Apr

3

Robert McTeer had an interesting post on StreetTalk. He responded to a TV commentator who claimed the recent BLS employment numbers showed: "Not a single new job has been created." McTeer called the claim misleading because it implied "a stagnant economy dead in the water." McTeer notes that though jobs have been lost on net over the last two years, "The gross jobs numbers behind the negative tell a far different story." Though 8 million jobs were lost in the second quarter of 2009, McTeer notes that "6.4 million were created (674,000 more than in the first quarter)."

A gain of 6.4 million new jobs in a quarter shows a dynamic economy. But I sent an email to Mr. McTeer suggesting there is more to the story. The 8 million jobs lost, I argued, are in some ways as good for the economy as the 6.4 million new jobs.

Eight million people losing jobs means eight million in the market for "better for the economy" jobs, if not at first higher-paying jobs. If these workers were destroying wealth at their old jobs (though no fault of their own), just stopping is good for the economy.

The huge number of union jobs lost in the auto industry is good news for U.S. economy as well as car buyers. Overpaid and badly organized auto industry workers are disruptive for a free society, apart from the problems of high labor costs and uneven auto quality. All these jobs were privilege jobs gained by connections and legal protections. Auto companies could have hired and trained workers at 1/2 or 1/3rd the pay, but were prevented by various labor law interventions from doing so.

The economy has to continue the adjustment out of industries like housing construction and related goods and services, and those resources and workers have to be redeployed into more productive industries and professions. Figuring out and coordinating redeployment to wealth-producing occupations has to be a complex and time-consuming process.

Though a great many job losses could be blamed on taxes and regulations of various kinds, and on uncertainty created by state and federal policies, the lion's share of unemployment was caused by adjusting to new realities after the real estate and financial bubble. What the new realities and opportunities are isn't immediately clear. That is what has to be figured out by millions of entrepreneurial employers and job searchers.

Losing a job creates trade-offs and potential benefits. People for a time lose productivity from established skills and business networks. But as they look for new jobs, the searching process, though labeled unemployment, is actually work collecting information and developing search and self-knowledge skills.

Think how many millions were likely underemployed or by accident in the wrong industries for their personal preferences and skill sets. Most wouldn't leave a secure job, even if they strongly suspected it was somehow not right for them. Though most would prefer underemployment to unemployment, most have probably also been surrounded by employment or entrepreneurship opportunities they lacked adequate incentives to investigate.

If an unemployed worker hired someone else to spend 30-40 hours a week searching for new employment, and to evaluate job-retraining opportunities, that would cost money and likely generate value. Those who lose jobs become self-employed in this informal home-based employment search industry.

Some of the unemployed are not working at job searching (or at "off-the-books" work), so they are taking advantage of opportunities for leisure that a wealthy society like ours affords. This can also have long-term benefits.

Losing my job at the Foundation for Economic Education in 2003 was one part difficult and disorienting, but nine parts a great opportunity to innovate and launch new economic education projects and programs.

Paolo Pezzuti comments:

I agree on the assumption that the economy has to continuously adjust to redeploy workers into more productive industries and professions. Old, low productivity and low added value industries have to be abandoned to move into more remunerative sectors. I do not dispute this because this is the tenet of growing economies and capitalism. This process may be painful for many workers laid off that have to retrain to find better or equal pays in their new jobs, but it brings progress and growth for the individual and the society.

However, I am starting to have doubts that this can be applied to the present situation of western economies, where jobs are simply cancelled to be created somewhere else in the world. This process is negative and is developing in parallel to the healthy process of adjustment I was referring. Jobs are transferred very quickly to areas of the world where labor is less expensive. Our economies cannot adjust adjust timely and fast enough to create enough jobs in the new sectors because the speed at which this transfer of wealth and jobs is occurring is unprecedented. This requires an impressive education system to adapt the professionality and retrain millions of workers very fast. This requires huge investments in high tech and higher value added areas. This takes time, capital, new infrastructures, a government that favors entrepreneurship.

How to manage this transition is the main issues and all elements of the society should be involved in this debate. I am convinced that the governement in the economy is inefficient and should be limited as much as possible. At the same time, without government support, the situation could be disruptive for millions of families while the process of adaptation develops.

Finally our competitors are not looking at us wihout doing anything. They are also moving quickly to acquire the technologies and move their production up the scale toward higher returns industries. They are working to put us out of the market and not be competitive.

Flexible and adaptable economies will be advantaged, but the process is going to be very painful. The transitory will be very long in any case because of unprecedented scale of what is happening. The challenges are huge and success is not ensured even for the most dynamic countries. The outcome, if we are not able to adapt, could be to see our economies and standard of living decline sharply in favor of others. We could simply see unemployment and poverty increase structurally.

Paolo Pezzutti is the author of Trading The U.S. Markets, Harriman House, 2008

Pitt T Maner III adds:

Touring around in Europe in the early 80s you couldn't help noticing the number of young Australians and New Zealanders. Many of them apparently just decided to do a "walkabout" and wait out the bad unemployment situations back home. If you are willing to rough it there are many cheap places to live outside the US. Hanging out for a couple of years in the right "socialist" country with good food, beer, healthcare, law-abiding citizens, low cost education, history and culture would seem to be an option–at least you would get an opportunity to see the pluses and minuses of other systems. No its not the American way. Are citizens of other countries more flexible with respect to moving around the globe to where there are opportunities?

Do today's youthful short-term free riders outside their native country that avoid permanent bumdom become tomorrow's long-term tourists and multilingual global investors?

Russ Sears writes:

While simply based on anecdotal evidence from those I know, I think you will find that "funemployment" is almost exclusively the domain of the youth, still riding on Mom and Dad's pocketbook. It seems to me to be the result of being taught: "you can be any thing you want","you are the star at everything" and most important parents never letting their kids fail– meeting the reality of this job market.
 


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1 Comment so far

  1. Gregory Rehmke on April 4, 2010 3:49 pm

    Michael Cox has a nice chart on page six of The Churn (http://www.dallasfed.org/fed/annual/1999p/ar92.pdf ) showing America’s top 30 jobs in 1900, 1960 and 1991. In 1900 out of total U.S. employment of 30 million, over 10 million were farmers or agricultural laborers. By 1960, out of close to 70 million workers only 2.5 million were farmers or farm managers. So over 7 million people lost their jobs during these decades.

    These were times when people were far poorer than today in western economies, and shifting jobs would have entailed far more hardship. The millions of impoverished immigrants that came to the U.S. from 1900 to 1920 quickly found employment in America’s open dynamic economies (both in North and South America) and became wealthier that those who stayed behind.

    The hundreds of millions of higher-paying jobs being created overseas, in China, Southeast Asia, India, Brazil, and Eastern Europe are stunningly good news. Millions who were planting rice by hand as their ancestors did for hundreds of generations now are making clothes, shoes, bicycles, and endless other goods and services for consumers at home and around the world.

    I would argue that governments very much disrupt the adjustment process. In California a major challenge of any firm is to get local and state government approval and to battle regulations and taxes. Texas has lower taxes and fewer regulations, so expands as entrepreneurs build and expand more businesses.

    This Reason.tv series compares regulatory oppression in Cleveland with more business-friendly policies in Houston: http://www.reason.tv/video/show/reason-saves-cleveland-with-dr

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