Will the recovery, whenever it comes, be a jobless one? What will that mean?
Derek Thompson takes a look at it and thinks it will have to do with poor productivity growth among the non-government sector. The Economist offers the following reasons: “One is that wages can’t fall low enough to clear markets…Another is that the prevailing wage rate is below the prevailing reservation wage for most workers…And another option might be the effect of structural change in the economy. If workers are highly uncertain about where new jobs will appear, they may delay training or relocation until they have a better idea where job opportunities will be.”
I want to use that third point as a lead-in to quote at length from this fantastic interview by Minneapolis Fed with Kevin Murphy:
UNEMPLOYMENT AND LABOR MARKETS
Region: In 1997, you wrote with Robert Topel that “the unemployment rate has become progressively less informative about the state of the labor market,” because of the rising number of American men who have dropped out of the labor force, stopped looking for work; “nonemployment” was your term. Do you think that an employment/population ratio would be a more useful indicator of economic well-being, rather than the unemployment rate as currently defined?
Murphy: It’s difficult to look at, for example, the very low unemployment rates we saw in the early 2000s and say that represented an economy in which everyone was working. Unemployment rates were at roughly the same level that they were in the late 1960s, but if you look at prime-age males, the fraction actually working who were, say, 30 to 40 years old was quite a bit lower in 2001 because there was a big increase in the number who were out of the labor force in that age category.
It wasn’t a random selection of people who were out of the labor force. It was primarily low-skilled workers who had withdrawn from the labor market as two things happened. One, the opportunities in the labor market for low-skilled workers had deteriorated quite a bit with the rise in demand for skill and fall in demand for low-skilled workers; and second, other things like the growth in disability benefits had allowed some of those individuals to withdraw from the labor market. We saw mostly a demand shift that caused people to move out of the labor market at the low end.
What that meant was, from a pure labor market perspective, the unemployment rate really wasn’t indicative of what the economy was like. Unemployment in an economic sense wasn’t as low as unemployment in a measured sense.
I think that remains true today—our traditional measures of unemployment are not the best measures that we could have. We should have something that would take into account the number of people out of the labor force…
But when lots of 30- and 40-year-old males are not working, there’s something going on there. That’s an indicator that labor market conditions are not very conducive to having them employed. So I think if you’re going to go to a more employment-to-population ratio type of analysis, you definitely have to restrict the age range and maybe even weight it in various ways, and also allow for gender.
I’m curious as to how demand for labor is going to change in the 21st century. Specifically – Will this broadly unemployed sector of the labor force that has resided in the low-skill market expand over the next several years into informational and higher-end service workers? What could be mechanisms beside sector demand that would precipitate this?
A few hours after reading that interview, I came across this trend piece at the Wall Street Journal, Only the Employed Need Apply:
Nonetheless, many employers consider the employed more valuable and worth the extra effort. Health-care management-consulting firm Beacon Partners Inc., Weymouth, Mass., has openings for 10 technology-consulting and senior project-management positions. Chief Executive Ralph Fargnoli is looking first for people who are still working. “If they’re still employed that means they have some significant value,” Mr. Fargnoli says.
There’s a kind of Fordist logic to the market-clearing mechanisms we associate with the labor market. Labor is another input into the front end of a factory, like electricity and oil. If the market isn’t clearing, it is like the market not clearing for any commodity – there’s some market mechanism blockage like price floors or geography. Note that there is a fungibility among labor; if you are missing one, you go to the market and grab another, just like a tire for your car. There may be long skilling processes underlining, refining labor into a more precious commodity, but the effect is still the same.
How does that reconcile with an “we’ll sit on a vacancy because we hire only the employed” mindset – one in which signals related to the specific quality of a piece of labor are highly monitored, regimented and processed? Deleuze was on this back in the 1990s, the move from a factory, where labor and capital held in other in check, to a corporate gas, where internal competition and differentiation within labor is the motivating force. The firm not as a factory, but as a reality game show where every week someone else is out the door. If it does happen, how much more will this drive inequality during the rebound instead of alleviate it? There’s a lot of talk about demand for skill, but how distinguishable is it from non-demand for no-skills, as could the no-skill category expand greatly over the next several years? Lots of questions to watch out for.