Stephen Williamson on the United States, and Canada

He wrote:

….one possible story about the U.S., post-2000, is that there was an important secular sectoral shift that commences around 2000, but was masked by the post-2000 housing boom, which was essentially construction under false pretenses. If the sectoral shift is what was driving what we see in the time series, it had to affect men more than women, the old not at all, prime age workers somewhat, and young workers a lot. This also must have been a sectoral shift that affected the U.S., but not Canada.

In my view the sectoral shift was of two primary kinds.  First, there was a productivity slowdown, though it had weaker employment effects in the sectors with more women.  (For instance, whether or not health care productivity went up a lot, for policy and demographic reasons the demand for nurses was robust.  Here is evidence on how job shifts have favored women.)  Second, Chinese competition and the general rise of emerging economies led to more incipient factor price equalization than we had been expecting, noting however that some of these forces showed up in quantities (i.e., jobs) rather than prices.

Here is evidence for the importance of the credit crunch in explaining the observed structure of losses.

These forces have been revealed only slowly, so the resulting “Great Reset” has unfolded slowly in turn.  Often locked-in older workers have kept their previous situations, but employers have not sought to repeat those patterns by making new and comparable investments in younger workers.  This is most apparent in academia but to a lesser extent this logic pervades many sectors of our economy.  In Silicon Valley they are ruthless but auto manufacturers have moved to two-tiered wage structures, based largely on seniority.  “Spot the two-tiered wage structure” would be an instructive and depressing parlor game to play.  These two-tiered wage structures imply a lot of big future changes — scary for the most part — are already baked into the cake, but again they will unfold slowly.

Canada is different because growing resource wealth, much of it based in demand from China, underwrote their continuing growth.  If anything, Canada is running the danger of becoming a super-unequal, brain-drained, Dutch-diseased resource-based economy.  Albeit at a high standard of living and with generally good policy, albeit while piling up some longer term risks if resource prices were to go very soft.

The Williamson post covers many more topics, most of all labor markets.  Like many of the best and underheralded posts in the blogosphere, it knows not to draw too firm a conclusion.


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