Friday, December 04, 2009

Labour Markets??? & of Course Paul Krugman!

I have been talking a lot about sectors of the economy and where the growth might be next in my blog posts. But even if the economy is starting to turn around we are facing a major threat of high unemployment rates overhanging economic growth in the long run. The article entitled Initial jobless claims rise 17,000 to 474,000 Total jobless claims, including extended benefits, top 10 million sums up this overhang:
Over the past several months, the claims data have flashed two somewhat contradictory messages: Fewer people are losing their jobs than were six months ago, but once a job is lost, it's very hard to find another one.

This most definitely indicates a need for a WH Jobs Summit. Although not much usually happens at such summits it strikes me as a bad decision to exclude from invitation both the United States Chamber of Commerce and the National Federation of Independent Business where the event featured 133 guests. A couple of names should be familiar including world famous economists like Joseph Stiglitz, Jeffrey Sachs and lastly but not least Paul Krugman. Well sure enough Dr. Krugman provided a glimpse of what he may have been thinking of when going to the summit at The Jobs Imperative. His opening remarks on the op-ed:
If you’re looking for a job right now, your prospects are terrible. There are six times as many Americans seeking work as there are job openings, and the average duration of unemployment — the time the average job-seeker has spent looking for work — is more than six months, the highest level since the 1930s.

Although I do not have a specific academic paper to refer to, I am sure he is right about financial crises cause "not just by severe recessions but by anemic recoveries". This obviously makes sense from purely a financial standpoint in that financial crises cause not just a normal business cycle but changes the way participants handle and evaluate risks. If financial institutions are not secure then evaluating returns on investment projects becomes harder as uncertainty rises. To quote an infamous person: "they become more interested in return of investment than return on investment".
And the damage from sustained high unemployment will last much longer. The long-term unemployed can lose their skills, and even when the economy recovers they tend to have difficulty finding a job, because they’re regarded as poor risks by potential employers. Meanwhile, students who graduate into a poor labor market start their careers at a huge disadvantage — and pay a price in lower earnings for their whole working lives. Failure to act on unemployment isn’t just cruel, it’s short-sighted.

So it’s time for an emergency jobs program.

It is most certainly true about the microeconomics effects on individuals but I fail to see how an "emergency jobs program" can overcome these negative effects on individuals. The most obvious problem to this solution is that the people losing jobs are highly diverse and across a wide variety of skill sets. I have yet to see a jobs program be other than manual labor that the skill level is at the lowest common denominator and thus it will not improve anyone's skill sets. Plus being hired into a make works program sounds like that also would carry with it a negative stigmatization in the job market.

He is correct that "general tax cuts" is not the right remedy right now as this would probably lead to just higher deficits without much overall change in the economy as well as and most importantly employment. His suggestion for more funding of states and local governments seems to create a massive moral hazard. Fairness has also been raised on this issue since when is it fair for a citizen of one state that manages its budget to be taxed more and provided to states that can not manage their budgets. Examples given were taxing Texans to pay for the complete fiscal crisis in California.

His suggestion of giving incentives that increases employment is a very good idea as long as monitoring it turns out to be easy enough to do and costs to administer such a scheme is not overly burdensome. Thus it could in fact be a good "stimulus" as in being "timely {enacted shortly through Democractic control of both houses and White House}, targeted {jobs}, and temporary {incentives have sunset provisions}". These seem to contrast sharply with Krugman's statement, "That strategy might have worked if the stimulus had been big enough — but it wasn’t." The problem is that the Stimulus Bill was Neither Timely Nor Targeted and thus lost its ability to fully perform a stimulus on the economy.

One suggestion that I have not seen Krugman offer is to lower the work force participation. What I mean by that is to provide alternative avenues of livelihood besides "work" in the private sector. I can think of three which are increased military forces {like WWII}, increasing number of students in furthering education, or just provide incentives for raising families. I dislike and reject the first one. The other two are acceptable in theory, but this again creates a greater burden on those productive in society and as taxes are raised to pay for any of Krugman or my suggestions then incentives to work become less over time.

Even education is not the absolute solution for workers losing skill sets and becoming less attractive to potential employers. As Alan S. Blinder, Professor of Economics and Public Affairs at Princeton University, academic paper shows that many present jobs are susceptible to offshoring in the paper entitled On the measurability of offshorability. He states the following:
Fear of offshoring may force its way back onto policy agendas soon. This column uses a survey of individual workers to measure the offshorability of particular jobs and says that about 25% of US jobs are offshorable. Surprisingly, routine tasks are not more offshorable but those held by more educated workers are.

Blinder also provides some suggestions for our education system. Theoretically nearly all jobs are offshorable/replaceable especially if you think science fiction as in the movie Sleep Dealer.

What does this all mean?
Since Krugman has shown some influence and his ideas gather traction because of his prestige and influence then these seeds of thoughts may one day become reality. I just hope the better ones become reality and the bad ones are cast aside.

It is expected that high rates of unemployment will continue for some time and that is a cost to society in general and to individuals as Krugman rightly points out. While unemployment compensation is a counter-cyclical economic stabilizer, it is still a cost to society and as we see unemployment insurance rates rising across the country this is going to cut into people's paychecks and lessen the incentives to work. One bit of advice that hardly needs mentioning is workers need to constantly improve their job skills and adapt to the changing economic structures.

The growing case for a jobless recovery
October 21, 2009 The growing case for a jobless recovery
Twenty-five percent of US jobs are offshorable | vox - Research-based policy analysis and commentary from leading economists
Alison van Diggelen: Paul Krugman's Advice for Obama Job Summit

Links Misc:
Paul Krugman's Advice for Obama Job Summit
Wages and recovery
The Krugman Recipe for Depression Massive government spending is no solution to unemployment.

Angry Bear: Industrial Production
Angry Bear: The Mythology of the Future Job Market
Angry Bear: Vague Thoughts on The Theory of the Firm, the Business Cycle and Kurt Vonnegut
Could Advancing Job Automation Technology Cause Structural Unemployment?

Unemployment and inflation

Mankiw: Outsourcing Redux
Increased U.S. Productivity from the Outsourcing of Services

Global Stuff:
Stephan Schulmeister Reform the international Monetary System!

South-South Trade Tensions

Guest Contribution: East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination By Willem Thorbecke

EU Girds for China Fight Over RMB

What RMB appreciation?

Two Views: Blame It on Beijing Redux, or Joint Determination

Economist's View:The World Needs a New Financial Architecture
Soros: China will emerge as winner from current economic turmoil

UK National Debt

FRB: Mortgage Debt Outstanding, September, 2009

The paradox of the paradox of thrift Posted by:

Consumer confidence ticks higher in November Conference Board: Conditions seen in pessimistic light with bias to be frugal

ISM Report On Business®
Past Manufacturing and Non-Manufacturing ISM Reports On Business®

About the Construction sector

Series: TCU, Capacity Utilization: Total Industry
Series: CUMFN, Capacity Utilization: Manufacturing (NAICS)
Series: MCUMFN, Capacity Utilization: Manufacturing (NAICS)
ipg1.gif (GIF Image, 585x815 pixels)
Capacity Utilization Percent of capacity, seasonally adjusted

Here's Why the Economy's Growing

The Good, the Bad, and the Dollar

OCC's Quarterly Report on Bank Derivatives Activities

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