Arnold Kling  

Structural Unemployment

From the Cutting-Room Floor: W... How Many Jobs, Two?...

The Economist asks about it. Paul Seabright answers:

this recession, more than most, seems likely to have produced a great increase in the mismatch, due to the unsustainable patterns of consumption and investment induced by the credit boom that preceded the financial crisis. It's as though the passengers on the rail network need a whole new pattern of travel to different combinations of destinations, for which the connections are no longer optimised and for which there are too many trains in some directions and too few in others.

Pointer from Mark Thoma. My answer is the Recalculation Story, which Seabright evidently likes (see his comments on it).

Daron Acemoglu suggests that what we are seeing is a speed-up of a trend away from low-skill manufacturing jobs. There is much to chew on in this discussion, and the question of what to do about structural unemployment requires a lot more thought. Thoma's answer strikes me as a bit too vague, although I am sure he could flesh it out.

I just want to mention a question that came up in the comments on my post on recalculation. What is a sustainable pattern of production and trade? A sustainable pattern is where comparative advantage is utilized. So, if we both eat carrots and potatoes, and I live in a region that has better land for growing carrots, then for me to produce lots of carrots and trade them to you for potatoes is a sustainable pattern of production and trade. If I instead grow mostly potatoes, I will not be successful as a farmer. Thus, a sustainable pattern is one in which comparative advantage is realized. An unsustainable pattern is one in which comparative advantage is not realized, presumably because people are deceived for a while about the costs of their enterprises.

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COMMENTS (11 to date)
Skinner Layne writes:

I have attempted to put together some thoughts from an entrepreneur's perspective on the patterns of specialization and the Recalculation Story. I hope they are useful.

The Problem of Pervasive Unemployment

nazgulnarsil writes:

how can these patterns be said to be stable if consumer demand is constantly shifting? there are universally demanded items, but even in that case equilibrium will change due to an uneven rate of improvement in providing that item efficiently.

Tracy W writes:

Thanks for the explanation!

William Barghest writes:

I agree with nazgulnarsil,
What does sustainable mean? In a properly innovating society nothing is sustainable, everything is change, the questions is which changes are good and which would we not prefer happen.

Grant Gould writes:

I'm fond of Acemoglu's version of the recalculation story because it matches what I see. My neighborhood is awash in "Help Wanted" signs on restaurants, and my company (in the software business) literally cannot hire fast enough to meet our current needs -- we don't have enough employees or candidates to do interviews at the necessary rate. Jobless recovery my foot! But the unemployment rate here in Massachusetts is still north of 9%.

That's not an AD shortfall. Sumner notwithstanding, that doesn't smell like a nominal effect. That's an economy that has a ton of unemployed people who just aren't waiters or delivery drivers or senior software engineers or customer support workers.

Skinner Layne writes:

To the question of how these patterns can remain stable if consumer demand is constantly shifting:

It seems to me that it would be helpful to emphasize "patterns." The exact mix of specialization of labour and trading of goods will constantly be shifting and in flux, but that does not necessarily denote instability. The "patterns" themselves will include the ability to adjust according to consumer demands and availability of inputs without serious dislocations to labour or capital. The pattern of specialization would cease to be stable when a significant portion of the labour market is dislocated for an extended period of time. Now, defining what that means is another endeavor, but overriding point is that stability is not mutually exclusive to change.

fundamentalist writes:

Consumers don't determine the level of employment; entrepreneurs do. Consumers determine the types of goods produced by voting with their dollars, and they determine the level of savings through their time preference. So shifting consumer preferences will mean more production of iphones, for example and fewer land line phones. Time preference is relatively stable, like velocity of money.

Depressions hit when many entrepreneurs make the same mistake at the same time: they invest too much in capital goods, more than what people are saving. As Seabright wrote:

...due to the unsustainable patterns of consumption and investment induced by the credit boom...

Jody writes:

When I think stability, I think, for every small epsilon range that you wish the system to stay within, there is some small delta impetus away from the equilibrium that will satisfy that epsilon requirement.

Or back in this context, if there for only small changes in people's preferences, there are only small changes in the allocations of specializations.

But if there are large changes in preferences, then large changes in specializations are possible.

There's an analogous issue in mobile ad-hoc networking where large changes in positions, channels, and application load are expected, yet we speak of stability. Stabiltiy for MANETS really means that for sufficiently short horizons, we can predict how the network will evolve (because stability implies only small changes in outputs - frequency allocations, power levels, routes... given small changes in inputs - positions, demands...). But given a long horizon, the complex structure of the network and random nature of the wireless medium means that the exact future state of the network is unknowable in practice.

Coming back to recalculation and stability, stability has the practical meaning that economic agents can make meaningful plans for the near future, assuming small changes in the "local" environment. Of course when small changes in inputs cannot be assumed (e.g., regime uncertainty) no plans can be made.

jb writes:

IMO - we are living through the beginning of the obsolescence of human labor - Software and robotics are steadily and continuously eliminating low-skill jobs, at a rate that is starting to exceed some people's ability to adapt to change and retrain.

If I'm right, this is going to be one of the most painful periods in history - because the "enemy" isn't a human - the enemy, such as it is, is technological know-how. And either we accept that these people can't ever find meaningful work (a la The Diamond Age), or we destroy our technical know-how to ensure that they have work to do.

I could be wrong, it could just be that we haven't yet invented a set of valuable jobs that low-skill people can do that computers can't. But I can't find compelling evidence to support that premise.

Chris T writes:

I agree jb, and far too many economists seem to have faith that there will always be something for everyone to do.

Either they believe everyone is fundamentally equal in ability and infinitely retrainable (tabula rasa) or believe that humans have some magical quality that prevents them from becoming economically obsolete like machines.

Either way, it will be ugly.

Steve writes:

There's a great book (available as a free PDF) that gives an overview of structural unemployment as the result of advancing technology:

The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future

The author also has a blog in which he discusses this issue:

Most economists are in denial when it comes to this issue.

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