Arnold Kling  

Labor Market Commentary

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Two pointers from the indispensable Mark Thoma.

1. Catherine Rampell writes,

A large fraction of displaced workers who have found new jobs have had to switch careers, and most of those career-changers have downgraded to a lower-paying job, according to a new report from Rutgers's Heldrich Center for Workforce Development.

I regard that as evidence in favor of the Recalculation Story. I'm not saying that it's decisive evidence, but it's the sort of evidence I would expect to find if it were a valid story.

Janine Berg writes,

Yet with policymakers more focused on deficit cutting then fiscal stimulus and with labour movements weakened by globalization, it seems unlikely that wage policies will get the boost they need for the world to recover from this current crisis.

She is arguing for policies to boost wages. This view was also widespread in the 1930s, and it was employed with disastrous results. I am still reading Piers Brendon's The Dark Valley, and I just finished a chapter on Leon Blum as French premier in 1936. Saying that he modeled himself after Roosevelt, Blum and his socialist party put many policies in place to empower unions and redistribute income to workers. The result was that French goods became uncompetitive, unemployment shot up, and the franc had to be devalued in order to get real wages back to realistic levels.

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COMMENTS (4 to date)
Philo writes:

"Catherine Rampell writes, 'A large fraction of displaced workers who have found new jobs have had to switch careers, and most of those career-changers have downgraded to a lower-paying job . . .'." But is this a *larger* fraction than *normal*--of career-switchers, and of downgraders to lower pay?

"Recalculation" is *always* going on. You are claiming that there is a lot more of it now than there was a few years ago; but, so far as I can see, you have never presented any supporting evidence. The above quotation is an example of non-evidence.

Scott Sumner writes:

You are exactly right about the wages. Both the FDR and the Blum high wage policies were disastrous. The only difference is that FDR's policy was adopted after dollar devaluation, so the negative effects were less noticeable. Even so, the wage increases aborted a promising recovery. The negative effects of Blum's policies were more obvious.

Of course Krugman knows nothing about any of this history when he assures us that high wages are expansionary.

Regarding recalculation, today there are reports that auto sales were very strong in December. It seems that as the economy recovers auto sales are coming back. That seems like a demand problem, doesn't it?

Mr. Econotarian writes:

Friends of mine in tech fields who are currently in well-paying jobs but looking for other opportunities are consistently finding that new job opportunities are out there, but all are paying less than what they are making in their current job. Some of these new opportunities are from companies that just layed off many employees.

Evidently it is easier to lay someone off who is at a higher rate of pay and hire someone at a lower rate of pay than just cutting someone's pay.

Mr. Econotarian writes:

The quoted report states:

"a large number of the reemployed (41%) have had to move to a new field or career"


"For panelists who are employed full time, 53% are making less now than they did in their most previous job before becoming unemployed"

I don't find this surprising - when you move to a new career, you often take a pay cut due to your lack of experience in the new career compared to your old one, but over time you will gain experience and your salary will go up (this happened when I switched careers).

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