Sunday, April 06, 2014

The longer, the worser...

 Or something like that. There are several theories floating around about the enigma of the long-term unemployed. Tyler Cowen, whom I often struggle to follow, has a very interesting post and column that at least illuminates some of the possibilities.
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.In a nutshell, what we’re facing isn’t your grandfather’s unemployment problem. It does have something to do with modern technology, and it will be with us for some time. [More]

I find this pretty persuasive, but also think we are largely underestimating the effect of technology, even though it is getting attention. Perhaps it is not as obvious as robots on the assembly line, but more along the lines of me troubleshooting and sending my new iMac back (yes - total FAIL) without ever talking to another human. Even the tech support guys in India are losing out.
People with little economics training intuitively grasp this point. They understand that some human workers may lose out in the race against the machine. Ironically, the best-educated economists are often the most resistant to this idea, as the standard models of economic growth implicitly assume that economic growth benefits all residents of a country. However, just as Nobel Prize-winning economist Paul Samuelson showed that outsourcing and offshoring do not necessarily increase the welfare of all workers, it is also true that technological progress is not a rising tide that automatically raises all incomes. Even as overall wealth increases, there can be, and usually will be, winners and losers. And the losers are not necessarily some small segment of the labor force like buggy whip manufacturers. In principle, they can be a majority or even 90% or more of the population. [More]
Economists also constantly look back to data and anecdotes about past technology advance that spurred so much growth that displaced workers were easily absorbed into new industries, with even higher pay. I know we always think this time is different, but that cannot be ruled out either. A disruptive technology could wipe out whole sub-sectors, and recently has.

Farmers too often let their eyes glaze over on such subjects. But many will lose farms and careers as consolidation continues. More importantly, the job prospects of our children and grandchildren become much more arbitrary. 

TC's point about men and service jobs is chilling as well. 

[Good comments after the post about people like TC on tenure grasping the feeling of unemployment.]

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