Retraining workers won’t work
Update: one of our readers caught a mistake in the chart. I indexed the data to December 2008, or one year after the recession actually started in December 2007. The statistics that changed are formatted in bold, and the chart in the article has been updated. The analysis doesn’t change at all, but the number of jobs lost during the recession is higher than those indicated in the original article.
From the NY Times, White House Plans Job Training Partnership (bold by me):
As part of efforts to address record-high levels of long-term unemployment, President Obama plans to announce a new national public-private partnership on Monday to help retrain workers for jobs that are in demand.
The national program is a response to frustrations from both workers and employers who complain that public retraining programs frequently do not provide students with employable skills. This new initiative is intended to help better align community college curriculums with the demands of local companies.
“The goal is to encourage community colleges and other training providers to work in close partnership with employers, to design a curriculum where they want to hire the people coming out of these programs right away,” said Austan Goolsbee, chairman of the President’s Council of Economic Advisers.
The White House has coined this program Skills for America’s Future. The complication is, that lack of skills is not the problem for the 66% of the labor force aged 25 years and over without a bachelor’s degree. The problem is the lack of jobs.
The chart illustrates the dynamics of employment by level of education through August 2010, as measured by the Bureau of Labor Statistics. Note that the data are indexed to the onset of the recession, December 2007, where 100 implies that employment is now at its pre-recession level.
The only category to recover employment in full is that requiring a Bachelor’s degree or higher. Furthermore, no material change in employment for BA’s (or higher) has occurred since about a year ago, as indexed employment hovers around 100. No new jobs.
The levels of employment for those workers with the lowest levels of educational attainment, 1. and 2., are 10.2% and 6.6% below pre-recession levels, respectively. That is over 3.5 million jobs.
The White House program is targeted at community college students, or education category 3., some college or associate degree in the chart above. Employment for workers with a community college degree sits over 3.2% below pre-recession levels, or 1.1 million jobs. Retraining workers will not raise the employment level further.
The government needs to “add jobs”, not “retrain workers”, and stimulate domestic aggregate demand.
Rebecca Wilder
There is an interesting study on underemployment from 2008 that suggests that there may be more of the ‘mismatch’ type of structural unemployment than the macro suggests. This study analyiazes 360 individual job markets and compares 3 catergories by education levels.
This study also shows that about half of all job markets have gluts of overly educated employees while roughly the other half has too many under educated folks.
http://www.chmuraecon.com/underempl/
Immigration, both illegal and otherwise, is causing a significant amount of ‘structural’ unemployment that seems to be ignored in the macro-assessments. It is interesting that this post shows that:
“The levels of employment for those workers with the lowest levels of educational attainment, 1. and 2., are 3.4% and 5.4% below pre-recession levels, respectively. That is near 2 million jobs.”
But… no mention of the fact that this is the same part of workforce where many millions of undocumented workers are employed. As if to suggest that there is only a choice between the new retraining efforts being offered by the Obama team, or counter-cyclical stimulus.
Plus, this type of structural unemployment, which clearly qualifies as ‘structural using the standard of hysteresis, would also be much worse if it were not for military recruitment. In our rural areas those coming out of high-school but choosing not to attend college have very few opportunities as things are, and if those being recruited were added to the existing labor surplus the shortfall would be similar to that during The Great Depression. The graduating class that included my son two years ago had about 15% to 20% of the males recruited into the military ‘before’ they graduated. How many others who either joined after graduating or after dropping out I don’t know, but… of all of my son’s immediate friends (12), 4 of them are currently serving. My son and 3 others out of that 12 are still in school and the remaining 4 are still at home, unemployed, but of course not being counted as unemployed. These young people ‘are’ however structurally unemployed at least to a degree, or as compared to when I was their age and living in commensurable circumstances (hysteresis), and… it may well be that the economic framework has left us with a choice between a militaristic culture or increased levels of structural unemployment. But if we were to see structural unemployment as it actually exists… it could be minimized. If the US were for example to put as much emphasis into influencing improvements in Mexico, as it has in Iraq etc., or perhaps just stop flooding Mexican markets with subsidized ag goods, at the least; then at some point the US could create more demand for its exports while also doing what is morally justifiable.
What it comes down to though is whether urbanites are willing to pay more for food and some service costs.. Removing the ag subsidies and curtailing illegal immigration in a responsible way would require a shift of wealth distribution from urban to rural and this would follow on a global basis, it would especially affect Mexico. But this is the moral and the effective alternative to the job shortage in the US and most other nations as well. It is often said of course that ‘Americans will not do these jobs’ but that is said with a delusional disregard for how little’these’ jobs pay. Those compensation levels though must be allowed to find equilibrium which will of course occur if the ag subsidies are phased out in conjunction with strict enforcement of the existing laws regarding immigration.
Ray L Love
Yes. In a game of musical chairs, training people to be faster dancers is no help. But there are at least two solutions, not one. One, generally referenced, is creating more “chairs” — more jobs. But the other is to detach survival from possession of a job. In musical chairs, the losers in the game are seldom forced to starve — it would be a more interesting pastime if that was so, but maybe not what you would call a game anymore.
From the end of WWII to the 70s, the employment to population ratio ranged between 54 to 58%, and America boomed. Then it climbed to range between 60 to 65%, mostly because of women entering the workplace — and prosperity stalled.
Whether women went to work and stalled the economy, or went to work because the economy was stalling, I don’t know is proven or provable. But whatever this says about women, it’s obvious that “the economy” can or could afford the one-earner household (with more children, yet!) at one time and presumably could again, if workers were paid a fair slice of the productivity which has climbed so steeply since the 70s.
If mom or dad or Uncle Charlie could afford to stay home, leaving others to dance the employment dance, we might even get a more stable society and safer neighbourhoods, too. You think?
Noni
Okay, well that’s in 2008. So its only gotten worse, and no amount of “educational training” is going to change the direction in which the labor force is moving (all previous structural issues aside). There are two problems here: (1) the baby-boomers are very likely to choose to extend retirement. After a preciptious decline in wealth, many retirees are no longer willing or able to retire. This will only crowd out lower-aged workers. (2) – and this is the truly bad one – the average “skill” of the labor force will decline if entry level candidates are not able to start at the same level of job training as before the recession. Going forward, the longer this lasts, the lower will the average skill set be (net of the baby-boomers, of course).
There are structural issues, such as immigration, that were already in the pipeline. But the cyclical issue – the 2 million jobs at the lower levels of education – is just the beginning of a long cycle of underemployment if the government doesn’t kick start aggregate demand (for real).
And the point of the article: No matter how well you train them in “community college”, labor demand is now the limiting factor. On the job training is the most important training, and that, as they say, is dust in the wind (for now).
Also see Robert Shiller’s latest piece on Prof. Bewley’s research in the NY Times on the effects of reduced morale from those remaining in the labor force on consumption and investment spending.
“But… no mention of the fact that this is the same part of workforce where many millions of undocumented workers are employed.”
And you think they have work right now?
Well, it may not be a solution, but it is not really a negative, is it? And actually, I think that it will benefits a number of high school graduates who might get more education that they otherwise would not get. 🙂
Hi Noni,
Elizabeth Warren and Amelia Warren Tyagi argued that two-income families and increased debt leverage were necessary to survive the increased cost of living stemming from the strive for a higher standard of living (as a result of women entering the workforce).
Now the answer is that the government must, in a most explicit sense, provide the income growth. Or else poverty rates will rise, birth rates will fall (they probably already have), and household formation rates will remain flat to slowly growing. None of this is positive for medium-term to long-term standards of living.
Rebecca
“And actually, I think that it will benefits a number of high school graduates who might get more education that they otherwise would not get.”
If they can afford to go to community college! It’s called false hope. Rebecca
Rebecca,
I live near Killeen/Ft. Hood in Central Texas. This area has no shortage of jobs, relatively speaking. The classifieds throughout central Texas list a long and varied assortment of low-paying jobs.
However, by example, I know journeyman carpenters who are unable to find jobs at half of their previous wages in capacities ranging from janitorial to maintenance etc. What little work that is available to construction workers in this area is being done by Hispanic crews, mostly by contract. These crews do not consist of undocumented workers exclusively, but fluent Spanish is a must and racially mixed crews are rare.
I live in a rural area where it is made obvious that the competition with undocumented workers intensifies as the distance increases outwardly from metropolitan areas. The diversity regarding job types also expands into occupations that are essentially the entire spectrum of jobs that do not require some form of documentation. For instance, undocumented immigrants have small businesses doing auto/tractor repair, pool care services, fence building and onsight welding operations etc. Put simply, undocumented immigrants are not just workers anymore, they have a wide range of skills and they offer those skills at a price level that is below what citizens are able to compete with due to the significant differences in overhead costs etc. And, undocumented immigrants have become entrepreneurial in all of the ways open to bidding for work, by commission etc., but mostly as subcontractors in competition with each-other more than with legal businesses.
So, to answer your question: “And you think they have work right now?” I say yes, to a lesser degree of course, and that there are crews of undocumented immigrants working pretty much everywhere one looks around here. As the joke goes: When Davy Crockett looked out over the wall at the Alamo, and saw Mexicans as far as the eye could see, he said, “I didn’t know that we were pouring concrete today”.
I see them working every time I leave my property and millions of them would not still be here if there were not any work.
“the government must, in a most explicit sense, provide the income growth”
The government does that how exactly?
The only shortages I can detect nationally are for nurses and high skill welders. There is also some grumbling about high skill auto mechanics but I suspect delayed retirements will take care of that.
And in the short run some health facilities are cutting nurse hours because many people cannot afford as much health care – temporary i suspect.
Because the term “false hope” has been brought up, I thought the following might help to put this conversation on firmer footing.
During the period after WW2, in the US, savings rates were high… and demand for ‘everything’, and especially for houses, was very strong. HOWEVER… coming out of the Great Recession, conversely, savings rates are low and demand for ‘everything’, but especially for houses, is very weak. So, consider those differences and then you should be able to understand why counter-cyclical spending will work in certain conditions, while only exacerbating a liquidity trap in other conditions. Obviously, prices will not increase regardless of how much the money supply is increased in liquidity trap conditions if aggregate demand is weak to a severe degree… and, at some point stagflation occurs if demand remains weak with an excess in the money supply beyond that which fills the liquidity trap. And so, the only way to create self-supporting jobs is to increase exports but this puts labor in the US in a more competitive position with global labor. This means wage inflation can not keep pace with price inflation so stagflation in these conditions would be devastating for the US workforce, and especially so, at a time when households are deleveraging and being foreclosed upon in record numbers. So, there is no ‘quick’ solution and a ‘new normal’ is a certainty. But there are other alternative solutions. Those alternatives though are being ignored and in part due the ‘false hope’ of countercyclical spending that too many progressive thinkers have been led to believe-in, as the only solution. But countercyclical spending in an economy that was overly saturated to begin with, and overly indebted, is not the solution at this time.
Countercyclical spending where development has lagged behind does however make sense. There are countless people around the globe who have genuine needs… and there many people unemployed who could meet those needs. And capital can be created with nothing more than a keyboard so long as it is met at some future date by productivity. But the demand must be genuine on an overpopulated planet.
Rusty,
A few months back, a spaceship hid behind the moon for about 2 months. Turns out, its inhabitants, a grimy and disgusting lot, needed some cleaning done on their ship. So, they beamed-up all of the janitors from Cleveland, Ohio, a place well-known of course for cleanliness in difficult conditions.
At the time none of the many economists in the US even noticed that these janitors were missing, it seems they were only paying attention to the national data bases and only by sector based analysis. But of course janitors work in all sectors so the economists still don’t know about this. It is in fact possible that I am the only person to have noticed this phenomena outside of Cleveland, and the people there are all too busy cleaning up after themselves to do much else, naturally.
Next time they come for some cleaning service, we should offer up our economists.
rllove55@gmail.com
This administration will suggest anything, anything at all except what is needed. A great big hike in effective tax rates on corporations. That is the only way to get them hiring again.
What is my reasoning?
If you dont’ already know you need to go back and read some of the great posts on this site about tax policy.
Tax cuts are what is destroying our economy.
Persistent high unemployment for the non-college educated is a 40 year old problem that we still haven’t solved. Given its persistance, it is reasonable to hypothesize that the problem may be that there simply aren’t enough situations where the private sector standard for creating a job (that the job increases the enterprise’s profit exclusive of the cost of hiring the person by more than the cost of hiring hte person) is simply not met often enough to employ everyone with this level of skill (at least not at a wage sufficient for the employee to survive in our economy).
From the point of view of the government, the question is quite different: What is the most economically useful thing that a particular person can do to contribute to the economy? Profitability is irrelevant in this calculation, because unlike private firms, for the most part the government doesn’t have the power to exclude people from being part of its economy.
In some cases, it may be cheaper simply to pay someone a pension than to go to the trouble of creating a job that has no economic value. But, in a lot of cases, I suspect, there is plenty of work for less educated individuals to do, but its fair market value in our economy may be less than the cost of hiring that person to do it. A logical private firm will conclude that the right answer is not to hire that person. It may be in the interest of the government, or a family who is responsible for that person, in contrast, to create that unprofitable job.
Ray,
Except that the Federal Reserve doesn’t need any more economists back at the Mother Ship.
Ray,
I’m in the DFW metroplex and I second what you just said. Spanish is mandatory to work on any construction crew. Bi-lingual is good, but if you only speak one language it must be Spanish.
This is also true in some restuarants and otehr places were documentation enforcement is iffy I best.
Islam will change
How about forced retirement to free up some jobs? Right now age-discrimination laws make jettisoning post 65 employees very difficult. You could do this in the economic overhead sector (government) and free up jobs.
Just a probably poor idea…
Islam will change
I’m not so sure there is a over abundance of unskilled/semi-skilled labor (outside of muscle work, like construction), but rather an over abundance of college degrees that are in jobs that a high school grad could do. Like the waitress with the psychology degree, or the indian programmer at the Quickie Mart, or the business major running checkout at Office Depot. There are a ton of jobs within S&P 500 companies that could be done by high school grads, but companies will hire college grads if they can get them for the same money.
It’s not a poor idea…it’s my idea.
The undocumented immigrant population has been declining significantly every since the housing bubble popped. Voluntary repatriation has far exceeded deportation, which is itself, at record high levels.
At any rate, there should be no shame in the fact that people are doing work that is contributing to our economy. The fact that some people don’t have jobs doesn’t mean that we should demonize those who are doing productive work.
Thinking about jobs as some fixed quantity resource isn’t a very fruitful way to conceptualize the issue. Unemployment is fundamentally a failure to entrapreneurship. It is about how efficiently we use the resources that we have, not about how many people we have. The fundamental lesson of economics is that one man’s profit is not necessarily the source of another man’s misery. People don’t just fill jobs, they create them.
A typical Latin American immigrant, even though that person may lack a formal education, is valuable in part because that person is often much more skilled and functional in a work environment than a comparably educated American. In theory, labor law violations could give undocumented immigrants an edge in the labor market. In practice, it isn’t as if this work, particuarly in construction, is routinely being done at less than the minimum wage, and lots of agricultural work is simply not attracting domestic applicants, notwithstanding high unemployment levels.
Employment is not a game of musical chairs. The work done itself is what creates value that makes it possible to hire people. The problem is that the value that unskilled workers can create has grown less rapidly than the value that skilled workers create.
Cedric,
Perhaps mess-makers do not make good janitors. I suppose I spoke in haste. I stand corrected.
If the problem is that the marginal less educated worker isn’t productive enough to create a profit big enough to cover their compensation then early retirement won’t help much.
There are a lot of jobs in the corporate world where you are just a cog in the big machine. It takes job experience to be good at some of the higher level cogs. But a lot of people will admit (at least when their boss is not around) that they think they are just an easily replaced cog in the machine.
With the exception of a relatively small number of creative or managerially challenging jobs, it is the machine that creates productivity, not the other way around.
@Rebecca
You do not think that the program will include scholarships?
If the problem were new, I’d agree with you. But, this problem isn’t new, it’s just more noticable than usual at the moment. Pay for people who haven’t graduated from college has been stagnant for forty years, an they have been on the receiving end of unemployment rolls for every recession we’ve seen in that time period.
The post-industrial era has found a lot of ways to automate less skilled jobs (e.g. travel agents, bank tellers, factory workers, opinion pollsters), but has had more trouble automating more skilled jobs, and the people who have done the automation have mostly managed to hold onto the profits resulting from the increase in productivity that has resulted from the automation themselves. Sometimes its been subtle. More reliable automobiles have reduced the need for skilled mechanics. Cheaper appliances have made it less cost effective to repair them. Bar codes and produce stickers have increased grocery checkout speed and widened the pool of people who can do the work. E-filing put a lot of copying machine drones out of work at big law firms. Automated water meter reading equipment reduced the need for meter readers. The Postal Service has laid off tens of thousands of people (maybe hundreds of thousands) as faxes and e-mail and automatic payments have reduced mail volume. iTunes has trimmed the demand for record store clerks, Amazon has trimmed the demand for book store employees.
Workers in industries that have taken a hit, like construction, often aren’t qualified to work in health care, where even relatively low level jobs like CNAs that have comparable pay and skill requirements can be filled only by someone with professional certification and several weeks of classroom and clinical training.
ohwilleke: “Persistent high unemployment for the non-college educated is a 40 year old problem that we still haven’t solved.”
Funny. Hadn’t we already solved that in the 1950s?
Well, that’s technical progress. Maybe Asimov was right when he wrote “I, Robot” and there will be a few elite left at the top and progress and productivity impoverishes the rest of us.
But they are moving everything that isn’t bolted down out of the country, so I still don’t think that’s the entire problem.
As far as retraining goes, for skills that can be taught in school, I think people would do it if they thought there was a job for them in the end.
Back to the original topic of the post, my college had a staff charged with maintaining industry contact and asking industry what they wanted. Oftentimes the industry input was “why don’t you teach them something practical instead of this heavy emphasis on theory”. You can imagine that caused some head scratching among the profs, so there is a understanding gap between industry and education about who is supposed to do what.
From todays LaTimes http://www.latimes.com/business/la-fi-no-help-wanted-20101004,0,542797,full.story. The story details among others a farmer who switched to growing almonds and now employs 1/3 the folks he did before. The article also discusses kiosks for fast food ordering, so that no human ordertaker is required. Office and admin support jobs decreased 8% from 2007 to 2009. Also cites that there are 1/2 the folks working in travel agencies as 20 years ago. So there is at least some evidence of replacing people with capital in the work environment. (I suspect that given a capable silicon unit a lot of employers would replace a carbon unit with it).
Clearly first we need to provide a system to get dropouts to the GED level, as well as going further and skills, however the issue becomes how long the skills will be needed. How do we teach people how to teach themseleves? This I believe is the only way long term to survive in todays economy. (Not recommending grad school for this, although it is partly designed to teach you how to teach yourself, as at that level there is no one to teach you).
Well, your post used to be true. But now the big bucks are in financial transactions that are largely automated and have less relation to reality than any given stage magician’s performance. Skills are movable. Look at all of the jobs being shipped to India, China and wherever labor is cheap. Computer programming, software engineering, electronics engineering and many other skilled professions are being sent overseas as well as low to moderate skill manufacturing jobs. Then in addition there is a lot of work being done to automate jobs out of existence. When both of these trends are combined you have an economy that is not going to be recovering any time soon because job growth will be just to anemic to provide a meaningful increase in consumer demand.
Age discrimination is rarely provable or prosecuted. Ask older tech workers.
ohwilleke,
“demonize”? You evidently failed to read, or failed to understand, my comment at 12:26. It is me who has been demonized.
ohwilleke,
Can you support this claim: “The problem is that the value that unskilled workers can create has grown less rapidly than the value that skilled workers create”.
If your comments were a bit more polished I might suspect that they are strait from the propaganda room at the Democratic Party headquarters. What does “the value that unskilled workers ‘can’ create” mean exactly? Are workers not working up to their potential?
Most importantly though, I would like to know how you reached your conclusion on skilled workers creating more value than unskilled workers. If you can back that up then all is good, if you can not, I think you should give some thought to how misleading and potentially harmful it can be to regurgitate things that you do not quite understand. The regurgitating of misleading information is what we are controled by.
Rebecca,
I see no indication that you are familiar with the status of DOL ETA programs and related quarterly/annual performance criteria, or actions by the President’s Economic Recovery Advisory Board (PERAB), including supposed actions.
There are a number of worthy questions and issues that can be raised about this latest initiative, but you haven’t touched on any of them.
Five or six years ago there were well read readers on this blog who would have taken you to task for this main post. They are long gone from this blog.
ONe measurement of value created is of course wages. Skilled workers are paid more. Another would be the cost to aquire the services of a worker, for unskilled workers for example the price to have your yard mowed. Compare that with the price to hire a plumber to fix something.
So that unless you argue some other measurement than either cost of services or pay, which needs to be objective, the issue is clearly stated that unskilled workers add less value based upon the wages/price of the services they provide, what other metric would you use?
Just to add my 2 cents worth to the post, The P.O.T.U.S. said today, Wednesday by my Yahoo News, the parteneering with McDonald’s & the Gap to train future employees is something wonderful for the youth/adults of America. The man knows no bounds to dumping on the people of this once great nation’s young people. I wonder if he also will have his “girls” enrole in trainging to flip burgers or selling Chinese made clothing as a career objective?
Lyle,
When a lawyer defends a client the money earned for his firm is simply a transfer of funds from one part of the economy to another… no value added. Same dynamic holds with many vocations that apply to educated workers. Plus, when an economy has too many mortgage brokers there is the potential for negative ‘value’ due to market equilibrium factors. Too many surgeons in the marketplace and it has been shown that the result is a rise in unnecessary surgeries and so on.
Workers on the other hand who are part of the process of adding something of value to the economy that did not previously exist… their contribution is overwhelmingly positive. Although, measuring these contributions in an effort to compare which group adds more ‘value’ would be impossible because the contributions of some vocations is immeasurable, teachers for example do not provide any ‘value’ directly but of course they are indispensable as are many others who are not directly related to production. But if our current economic predicament should have taught us anything, it is that productive nations have healthier economies than what those nations with too much dependence on service based sectors have. The fact that emerging nations have the ability to create keyboard capital has brought into question the concept of any one economy being dependent on its financial services sector, as those currently are in the US and in the UK. The amount of harm done to the global economy in recent years is in the many trillions and is in part due to the excessive number of parasitic financiers/investors, and, on our misguided economic dependence on these counter-productive citizens… and so, it is presumptuous to claim that “the value that unskilled workers can create has grown less rapidly than the value that skilled workers create”. That notion is based on the worn-out propaganda which financiers, politicos, some college professors, and the practitioners of religions etc., have been spreading for centuries so as to justify their exploitation of others.
Lyle: “How do we teach people how to teach themseleves?”
Babies know how to teach themselves. At most schools we teach them that they have to rely upon authority. Socially, they learn to follow the crowd instead of thinking for themselves. So-called critical thinking courses should help to restore students’ self-learning capabilities.
Well, if you combine that with a psychology educational track at community college, that would be something to be proud of, wouldn’t it??
Norman,
I think your comment is worth more than “2 cents”.
As opposed to the government hiring more people — not a bad idea but I think not the best — Wouldn’t an expansion of the EITC be an excellent channel for government subsidy?
A great job booster, subsidizing private sector jobs, with the split incidence of that subsidy both encouraging workers to work, and employers to hire?
This puts the choices that the subsidy provides out there in the marketplace, hopefully resulting in a good/better (though of course not perfect) allocation of resources.
Also saleable politically, because it encourages work and doesn’t reward non-work.
It strikes me as about the best program we have, delivering both economic efficiency and equity (especially in a downturn with unutilized capacity). Win-win. Why not funnel stimulus through it?
Its failing short-term is salience — immediate noticeable-ness, so people respond immediately — because only one percent of recipients take their EITC on their weekly paychecks. I have no idea why. Should that available option be promoted/publicized more, or set up like the IRA auto-opt-in?
Then, my idea: long-term, index EITC to some measure of the unemployment rate. More when unemployment’s high, less when it’s low. Highly efficient automatic stabilizer.
Best brief writeup I’ve seen on expanding EITC is in Chapter 8 of Lane Kenworthy’s Egalitarian Capitalism.
But how else beyond either the cost of the product or service or the wages paid do you determine the value of a good or service in our economy? Yes this does mean that many things that we would like to be more valued are less valued, for example why do teachers make less than investment bankers? One could make a non economic arguement that this is wrong, but unless you liked the old Soviet Union, it does not work in the real world.
Lyle,
It matters not what value is given a good or service, we are talking about value ‘added’. The statement in question is: “The problem is that the value that unskilled workers can create has grown less rapidly than the value that skilled workers create”. Note the word “create”, it is a gross misunderstanding of economics that allows this sort of nonsense. I don’t know if skilled workers create more value than what unskilled workers do but the premise is very questionable and misleading in regards to how growth occurs. This has nothing to do with Communism. It has to do with understanding basic economic principles. The concept of an economy that relies heavily on its service sectors, especially its financial services sector, has recently been shown to be a concept based in wishful thinking. Consider the state of our economy as support of what not understanding how growth occurs leads to. This is complicated stuff.
ray I love:
The phrase “the value that workers create” is a more nuanced way of saying “productivity” that reflects the fact that the links between inputs and outputs are subtle and assumes that this is allocated in a way that is meaningful in economic terms.
I can’t imagine why you wouuld attribute this reasoning to Democratic poitics. It is straight Microeconomics 101 from the capitalist playbook. The basic conclusion of microeconomics is that wages, in an equilibrium situation where the market works, track productivity, or more accurately, the value that is created by the worker in the economy as valued and allocated by market forces.
” What does “the value that unskilled workers ‘can’ create” mean exactly? Are workers not working up to their potential?”
No. It has nothing to do with potential. It means that highly skilled workers are seeing their productivity increase more than unskilled workers, primarily as a result of changing technology. In 2010, a skilled worker can produce a lot more dollars of economic results than a skilled worker could in 1970. An unskilled worker can’t.
I’ll give you a concrete example from my world:
Twenty years ago, in a big complicated lawsuit, a law firm had to photocopy every single page of every single document in a court case, put it in the mail to every single party in the lawsuit (often dozens), and get it to the mailbox by the end of the day, the postman then had to deliver the packages to the other lawyers in the case, whose firms in turn, took those documents, two hole punched them, and pinned them down in reverse chronological order file folders with tabs. Everything after the initial preparation of the document was done with unskilled or less skilled labor.
Now, once the document is done, it is e-filed (often by the lawyer, but sometimes by a paralegal) and some one the receiving end saves the e-filed document to a folder on the receiving attorney’s computer (often the lawyer, but sometimes by a paralegal). All of the less skilled work in between has been replaced by work done by computer software experts who enjoy immense economies of scale.
The example is isolated but the trend is not. Technology has been killing unskilled jobs much faster than skilled jobs and has been making skilled jobs much more productive.
“Most importantly though, I would like to know how you reached your conclusion on skilled workers creating more value than unskilled workers.”
The alternative is Karl Marx’s Labor Theory of Value. A skilled heavy machinery operator digs ditches faster than an unskilled ditch digger. The value of the work is a function of what gets done, not how it gets done. Skilled workers are more productive because they are better at using technology and social institutions to produce big dollar results than unskilled workers.
We did. We stopped making consumer goods for half a decade then had to replenish the backlogged demand, we destroyed the manufacturing base of all of our competitors which forced them to import manufactured goods from us, we killed off millions of men in WWII removing them from the workforce, we kept the draft in place for the Cold War which also kept government defense spending from collapsing, we took most of the women out of the workforce and they spent the better part of the next decade keeping pregnant and raising small children, we adopted and enforced overtime laws, we shortened the work week, we put more of the potential work force in college with the GI bill, and we increased mandatory school attendance ages. Voila, unemployment went down.
But, unless we want to endure the pain of the Great Depression and World War II all over again, and undo the Civil Rights Movement, a lot of those tools for solving the problem are available any longer.
You are on point. Unemployment is a natural product of economic efficiency unless you can find something else productive for the unemployed people to do and our private sector may be short on ideas. It may be that given our technology level, the private sector is short on ideas because there aren’t any that work for them.
We need some combination of training people to do productive work that is available, to the extent possible (training high school dropouts to be doctors doesn’t work), and finding ways to use government to get value from less productive workers that the private sector can’t because it needs to make a profit.
The EITC under current law, leaves the working poor with the highest marginal tax rates in the tax code. The combined marginal federal tax rate on working class taxpayers exceeds 50% at some incomes, mostly as a result of the poor design of the EITC.
If we want to create incentives for workers who currently benefit from the EITC, we should lower marginal tax rates for these workers, not increase them as the EITC does now, which requires a major rethink of the way that FICA taxes, the EITC, the child tax credit phase in, and marginal tax rates on earned income are structured.
Another group of people facing very high marginal tax rates are spouses of people who earn high incomes who are contemplating a return to the work force, particularly if they have high child care costs associated with doing that.
“When a lawyer defends a client the money earned for his firm is simply a transfer of funds from one part of the economy to another… no value added.”
Not so fast. There is nothing simple about it. The existence of the legal system makes property rights and contracts possible, and creates incentives for people to avoid harms to others that can be economically prevented. It supresses a lot of the pathological ways to make a living, and encourages a lot of productive mutually beneficial ways of making a living. Even when an individual transfer after the fact doesn’t create economic value at that moment, the incentives that flow from knowing that lawsuits could be brought does.
And, the more efficient the legal system is at doing that, the larger the share of the value that is created by the legal system as a whole that the economy allocates to the people in that system who create that value.
The classic trend in the economy has been from simple and inefficient ways of doing things, to massively indirect but highly efficient ways of doing things. Lawyers are just one examlpe of many.
ohwilleke’
Indeed, “Lawyers are just one example of many”. Your example here uses the lawyer’s role of an enabler as an license to assign to lawyers the role of someone who actually does create. Even if you attempt to shroud this word twisting effort into an argument based on marginal utility theory, or whatever, you have an insurmountable problem. This has to do with the oft said truth that economists are better at addition than they are at subtraction.
For example, in 1980 as the ‘drug war’ gained steam incarceration rates began a sharp rise. Last time I checked, the US (4%) incarcerated 25% of the World’s prisoners. But at some point along the way a decision was made to stop some of the drug trade at its source. Through many years of wrangling over extradition treaties and one failed effort to establish a regional treaty to allow more access for the DEA, the US and Colombia struck a deal (Peru declined and Uruguay stalled). The deal basically allowed US officials to spearhead efforts in Colombia in exchange for almost completely unrestricted access for Colombian exports into US markets, and, Colombia is allowed to protect its markets as needed. Turns out, Colombia now has the fastest growing stock market in the world.
The problem with this arrangement is that it defies the very essence of what the WTO was created to keep from happening: unilateral trade deals with jingoistic implications that provide strategic advantages for purposes other than trade. But the more abrading rub here is that now the US has weakened its position regarding WTO infringements and of course it is these very indescresions that allow nations such as China to stretch the rules.
So… what is the true cost of the drug war and how much of that cost should be subtracted from the ‘value’ ‘created’ by lawyers. You see the problem with your logic is that it is unfair. Unskilled workers do not get us involved in conflicts such as Viet Nam that lead to an explosion in drug use, that in turn leads to a ‘drug war’, that in turn creates a dependency on having more lawyers than what is needed if we don’t have the highest incarceration rates in the world. Your ‘skilled workers’, in other words, are giving themselves ‘value’ based on their incomes without any consideration given for the negatives while also, as I explained in my previous comment, manipulating the value of labor in regards to ‘unskilled’ workers. Your logic gives ‘skilled workers’ credit of the positives, but it subtracts for of the negatives.
Your logic is like that of an Indian Chief and his elders convincing the tribe to embrace a vegetarian diet, but then, when there is not enough food, the Chief and the elders blaming the buffalo hunters for not knowing how to grow vegetables.
Hi MG,
I had to work, and didn’t see this after my initial comments following the post.
What I want to know is why – when the employment to population ratio hovers in the 1970’s 1980’s level, 58.5% in the last two months, and the private employment diffusion index falls back into contraction territory (i.e., the balance is tilting toward private industries reducing employment), 49.8 – does the October 4 PERAB agenda BEGIN with the training of workers? Demand for workers is the very limiting factor right now.
Rebecca
This makes me furious because I went and got a degree in Library and Information Science. I happen to think this is not brain surgery to begin with, but the degree is deemed absolutely essential to obtain employment. Low and behold you need at least 2-4 years postgraduate experience to even get a job. Of course, all the layoffs resulting form Tea Bag Cut Spending mania does not help. Training my ass. Employers just don’t want to spend ten minutes training someone to do a monkey’s job. This is their excuse to send all the jobs out of the country to India. This is why I literally sit here all day and all night posting comments like this. If we can spread enough hatred for corporate politics around, maybe the United States can be like Egypt and start rioting….not against the government but against the corporate leaders who have destroyed millions of lives.