The Jobs Deficit

Posted by: Michael Mandel on October 18

I will be speaking Tuesday in DC. The conference? The Jobs Deficit: The Challenge of Putting America Back to Work, put on by the New America Foundation. I’m going to focus on the role of innovation in generating jobs.

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Reader Comments

TL

October 18, 2009 01:28 PM

One hidden aspect of the jobs deficit is American Corporate greed, by companies like IBM, who are outsourcing advanced professional positions to cheap labor markets masked as resource balancing (i.e. globalization). The IBM corporate machine may have the clout to keep media distanced from this disgustingly un-American practice, but how long will it be until IBM wraps its dirty secret for raping American workers with a big blue bow, and sells it to its fortune 500 client base?

If a company like IBM can get away with firing American workers (and forcing them to train Indian replacements under duress) - what is the future of American jobs - I give it ten years. For those who are still employed, and tricked into thinking your job is secure, you aint seen nothin' yet.

Open your eyes America; this includes you, President Obama.

Get ready, it’s coming.

http://www.endicottalliance.org/ibmabandonsusworkforce.htm

se

October 18, 2009 04:01 PM

I am an IT consultant I was in two meetings in the same day where they were telling the IT and back office staff that they need to outsource. Companies in the Insurance and Pharma industry that are making huge dollars for their services and products from the US consumers, then ship jobs overseas while getting huge tax credits.

The system is set up to charge Americans overly expensive amounts and then take their jobs away. We are all chumps. They are being enabled by people who cry "free markets" but are really using crony capitalism to protect the interests of the rich and powerful.

Ivan Kitov

October 18, 2009 04:16 PM

The secular movements in labor force participation rate are not prone to the influence of any modern technology. They are driven only by the change rate of GDP per capita:
http://mechonomic.blogspot.com/search/label/labor%20force%20participation

Unfortunately for the USA, the participation rate has been on a downward branch since 2001. Therefore, if innovations will create some extra jobs, other sectors will lose them and some more.

Ajay

October 18, 2009 06:23 PM

Ivan, your methodology and conclusion are fairly suspect. You extrapolate from GDP per capita trends and population growth to say that unemployment is only going to grow, solely based on extrapolating such past data, without taking into account at all the actual opportunities for work that are going to vastly change, and grow, with technology. Such silly extrapolation has always gone wrong in the past, you have to actually grapple with how the world is going to change with new technology. You're actually unwittingly right that new technology will often cause a loss of current jobs, for example, when online learning takes off, 10 teaching jobs will be destroyed for every online learning/tutoring job that's created. However, there will be plenty of other online clerical work for the former teachers to transition to. For you to take labor force participation rates as some absolute and therefore posit that innovation will only lead to other jobs disappearing because such rates CANNOT break their trend is beyond silly.

Ivan Kitov

October 19, 2009 06:05 AM

Ajay,

Silly or not, the robust quantitative link between labor force participation rate and real GDP per capita has been working accurately during the past decades in almost all OECD countries (with few under study so far. Results are reported:

"The Driving Force of Labor Force Participation in Developed Countries," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 203-222

and

"Modelling and predicting labor force productivity," MPRA Paper 15152, University Library of Munich, Germany

This is a quantitative link between two measured variables and is valid only as a quantitative link. It does not allow interpretations in terms of innovations or good will, which I agree to be of higher interst for general public. I do not see any room for a discussion. I just noticed that, according to our quantitative model, labor force participation rate in the USA will be declining in the next decade. The quantitative model can be wrong only if its predictions wrong, what is not the case.

Unemployment depends on labor force change, and thus on participation rate. But this is a different issue.

"Unemployment and inflation in Western Europe: solution by the boundary element method," Quantitative Finance Papers 0903.5064, arXiv.org.

Tom E.

October 19, 2009 11:16 AM

Since this country was founded, labor has always been relatively scarce. A big land with fewer people than most areas. This shortage of labor has made America an attractive place for immigrants and has kept the country more conservative and capitalist than other countries. In essence, the glue holding this country together, the American exceptionalism is due to a historic shortage of labor.

Globalism is changing that equation. We have become a labor surplus country. This will mean less legal immigration and less peace between the wealthy and the rest.

The glue that has held things together is coming undone. Business is oblivious to what is happening, all they can think of is more short term profits. But we are heading toward a fundamental change in American society.

People will not support business as usual in a labor surplus economy. The pact has been broken and business did it with globalization, off shoring and outsourcing. We may become like Europe or swing even further. Who knows what will happen when people feel betrayed. The American dream of upward mobility for the masses has been stolen*.


* I would define upward mobility for the masses as someone doing better than their parents.

CompEng

October 19, 2009 03:14 PM

Tom E.,

It's a good point that popular support (or tolerance) for the free market tends to be determined by the relative value of labor in the economy. Also important is the change in the value of labor over time.

Another way of putting is that if business doesn't value labor, labor doesn't value business. I don't think we want to go down that path.

Ajay

October 19, 2009 05:59 PM

Ivan, looks like I made a mistake in skimming your post: you actually say unemployment rates will FALL, which I got confused with your charts showing labor force participation rates falling. However, regardless of your conclusion regarding unemployment rates, I do find your methodology and conclusions fairly suspect. First, saying that you found a "robust quantitative link" between LFPR and GDP per capita is somewhat meaningless as both are highly aggregated variables that are more likely to show meaningless correlation under some model than actual causation. Since you stick to quantitative analysis in your writing and do not attempt to even delve into the underlying causes, the predictive power of such modeling is further weakened. I suggest you would be better off grappling with such underlying factors rather than coming up with fairly meaningless, supposed quantitative links between highly aggregated variables, despite the fact that your profession may pressure you in the latter direction. Yes, my point is that the predictions of your model will be proven wrong. Your model also raises questions of measurement, are all the Ebay sellers who make a living off that website properly included? Because such online freelance work is going to explode in the coming years and should push the LFPR numbers much higher, IF you can find a way to actually measure it properly.

Tom, land hasn't been a factor in labor surplus in at least 80 years, hasn't stopped this country from growing robustly ever since. Actually the real cause always is innovation, people coming up with new ways of doing business and finding new services to sell to each other. I'm fairly sanguine about this because I see an explosion of such services taking off on the internet in the coming years. The current recession is a welcome belt-tightening before the boom, impressing on people the need for prudence. The market is a learning organism, all recessions are are periods where people are taught the errors of imprudent investment, where they pay for dumping all their money into stupid investments like dot.com stocks or real estate. That's why recessions happen every decade or so, so that new generations can learn these lessons over again. If it has happened more frequently recently, it's because money now flows more freely all over the globe than ever before because of new technology. People will learn these lessons- though no doubt many will overreact and learn the wrong lessons, but that's always the price of stupidity- and new institutions will be adopted on the internet to better deal with these risks.

cm

October 20, 2009 03:42 AM

Tom E: It would seem there is indeed a labor surplus in many job categories, and your thesis that inhabitable and resource-supplied land has been tapped out (e.g. many metros and agricultural regions are tapping remote rivers and aquifers) is probably valid, in combination with tolerance for habitat destruction and overdevelopment having reached a limit. Population density (in inhabited areas) is probably still lower than in e.g. Europe, but apparently increasing around the metros.

Perhaps the much-bemoaned alleged stagnation of "Europe" is because they have hit those limits earlier, environmental as well as population density wise.

But I'm not sure this explains it all. There is still no dearth of useful and/or quality of life enhancing potential activities, but in our fiscal and social paradigm "ROI" is not assigned to those, so they are not undertaken, while part of the workforce sits idle or is compelled to engage in low paid marginal jobs.

Joe Cushing

October 30, 2009 05:20 PM

Now that companies are making profits, there will be money in this economy that has to find a place. That new capital will put America back to work. Nothing needs to be done. America will emerge stronger than ever before if we do nothing. I fear any plans to save us.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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