Workplace sentences to ponder

It really is time to hurry up and give Bill Baumol that Nobel Prize:

…In the past sixteen years, 94 per cent of the net jobs created were in education, healthcare, social assistance, bars, restaurants, and retail, even though those sectors only employed 36 per cent of America’s workforce at the start of the millennium…

Average hourly pay in these sectors, weighted by their relative sizes, has consistently been about 30 per cent lower than in the rest of the economy…

And since typical jobs in bars, restaurants, and retail involve far fewer hours than normal, weekly pay packets for workers in these growing industries were more than 40 per cent lower than workers in the rest of the economy. Average weekly earnings are now 3 per cent lower than they would have been if the distribution of employment had stayed the same as in January, 2000…

That is from Matthew C. Klein, who is riffing on Ryan Avent, don’t forget Ryan’s new book.


This is the time to give TYLER COWEN the Nobel Prize as he also made these observations!

Also I will point out TC's post is not, strictly speaking, Baumol's cost disease it seems, since the post is talking about deflation, not the inflationary effects of employing a six-person string quartet in a booming economy, or, as is popular every Holiday season, the cost of buying all the gifts in the "Twelve Days of Christmas"

Fair point, but give old Bill Baumol the Nobel already. Cowen is young.

Lower wages and incomes means higher gdp from higher profits creating wealth which increases consumer spending...

Need to slash the wages of the other 64% of the labor Force! Then gdp will soar!

Not necessarily. What you have to do is compare unit labor cost to the business deflator and see how that impacts profits per unit. For the last six quarters unit labor cost has been rising faster than the nonfarm deflator. So profits are falling and in that case lower wages and income do not contribute to additional GDP or income.

Not-so-far-future vision of how the economy is going to work: robots make everything that is even remotely useful (with maybe 0.01% of people working with the robots somehow) while everyone else is busy washing each other's shirts to keep the money running.

Thankfully, according to many of the informed commenters at this very web site, the U.S. is not deindustrializing, it is remaining at the forefront of global economic growth.

You are confusing producing things with employing people. Again.

prior_test2 is frequently (in fact mostly) confused.

Here's the flip side: Why award someone a Nobel prize for pointing out what anybody with eyes can see. Maybe they should have a prize for blind economists since there are so many of them.

Dedicated readers remember Branko Milanovic and the elephant chart.

The moderate question is whether trade and US welfare can be better done, whether global progress actually requires US middle class loss?

Or are we all zero sum these days ..

Seeing things is easy. The challenge is in posing the right questions to validate or reject hypothesis. People with eyes attribute rain and fertility to gods, people with brains try to answer questions and are able to say "I don't know" if a solution is not found.

"94 per cent of the net jobs created were in education, healthcare, social assistance, bars, restaurants, and retail"

When I think about a place with good quality of life, versus one without, I would think of a place where people get lots of education, healthcare, social assistance, and go to lots of bars and restaurants. So on the face of it, it seems like this is great news. Of course if you view of the world is that the only real jobs are in coal mining and steel making then perhaps you will have a different view.

Jobs that fill 401ks are better than those that don't.

Of course in Denmark that is less an issue.

Education employment seems vulnerable to disruption by online learning.

K-12 may be re-purposed such that low-skill babysitters maintain order in the classroom while students engage in online-directed learning, or perhaps parents will be paid to stay home while their children. And improving teaching productivity in higher ed. surely is an even lower-hanging fruit.

The irony is that the education that will remain resistant to this will be education for disruptive children, and those who are otherwise resistant to academic learning; thus, it is this population that will absorb huge resources, and the place to be if you're looking for secure employment as an educator.

I think this is more true of continuing education for adults, and perhaps some parts of college. The problem is for a vast majority of K-12 students, direct interaction with the teacher is needed and a large chunk is not "low skilled". Teaching requires engaging the students.

If just watching a lecture from a pro could cut it, then teachers have had access to movies and videos for years. The only part that would be new would be the access to bots that can direct which lectures to watch or online activities to perform.

Also---I think medicine is more ripe for such disruption. The skill of a doctor is currently a lot more expensive and many doctors lack the interpersonal skills anyhow. There could be a future where highly skilled doctors help create the software and databases, and good technicians, nurses, and physicians assistants spend time with the patients.

Such a system could also save a bundle just by eliminating the prescription of overpriced treatments.

I think the idea is supposed to be:

1. There is little job growth in the rest of the economy because of automation.
2. The jobs where there is job growth don't pay very well.

A place with good quality of life will also have high paying jobs, right?

Also, what happens when automation comes for the last three?

So the desperate skill shortage we have is in bartending? Open borders, Americans don't know how to make a decent manhattan!

On the other hand, the shortage of well-paying industrial jobs in America will force American labor to become better educated and better prepared for the future, while the abundance of well-paying industrial jobs in China will do the opposite for China. There's a silver lining in every black cloud.

On the other hand, the shortage of well-paying industrial jobs in America will force American labor to become better educated and better prepared for the future.

Right. Instead of just being fast-food cashiers, they'll get that engineering degree they always aspired to.


If you read Taylor's post at my link you will see it's only about China and the failure of China to promote education because China doesn't have to since it has an abundance of industrial jobs today, but the neglect of education today will mean labor in China won't be prepared for the types of jobs available tomorrow. Many of those industrial jobs available in China today came at the expense of those jobs in America. American labor has no choice but to obtain an education for the types of jobs that will be available in America. The social (and political) issue is whether during the transition to the next generation of a more (or different) educated labor force, the current generation should receive some kind of public benefit since most of them (because of age or whatever) can't get the education that is necessary. To state the issue another way, should society subsidize those who through no fault of their own lose the jobs for which they are qualified because those jobs were shifted to lower cost countries, thereby enriching those other countries and the capitalists in this country who benefit from the greater profits for the firms they own as the result of the shift. Of course, the alternative is trade barriers so those industrial jobs are locked in, an alternative that not only makes the world less prosperous but locks in skills (for industrial jobs) that may not be in demand tomorrow in a dynamic world economy. The latter point is what's made in Taylor's post and my comment. Who sacrifices today for a more prosperous America tomorrow?

"On the other hand, the shortage of well-paying industrial jobs in America will force American labor to become better educated and better prepared for the future"

I'm not sure that's really the desired outcome, though. Agree that China is at a disadvantage because industry is bound to fizzle as AI technology improves. Unfortunately, I think that's where most traditional jobs are headed; industry will just be displaced faster than more white collar jobs (i.e. those that people with a college education are typically aspiring to). More education isn't necessarily better if there's not a place for those types of jobs in the economy.

BTW, things might be worse than a few percent drop in income. News on the radio yesterday was that Orange County, California had seen a 20% jump in homeless since 2012. To an estimated 15K in a population of 3M.

What is going on? 2012 to 2016 is supposed to be recovery.

Home price inflation coupled with very little new construction and a red-hot local economy to which everyone wants to move? I saw an article the other day of a software developer who says he lives in his car and goes showering at the gym, works for him apparently.

Possibly too little high density apartment construction. They are flipping industrial to residential, but when you can get $500k for a condo, that's what they do.

Still the since 2012 thing .. maybe cumulative damage from some street drug? I have also heard that prescription opiate abuse has led to a new heroin boom.

It would be sad if we are manufacturing more mentally ill as a percent of population.

Orange County is a very expensive place to live. If you're paying >60% of your income for rent and you lose your job and can't find another, comparable job quickly then you just might be reduced to sleeping on friends' couches for awhile.

Should not that factor have been worse in 2012? Unemployment rate was then 8%, and now is 4%.

And yet homelessness is up 20%. That's what is confusing me.

California's economy is bifurcating into a rich and poor model. It's had the highest PPP poverty rate in the nation for years. A morass of rules, regulations and taxes is making it harder for marginal businesses and marginal workers to compete. Gas is high, electricity is high, rent is high, food is high, etc. There's a similar trend across the entire US, but CA is clearly the trend setter.

"Unemployment rate was then 8%, and now is 4%."

The Employment participation rate is dropping. So, while the official unemployment rate drops, the amount of people not working increases.

Employment participation rate:

Jan 2010 CA 64.8% US 64.8%

Jul 2016 CA 62.1% US 62.8%

In a good economy, people are more likely to give money to the homeless.

I will have to think about that labor participation angle, and what remedies it implies.

If I found myself homeless in San Bernadino, I'd probably try to make my way to Orange County.

From any place with cold winters. This part is true too. No stats on it though?

What are the absolute numbers? If there were ten homeless people in 2012 and now there are twelve I don't think it's worth worrying about.
Also, does the country have a good system of homelessness support? If so they may be attracting homeless people from surrounding areas with few or no such amenities.

You don't get the Nobel Prize by pointing out that a Dem President's economy sucks.

Are you new to economics?

Since 1990.....

Average weekly earnings are now 3 per cent lower than they would have been if the distribution of employment had stayed the same as in January, 2000…

But surely this seems to point out the limits of Baumol's cost disease, in addition to being a nearly empty statement due to all the moving parts. These other industries are, broadly speaking, industries for which productivity has not increased at nearly as fast a rate. The distribution of employment has changed precisely because productivity has increased in manufacturing, just as it did from farming before it. Practically by definition, if the distribution of employment had stayed the same, then there would be more people in the manufacturing industry, and almost surely at lower productivity, so the wages would be lower.

Baumol's cost disease, as I understand it, would hypothesize that wages in these less productive industries would have gone up, pushed by the pay in more productive industries. These sentences appear to claim that that is not the case. How does that argue for a Nobel prize?

Very good comment.

Agreed, it's very good. But I don't think it's right if you follow the link.

"Average hourly pay in these sectors, weighted by their relative sizes, has consistently been about 30 per cent lower than in the rest of the economy…"

This blurb doesn't quite say that pay in those sectors with little productivity improvement was stagnant, it just says it's lower than in sectors with more productivity improvement. And while the excerpt doesn't make it clear, eyeballing the charts in the link suggest that pay is lower in the low productivity sectors, but it's growing at around the same rate as pay growth in the high productivity sectors.

Very, very roughly, anyway. I'm eyeballing the third chart.

"pay is lower in the low productivity _growth_ sectors, but it’s growing at around the same rate as pay growth in the high productivity _growth_ sectors."

Another good comment!

Ah, so it is going up as well. Thanks.

So perhaps the problem is something like "the sectors seeing high productivity growth are already high productivity sectors, rather than lower productivity sectors seeing catch up growth." However, to the degree that Baumol's cost disease holds, we're seeing wage growth (and employment growth?) in the low productivity sectors similar to that in the high productivity sectors (making them even more relatively low productivity?)

"Percentage of net" is almost always someone trying to lie with statistics. It's true in the same way that about 5 mobile phone companies each make more profit than the entire rest of the industry combined.

I think you're right - am I right in thinking that if 10 companies create 100 jobs each and 9 companies reduce 100 jobs each, then each of the 10 can boast of creating 100% of net new jobs?

I find this entirely unsurprising. Those with more disposable income spend more money (DUH!) both in retail and at bars/restaurants. The retail figures of course are totally misleading because of the rapid shift to on line buying. I maybe go into a traditional retail shop four times a year, everything else is on line (thank you Amazon, LL Bean, etc). Health care expenditures and employment are high because of the convoluted billing system. Medical practices have way too much overhead in this regard. The aging population has increased the number of radiology procedures markedly (the radiology practice that I have gone to for an ultrasound and MRI occupies an entire floor of a medical building with seven front desk employees and who knows how many technicians).

Regarding pay, I'm sure that medical technicians make a decent salary. We know that teachers are underpaid (at least I do). Pay for bar and restaurant workers is probably hard to calculate because of tips.

" We know that teachers are underpaid (at least I do)."

What employment group should have their wages/employment reduced to increase teacher's salaries? It's not a zero sum game, but in this particular case, it's probably close.

My recommendation would be to pare the staff and administrators back to the level the US had in the 1960's and give the additional wages to teachers. However, the teachers themselves have supported expanding the staff and administrators. So, really, if teachers want more money, they need to directly advocate for a much leaner school system.

Is it just a coincidence that 3 of those occupations (education, health care, social assistance) are either directly provided by government or are heavily government subsidized?

Arnold Kling calls these "The New Commanding Heights".

For well over 25 years I have thought that healthcare and education were sucking the life out of our economy, literally. Taxes on non-New Commanding Height industries are higher to subsidize the New Commanding Heights, making them globally uncompetitive.

This is before you consider that, on the margin, extra education and extra healthcare are harmful to you! Literally in the case of healthcare (Leading cause of death after heart attacks and cancer is medical mistakes!).

Are you implicitly arguing for lower government spending, free market, and free trade?

Doesn't that just, as you say, remove the good jobs from the list?

Really, the government should just employ everyone. When we need more money we'll just print it.

Bernie didn't get the Nordic model just right. It is not all spending for everyone. Instead it balances more spending (and tax) with greater economic freedom (if you believe Cato).

Are 15,000 local homeless really optimal?

I suspect some of what we're seeing there is the "homeless magnet" of nice climate + generous welfare. But you should also pick up from The Engineer's comment that many non-public sectors which could otherwise employ people are being starved of capital.

Alternatively, we are watching the curse of automation unfold before our eyes: there is just not that much left for average folks to do.

@antignostic. How are they starved of capital when many tech companies are sitting on piles of cash and interest rates worldwide are at historic lows. ?

I thought The Engineer was making a crowding out argument, but I reject that too.

Many of us understood the global unskilled labor rate and its impacts before someone blew it up into China and Mexico "beating us" with "bad deals."

The impact of the global unskilled labor rate is greater than "deals" with countries. Either you tariff sewn goods until they are sewn again in the US (bad) or you provide maintenance to workers displaced (perhaps sad, but better).

Maintenance doesn't have to be a check. Government should be employer of last resort for anyone who wants to work and has no better option.

Stephan, I realize that. I'm just surprised all that cheap capital is apparently only getting us McJobs with stagnant wages.

Automation, the Great Stagnation or malinvestments? I don't know. But as Tyler has remarked, people paying the government to borrow their money implies huge levels of risk elsewhere which isn't borne out by data.

"Literally in the case of healthcare (Leading cause of death after heart attacks and cancer is medical mistakes!)"

This is a textbook-worthy example of a logical fallacy. The research behind the claim that medical mistakes are a leading cause of death may or may not be sound but, regardless, it doesn't follow that "extra" healthcare is harmful because we need to consider the injuries and deaths that would be caused by people failing to get healthcare that they are currently inclined to seek out.

If anything, having more medical workers available will reduce the incidence of mistakes, as each doctor can spend more time with each patient, etc.

I'm generally leery of this stat though. Say someone shoots me, and I bleed to death because the doctor does a negligent job of sewing me up. I would have a hard time saying that the cause of death as "medical mistake" rather than "bullet in liver" even though, in a sense, it is true.

"Health care" means daily exercise, a sensible diet, not smoking, and drinking occasionally if at all. Medical care is on the debit side of the ledger.

Bring back weak beer laws?

But sooner or later (and generally multiple times in a life) people will need a doctor for this or that. We are not Olympian gods. Things go wrong, and unless you are "lucky" enough to die young by some sudden trauma time itself is your enemy and will gradually rot you long before you reach the grave.

That's true if you are young, blessed with relatively good genes and have managed to avoid accidents and general bad luck. None of the above will protect you from a bout of appendicitis, certain forms of cancer, severe bone fractures when you get old, etc.

Extra education also lowers fertility rates. So you're absolutely right that the healthcare and education sectors are literally sucking the life out of the economy. They're rent-seeking parasitic sectors on the rest of society.

Reverse progress.

Take somewhere like Mexico, Thailand. Small farmers and their children get jobs serving food or their daughters to the tourists. As more come it moves from small stands to larger and more complex tourist attractions, the jobs change as things are built, maintained, the roads, airports etc. get built and staffed. All this builds infrastructure where other businesses can operate, so manual assembly jobs show up, characterized by low startup costs; a building, loading dock, some phones and communication and the means of getting stuff in and out. Over time more than assembly happens, more manufacturing equipment and investment. Other countries start seeing Thai and Mexican tourists.

In reverse the US and Canada who are seeing lots of the serving food and daughters jobs, next will be reverting to small farmers. It will be called lots of nice names; 100 mile diet, organic produce, etc.

In the years I have lived in the interior of BC, where in 1982 there was a sawmill in every town, a smelter a few miles away that employed 5000 people, lots of service jobs such as trucking, equipment sales, equipment repair. That is almost all gone now, my town is a ski destination in the winter and mountain biking destination in the summer. And 30-40 restaurants in a town of 10k. Lovely place, people come to visit and in time sell out and move here, benefitting from the Chinese cash influx to cash out of the city. Lots of service jobs who a few years ago had to compete with manufacturing, but no longer, the manual assembly is done in Mexico. A surprising number of people commute to industrial jobs elsewhere which pay enough to support a family.

This realization is slowly seeping into the consciousness, where Canada is only competitive in digging things out of the ground, and when that slows down we essentially have the cost structures of a first world country trying to be supported with a third world economy.

The US is not far behind, and is always the case, when the US finds itself in a pickle, it rocks the whole world.

But skiing and mountain biking cost money, so where is their money coming from?

Negative interest rates, McJobs, and we print money and buy our debt with it. How do we keep it up? But here we are eight years after it nearly all blew up and we're still rocking along. My hometown (Atlanta GA) is booming with new construction, tech, luxury cars, etc.

Three sources. Chinese cash being surreptitiously moved out of the country to places on the West coast. Alberta oil patch. Low dollar attracting US vacationers looking for a deal. This year has been ok, last year the first decent one where a living could be made from the tourist economy since 2009. But the costs hit from the lower purchasing power of the dollar is sucking up the increased revenue numbers. I'm seeing my customers having difficulty absorbing the cost crunch, I expect quite a few to fold up as the tourists leave this fall. My challenge is to not have to write off their invoices.

This comment is simplistic and untrue. The US is competitive in far more things than mining. Services are real work, even if it doesn't feel that way because there's no physical thing being created.

Agreed, the US is highly competitive in agriculture, technology, entertainment, refined petroleum, automobiles, aircraft, computers, software, etc.

also...consider the effect of student debt on these low wages of the many that have entered the workplace in these last 16 years. No wonder millennials stay at home so long...

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