Arnold Kling  

What Type of Unemployment?

The Euro... Two Notes on PSST...

Brad DeLong writes,

It seems fairly clear to me that calling this "structural change" is somewhat of a misnomer. Structural change is when workers find jobs in expanding industries. That happens overwhelmingly during booms. For workers to lose jobs in contracting industries and to not find them in expanding industries is not "structural change" but rather something else.

If we were to pump up demand we would pump it up in expanding industries, and so accelerate rather than obstruct labor reallocation.

Thanks to Tyler Cowen for the pointer.

Read the whole thing. It appears to have come from DeLong in the mid-1990's, not the evil twin abusive blogger.

What I have been trying to do in PSST vs. the Aggregate Production Function, Technological Unemployment: A Partial Equilibrium Example, Who Will Write This Paper, No. 2? and Who Will Write This Paper? is describe a possibility in which structural change is not symmetric. It is possible in the short run for the jobs lost to greatly exceed the jobs gained.

Could "pumping up demand" help in such a situation? Perhaps. But if the recalculation story is right, the higher demand could end up not doing much for employment. Instead, it might only do a lot to raise oil prices.

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COMMENTS (7 to date)
John Thacker writes:
For workers to lose jobs in contracting industries and to not find them in expanding industries is not "structural change" but rather something else.

I don't really understand the "but" there. Even if you believe that the problem is insufficient AD or whatever, why couldn't this be "structural change" and that?

Okay, suppose we call it something other than "structural change." Now what?

Brad DeLong's notion of "pumping up" demand confuses "willingness" and "ability" to demand real stuff.

When the Fed "pumps up demand," which it does by buying securities, that may indeed pump up willingness of households and government to buy real stuff; but it doesn't pump up ability to buy real stuff. Ability to buy real stuff requires producing something of value to exchange for the real stuff. Money isn't real stuff.

What Prof. DeLong seems to discount is the possibility that workers who lose their jobs do so because they are simply not worth the wages they were getting. They won't be worth the wages they used to get in "expanding" industries, either.

Labor is not a homogeneous factor of production L, any more than capital K is homogeneous stuff. Labor L and capital K slide around without friction in a model, but the real world isn't a model. If folks like Prof. DeLong think wages and prices are sticky, they shouldn't have so much trouble understanding that L and K are sticky, too.

If I lose my job because my employer determines that I'm not worth what I'm being paid, say as a candle stick maker, is there any reason to think I will be employable in the light bulb industry? Not unless the work effort I can offer is productive in the light bulb industry.

I respect Prof. DeLong's hopes and sentiments about unemployment, and I certainly respect his intelligence, but hope, sentiment, and intelligence can only mitigate scarcity, not eliminate it.

Lord writes:

At least if oil is going up we will know we are up against real constraints and not monetary ones. Even then it will still help the adjustment process, for it is not that people that lose their jobs are not worth the wages they were getting, but the people that have kept their jobs are no longer worth the wages they are getting, and higher prices will help cure that.

Scott Sumner writes:

Regarding the last paragraph, if you mean a rise in nominal oil prices due to inflation, the effect would obviously be trivial. If you mean real oil prices rise (as seems more plausible), that can only occur through a rise in oil demand or a fall in oil supply. It seems unlikely that demand stimulus would reduce oil supply, so this means the demand stimulus would presumably boost output and employment. Or am I missing something?

Arnold Kling writes:

What you are missing is speculative demand for oil, gold, and other commodities. There is money burning holes in people's pockets, and they use it to stock up on commodities. If that happens, it is hard to see that as good for employment.

Philo writes:

Speculators will only buy commodities futures if they expect commodities' prices to rise. Why would they expect that, unless they expected a booming economy?

mark writes:

We have in fact pumped up demand in expanding industries, as he thinks we should. The problem is the industries that are expanding are doing so in large part outside of the US. While the unemployment numbers he looks at are of a single nation, the industries are global. The global employment trend seems pretty robust actually.

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