory (and to the Austrians as well), that needs to be answered:

Yes, workers with a lot of formal education have lower unemployment than those with less, but that’s always true, in good times and bad. The crucial point is that unemployment remains much higher among workers at all education levels than it was before the financial crisis. The same is true across occupations: workers in every major category are doing worse than they were in 2007.

Both malinvestment and ZMP stories suffer from the fact that the ‘right’ investment or workers should therefore see excellent returns that the unlucky masses don’t. Here I think is where the story of demand comes into play. Tell a plumber you think you have a leaky pipe….but tell him the water is shut off in the house. He is probably going to tell you there’s no way to tell which pipe might be leaking unless you turn on the water, put the pressure up and he looks at each pipe to see if he can spot water shooting out.

ZMP absent maxing out demand is like claiming there’s a leaky pipe but refusing to turn on the water pressure. Turn on the demand and push it until you see inflation. Only then will you be able to tell if the market cannot expand output by tapping the pool of the unemployed or whether the unemployed are essentially useless to producing additional GDP no matter how strong demand is.

Cody April 6, 2014 at 8:33 am

Why does the existence of the long-term unemployed beg for explanation? It’s exactly the kind of thing that people like Krugman predicted would happen at the start of the crash, if we neglected to increase demand.

Surely some people are not talented workers, and on the margins they are most likely to go when demand falls. It will also be hardest for them to get hired. But if they were actually employable when the market was good, it’s a mistake to act as if the slack in the market isn’t their primary problem.

Ray Lopez April 6, 2014 at 10:33 am

Cody makes a good point. At the margin lack of demand may be at fault for high unemployment across all educational levels, not ZMP or demographics (BTW the ‘over-50′ age group saw a GAIN in employment since the Great Recession, so demographics are not the reason at the moment in the USA, though it will become a reason later).

Before 2008, I knew of white collar professionals who were highly skilled but could not find a job easily due to personal issues, laziness, over-qualification, and just plain being allergic to work. But post 2008, there are lots of these people–as Krugman says across all educational levels–who cannot find jobs due to lack of demand. It’s implausible to suggest that structural issues made themselves manifest only in 2008 all of a sudden. Though from a “chaos theory” point of view this sort of abrupt transition can happen, it’s not likely in a mature, large economy like the USA’s my intuition tells me.

BTW I semi-retired well before 2008 and in my prime worker years (I now run my own consulting business online) but then again I had already made my million and my family is in the 1%. But even when I dropped out of full-time work I saw how difficult it was getting to make a buck using your mind rather than assets (as in real estate assets in the DC area that you can rent to rent seekers, which is how I make my real money). Society has made getting paid with your mind rather than with your assets much more difficult, as TC has commented on capital deepening effects, just as K. Marx predicted.

Good luck to ZMP workers–you’ll need it. As for me in the Philippines, I pay no taxes on the first $90k I make, pay only property taxes in DC, pay no state income taxes (I am technically a resident of a state that has no state income tax), and am dating a 20 year old girl who models (we’re back together again). It’s more fun in the Philippines. Waiting for financial Armageddon in the USA so I can employ some of my vulture capital funds for the inevitable rebound.

Michael April 6, 2014 at 12:48 pm

1. Enjoy getting fleeced by your girlfriend who probably part-times in Angeles City.

2. I agree with you that the ability to earn on skill and knowledge versus on capital has gotten harder, and that Marx predicted this. I’d also add that this is partly the result of the proliferation of education–intelligence has become commoditized.

msgkings April 6, 2014 at 2:02 pm

For a guy who self-reports so much life satisfaction, you sure seem to have a compulsion to tell a board full of anonymous strangers about it over and over and over and over and…

andrew' April 6, 2014 at 4:17 pm

So people just decided they don’t like stuff for no reason then. And firms decided for no reason they don’t want to turn as much stuff into other stuff.

Fair enough. No explanation required. Because Paul Krugman said so.

andrew' April 6, 2014 at 4:05 pm

We need the fed to create a housing bubble to boost demand.

Dutch April 6, 2014 at 8:41 am

The most obvious answer is the flood of illegal and legal immigrants who have taken the jobs that have been created and depressing wages leaving out of work Citizens dependent on welfare and unemployment. If all illegals were deleted and immigration moratorium imposed then millions of jobs for our citizens would open up and there would be upward pressure on wages. But of course only someone who cares more about American citizens than foreigners would do this. And we know our government, elite and the writer of this blog don’t.

Boonton April 6, 2014 at 8:58 am

During the recession illegal immigration became flat and even went negative (more leaving each year both via deportation and on their own). Your theory doesn’t stand up.

Dutch April 6, 2014 at 9:26 am

I said legal and illegal. Plus I doubt illegal has gone flat. Legal certainly hasn’t. Plus even if it has the illegals that came before are still here and deleting them would open up jobs and put upward pressure on wages. Do you even care about your fellow citizens? Or are u one?

Boonton April 6, 2014 at 9:41 am

This is the ‘lump of work’ fallacy. Your idea seems to be that there’s X number of jobs so get rid of one chap who has a job and that ‘opens up’ the slot for someone who is unemployed. Yet by this logic how did the US ever go to a nation of 300M+?

Rahul April 6, 2014 at 9:54 am

@Dutc

So sectors without illegals are all robust & thriving?

Guest April 6, 2014 at 9:27 am

His theory does hold up because my neighborhood is chock full of illegals and they push kids as well as blacks out of jobs. Maybe the inflow stopped but there are still millions of jobs filled by illegals. Most of these jobs suck – poultry processing anyone? – but in a world where we need fewer workers every illegal is taking a job from someone out of work.

ummm April 6, 2014 at 9:36 am

but some immigrants create jobs . the increased consumption from immigrants may encourage hiring. you’re falling for the lump of labor fallacy

Guest April 6, 2014 at 9:56 am

It is not a fallacy anymore. The day laborers and nannies are not creating any jobs. They are taking construction jobs away from Americans and snow removal jobs away from youth. They live ten people to an apartment and send their wages home. We would have a lot less unemployment if we kicked these people out and let wages rise. There are virtually zero jobs in Camden, Flint, upstate NY – try telling these folks about tge lump of labor falllacy. There is a finite number of jobs out there per population size. We dont need people working anymore, so kick out the illegals and let the Americans do those jobs. I would love to be a gardener but the illegals undercut everyone on price.

Rahul April 6, 2014 at 10:12 am

If you are an able bodied construction worked in Camden or Flint, one simple answer is, at least *move*! I mean that’s what many of their great-grandparents probably did and in far harsher conditions travelling hundreds of miles in the Great Depression. Or their great-great grandparents, travelling thousands of miles on some rickety ship before that.

Marie April 6, 2014 at 10:25 am

@Rahul,
If the whole U.S. is going down, where should my kids move to?
Serious question.

Rahul April 6, 2014 at 10:31 am

@Marie

Convince me that opportunities in the median US town (forget the best options) are as bleak as Camden or Flint.

Boonton April 6, 2014 at 10:56 am

My brother-in-law is a truck mechanic…anything from your heavy duty pickup up to construction equipment etc. A lot of the trucks that come in from landscapping operations, which do employ illegals and other immigrants.

If a UFO beamed away all the illegals tomorrow, it’s possible the lanscaping companies would tap more American workers. But lanscaping would also end up costing more and people and companies would ask for less landscaping. Corporate headquarters would let their greens be a bit shabbier and go less fancy with it. Less landscaping means fewer trucks which means less truck repair which means fewer, not more jobs for Americans.

In your example of an immigrant taking a job as a nanny, how many of those customers end up doing *more* things that create jobs in the US like going out more often or concentrating on securing a high end job because less expensive nanny services make it easier to juggle those things and kids? It’s far too smplistic to think that the only impact of no immigrants would be to simply swap out every job an immigrant is doing with one for an unemployed American.

Marie April 6, 2014 at 7:14 pm

@Rahul,
They are nowhere near and I pray never will be, we’ve found ourselves a good place. But my kids are young.

Frederick April 6, 2014 at 10:38 am

If an immigrant, illegal or otherwise, can take your job and do it passably well what does that say about you?

Realist April 6, 2014 at 10:57 am

What a bizarre comment. Have you spent any time in a STEM PhD classroom? Immigrants are in many cases the best and brightest people in the US.

Ed April 6, 2014 at 3:01 pm

All I know is that when we still did interior immigration enforcement, jobs opened up for US citizens and legal immigrants. In many cases after immigration raids, Americans lined up for the same jobs in the 100s. Of course economists like Tyler could care less, they’re tenured.

http://usatoday30.usatoday.com/money/workplace/2009-09-13-plants_N.htm?csp=15

“Whenever there’s an immigration raid, you find white, black and legal immigrant labor lining up to do those jobs that Americans will supposedly not do,” said Swain, who teaches law and political science.

Exactly who is filling the jobs has varied, depending on the populations surrounding the plants:

• Out West, one of the Swift plants raided by ICE, had a workforce that was about 90% Hispanic — both legal and illegal — before the raids. The lost workers were replaced mostly with white Americans and U.S.-born Hispanics, according to the CIS.

• In the South, a House of Raeford Farms plant in North Carolina that was more than 80% Hispanic before a federal investigation is now about 70% African-American, according to a report by TheCharlotte Observer.

• Throughout the Great Plains, a new wave of legal immigrants is filling the void, according to Jill Cashen, spokeswoman for the United Food and Commercial Workers union, which represents 1.3 million people who work in the food-processing industry. Plants are refilling positions with newly arrived immigrants from places such as Sudan, Somalia and Southeast Asia.

Rahul April 7, 2014 at 3:41 am

That 90% number is not very informative since it includes both legals & illegals. In reality, the ICE raids initially arrested less than 10% of the shift workforce (as far as I can tell) & only a fraction of that ultimately had charges filed against them.

prior_approval April 6, 2014 at 8:59 am

‘There were two classes of workers fired in the great liquidity shortage of 2008-2010′

Such interesting terminology – because 30 years ago, that second group would have been defined as ‘laid off.’ In explicit contrast to be ‘being fired.’

Of course, since at least one of GMU’s leading economic lights now thinks that being fired is a common term, the idea of Kurzarbeit, and retaining an economy’s manufacturing capability, seems to have taken another step back from any discussion of how to have an economy weather a financial crisis better.

ummm April 6, 2014 at 9:34 am

It has taken a back seat because no one has any good ideas, but the unemployed aren’t a powerful or important constituency anyway

Guest April 6, 2014 at 9:58 am

When the unemployed begin to include the kids of the rich we will see some changes.

prior_approval April 6, 2014 at 10:08 am

Well, my belief that Kurzarbeit has taken a back seat in American discussions in part because the United States, in contrast to Germany, is no longer a manufacturing economy able to compete in world markets. And apparently, that is considered desirable in policy terms. (Amusingly, no other country has followed America’s model of simply abandoning the ability to compete in manufacturing on either price or quality – not that America’s global competitors are complaining.)

‘…but the unemployed aren’t a powerful or important constituency anyway’

Kurzarbeit is about keeping people from becoming unemployed, and the most fervent supporters of Kurzarbeit in Germany are those who own and manage industrial companies – industrialists tend to be a powerful and important constituency in Germany, even if they are apparently rare in American public life. Because after a crisis passes, your industrial company is in a perfect position to benefit from the fact that many of your previous competitors in countries without such an interest in retaining their manufacturing base are now bankrupt.

Ray Lopez April 6, 2014 at 10:55 am

@PA: other countries have not abandoned manufacturing since they are doing the USA’s manufacturing. It really is that simple. Mercantilism is alive and well. BTW an interesting stat: Germany has more billionaires per capita than the USA does, and I think (but am not 100% sure) so does Japan. All those current account surpluses go somewhere.

prior_approval April 6, 2014 at 12:48 pm

It is an interesting discussion – but places like South Korea are most certainly not following any current American style precepts. Which just may be why Samsung is a household name on its own – and until recently, one of Apple’s main advanced screen component suppliers, a fact that most people holding an iPhone are likely completely unaware of (the relationship pretty much came to end after Apple’s lawsuit barrage – and when it woke up to the fact that Samsumg could disrupt Apple’s business much more effectively than Apple could Samsung’s).

Keith April 6, 2014 at 11:57 am

This guy says that the US manufactures more than ever. It is an older posting but the trend in the graph is clear enough.
http://www.crossingwallstreet.com/archives/2010/11/we-dont-make-anything-anymore.html

Who is right?

prior_approval April 6, 2014 at 12:54 pm

Well, let’s see – how do you define manufacturing?

Because if your definition involves things like filling rail cars with coal, the U.S. is a powerhouse.

If instead, it involves things like Anlagenbau, the U.S. is lagging pretty badly at this point. The fact that word ‘Anlagenbau’ is not easily translated into English might be a clue. The other clue is that the production from a plant that makes plastic bottles certainly counts as ‘manufacturing’ – even if the plant itself was built using technology and components not manufactured in the U.S.

See the example concerning Samsung and Apple above. Apple needs its Asian suppliers to retain its position as an American ‘manufacturer.’ The Asian suppliers don’t actually need Apple to keep their position as manufacturers.

Marie April 6, 2014 at 9:13 pm

I see nothing but a vague cite for that graph.

I’m not saying it’s not right, but I could make and label a graph to say whatever I want to say, too.
I have heard that the U.S. still produces much more for domestic consumption than it imports, but I’ve always assumed that counted services and etc. — basically, comparing all U.S. “production” measured however we feel like measuring it to all tangible, manufactured imports, valued by market rates.

But I have no real idea, I’ve never been able to find good info on it.

Realist April 6, 2014 at 9:13 am

In America, it generally does not sense to work at the wage rate of unskilled labor. You can have a higher standard of living on welfare, including going to college and taking out loans to pay for living expenses. As mentioned in the article, monetary policy is not going to solve this problem. The only solution is to correct the incentives to work. Ideally, this means improving productivity of low-skilled workers.

ladderff April 6, 2014 at 9:17 am

If you told anyone born before 1910 that we had these things called “robots” which were controlled by “computers” and that using minimal human input they saw to much of our material needs, and then you told them that it had become normal for the better-off among us to work well over 40 hours a week, and you told them that amid all this abundance even the women with (or without as the case may be) young children were formally employed outside the home, so that still other formally employed strangers had to raise them, they would think we had lost our minds, that we had squandered these Promethian gifts, and did not deserve them. And they’d be right to think so.

In other words, one has to keep ‘employment’ separate from ‘unemployment,’ and abandon the totalitarian mindset which holds that nobody is “free” if he or she doesn’t live on support from impersonal institutions like large formal employers or the government—-that any personal patron-client relationship is oppressive to the client. So we have welfare and we have its upper-class equivalent in the form of millions of jobs that simply don’t need doing—but that count toward ‘employment’ and ‘labor-force participation’ and a shortfall of which shows up as ‘unemployment.’

We have too much unemployment together with too much employment.

Marie April 6, 2014 at 10:26 am

Wow.

+++.

Then a couple more +.

Ray Lopez April 6, 2014 at 11:00 am

@ladderff–sorry but this is b.s. Do you realize that back in the turn of the last century the people lived in the USA, on a per capita basis, of around current USD of $4k per worker? This is the same standard of living as life in the Philippines! Which means: you eat once a day once in a while to save money; you spend a lot of your money on food; your health care is unattainable; the rich live nice but the poor live in squalor; you bathe once a week; you have one good set of clothes that you wear to special occasions and the rest of the time your clothes, including shoes and underwear, are bought at the used clothing store. Is this the life you want today in the USA? Home school is that important to you? Come live here in the PH if you want to go back to those times.

Alexei Sadeski April 6, 2014 at 10:16 am

It’s because they’re flubbing their job interviews.

Marie April 6, 2014 at 9:25 pm

Made me laugh.

Brian Donohue April 6, 2014 at 10:17 am

Good post.

Private employment now exceeds the 2007 peak- government employment is 500,000 down from its peak. Chunk of explanation there.

Ray Lopez April 6, 2014 at 11:05 am

@ Brian Donohue–no, you misread the stats. The population has increased so some of those private jobs are from new people entering the labor force. Further, if you believe in ‘potential’ GDP, the present GDP is off by a big offset from where it “could” be had there not been a Great Recession. That’s the way Keynesians think, that’s why they are so upset. It’s where we ‘could be’ had the economy ‘acted normally’ that’s important to them. Not that I believe them, just pointing out where you are mistaken. Personally I am more Austrian and believe, like TC, in structural reasons long term, though this present US funk is like Japan’s and maybe due to lack of demand (those frugal Japanese) as well as long-term structural issues (those old, unproductive Japanese).

Brian Donohue April 6, 2014 at 11:17 am

Ray,

You misread my comment, which is 100% factual.

I think it’s a silver lining. The private sector has had a gut-wrenching six years, losing 8 million jobs, then regaining them. Tyler’s first quoted paragraph captures this- there are good aspects to this reshuffling.

Government employment is much more staid, and almost never declines (early 1980s and now). But the pruner will have his due- now is gubmint’s turn.

QWERTY April 6, 2014 at 10:39 am

Good post.

However it is strange, that you dont mention the obvious solution: More immigration.

We all know how mass immigration of unskilled people will create a lot of the famous “truck driver” jobs. Tyler has told us this many times. We have learned over and over again that 1 poor unskilled immigrant create at least >1 job, hence they dont increase unemployment.

Strangely, unemployed americans dont create additional jobs, even thought they might be poor and unskilled to. Its some special magic that only comes from moving across borders.

If only it wasnt for all those xenophobic rightwingers, this structural unemployment wouldnt be a problem at all, since there wouldnt be any.

Dear Tyler. Have I misunderstood anything?

ummm April 6, 2014 at 11:33 am

immigrants have a greater propensity to create businesses and consume than unemployed Americans

Immigrants regularly contribute billions more to the Medicare program than they draw out.

selection bias favors skilled immigrants. the unskilled, unmotivated, and impoverished tend to stay put

Tom DeMeo April 6, 2014 at 11:08 am

Anyone who has ever employed people knows just how hard it is. It can be maddening. Until about a decade ago, it was the only way to scale a business. Now it isn’t. Employers aren’t hiring as much because they can.

anon April 6, 2014 at 5:29 pm

+1

In the last 10 years many small and mid-sized businesses have decreased headcount due to more efficient business processes enabled by automation (software, hardware, cloud).

Marie April 6, 2014 at 9:30 pm

Yeah, I know.
Used to call tech support for medical, and talk to a person pretty quickly.
Now I get a lot of shuffling around on the automated system, and the hours for ever getting through to a human have been drastically reduced.
After the depression hit, everyone understood that a company maybe couldn’t stay in business unless it cut costs, so they put up with a horrible level of service at the same cost. Now that’s the new normal.
Look at air travel, no one expects decent prices or service any more, chunks of the fleet are grounded and the planes are refit for less space per customer, which means customers can’t actually bring luggage. Because 9/11. Which was a decade ago but still, 9/11.
At some point, people may demand value for their money again, and then business will have to return to employing enough people to do the job well, not just passably. Maybe.

rayward April 6, 2014 at 11:11 am

The highest unemployment rates are in the youngest age brackets, who, by definition, can’t be long-term unemployed. The 20-24 age bracket unemployment rate for males is 13.2% (March 2014), for females is 11.1% (March 2014). Cowen blames the unemployed for their plight (“not very productive or bad for firm morale”), absolving policy makers and those who influence policy makers like himself. The long-term unemployed get lots of attention, deservedly so, but high unemployment rates for young workers will have far worse long-term consequences, for themselves and the nation.

mulp April 6, 2014 at 11:59 am

“The first were those revealed to be not very productive or bad for firm morale.”

Quality control, customer service, safety peronnel are bad for the morale of managers and shareholders, so they are good people to fire. Sweeping those deaths, leaks, pollution under the carpet is good for this quarters profits and share price gains and thus good for morale.

Bryan Willman April 6, 2014 at 12:00 pm

It will be very very hard to sort all this out with much better data, and some of that data may be nearly impossible to gather because the actors involved can’t actually explain their actions.

In the machine shop press one sees the following story over and over: “before the crash we had X people and made Y parts for about Z revenue. the crash hit us hard and we downsized to 1/4 of X people and learned to make 2x Y parts with those people. we are now up to 4x Y parts for 2x Z money with 1/2 X people and life is good again”

What this employer publicly reports in a trade magazine is that they were forced to have serious layoffs due to lack of demand. But we could also explain this as discharging people from ZMP jobs, which would also discharge ZMP people. And as process improvements (“automation”) displacing people. So which explanation do we apply? All three? None? Some of each?

What percentage of the workforce does this story apply to? Very hard to say…

Darras April 6, 2014 at 1:35 pm

“A high school diploma and a basic willingness to work were often enough, at least for white men… [ back in the good-old days of industrial employment].”

Prof Cowen, did you really write “at least for white men,” or did some NYT editor stick that in?

If you wrote that, shame on you. A diploma and willingness to work were the basic qualifications for everyone in those days. That is why the Supreme Court case Duke Power v. Griggs which set the modern American legal standard that employers cannot require high school diplomas for entry-level jobs turned on the fact that many blacks dropped out of high school. Employers who asked for HS diplomas, said the high court, were inflicting “disparate impact racism” on black applicants.

andrew' April 7, 2014 at 4:16 am

Government dysregulation. Humorously of its own thing this time.

Can we require college degrees?

Ricardo April 7, 2014 at 9:58 am

I read Tyler to mean that there was a time in which a high school diploma and willingness to work were enough for white men, but not necessarily for women and minorities, who faced the additional challenge of discrimination.

mulp April 6, 2014 at 2:49 pm

An example of the free lunch economics that has become fashionable since Reagan:

“Tim Harford suggests the long-term unemployed may be no different from anybody else. Krugman claims the same.”

Tyler and even Krugman have fallen victim to the free lunch economic theory that separates workers and consumers.

If ZMP workers are in fact real, then there must be ZMC persons as well who will be an identity to the ZMP workers. ZMP workers will never consume anything and will thus not buy anything that is produced.

The future Tyler suggests is one where the robots produces everything and only half the people will find employment while the robots do all the work that the other half did in the past.

Well, then Tyler must also speak of the future where half the population consumes nothing produced by capitalism and sold in free markets and where robots become half the consumers in the free market, spending the wages they earn based on their robot capital.

TANSTAAFL.

An economy is zero sum.

If workers are unemployed and don’t get paid, then they are removed from the economy. Robots producing twice as much and eliminating workers will either require the half of workers with jobs being paid twice as much AND consuming twice as much – two Big Macs instead of one, buying two new cars instead of one – or the robots produce half as much as they are designed to produce to account for the zero sum requirement of consumption equal to production.

The Fed is pumping money into an economy where consumers are paid less as workers or are unemployed so prices can not go up because consumers of goods and services have less money than ever, but existing and decaying asset prices can go up in price because of the herd mentality that inflation in asset prices represents real increases in asset values.

But that was the herd mindset from 2002-2007 on real estate assets. Consider shopping centers and other related real estate – those prices were stable or increasing even as they were clearly becoming less valuable because overbuilding was driving returns down, strapped consumers had less money to spend, and new retailers were going low rent to take market share, whether the new discounters – the dollars stores, or the online retailers. And the builders were building bigger and bigger homes even as families shrank in size and had less income, fooled by the inflation in asset prices even as the required returns to capital exceeded ability of consumers to support the real estate prices.

If twenty or fifty million Americans are written out of the labor economy, just be sure to write them out of the consumer economy. TANSTAAFL. You can’t stop paying workers and then expect them and their families to magically materialize money to grow their consumption to fuel growth. TANSTAAFL. Economies are zero sum.

Ricardo April 7, 2014 at 10:01 am

“Economies are zero sum.”

I will summarize the entire history of economic thought for you: “not true.”

uffs April 7, 2014 at 4:36 pm

From an accounting perspective the economic system is definitely closed.

Kevin Bush April 6, 2014 at 4:01 pm

“There were two classes of workers fired in the great liquidity shortage of 2008-2010. The first were those revealed to be not very productive or bad for firm morale.”

Let’s look at this first class of long-term unemployed people, the “deserving unemployed” or whatever you want to call them. Let’s say for argument’s sake that in some sense they deserved to be fired in 2008 / 2009. What should these people do…. never work again? go off and die? They’re still our fellow citizens. Isn’t it some kind of moral indictment or collective failure that they can find no productive place in society as currently ordered?

andrew' April 7, 2014 at 4:24 am

Yes and no. Isn’t it their failure speaking of the hypothetically deserving unemployed?

I do nothing but shout unto the wind about education (e.g. more easier STEM), but why is it my fault and not their fault?

I know some of these people. I’d like to help them. But they don’t strike me as a frustrated part of the solution.

I also have compassion for those not in the first world.

Lonely Libertarian April 6, 2014 at 4:03 pm

The elephant in the room in all of this is the absolutely horrible job we are doing preparing people for this new world.

1. High schools do not do very well preparing students for work that will not require a college degree.
2. Colleges continue to harvest large amount of cash turning out poorly prepared and by all account poorly educated graduates

And that is for TODAY’s world – just think how mismatched these will be in 5-10 years…

andrew' April 7, 2014 at 4:31 am

Make employment zero government induced fixed cost for the first year. No paperwork. Nothing except a start date. It can be done.

Then we will see how relevant off-the-job education is to this problem. And it is, but how much? Maybe our extreme credentialism is a band-aid for other labor market problems.

Charlie April 6, 2014 at 4:16 pm

This is not hard. Some portion of workers actually aren’t that useful at all–during recessions they get identified and fired, during high growth periods they get rehired because employers are not picky and need more people.

The reason why a chunk of these workers remains unemployed is that the recovery has not been good. Nominal GDP may be higher now than in 2007, but it remains well below trend: the recovery was sluggish and not V-shaped. If GDP growth had be 4-6% in 2010-11, would we be contemplating the “mysteries” of the labor market?

andrew' April 7, 2014 at 4:41 am

So why the slow recovery? Perhaps more than usual the ZMP fraction made plans (e.g. debts) based on an inflated sense of confidence bolstered by artificial economic moderation. Or we misjudged the value of trade imbalances (We are borrowing from china to pay to offshore our production to china). Or the new normal of energy prices (and potential costs) during globalization changed production cost calculations. Etc.

I’m starting to feel better that it’s not even worse!

Mark April 6, 2014 at 7:39 pm

Employers don’t want to hire people who were laid off during the crash because they think there must be something wrong with them. Employers don’t want to hire people who have jobs because they don’t want to spend more on them than their competitors. Employers don’t want to hire young people who entered the work force since the crash because they’re unproven. Employers don’t want to hire old people because their skills are obsolete.

Increasingly I get the idea that employers just don’t want to hire people at all. This could become a huge problem for a society made of people.

jorod April 6, 2014 at 9:53 pm

You would think wages would be falling. But more and more people want higher wages for menial work. Is this delusional?

Nathan W April 7, 2014 at 3:02 pm

Richer and richer people have less time or inclination to do menial work.

One might expect that people doing menial work would be in a better position to demand more money, if it weren’t for the number of unemployed.

Marie April 7, 2014 at 3:40 pm

I’m not sure that’s true.

But if it even partially is, I’m sure there’s many explanations. But one is that there are costs to taking a job. You have to pay day care, you have to pay for different clothes, you have to pay for gas and take the wear and tear on a vehicle, you are likely to wind up paying more for food because you don’t have the time for shopping or for cooking. And, of course, there’s also the cost of losing benefits for some.

These costs are all going to fall hardest on the very folks most likely to be doing what you’d call menial work, right? So let’s say the ditch digging job was $8 per hour five years ago. And the cost of taking that job was $2 an hour. Now there are more unemployed, but if the job is still $8 an hour but the costs are now up to $4 an hour, you’re working for $4 an hour. Now factor in that despite federal protests, the milk I used to buy for $2 a gallon now costs me $3.50 if I get it on sale — the cost of basics is much higher than it was five years ago. We already factored in some of the rise in gas prices, but you have to drive to the grocery store, too. So maybe the $4 an hour you are working for is really only worth $3 an hour.

So the guy working the menial job for $6 an hour five years ago is being asked to work it for $3 an hour today. That’s a cut in pay of 50%. He might still work the job, because $3 is better than $0. But yes, he’s going to be hoping for higher wages.

Joseph Savon April 6, 2014 at 11:15 pm

The only societies with full employment are hunter/gatherers. Eventually, we must either limit automation or amend the Bill of Rights to guarantee food, water, shelter & medical care. We have known this at least since H.G. Wells wrote of Morlocks & Eloi, but seem reluctant to address the issue in any meaningful way.

chuck martel April 6, 2014 at 11:39 pm

The incredible labyrinth of legalities involved in starting and maintaining a business is obviously having a negative effect on US employment. At the same time, how can anyone imagine that normal life will mean walking out the door at 6:30 am every morning with a cup of coffee in hand and steering the Accord down to the plant for eight hours of toil followed by a return trip and later supper and Seinfeld re-runs, forever into the future? In a relatively short period of time humans have gone, at least in the developed world, from a situation where no one had a job to a point where almost everyone does. Why should this continue to be “normal”? It’s very likely that the debt-fueled consumer utopia of the last 250 years has come to an end, at least in the form we recognize, and that no government policy, or even a generally free market, will be able to continue to provide jobs for every person that wants to be employed. Of course many of the unemployed don’t miss punching in and out every day. What they miss is the paycheck. Nobody really wants a job, they want money. That’s why government-sponsored lotteries survive.

Steve Sailer April 7, 2014 at 12:03 am

Fortunately, the People In Charge let in all those immigrants before the voters caught on.

andrew' April 7, 2014 at 4:09 am

How has our employment tracked that of China? Or trade with Asia?

Mike in Qingdao April 7, 2014 at 4:13 am

Bingo. How does our rate of inequality track with Nixon going to China and the subsequent increase in trade.

Mike in Qingdao April 7, 2014 at 4:11 am

Pre-crash, many of the ZMP workers met the wants and needs of something called the middle class. In 2008, it was revealed that the middle class “wasn’t as wealthy as it thought it was”. Now anyone without the skills to meet the needs and wants of the .1% is a ZMP worker. How compassionate.

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Doug S. April 9, 2014 at 7:26 pm

World War 2 demonstrated that sufficiently aggressive fiscal policy is indeed capable of pulling the long-term unemployed back into the labor force…

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