Arnold Kling  

The Heterogeneous Labor Market

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The McKinsey Global Institute writes,

71 percent of U.S. workers are in jobs for which there has been a decrease in demand from employers, an increase in supply of eligible workers, or both.

I gather that this was as of 2005. My guess is that it has gotten worse. It is possible that when future economic historians look at the period from 1990 through 2020, they will find that the U.S. simply could not reconstitute its labor force quickly enough to meet the huge technological shifts. As a result, we had increases in disguised unemployment (during the Internet bubble kids working for nonprofit Dotcoms, during the housing bubble too many people in housing construction and real estate) followed by recessions when the disguised unemployment became unsustainable. My guess is that in the next decade, the disguised unemployment will be absorbed mostly by state and local governments. Or else it won't be absorbed at all, and unemployment will just stay high.

Progressives will insist that education is the cure-all for this. My guess is that no education policy will make a noticeable difference.

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CATEGORIES: Labor Market

COMMENTS (10 to date)
Marcus writes:

I think you're judging the dotcom boom with hindsight.

The Internet introduced the possibility of brand new business models but in 1995 nobody knew which business models were going to be successful. I view the dotcom bubble more as the market exploring those business models searching for successful ones.

Norman writes:

"Or else it won't be absorbed at all"

Not much confidence in entrepreneurs, then.

Floccina writes:

You know people who are now working for cash while collecting unemployment and paying no taxes. I paid a guy I know cash to clean up the trash at the end of my street. I also paid cash to have someone help me with my garden. I see in times like this inform work becoming more common. People need money but less that they think, so the informal sector is sufficient. When the economy is good no one wants to do that informal work.

If idleness is the enemy perhaps we should simplify the tax and welfare systems and remove minimum wage and replace them with something simpler to placate the democrats. I like an hourly wage subsidy or a weekly payment to all citizens (a la Charles Murray's plan) but what the might do politically to immigration scares me.

Joe K writes:

Dr. Kling, in your opinion, what will be the top five categories (by industry or/and skill) of employment in 2020? And how should today's teenagers prepare for their inclusion?

Barry Cotter writes:

@Joe K

Obviously, I'm not Dr. Kling. This list is randomly ordered.

1. Data Analysis - Statistics, graphical interpretation of
information, data mining and such.

2. Intermediation, management - so broad as to be almost useless to you, but... the Web, the Net, globalisation, all of these probably make the long run average size of the efficient firm, on average, smaller. If you know a lot about an industry or an industrial niche you can connect people and take a cut or a fee for introducing them. This is basically the extension of the import-export firm model to services.

3. Biotechnology - This area is now in something analogous to the stage the IT industry was in in the late 50s, early 60s with the giant semiconductor companies. No one knows what's going to happen but it's going to be BIG. Aiming to be the Intel, Microsoft or Google of the industry is a bad bet but there will be money here in spades.

4. Professional services - Lawyers, Accountants, Bankers, all businesses need these people eventually, they're all skilled profesionals with hard to commoditise skills, with a possible exception for Bankers, a great deal of whose value is in reputations, connections and trust. The Law is a frankly horrible career but if you can provide a service or product lawyers want, you're golden. DON'T GO TO LAW SCHOOL UNLESS YOU CAN GET INTO A TIER 1 SCHOOL.

Granite26 writes:

To a certain point I'd have to agree with the education thing, but that might just be my IT frustration showing through.

There's a large increase in the percentage of jobs that require basic computer literacy. There are a lot of older (40-65) employees that didn't grow up with computers and don't have any computer skills. There's a world of difference in my dealings with A: Smart People over 40, B: Dumb people over 40, and C: Anyone under 40. Even dumb people (using the term in an insulting IT-centric way) under 40 have a layman's understanding of how to use a computer, while the old and dumb have to follow detailed step by step instructions for every task.

Educating the workforce may not be what you meant, but ensuring that every new worker entering the workforce has a good grasp of the common tools of the modern era is vital.

Mike Rulle writes:

This is truly an interesting topic.

My bias is to disagree with you on the unemployment projection. If all you are saying is it will take longer for unemployment to "naturally" decrease than 10 years, then I have no opinion. But if you are saying that higher unemployment is something more fundamental and intractable, then my disagreement is there (unless you think Government is "causing" it). So my following comments may be against a straw man.

My argument will also assume that humans maintain the ability to create and be entrepreneurial--that dynamic adaptability is in the species' "DNA"--so to speak. I will not make an argument based on a Malthusian perspective.

As I have learned from you and others, "jobs" per se should not be the objective. "Productivity" should be the objective. The latter leads to jobs. It leads to jobs either through high growth, or, if productivity outpaces growth in an industry, then labor is freed--(or fired) to work in other fields. Many of these "other fields" may not yet exist, but through entrepreneurialism can be created. These "other fields" may also eliminate old industries, etc. etc..

The "interesting" part is when productivity accelerates so fast that job losses outpace the ability to find new productive activity. Mistakes can be made, but entrepreneurialism always seems to find a way. At least when not "disincentivized" (which you may be assuming with your government job forecast) by government. Imagine if suddenly (this is science fiction--but to make a point) an inventor created an automobile making machine which required 1 employee for each 10000 cars produced. This would be spectacular.

But how quickly can the redundant auto workers be "reabsorbed"? My sense is faster than we think. When WWII ended, arguably, a similar event occurred. Victory "invented" less need for soldiers--yet they were reabsorbed quickly.

I believe in education; but its link to "jobs" tends to be thought of statically by progressives. Education is a tool for entreprenurialism (and an end in itself). It is not something which one can manufacture jobs from by predicting what type of education will be needed; any more than Government can choose which industry growth will come from.

I think Government tends to think it can predict the good ("green jobs") and analyze the bad ("oil and coal cause catastrophic potential for global warming") better than it can. In fact, my hunch is it is far worse than random--rather it is systematically wrong virtually all the time. This is why, if your forecast is correct, it will have occurred.

Maybe we don't work as hard any more. Maybe we expect too much for nothing. If so, the quickest antidote would be to not make it so. But Government loves fake "something for nothing" to give away--like cash for clunkers)

CJ writes:

Mike Rulle--your comparison to WWII is potentially a bad one. When WWII many women left/were pushed out of factory jobs they had to make room for the returning soldiers. So it wasn't that the soldiers were reabsorbed, it was that the pattern of employment shifted.

Looking up online, the number I find is that ~6 million women joined the workforce during WWII. For comparison, the population of the US in 1940 was 132 million. At that time, 6 million people was the population of Texas, Ohio, or California, or 1/2 the population of New York. So a lot of people.

Mark W writes:

I hear too many people saying, "I can always get a job in healthcare" and that makes me think it's the next disguise of unemployment. Although, here in the Detroit Metropolitan area, even that disguise is coming off...

Dave writes:

"My guess is that in the next decade, the disguised unemployment will be absorbed mostly by state and local governments. Or else it won't be absorbed at all, and unemployment will just stay high."

I think that is one possibility. Another possibility is that the dollar falls enough to allow the Americans with less relevant education and skills to compete in the global economy in more unskilled areas. Flynn effect or not, Americans still face a normal distribution of intelligence. Not every American is entitled to do white collar work, and there's no reason to believe that Americans with low intelligence are any more productive than foreigners with low intelligence. I see the future of the American workforce including more blue collar jobs (but not useless ones like construction in the housing bubble).

I don't say this as someone who insists that America has to have more manufacturing jobs or anything like that; I just say it as someone who realizes that the division of labor has to land people in jobs that are appropriate for their skill sets and aptitude.

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