The Spence and Hlatshwayo paper is now on-line

The Browser informs us (pdf behind that link), bravo to them, here is the abstract:

This paper examines the evolving structure of the American economy, specifically, the trends in employment, value added, and value added per employee from 1990 to 2008. These trends are closely connected with complementary trends in the size and structure of the global economy, particularly in the major emerging economies. Employing historical time series data from the Bureau of Labor Statistics and the Bureau of Economic Analysis, U.S. industries are separated into internationally tradable and nontradable components, allowing for employment and value-added trends at both the industry and the aggregate level to be examined. Value added grew across the economy, but almost all of the incremental employment increase of 27.3 million jobs was on the nontradable side. On the nontradable side, government and health care are the largest employers and provided the largest increments (an additional 10.4 million jobs) over the past two decades. There are obvious questions about whether those trends can continue; without fast job creation in the nontradable sector, the United States would already have faced a major employment challenge. The trends in value added per employee are consistent with the adverse movements in the distribution of U.S. income over the past twenty years, particularly the subdued income growth in the middle of the income range. The tradable side of the economy is shifting up the value-added chain with lower and middle components of these chains moving abroad, especially to the rapidly growing emerging markets. The latter themselves are moving rapidly up the value-added chains, and higher-paying jobs may therefore leave the United States, following the migration pattern of lower-paying ones. The evolution of the U.S. economy supports the notion of there being a long-term structural challenge with respect to the quantity and quality of employment opportunities in the United States. A related set of challenges concerns the income distribution; almost all incremental employment has occurred in the nontradable sector, which has experienced much slower growth in value added per employee. Because that number is highly correlated with income, it goes a long way to explain the stagnation of wages across large segments of the workforce.

A few points:

1. p.10 offers interesting remarks about China, namely that China is approaching a “middle income range” where economic growth commonly slows.

2. This paper has some of the best disaggregated information for those who are not convinced by simpler calculations of median income growth slowdown.

3. pp.33-34 offer a good summary of results and also a good explanation of current structural unemployment which does not fall prey to the usual criticisms offered by the blogosphere Keynesians, who on this issue remain behind the curve.

4. p.37 has good, short remarks on Germany and (now switching to my words) why it is wrong to dismiss their recent successes.

5. The co-author, Sandile Hlatshwayo, is at the Stern School of Business, NYU.  He, she or a namesake is taking a honeymoon poll.

Overall, this is one of the most important papers of the year and perhaps the most important paper so far on “economic malaise” issues.  It is also a useful corrective to the political conspiracy theories of changes in the income distribution (if you are wondering, Spence at least would not count as a right-winger, I cannot speak to Hlatshwayo).

As for The Browser, it is better than I ever expected a web site to be.

Addendum: Arnold Kling comments.


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