Structural problems in the U.S. labor market

I don't agree with everything in this piece, by Jim Tankersley, but it is a good overview of why currently high unemployment isn't just about demand (though it is about that too).  Excerpt:

Blinded by low unemployment, lawmakers and economists overlooked two crucial warning signs of the nation’s deteriorating economic health. One was the percentage of working-aged men–the traditional backbone of the U.S. labor force–who held a job. The other was the number of jobs being created each month. Throughout the 2000s, both numbers nose-dived.

From MIT:

[David] Autor is pioneering the research into what he calls the “polarization” of American jobs into low- and high-skill camps, but even he isn’t sure whether his findings explain our national jobs crisis or result from it. “I don’t have a simple answer,” he wrote in an e-mail recently. “I think the prosperity in the 2000s, even prior to the crisis, was quite ephemeral, bordering on illusory. I’m not sure that’s a result of polarization per se. But it is a mystery why the good times ended” at the turn of the century. The completed circle of losses and gains from globalization, he added, is “what is supposed to happen in the long run. But it requires investment, adjustment, adaptation.”

Read the whole thing.  I believe that the prominence and persistence of "demand-only" theorists in the blogosphere (DeLong, Krugman, Sumner, and others) give blog readers quite a skewed picture of the actual debate.


so what will be its solution?

I'm not certain how it fits into the economics dictionary, but UNDERemployment has been a growing problem at least since NAFTA, and has been accelerated by factory closings, offshoring, productivity enhancements, technology and (in construction) illegals.

Floccina, people mow their own lawns because the people who do it "for cheap" do a terrible job (e.g. mowing down all the flowers that are growing next to the grass, etc).

Throughout the 2000's the Conservative economic agenda was being implemented. The fact it has been a disaster for most Americans is of no concern to those with real money - and they are the ones who've funded the conservative movement for a couple generations.

The major change in government policy since 2000 is that tax cuts will
- create sustainable economic growth based on ever rising asset prices of non-productive capital, and
- that will create more jobs than the crushing taxes of the 90s with the poor seeing much higher income growth than during the high tax era of the 30s through 70s.

This is perhaps personified by Mankiw in his repeated claim that taxes are always a dead weight loss to the economy, so if we eliminate taxes, then the economy will be unburdened and individuals will presumably be so rich they will repair the roads and bridges and water and sewer systems for free out of their own pockets, and pay for the free health care the poor and elderly need through their thousands of dollars in added charitable contributions, after spending thousands of dollars a year repairing infrastructure.

I find it interesting that Gov Pawlenty in preparing to run for president is claiming that his don't tax to pay for infrastructure policy was not responsible for the failure of the bridge in Minneapolis that had been red listed for more than a decade as structurally insufficient and subject to frequent safety inspections was not the fault of his policy, but was instead the fault of the bridge designer that failed to account for the future delayed maintenance and refusal to spend to replace substandard bridges in building in redundancy so the bridge could fail and not collapse.

After all, it is never the economic theories and policies since 2000, that are the ultimate and most pure realization of the conservative policy advocated by the Reagan administration and its supporters, that are at fault, but instead the science and technology and the real world that are at fault for everything bad that has happened.

The stratification of opportunity is certainly an issue, though it is a temporary one, and a harbinger of a more extreme problem, IMO.

The real problem is going to be when those low skill jobs are eliminated completely by automation. At that point there will only be opportunity for high-skill/high-wage employment, with almost everyone else simply unable to find any kind of work at all.

McDonald's, the stereotypical low skill employer (burger flipper) employees 400,000 people, the majority of which could already be replaced with automation using current technology, though apparently at a cost that exceeds the current model. How much longer will this be the case, though, unless benefits, taxes and wages fall? And if those jobs are retained due to falling cost of employment, how long is that sustainable? Those employment costs would have to continue to fall as the technology continues to get less expensive. Even at sub-subsistence incomes, those jobs will eventually be cheaper to automate in time.

What to do, indeed...

Could we focus on education? It's one possibility, though I think it misses the causality of the divide in the first place. I have my doubts that anyone could simply be trained for the kinds of highly-technical, creative problem solving that will typify the majority of remaining jobs, though perhaps I'm wrong. Even then, will there be enough jobs of any sort to support the 7 billion people we're expected to have on the planet by the end of the year (keeping in mind international outsourcing and telepresence makes many of these jobs doable from anywhere)?

By definition 10% of this country (or any country) has an IQ of less than 80. Many of these people are incapable of doing anything other than the most menial assembly-line work or turnip pulling. Those types of jobs don't exist in the U.S. or are done by illegal aliens willing to work for next to nothing.


> Additional, when a worker loses his job and cannot find another job that is
> of equal quality, I believe this is a strong indicator that the individual
> was overpaid.

If you cannot get someone to buy something at a particular price, it is not worth that price, or at least is no longer worth that price if it ever was.

With the added caveat that useful skills often die when a project dies. For example, lots of people had optics + semiconductor skills when the optical telecom bubble burst about a decade ago. Many of those people now work in (heavily subsidized) solar power firms. Their skills are of some relevance, but they don't just carry over, a big adjustment was involved. I.e., some of the pay premium is for skills that are only useful to the one firm/project/industry. As specialization rises, adjustments to new sets of skills demanded will take more time than past adjustments which didn't require workers move as far.

Good jobs were created in the 90s but many were destroyed in the tech wreck and never returned. In the 00s, a few very good jobs were created in finance, but otherwise all growth areas of the economy have been in nontradeables. We refuse to address exchange rates and as a result these are the only jobs we can create, but they are not good jobs. Don't worry, we are told, we can buy cheap, but buy with what?

Adding more federal debt to forestall the restructuring.

One area for research is to look at costs that are relatively fixed per employee, often by government mandate. For example, the costs of defending lawsuits from employees in legal fees are relatively similar per individual, and thus are much smaller as a percentage of the profit earned by a highly productive employee. Not surprisingly, in an era of high mandated fixed costs per employee, employers will be looking to outsource low marginal product work to China or insource it to illegal aliens off the radar.

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