Arnold Kling  

Jobs and Creative Destruction

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W. Michael Cox and Richard Alm look at the data on gross flows in the labor market.

New Bureau of Labor Statistics data covering the past decade show that job losses seem as common as sport utility vehicles on the highways. Annual job loss ranged from a low of 27 million in 1993 to a high of 35.4 million in 2001. Even in 2000, when the unemployment rate hit its lowest point of the 1990's expansion, 33 million jobs were eliminated.

The flip side is that, according to the labor bureau's figures, annual job gains ranged from 29.6 million in 1993 to 35.6 million in 1999. Day in and day out, workers quit their jobs or get fired, then move on to new positions. Companies start up, fail, downsize, upsize and fill the vacancies of those who left...

Job growth will come, as it always has in the past. The economy, meanwhile, is as busy as ever in shifting labor from one use to another to make the country richer and more productive.

This is the picture of the economy that I tried to paint in The Great Displacement. Old jobs are being destroyed by changes in production processes, while new jobs are being created. Both job creation and job destruction are taking place at rapid rates.

For Discussion. For the 1930's, we only have data on the net change in employment. If we also had data on gross flows (tracking all movements into and out of jobs), do you think that it would show a higher or a lower rate of job destruction than what we observe today?

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CATEGORIES: Macroeconomics

COMMENTS (7 to date)
Steve writes:

Excellent question! Hard to say, but because there was no safety net, and employers were more folksy small town types, maybe they weren't so quick to can an obsolete worker?

Bernard Yomtov writes:

Gross flows wouldn't tell us much, I think. After all, lots of things can produce job changes other than changing technology.

A successful company expands; an unsuccessful one in the same industry fails. Companies relocate, or are acquired, so some flows are flows in name only.

Still, some finer breakdowns of losses and gains, by geography, industry, education levels, for example, would be informative.

Lawrance George Lux writes:

Precise data is lacking, but It can be imagined Job turnover has accelerated with the expansion of the Economy. The 1920s and 1930s allowed for ease of Housing construction, but a functionally poor Housing market. Inability to sell personal residences would slow Job Turnover. There was lack of TV, and much personal association entertainment--playing Cards etc.--with more personal relationship between Supervisor and Employee; another drag on Job turnover. Jobs were more all-inclusive in task, but Occupational Skill labor was in short supply until the Depression. Who knows? lgl

David Thomson writes:

The sad thing is that the comments of W. Michael Cox and Richard Alm should be considered old hat and relatively ho-hum. Sadly, this is not the case. The zero sum school of economic thinking dominates the intellectual landscape. The concept of creative destruction is considered by many as alien to their understanding of the world’s economies.

And yes, it is very unfortunate that economists during the 1930s did not study the gross flows. This might have resulted in providing sufficient ammunition to derail FDR’s New Deal programs. The odds are that a lot of suffering could have been avoided. We should never overlook the fact that socialist nostrums easily seduce the intellectual who wants to feel needed. Libertarianism, on the other hand, unflatteringly advises the same intellectuals to essentially stay out of the way. The world is often better off if one minds their own business.

Monte writes:

"Libertarianism, on the other hand, unflatteringly advises the same intellectuals to essentially stay out of the way. The world is often better off if one minds their own business."

So your advice would have been, "Don't just do something, stand there?" In view of most government policies, this may be a good rule of thumb to follow, but the situation at the time called for drastic measures.

FDR's New Deal programs were shock therapy for an economy that was catatonic. Unfortunately, these programs weren't suspended when conditions improved. But suffering was eased, not exacerbated, by things like FERA, CWA, and CCC. Additionally, the FDIC reestablished American faith in the banking system and the WPA helped decrease unemployment.

By as early as 1935, you might argue that these programs had outlived their usefulness. But I wonder how much worse conditions might have become in their absence?

Pouncer writes:

I wish there were a statistic pointing to payrolls rather than "jobs".

If 10,000 manufacturing jobs paying $20 /hr go away and 10,000 new jobs in fingernail salons (Hi, Virginia Postel!) are created which pay $10 /hr, the net impact to the "jobs" statistic is nil. But the impact on the "middle class" quality of life is rather substantial. (In this example, net annual payroll is down by about
$200 million.) This, apart from the questions of insurance and retirement benefits ...

It seems to be true that small/new businesses create more jobs than old/big businesses but
the value of the jobs tends to be higher among the old and big.

Steve writes:


There is something like that. It's called "average hourly wage". Unfortunately, it includes CEOs, so it has been skewed WAY to the upside over the last 3 years.

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