Conventional Wisdom and Structural Unemployment

I saw this argument from Paul Solman, who I can't help but believe should have known better,

Liberal economist and much-respected friend Dean Baker, co-director of the Center for Economic and Policy Research, where he keeps the Beat the Press blog, has appeared on PBS NewsHour often over the years, and recently on these pages in "Don't Blame the Robots." He appeared here again Wednesday, decrying what he called the media's "mindless" budget reporting.

But when he wrote on his blog on Aug. 3 that "[t]he PBS Newshour won the gold medal for journalistic malpractice on Friday (Aug. 2) by having David Brooks and Ruth Marcus tell the country what the Friday jobs report means," he seemed curiously harsh and patently partisan.

I don't think it's either, actually, save in the sense that we're supposed to tiptoe around the fact that a lot of the analysis offered by "serious" news shows revolves around talking heads who know little about the subjects that they are discussing, but get more and more air time by virtue of their past history of being talking heads, and that it's thus "curiously harsh" to note that this phenomenon represents a manifestation of the Peter Principle. Had they invited Jenny McCarthy on to discuss the science behind vaccines, I suspect that Solman would have taken issue both with the invitation and with the implication that she had special expertise. Yet that is exactly what shows like PBS Newshour do when they present as authorities non-economists who pontificate on the economy despite a long, documented history of having paid very little attention to what actual economists have to say.

"Brooks and Marcus got just about everything they said completely wrong," Baker continued. "Starting at the beginning, Brooks noted the slower than projected job growth and told listeners: 'Yes, I think there's a consensus growing both on left and right that we -- the structural problems are becoming super obvious...'"

But, Baker insisted, "It's hard to know what on earth Brooks thinks he is talking about. There is nothing close to a consensus on either the left or right that the economy's problems are structural, as opposed to a simple lack of demand (i.e. people spending money). This is shown clearly by the overwhelming support on the Federal Reserve Board for its policy of quantitative easing."

Solmon notes that Paul Krugman agreed with Baker, then observed that while Brooks and Marcus aren't in fact describing an economic consensus their argument demonstrates how "Washington conventional wisdom... has clearly swung to the view that our high unemployment is 'structural', not something that could be solved simply by boosting demand".

If I took umbrage at those statements, my first response would be to explore whether or not there was a consensus among economists as to whether the economy's problems are structural. I would also wonder why David Brooks, who occasionally takes ill-informed potshots at his New York Times colleague, Paul Krugman, is not aware of Paul Krugman's years of argument on this subject. But instead....

Look, folks, there may indeed be no "consensus growing on left and right" about the predominance of structural unemployment, as David Brooks alleged. Just look at how vigorously Krugman and Baker took the other side. But I rather doubt Krugman's assertion that there is an "actual economic consensus" on the unemployment debate that favors his cyclical explanation to the exclusion of the structural. Unless, of course, Krugman means a consensus among economists he agrees with.

Why assume anything? Why not call other economists and ask?

A confession: Brooks is a friend for whom I have great respect, as I do for Ruth Marcus.

Well, that explains it... just not in a manner I find satisfactory.

Unlike Krugman and Baker, my main job for 36 years now has been to interview not only economists like them, but hirers and hirees, firers and firees. I've done so through both recessions and recoveries alike. I wheedled soundbites out of the drearily downhearted high tech-workers of the late 1970s and spoke to the happily hopeful hires of the late 1990s.

Then, friendship or no, there's really no excuse for the assumption. Solmon did find "A 2011 paper from the San Francisco Fed attributed 60 percent of long-term unemployment to cyclicality and 40 percent to structural factors," which is at best tepid support for Brook's' assertion that the issue is structural, but that two-year-old paper seems to be the best support he could find for Brooks' claimed consensus.

I'll admit, when I looked at the unemployment data, the fact that many workers displaced by the great recession were never again going to earn the sort of wage they had previously enjoyed, and the downward pressure on the middle class, my initial reaction to "This isn't a structural issue" was "Say way?" But in fact what Krugman and Baker are discussing is something else - the notion that there has been a seismic change in the economy such that we have to simply accept a higher unemployment rate than we have historically seen. Baker, Krugman and others have rebutted that "structural change" argument repeatedly and convincingly, to the point that if you're a business and economics reporter and are only just now taking note of it it's safe to say that you've chosen not to pay attention to material you should be covering. But Solmon seems mostly interested in the issue as a left-right political debate, and thus seems to think it's enough to circle back to Brooks as an authority.

Solmon gets partial credit for allowing Dean Baker to refute the "structural" argument, but he loses points for a response in which he changes the subject,

Baker's may be the best possible summation of the cyclicalist argument. Moreover, he may well be right: throw enough money at the economy, and at some point, everyone will be employed.

But if economics teaches us anything, it's that every decision has both benefits and costs. What might be the cost of Baker's Keynesian "Trillion-Dollar Solution"?

Baker, of course, didn't argue that the only way back to full employment was a $trillion stimulus, he simply described a theoretical means by which the economy could be brought to full employment. When you introduce an idea with, "Imagine someone found a $1 trillion bill in the street and decided that, as a public service, she would spend the money over the next 12 months to boost the economy", it's pretty obvious that you're not describing something you believe is likely to occur. Solmon then speculates about how productive newly created jobs would be, an argument that is in no way tied to the present time or economy. Solmon argues,

If the cyclicalists are right, spend a trillion dollars and new jobs will eventually emerge, as they indeed regularly have throughout American (and world) history. If the structuralists are right, however, history is in the process of changing and the government jobs will last only as long as the trillion dollars.

But the discussion was about consensus, right? And Solmon has completely abandoned the pretense that the consensus described by Brooks exists on either the left of the right. Solmon closes by offering a comment from his prior thread, in which a tech graduate describes being heavily recruited, with generous wage offers and stock options,

Those opportunities, however, are out there only for those with a set of specialized skills. If the structure of the U.S. economy is changing to employ those who have such skills and disemploy those who don't, the structuralists have a point.

But again, same as it ever was. When changes in technology and the economy led to the demise of the livery stable and blacksmith's shop, even as blacksmiths and stable hands struggled to find new work, other people were entering the job market with a very different set of skills and with far better job and income prospects. When the domestic garment industry collapsed in favor of offshore production, medical school graduates were doing better than ever. The fact that wages or opportunities in one corner of the economy are reduced even as opportunities exist "for those with a set of specialized skills" is not new - it's history repeating itself.

The "Three Million Available Jobs" Canard

I recently heard a guy, apparently the former star of a reality TV show about 'dirty job', purport that there are three million jobs with good wages waiting to be filled, and that they remain open due to a mismatch between job applicant skills and the needs of the employer. He suggested that the root of the problem was that people are turning up their noses at the skilled trades, and thus aren't even considering jobs that could pay them $40,000 - $120,000 per year. Needless to say, something about that claim carried the odor of an equine byproduct.

As it turns out, the "three million jobs" figure is tossed around with some regularity, and it represents a snapshot of the job market at any given time, and does not capture the even larger number of jobs that become available and that are filled each month. It's a bit like looking at a photo of kids playing musical chairs and observing how many open chairs there are - the snapshot tells us how many jobs are available, but many of those jobs are recent vacancies and most of them will be filled. So as it turns out, about 2.5 million of those jobs aren't at all difficult to fill, and the suggestion is that in manufacturing "there are as many as 500,000 jobs that aren't being filled because employers say they can't find qualified workers". Note, we're still a long way from "jobs that could pay $40,000 - $120,000 per year."

When Sixty Minutes explored this shortage of workers, it found that wages were stagnant and manufacturers were unwilling to train workers - that is, they wanted to hire people who were going to be fully productive from day one. They looked specifically at a company called "Click Bond", that has had difficulty getting workers with sufficient skill to run its machines. An executive helped form a partnership with local community colleges to train workers, and "As part of the training program, [participating] manufacturers are willing to pay students for two-day a week internships." The big money at the end of that training?

At the end of the 16 weeks of training, Click Bond offered Ryan Vre Non and Jamie Pacheco full time jobs at $12 an hour with benefits.

So if you complete the training and internship, and perform at the top of your class, you have the chance to earn $12/hour? Not only is that number far short of the great salary the "dirty jobs' guy was touting, it's difficult to believe that somebody who was capable of completing that program at the top of his class could not have found another program that would have resulted in a better-paying job. And really, if you're advertising a job at $12/hour for somebody who already possesses the skill set to be productive with minimal to no training, you're not offering enough to entice that person away from their current job.

Taking a close look at wage data in manufacturing, the Boston Consulting Group recently found that less than one percent of the manufacturing workforce, in a handful of labor market areas, is affected by a skills gap. In its survey of employers, Manpower finds that, among U.S. employers having difficulty filling jobs, 54% report that the reason positions are difficult to fill is that workers are looking for more pay than is offered and 44% report that applicants lack experience.

But such reasons cast doubt on the idea of a skills mismatch, as it is not unreasonable to expect employers to pay the going rate for the skills they need, or to provide opportunities for workers to gain experience doing the jobs they need done. So the driver of current high rates of unemployment certainly does not seem to be the inadequate skills of the American workforce.

Seriously, if the message is "train yourself at your own expense" (or taxpayer expense), or even "train yourself at your own expense, but with the possibility of a part-time, paid internship", students are not going to clamor for those $12/hour opportunities.

In exchange for these math and computer programming skills, which for most people would most likely require some measure of secondary education, Click Bond is willing to pay newly hired employees $12 per hour. In Nevada, the average hourly wage covered by unemployment in 2011 was $20.13.

Pitts also talked with Klaus Kleinfeld, German-born CEO of Alcoa in Whitehall, Michigan. Alcoa employs 2,200 people working three shifts a day, seven days a week, producing parts to make jet engines 50 percent more fuel efficient.... The Alcoa plant currently has 27 job openings, but Kleinfeld says that Alcoa absolutely has no problem with a skills gap, but it sure would be a lot easier if people would “get an education.”...

While there may very well be 500,000 job openings in manufacturing facilities across the nation, these jobs require a specialized skill set that wasn’t required even a decade ago. Kleinfeld implied it, but Hutter made it perfectly clear – employers are not willing to pay to train employees anymore.

When you start looking for the more highly paid jobs where there is a "skills gap", the word "engineer" seems to come up a lot, but not so much "machine operator". If an experienced worker is worth $12/hour, we're not talking about a job with a meaningful career path.

Moving back to "dirty jobs", I personally have no problem with encouraging students to pursue jobs in the skilled trades. I respect that some people are concerned that when you start doing so in high school, you end up tracking students who are more likely to be poor or minority into trade-oriented 'tracks' rather than academic tracks, but the effort doesn't have to occur in high school. We, as a society, can simply accept that the skilled trades are important, can potentially pay as much or better than many white collar jobs, and that it's acceptable and in some cases optimal to pursue a career in the trades instead of seeking a college degree.

That said, some of the jobs we're talking about aren't just dirty, but are dangerous. A friend who owns a small factory described the toll on his body from his years of running industrial machines. He has severe degeneration of his back and knees - and he's the boss. Talk to some retired pipefitters about their aches and pains. Talk to some auto mechanics about the injuries they or their peers have suffered on the job.

We can't pretend either that everybody is capable of working those jobs, or even that some of the people who aren't applying for those jobs are declining the opportunity because they enjoy being unemployed. Somebody who has become unemployed after a couple of decades of working one job that wore out his body is not necessarily going to be capable of entering another job that carries a similar physical toll - even for $12/hour plus benefits. And for the theoretical job that starts at $40K and could pay $120K with an employer that purports itself to be willing to train, if they can't get enough applicants it's not because there's a shortage of skilled workers - it's because of what the prospective employer and his pitchmen aren't telling you - such as the level of physical danger, travel time and isolation.

It Should Be an Issue

Even if Mitt Romney, for some reason,¹ has chosen to bury it. This one goes out to the President:

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1. Is there a hidden strategy? Fear that if pressed for specifics he would have nothing more to offer than, "No more extensions and 'food stamps' are too generous"?

Mitt Romney's Job Plan - Leaked!

To be clear up front, I'm not stating that this document is real. It was or was not leaked to me by somebody who may or may not be an important member of Mitt Romney's campaign, who may or may not be a Bain investor, and who may nor may not actually exist. I may or may not have had it come to me as a relevation after I held what may or may not have been a seer stone to my forehead.

Now, do I know that it's true? As Harry Reid can attest, it's difficult to be certain. By which I actually mean that it is or is not difficult to be certain.

Top Secret
Internal Use Only

Job Strategy Memorandum

From:        Mitt Romney

To:             Campaign Staff

Subject:    Job Creation Strategy

As you know, ever since my retroactive retirement from Bain Capital I have been focused on unemployment. The present job situation is completely unacceptable. I have tried to be upbeat, and have even tried to joke about it, but the truth is painful. I am unemployed, and that’s simply not acceptable. It's not good for me, it's not good for you, and most importantly it's not good for America

I am therefore announcing the following strategy for job growth, a plan through which 12 million jobs will be created during my first term of office The numbers for this plan are solid. They come from a variety of independent, objective sources. To the extent that I depart from their numbers, as you can see, my logic is bulletproof. If their numbers are correct and my numbers are correct my plan will create 12 million jobs over four years.

The best part is, it’s really simple.

First, the data. In April, Macroeconomic Advisers projected growth of 11.8 million jobs over the years 2013-2016. Moody’s Analytics projects job growth of 11.84 million over the same period. We can reasonably call that 12 million jobs. If we get 11.8 million new jobs, nobody is going to complain about what amounts to a rounding error.

Here’s the plan:

Natural job growth:                                          11,800,000

Plus me!                                                                        1      

Subtotal                                                            11,800,001

Minus Obama:                                                                 (1)   

Total:                                                                11,800,000

Remember, this is not about me. It’s about America, and I cannot emphasize enough how important it is for the country that my jobs plan succeeds. This plan is too important to sit on my desk until after the election. I want everybody on my team to immediately devote their full attention to the rapid implementation of this plan. We have a serious unemployment problem here, and it’s your job to fix it.

Mitt              

In regard to the memo, some might say that it's untrue, dishonest, and inaccurate. That it's wrong. But why let trivialities like that get in the way of a good scoop? We have newspapers to sell here, folks. Ad impressions to generate.

Unemployment at a Glance

For those who don't already know, Calculated Risk routinely posts updated graphs showing the impact of the financial industry meltdown and slow recovery on the unemployment rate, and comparing job losses from the present recession to those of past recessions. The latest update is here.

Can You Keep Up With the New Economy?

Paul Krugman has done a good job refuting the notion that the rise in unemployment over the course of the latest recession reflects a structural change, and that lends credence to his argument that efforts to stimulate the economy and get people back into the workforce are a viable response to the slow rebound of the employment market. That said, and with due credit to his argument that the comments of self-described "structuralists" like David Brooks echo claims made in the 1930's that history has proved to be wrong, there are some significant differences between "now" and "then".

Krugman has noted that increases in worker productivity reflect a healthy economy, are to be expected, and thus don't support the thesis that we will never again need as many workers. But the increases in worker productivity over the past century have made it considerably more difficult to create work for large numbers of people. Thanks to significant improvement in technology, infrastructure projects that once would have employed hundreds or thousands usually can now be completed by relatively small crews. Also, a century ago, lower-skilled manufacturing jobs could not be outsourced to foreign nations, nor could phone banks, data centers, and other lower- and moderately skilled service jobs be similarly outsourced. Globalization is not the reason for the loss of jobs during the recession, but it may be part of why the return of jobs is so slow, and I think it is pretty clear that it plays a role in shrinking wages for low- and moderately-skilled workers, and for the general flattening of middle class incomes. That is, even if not the cause of the problem, globalization complicates recovery.

Further, as technological change accelerates, workers can find that if they aren't constantly updating their skills their talents can become obsolete. And even if they are updating their skills there's no guarantee that they will have an easy career path, that their skills will continue to be relevant as new technologies come online, or that their jobs won't be outsourced, Many of the workers who are part of the chronically unemployed during the present recession will not return to the workforce, or will never again enjoy the level of income that they enjoyed before losing their jobs. I think it's a valid concern that we'll see the same pattern occur in future recessions and, for that matter, in smaller numbers even during the "good times". I'm not arguing that this is a new phenomenon, but (while hoping I'm proved wrong) that worker obsolescence is occurring and likely to continue to occur on a larger scale than we've seen in the past.

When you look at the big numbers, I agree with Krugman that there is no structural reason why we could not return to a level of unemployment roughly the same as that which we saw before the recession began. But I think that there are structural reasons why middle class wages are stagnating, why it will become more and more difficult for lower-skilled workers to enjoy middle class lifestyles, for reduced mobility between socio-economic classes, and for the increased difficulty workers are likely to face maintaining their skills and wages over the course of a career.

Poor Romney: Struggling to Get By While "Unemployed"

Ahem.

A funny little nugget buried in Romney’s statement this morning on his tax returns. In passing, Romney said although most of his money came from investment income, a small amount came from speeches. “I get speakers fees from time to time but not very much.” Well, it turns out that amount is over $374,000 last year. Which is a fair amount of money, though to give some perspective, not a wild amount of money compared to what other retired politicians make giving speeches.

In fairness to Romney, he probably thinks that unemployment benefits pay more than $400,000 per year.

Living in a Bubble

Atrios comments,

Pampered over-privileged scribe finally discovers that it's kinda bad when people don't have any jobs or money. Better late then never I guess.

It's difficult to argue with that summary of Kristof's column. How can you not notice unemployment or its impact on the lives of ordinary people unless you live in a bubble? Would there have been too much risk of a paper cut, were somebody to suggest that Kristof scan down the page from his own column and occasionally take note of Paul Krugman? Kristof has realized,

Unless more people are working, paying taxes and making mortgage payments, it’s difficult to see how we revive the economy or address our long-term debt challenge. While debt is a legitimate long-term problem, the urgent priority should be getting people back to work. America now has more than four unemployed people for each opening. And the longer people are out of work, the less likely it is that they will ever work again.

I had thought that this stuff was pretty obvious, even back in 2009. I wonder if, two or three years from now, Kristof will suddenly realize that the choice to focus on economic factors other than unemployment (and the difficulties of individual homeowners) was a deliberate policy choice, even if we grant the decision-makers the benefit of the doubt and assume that they believed that their choices would lead to lower unemployment.

I think Kristof is sincere - I believe that all of this passed below his notice, and that he truly believes we need to focus on lowering unemployment. But given how long it took him to produce this column, I feel like I'm damning him with faint praise.

The President and Structural Unemployment

Paul Krugman writes,

I’m not alone in marveling at the extent to which Obama has thrown his rhetorical weight behind anti-Keynesian economics; Ryan Avent is equally amazed, as are many others. And now he’s endorsing the structural unemployment story too.

Here's the thing: if the President says, "The unemployment issue isn't structural," he has to explain why he's not doing more to address the issue, arguably putting his weight behind the idea that the President has enormous personal power to influence the employment rate, and that if you believe unemployment is too high you should vote for somebody else in the next election. By suggesting that it's structural, the President is taking a position that distances the White House and its policies from the high unemployment rate. So it may not be good economics, but it may well be good politics.

Unemployment as Something That Happens to Other People

Not only is unemployment disproportionately affecting people with lower levels of education, Economix reports that it is also impacting a smaller percentage of the population at large:

Given how high unemployment is, there are surprisingly few people who have experienced unemployment in the last couple of years. This is the flip side of the historically high average length of the unemployment: joblessness is concentrated among a subset of the population, rather than affecting a larger group of people for shorter periods of time.

One set of numbers from the Bureau of Labor Statistics makes the case. In 1982, the unemployment rate averaged between 9 and 10 percent — and fully 22 percent of the labor force experienced unemployment at some point during the year. In 2009 (the most recent year of data), the unemployment rate also averaged between 9 and 10 percent, but only (or maybe “only”) 16.4 percent of the labor force experienced unemployment at some point during the year.

I'm left wondering if one of the reasons that Congress and the White House seem relatively disinterested in attacking unemployment is the result of their polling - that, as people are more concerned about what's happening to themselves and their families, the most likely donors and voters aren't significantly deterred by unemployment statistics from either voting or from supporting the party of their historic choice - and perhaps those groups have priorities that are at odds with lowering unemployment.

The Republican priority, as usual, is to lower taxes for the wealthy. High unemployment statistics seem like a win-win for them, as the public appears to believe that cutting government spending will decrease unemployment and they can happily demagogue the issue while serving the wealthy. The Democrats are almost as beholden to wealthy interests, aren't going to win over the Tea Partiers who get ginned up by Republican rhetoric and, sad to say, have a working class base that comes in no small part from areas of the country that have been experiencing 9+% unemployment rates for well over two years, and appear to be taking the path of least resistance.

The Lousy Job Market, Present and Future

I continue to disagree, to an extent, with Paul Krugman's assertions about the job market. Although I think he's technically correct, he's addressing a different issue than the one that concerns me:

Unemployment soared during the financial crisis and its aftermath. So it seems bizarre to argue that the real problem lies with the workers — that the millions of Americans who were working four years ago but aren’t working now somehow lack the skills the economy needs.

Yet that’s what you hear from many pundits these days: high unemployment is “structural,” they say, and requires long-term solutions (which means, in practice, doing nothing).

Well, if there really was a mismatch between the workers we have and the workers we need, workers who do have the right skills, and are therefore able to find jobs, should be getting big wage increases. They aren’t. In fact, average wages actually fell last month.

If you are working from the perspective that "a job is a job" and that the unemployment rate will fall probably to historically normal levels when the economy rebounds, I agree. But my problem is that I don't think "a job is a job" - I do see a structural issue with the job market, in that the number of well-paying jobs for people with less than a college education is dropping, and will continue to drop. And I believe that people who do not have a college education or whose skills have fallen out-of-date, once unemployed, are with each passing year less and less likely to achieve a similar level of income when they again find work.

Take a look at how the recession has affected unemployment rates, broken down by level of education. To the extent that Krugman is correcting those who argue that we need to get used to a 9+% unemployment rate, I agree with him - we do not. But it seems like we're going to have to get used to a shrinking middle class.

Did You Check the Toilet Tank

David Brooks, apparently, is looking for his "missing fifth," and the toilet tank is a common hiding place for those who find themselves in occasional desperate need for a fifth. No, seriously, Brooks is talking about the rate of unemployment among men,

One of those signs [that the country is becoming less vital and industrious] comes to us from the labor market. As my colleague David Leonhardt pointed out recently, in 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work.

It's fair to ask a question that perhaps did not occur to Brooks: How many of of the jobs that disappeared between 1954 and 2011 are the sort that represent the best of American opportunity? And how many of them were mundane jobs that have been replaced by robotics and automation, or have been shifted to overseas manufacturing facilities?

Brooks also notes that the number of people on disability is rising.

Ten years ago, 5 million Americans collected a federal disability benefit. Now 8.2 million do. That costs taxpayers $115 billion a year, or about $1,500 per household.

The rise in disability claims is a genuine problem - but it's hardly a surprise that disability claims go up when the job market tanks and millions of workers find themselves unable to find a job even after a year or more of searching.

Brooks really offers nothing in the way of ideas to resolve the problem. His suggestions:

1. "[E]xpanding community colleges and online learning" - Where's the evidence that retraining older workers through community colleges and "online learning" results in significant numbers of marginalized workers returning to the work force - and when it does work, is it not fair to note that the typical retrained worker takes a significant pay cut and perhaps never recovers his former level of income?

2. "[C]hanging the corporate tax code and labor market rules to stimulate investment" - What changes does Brooks propose (other than, of course, the implicit "cut corporate taxes and kill unions") that would increase job prospects for marginalized workers? Where's the evidence that corporate tax cuts will increase jobs? (Having successfully reduced its tax rate to 0%, is GE producing exponential numbers of jobs?) If Brooks is suggesting going after unions... you know, so that older, higher paid, "unproductive" workers can be the first to be laid off in an economic downturn... wouldn't that in fact worsen the problem, pushing more marginal workers into chronic unemployment and depressing wages? (You can argue that marginal and bad workers shouldn't be protected from being laid off by virtue of seniority, but that's a question apart from what Brooks is suggesting>)

3. [A]dopting German-style labor market practices like apprenticeship programs, wage subsidies and programs that extend benefits to the unemployed for six months as they start small businesses." - With the money for these programs coming from where? And who would be charged with designing and implementing these programs, or trying to prognosticate the areas in which new workers should be trained or subsidized?

Even if we were to regard Brooks' tepid ideas as likely to succeed, given that Brooks is a Republican, he should take responsibility for the fact that his party of choice would reject most of his ideas, and would enact tax and anti-union policies in a manner that would most likely worsen the job situation.

Health care spending, which mostly provides comfort to those beyond working years, is expanding. Attempts to take money from health care to open it up for other uses are being crushed.

I think it is fair to note that health care dollars don't simply go up in smoke - if you pull billions of dollars out of the health care system you will cause clinics and hospitals to close and will see medical workers laid off. But for goodness sake, Brooks is complaining that there are too many disabled workers while simultaneously suggesting that part of the solution is to reduce the amount of health care available to those workers, as well as to those who might become disabled?

Brooks is, lamentably, dishonest in his characterization of the health care debate:

There are basically two ways to cut back on the government health care spending. From the top, a body of experts can be empowered to make rationing decisions. This is the approach favored by President Obama and in use in many countries around the world. Alternatively, at the bottom, costs can be shifted to beneficiaries with premium supports to help them handle the burden. Different versions of this approach are embodied in the Dutch system, the prescription drug benefit and Representative Paul Ryan’s budget.

We’ll probably need a mixture of these approaches to figure out what works. Instead, Republicans decry the technocratic rationing model as “death panels.” Democrats have gone into demagogic overdrive calling premium support ideas “privatization” or “the end of Medicare.”

It's not demagoguery to observe that Ryan's plan eliminates Medicare and replaces it with a voucher program that, even if offered under the same name, bears no resemblance to the current system. By way of example, Brooks might consider what would happen if Paul Krugman started ghost writing his columns - but that they continued to be published under the byline of "David Brooks". Sure, the quality would increase, but they would not actually be David Brooks columns. Or consider the cry, "The King is dead, long live the King" - the new king is not the old king. This isn't complicated stuff.

Let’s be clear about the effect of this mendacity: We’re locking in the nation’s wealth into the Medicare program and closing off any possibility that we might do something significant to reinvigorate the missing fifth.

Pots and kettles. Yes, David, let's be honest. Right now, we could take a look at the models of health care offered throughout the developed world, pick one that produces similar or better outcomes in most cases, and implement that system in this nation - and we would see immediate, massive cost savings. We have the greatest market participation of any developed nation, and we have by far the most expensive health care system in the world - but we're not seeing a good return on that additional investment. Where can I find a David Brooks column acknowledging that fact, that undeniable truth, rather than the suggestion that the only choices we have are rationing and imposing significantly higher costs on consumers?

Brooks also seems to be confusing the cart with the horse. Demagoguery about the unaffordability of providing the general public with quality health care doesn't have quite the same salience when the economy is booming, and at least from where I'm sitting it seems that health insurance coverage has already moved significantly in the direction Brooks desires - significantly higher consumer costs, deductibles and copays - as compared to what was available during the various economic booms between the 1950's and the present. And seriously, Brooks is holding up the deficit-financed "Medicare Part D" prescription benefit as good Republican policy in action? How about that....

Structural Unemployment vs. Structural Underemployment

A few days ago Paul Krugman made a good point on his blog, and more recently in his column, that even if you believe that structural changes have arisen that will affect the employment market, there's no basis for believing "that structural unemployment is our main problem right now".

Is it possible that there has been some rise in structural unemployment that’s swamped by a much larger rise in cyclical unemployment? Yes, conceivably. And let’s talk about that when unemployment gets below, say, 7 percent — which at current rates of progress will happen, well, never.

He draws on some depression-era analysis to support his position,

I’ve been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is “unadaptable and untrained. It cannot respond to the opportunities which industry may offer.” A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy’s needs — and suddenly industry was eager to employ those “unadaptable and untrained” workers.

In a big picture sense, I believe Krugman is correct. The economy will recover and unemployment will drop to a more acceptable level. The government may be able to accelerate that process through additional stimulus spending. But that said, let's not disregard the differences in the job market between the U.S. as it entered WWII and the post-war boom years and the job market of today.

Kruguman refers to a couple of studies that suggest that the collapse of the housing market did not create structural unemployment, despite the loss of jobs in the construction trades representing 25% of private sector job losses. That is, construction workers for the most part were able to find work in other fields or have left the country. But the picture is more complicated than "employed vs. unemployed". Are workers who have been displaced from relatively well-paid jobs able to find similarly paid employment? For those who have found work, the trend appears to be toward significantly lower pay and fewer benefits. Atrios has pointed out that many employers have unrealistic expectations, wanting fully-trained, experienced workers to apply in droves for jobs offering rather pathetic compensation. But let's be honest about this - the era of a blue collar middle class appears to be ending. Whenever possible, manufacturers will relocate to the nation with the lowest cost of production - and that's not ours.

Even when times are relatively good, the issue of retraining displaced older workers is problematic. The idea of transitioning from a job in which you had a decent salary to one in which you're an entry level worker is difficult enough. Add to that the fact that younger workers, new or recent entrants to the job market, may have superior skills, are on the whole healthier, and may be perceived as more flexible and less likely to resist or question management, and... it's no surprise that retraining produces weak results. Add to that the fact that retraining is often hit-or-miss - if you project future need based on present need you can quickly create a glut of workers, and if you try to guess the future needs of the job market you'll probably guess wrong.

So no, let's not throw up our hands and pretend that nothing can be done about the unemployment rate. Let's hold accountable those who prefer to do nothing, whether it's because of institutional bias, because developing solutions is hard, or because they see personal or political benefit in perpetuating the economic crisis. But at the same time, let's take a hard look at the structural issues that are eroding the middle class, and appear to be creating a population of older workers who are chronically unemployed or underemployed. To the extent that structural problems exist, Krugman's point still holds - we shouldn't shrug and say, "It's structural, so we can't change it." We should instead take a serious look at how we might create new opportunities.

Decline of America, or Decline of the Middle Class

A couple of days ago, David Brooks offered his thoughts on the decline of the British Empire and, potentially, of the United States. Paul Krugman took a gentle poke at the column,

Reading David Brooks today, I couldn’t help thinking of Bob Solow’s old line that efforts to explain Britain’s relative decline always end up in a “blaze of amateur sociology.” That’s not an attack on David; everyone does it — although I might point out that the reason so many smart kids go into finance, not manufacturing, is that the pay is much better.

It seems fair to also note in relation to sociology (or economics, or psychology, or a lot of other 'ologies') the professional practitioners are potentially more dangerous than the amateurs. It is possible to make those fields relatively scientific, but it's difficult to see how even the best of the professional class can avoid introducing elements of subjectivity, ideology and overgeneralization. Various models or theories will work better in some contexts than in others.

In relation to the decline of the United States, Brooks offers his personal opinion, "Personally, I’m not convinced we’re in decline". It's fair to note that earlier in the editorial he argued the opposite,

This history [of Britain's decline] is relevant today because 65 percent of Americans believe their nation is now in decline, according to this week’s NBC/Wall Street Journal poll. And it is true: Today’s economic problems are structural, not cyclical. We are in the middle of yet another jobless recovery. Wages have been lagging for decades. Our labor market woes are deep and intractable.

The most charitable reading of Brooks' inconsistency is that he believes the nation as a whole can avoid decline, even as its middle class is unquestionably in decline. Such a perspective would either seem out-of-touch, a variant of "I can't understand why those factory workers don't realize that if they quit their unions, abandon job protections and take pay cuts, and they would be better off", or vested in the notion that an incredibly wealthy minority can rule over a flourishing nation of, in terms of comparative wealth and political power, serfs.

The Krugman passage quoted above partially rebuts Brooks' leading point, that "the elites. America’s brightest minds have been abandoning industry and technical enterprise in favor of more prestigious but less productive fields like law, finance, consulting and nonprofit activism." Brooks argues,

It would be embarrassing or at least countercultural for an Ivy League grad to go to Akron and work for a small manufacturing company. By contrast, in 2007, 58 percent of male Harvard¹ graduates and 43 percent of female graduates went into finance and consulting.

Sure, after pursuing the most expensive academic degrees available, large numbers of students will chase the largest paychecks available. No surprise there. But my guess is that if an Akron manufacturing concern were doing well enough to pay a competitive salary, it could attract job applications from ivy league grads. I won't say that there aren't graduates who would see anything but a six figure job with a fortune 100 company as beneath them, but the larger impediment to a small company's hiring a new college graduate, even from Harvard, is that they come with an inflated sticker price and no job experience. Smaller businesses can't invest as much money in training and shaping college graduates; they often need their new hires to hit the ground running.

Brooks' larger point is misleading - many college graduates are eager to start businesses, work independently, and be masters of their own fate. Not that our society makes it easy to be an entrepreneur, or that it's easy to pick up the associated skill set in a standard college degree program.

Oddly, just after stating that too many college graduates are chasing big paychecks, Brooks holds up a quote attributed to Michelle Obama, in which she reportedly² urged women to join helping professions, as reflecting a "shift away from commercial values". Which is it - are we shifting toward commercial values, putting salary head of everything else, or are we dropping out of the corporate world to become teachers, community organizers and social workers?

Brooks next goes off on the lower middle class:

Then there’s the middle class. The emergence of a service economy created a large population of junior and midlevel office workers. These white-collar workers absorbed their lifestyle standards from the Huxtable family of “The Cosby Show,” not the Kramden family of “The Honeymooners.” As these information workers tried to build lifestyles that fit their station, consumption and debt levels soared. The trade deficit exploded. The economy adjusted to meet their demand — underinvesting in manufacturing and tradable goods and overinvesting in retail and housing.

First, the Huxtable family was not depicted as middle class - Dad was a doctor, Mom was a lawyer, and they were affluent. There are many situation comedies which depict people living far beyond the income potential of their nominal jobs, but that's not something which which Bill Cosby can be faulted. Second, the lead male characters in "The Honeymooners" were a bus driver and a sewer worker, the sole breadwinners for their families, save for a period during which Ralph Kramden was unemployed and Alice returned to work as a secretary. The most remembered line from the show evokes domestic violence. Ralph, frustrated by his economic circumstances, was often scheming about how to make money.

More to the point, the era of the Huxtables brought us a modern equivalent of "The Honeymooners", a show called "Married With Children." If you think about it, shows like Married With Children" are far more misleading about what it takes to build a middle class lifestyle (a shoe salesman and his stay-at-home, spendthrift wife support two children in a pretty large ranch house, while paying lip service to the economics of their situation) - a successful lawyer and established doctor can easily replicate the affluence of the Huxtables, who arguably lived below their means.

There's plenty of reason to doubt Brooks' notion that it was some form of "Keeping up with the Joneses" (or Huxtables) that led to increased consumer spending and debt. You know what played a huge role in the growth of consumer debt? The broad availability of credit. Can't he imagine a Honeymooner's episode along the lines of, "A credit card arrives in the name of the Kramden's dog, the family goes on a spending spree, and is shocked to learn that they have to pay back the debt." That is the summary of an episode of "Married With Children".

As for the idea that the loss of manufacturing jobs overseas was the result of a shift in U.S. culture - that poor little manufacturers were forced to seek out less skilled, less educated workers in the developing world who would work for a fraction of the wages of their U.S. counterparts, because there weren't enough U.S. workers willing or able to perform those jobs? Come on.

Brooks carries on,

Finally, there’s the lower class. The problem here is social breakdown. Something like a quarter to a third of American children are living with one or no parents, in chaotic neighborhoods with failing schools. A gigantic slice of America’s human capital is vastly underused, and it has been that way for a generation.

First, it should be noted that Brooks paints with a very broad brush, implying that the children of divorce fall into the "lower class". The reality is that, yes, divorce can cause a newly single parent to fall below the poverty line, and can cause longer-term economic stress, but most families bounce back within a few years. Beyond that, Brooks is speaking of an underclass - and it cannot be said that his "lower classes" are a product of the past generation. I'll give Brooks credit for not falling into Bell Curve-style reasoning and excuses, but people have strugged with poverty for the whole of human history.

As an amateur sociologist, Brooks misses the boat on this one:

These office workers did not want their children regressing back to the working class, so you saw an explosion of communications majors and a shortage of high-skill technical workers. One of the perversities of this recession is that as the unemployment rate has risen, the job vacancy rate has risen, too. Manufacturing firms can’t find skilled machinists.

First, children tend to learn from and model themselves after their parents, and learn how to do certain types of work by watching their parents. Certainly, the parents of a couple of generations ago may have urged their children to get college degrees as a path to upward mobility, their children entered the white collar middle class, and their grandchildren may not be becoming machinists, but that's a progression to be expected. Further, how often does Brooks imagine parents telling their children, "Don't become an engineer - there's no money in it." One of the leading reasons why we have a surplus of communications majors is because it's a relatively easy degree to earn, whereas engineering, architecture and the hard sciences are much more demanding. There's a reason David Brooks was a history major, and I dare say it has very little to do with his desire to give himself marketable job skills.

Meanwhile, what's the lesson for machinists? Perhaps, "Move to a non-union state or at least be prepared to do a lot of business travel to Mexico... no, sorry, we've decided to outsource engineering to India and manufacturing to China." Sure, it's true that there are jobs available for experienced welders and machinists, but how does Brooks imagine that they'll develop the skills to qualify for the jobs presently available given the decline of domestic manufacturing? Brooks complains,

Narayana Kocherlakota of the Minneapolis Federal Reserve Bank calculates that if we had a normal match between the skills workers possess and the skills employers require, then the unemployment rate would be 6.5 percent, not 9.6 percent.

I think it's a truism that if every employer had a candidate perfectly matched to every job opening, unemployment would drop considerably. But the displaced workers who cannot find employment, or have to take significant income cuts to find jobs, are not without job skills - it's that the skills and experience from their prior jobs aren't necessarily relevant to the modern workplace. If you have to train or retrain workers, you incur a significant cost and delay in obtaining new, qualified workers. But I see no reason to believe Brooks' suggestion that the underlying problem is that too many college students are graduating (as did he) with degrees in the humanities.

It's of course interesting to inject a bit of history into Brooks' theory that the industrial revolution emerged, like magic, due to "cultural shifts" that caused "technicians" to take scientific knowledge and put it to practical use. It would seem reasonable to mention that the industrial revolution was spurred in no small part by the development of energy sources sufficient to run large factories and foudries. The underclass Brooks appears to believe did not exist at the time in fact provided the necessary "human capital" for the industrial revolution, often working extremely long hours in hellish conditions. Eventually the labor movement emerged and transformed the workplace, but that's not to say that industries didn't find similar sources of labor to abuse in the colonies and, ultimately, in the sweatshops of the post-colonial developing world. And during that era, Brooks believes that the elite of Britain, the heirs of the landed gentry, were studying applied science and industrial management, as opposed to hiring professionals and managers to run their enterprises?³ Not a banker or a lawyer among them?

One of the big reasons that the great-grandchildren of Britain's "empire builders" didn't follow in their great-grandparents' footsteps is that the British Empire collapsed. Secondary to that, the colonies were no longer available as a captive market that could be forced to buy Britain's exports. (Ah, the good old days, when a nation would go to war to protect the rights and profits of its drug traffickers.) And let's not forget the catastrophically expensive World War I, followed all too quickly by the necessary but also catastrophically expensive World War II. Britain's fall was hastened by the amount of wealth it poured into those wars, along with the damage to its industrial infrastructure resulting from WWII. The U.S. benefited from distance, emerging from the war with its manufacturing infrastructure intact. That advantage started to falter as Germany and Japan rebuilt their industrial infrastructure and emerged as competitors.

No matter how you look at things, Brooks should have addressed the role of outsourcing in the decline of middle class jobs in the industrial fields. Over the last generation we have not only seen the loss of huge numbers of solidly middle class manufacturing jobs, those that remain tend not to pay particularly well or offer a path of career advancement. If there's a shortage of machinists, it can reasonably be said to be the result of parents and students looking at the nation's declining industrial base and questioning whether it makes sense to pursue a job that will pay, what, about $40K in a declining market? For all of Brooks' apparent scorn at choosing service jobs such as teaching or nursing, those jobs pay as well or better and are in growing fields. Meanwhile, the mantra of the past couple of generations has been that the future lies in the domestic service sector, so it's hardly a surprise that many students have internalized that message.

There is a disconnect between the manufacturing industries and U.S. employees. While I have little doubt that a manufacturer would get a stack of résumés applying for entry level assembly line work, even at minimum wage and with a minimal benefits package most employers see the advantages of operating overseas, in nations that have weak wage, employment and environmental laws (or weak enforcement of their laws) over building a plant in the U.S. The outsourced factories typically develop products developed in the west, so some jobs remain, but unless energy prices spike and stay high we can expect that the present situation will continue. That means Brooks' "lower class" will lack entry level job opportunities, his "middle class" will attempt to maintain its lifestyle as real incomes decline, and his elite? The change he describes, in fact, appears to be no change at all.

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1. How quickly Brooks leaps from "brightest minds" to "Harvard". There are a lot of bright minds who attend academic institutions that aren't as elite (or expensive) as Harvard, and Bill Gates would have more bright kids explore alternatives to a traditional college education. I suspect we can all think of mediocre minds who number among Harvard's alumni.

I'm also not clear on how having students go into fields such as "law, finance, [and] consulting" represents a "shift away from commercial values".

2. I tried to track down the actual quote and find that, although attributed to Michelle Obama at an early 2008 campaign event in Zanesville, Ohio, no official transcript appears to exist and the unofficial quote is difficult to interpret due to its unfortunate use of ellipses.

3. Brooks cites Correlli Barnett for his point that "the great-great-grandchildren of the empire builders withdrew from commerce, tried to rise above practical knowledge and had more genteel attitudes about how to live." But Barnett has made that same point about the great-grandparents.

Together with what Barnett describes as "the British distaste for a functionally coherent national system" this bias against technology led to the UK's eventual decline from the position of world leader in economics in 1870 to fifteenth place a century later.

David Brooks is No Size Queen

He happily situates himself among those who insist that it's not the size of your stimulus that counts. The column is an excellent example of bad, counter-factual reasoning. Steve Benen has addressed some of Brooks' factual errors in relation to Germany's response to the economic crisis. It is also fair to respond to Brooks' claim that "" by observing that Germany's primary exports to the United States are performance cars and passenger vehicles, along with some pharmaceutical products, manufactured in unionized factories by workers who receive generous job benefits, and who benefit from a national health insurance plan - and what Brooks and his friends would no doubt see as a "nanny state" solution to keeping workers employed. Brooks' colleague, Paul Krugman, has previously commented on additional differences between Germany and the United States,

Basically, here’s the German story: it’s an economy that didn’t have a housing bubble, so it wasn’t caught up directly in the bust. But it’s very export-oriented, with a focus on durable manufactured goods. Demand for these goods plunged in the early stages of the crisis — so that Germany, remarkably, had a bigger GDP decline than the bubble economies — but has bounced back since summer 2009. This has pulled Germany back up; exports to China have done especially well.

As well as, it would seem, the market for cars to the fortunate few in the United States who can still afford a Porsche or a Bimmer.

But as previously indicated, Brooks' also fails in logic. The best analyses to date suggest that the U.S. stimulus has had a significant, beneficial effect on the economy and unemployment rate. Granted, it has of itself been far from adequate, but many stimulus skeptics have been converted to believers by the data. The leading voices against the stimulus are political advocates, who combine scare tactics about debt and big government with misrepresentations that the stimulus did nothing for the economy. Brooks surely knows better, but he appears to be deliberately throwing chum to those bottom feeders.

Brooks' implication that Germany is somehow being rewarded for austerity, while the U.S. is somehow being punished for borrowing, is absurd. Referring again to Krugman, Brooks' theory presupposes the concerns of bond vigilantes, with surging bond prices due to concerns about domestic borrowing - but as it turns out those bond vigilantes don't exist. There is no reason to believe that a recovery led with private money would have occurred in the absence of a stimulus, but not in its presence. There is every reason to believe that the loss of household wealth associated with the collapse of the housing bubble, stagnant wages and high unemployment have resulted in a loss of demand that leaves a lot of private money sitting on the sidelines.

I will grant, Brooks' economic class is doing "just fine, thank you very much", and can still afford the imported luxury cars that Brooks characterizes as "German machinery". And perhaps Brooks hangs out with enough bankers to make credible his claim that their new imported luxury cars have been purchased with bailout funds, but that still wouldn't support his larger argument. If Brooks is seriously arguing that the German approach is better - setting up a fund during good times in order to subsidize employers such that they refrain from laying off workers in bad times, that may well be a better approach than the U.S. offers to financial downturns and what would otherwise be rising unemployment.

Willfully or otherwise, Brooks is blind to the facts and pretends that the entire story is "austerity". The economic differences between nations render problematic simplistic side-by-side comparisons of nations. But as Brooks appears to believe otherwise, where's his explanation of why other nations that have pursued rigid austerity programs are suffering at the hands of bond vigilantes, even as the U.S. is not?

Update: Paul Krugman makes a good point about the relative impacts of the German stimulus vs. the U.S. stimulus:

Via Mark Thoma, Dean Baker points out that real government consumption of goods and services — that’s government buying things, as opposed to cutting taxes or handing out checks — has risen more in “austerity” Germany than in the United States. Dean starts from 2008III, which is somewhat unorthodox; but his result is not, in fact, sensitive to the start date....

What’s going on here? It’s basically the Fifty Herbert Hoovers problem. Because state and local governments can’t run persistent deficits, and because aid to those government was shortchanged, cutbacks at lower levels of government have undermined expansion at the federal level. Overall government purchases have actually grown more slowly than the economy’s potential output.

That is, much of the U.S. stimulus was used to stabilize state budgets, masking the stimulative effect and also significantly diminishing what we could have expected from stimulus spending above the baseline.

Government Generation of Jobs

The New York Times argues in favor of the government doing more to create jobs, implicitly arguing for a new stimulus bill. The Times should get credit for consistency on this point, having taken the position from the outset that the stimulus bill was too small and that more needed to be done. But the new editorial glosses over what would be involved in a new stimulus bill that could help boost the economy - on the low side we would be talking what? $500,000,000,000? It seems to me that the Times should be up-front about its demands, and should similarly be up front about why such a bill would not generate majority support in Congress. It's easy to observe:

Recovery, such as it is, appears to be a repeat of the lopsided growth of the Bush years, with corporate profits rebounding and jobs and incomes lagging.

Paul Krugman recently pointed to an interesting (albeit superficial) article about Japan that indicates how long-term high levels of unemployment for young adults can distort a society. That's something to avoid, if possible. Optimists argue that we must do more to reboot the economy and generate jobs before long-term unemployment becomes structural or, even more optimistically, before those opposed to stimulus spending can argue that there's no point because a @10% unemployment rate has become a structural issue that we must accept and live with.

But we are dealing with real world changes. We've exported our manufacturing base and expertise, such that formerly huge domestic industries are a shadow of their former selves. (Consider, for example, the domestic furniture and textile industries). We're dealing with an environment in which manufacturing jobs that once paid a middle class wage to young workers are now paying... not much better than running a cash register at Wal-Mart. Even if you believe the skill sets are similar, and that the only reason manufacturing jobs were better paid is the influence of "evil unions", you cannot revive the domestic consumer economy in an environment in which workers are being paid less and are working fewer hours. And yes, the concept of quickly reviving the economy through stimulus spending anticipates that the consumer economy will revive. (The mixed message: Save money, oh you spendthrift Americans, but simultaneously borrow and spend.)

Via Atrios comes a look at employer expectations in the new economy. In the eyes of the Wall Street Journal, it appears that skilled workers should be begging for scraps, not demanding decent wages. Workers should be eager to apply for jobs beneath their skill set, and should not expect job security, but employers should feel free to reject workers as overqualified.

Many of the longest-term unemployed may already be permanently displaced from the job market. Those who worked in industries that have collapsed, in which innovation has reduced or eliminated the demand for their skills, or in which employers find it advantageous to bring in younger, often lower-paid workers are not likely to find well-paying work in the new economy. Even with stimulus spending. I hate to be a pessimist, and I do not mean this as an argument against another significant stimulus bill, but these structural changes in the job market have been developing for decades and they're real.

It's been easy for other parts of the country to point to the rust belt, or similarly depressed regions, and argue that the residents of those regions are flawed, or that there's a magic trick that the government could pull off - cutting taxes, reducing regulations, offering subsidies - that would attract new jobs and industries to their states. But is it that difficult to see that the structural changes that occurred in the steel and auto industries, or the aforementioned furniture and textile industries, are not going to vanish? For the most part, factories aren't coming back. And the few that do will require far fewer workers than the factories of past generations and are likely to pay significantly lower wages. Nobody finds that surprising for the auto industry, so why do so many act like the past several governors of Michigan, plug their ears and hum when it's pointed out that the net effect of this recession has been to push a significant number of other industries in the same direction?

The entire world seems to be focused on the American consumer as the solution to the global financial crisis. When American consumers start spending again, the gears of international commerce will start to turn and, as they accelerate, everybody will once again be rolling in money. But perhaps it's time for other nations to recognize that it's not likely to happen, and certainly not likely to happen any time soon. And for our own political leaders to start paving the way for a future in which the economy rests on a more sound foundation than consumer spending.

Yes, change is scary. But change is not only coming, it has arrived.

Wrong on the Economics, Wrong on the Justification....

But there's something to be said for approaching chronic unemployment in a different way.

Ben Nelson is taking some heat for his comments and voting stance on extended unemployment benefits, "At some point, it ceases to be an emergency. It’s ongoing… I think the bill should be paid for." In terms of the fact that we have very high national unemployment, an economy that's at best in a fragile state of (jobless) recovery, and the amount of money at issue is not (by federal budget terms) substantial, Nelson is wrong. But there's something else to consider.

Prior to the current recession we have had states, cities and regions of the country with long term high to very high unemployment rates. In theory, states could provide extended unemployment benefits within such areas. In practice that hasn't happened. Once unemployment benefits ran out, if they could not find work the people in those areas had to find other ways to get by. The current jobs situation is different, as historically (at least in theory) people could move from high unemployment areas to lower unemployment areas in search of work.

As a society we didn't feel much sympathy for those who couldn't get their act together, whether to learn new job skills, to relocate, or to take an unpleasant, low-paying job. Ben Nelson and those making similar statements aren't displaying a new sentiment - they're simply extending society's traditional view of long-term unemployment to a larger population of the chronically unemployed.

At the same time, those ignorethe realities of the job market in favor of a perpetual series of extensions of unemployment benefits aren't addressing the underlying issues. Yes, to the extent that the extensions help bring money into local economies and sustain local businesses, prevent evictions and keep people out of foreclosure, it may be sound public policy to extend unemployment as part of a recovery plan. But if the problem of long-term unemployment is not simply a shortage of jobs, but reflects a structural change in the job market, the extensions are a band-aid solution. It's fair to say that in an economy like this we shouldn't just cut people off, but it's also fair to question whether the chronically unemployed are likely to ever be reintegrated into the job market. Can they compete even for entry level, minimum wage jobs against people who are not just twenty or more years younger than they are, but who have grown up immersed in the technologies that are part of pretty much any modern workplace?

If you take a look at the data and find that a big part of the "chronic unemployment" problem is structural, the appropriate response is to evaluate whether you can take steps to remedy the structural problem and, if not, how to best address the plight of a population of people that are likely to remain chronically unemployed and underemployed for the duration of their working years. If you wait long enough the statistic may disappear - the unemployment rate among other groups may rise to a level that it masks the continuing problem of chronic unemployment - but that's not a solution. If your objection to Nelson's stance is that it's cruel, cutting off unemployment benefits to such a population would not be any less cruel when a lower unemployment rate hides their plight than at the present.

Being Unemployed vs. Being Unemployable

Calculated Risk offers a graph that displays the duration of unemployment over time, from short-term (< 5 weeks) to long-term (27+ weeks). The past year has brought about improvement in the duration of unemployment in all categories except the longest-term unemployment.

In May 2010, there were a record 6.763 million people unemployed for 27 weeks or more, or a record 4.38% of the labor force. This is significantly higher than during earlier periods.

It does appear the number of long term unemployed is near a peak (the increases have slowed). But it is still very difficult for these people to find a job - and this is a very serious employment issue.

For all the talk, mostly from desk jockeys, of raising the retirement age, it's my impression that we're looking at a shift in the workforce - a consequence of modernization and globalization - that has created a significant population of workers whose skills are no longer needed and who, due to age and circumstance, aren't good candidates even for low wage or unskilled jobs in other fields. It's difficult to talk about "retraining", as a lot of the jobs for which people could retrain are in limited supply even in good economic times, and even where that's not the case it's often difficult for a worker who is twenty or more years older than her classmates to get hired into an entry level position.

I am concerned that a substantial percentage of the long-term unemployed are verging on unemployable, for conditions outside of their control. It's not enough to want a job or to have a long history of dedicated work if your skill set is no longer relevant to the workplace. Retraining will help only a subset of these workers find new jobs, mostly at a fraction of their prior earnings. This is also a population whose plight won't be much helped by stimulus spending. Even if the recession was responsible for the loss of their jobs, many or most of their jobs will be outsourced internationally or eliminated in the post-recession economy.

"Creating Jobs"

A report from the Center for Labor Market Studies at Northeastern University, The Depression in Blue Collar Labor Markets in Massachusetts and the U.S., presents the following table:

If that holds true across the nation, as I expect is largely the case, it is easier to see why the jobless rate is so high - and why it's so difficult to attack unemployment. In a real estate crash, with a worsening commercial real estate sector, it's not very realistic to expect a significant number of construction jobs to emerge, even with huge stimulus bills. Despite a government effort to save General Motors and Chrysler, without which the manufacturing jobs picture would look a lot worse, there's no obvious way to generate more domestic manufacturing jobs.

So instead you have people who may well have strong vocational skills, but who are competing for jobs that have for now disappeared from the economy, or are trying to find jobs in other fields where job availability is better, but for which they lack experience and often also lack appropriate job skills.

Even if it's part of a solution, I don't see the answer as being "a bigger jobs bill", and as I've previously observed it's pretty clear why a lot of government tactics appear designed to "reinflate" the housing bubble - how else are you going to affect unemployment in the construction sector, which is so high that it distorts the overall unemployment picture and is unlikely to significantly improve over the next few years by any other means? About the only thing the government can do is create a massive "public works" program to directly employ a significant percentage of the population until the jobs picture improves - and I don't think that's politically viable, even if it could be done in a relatively cost-effective manner and we could identify appropriate work for the program to perform.

The report does make suggestions, but I just don't see how they can be implemented on anywhere near the necessary scale to make a short-term difference, or even how they will benefit the majority of the affected workers in the longer term. The numbers are just too large, and the impediments to creating stable, long-term manufacturing jobs or new construction jobs cannot be discounted.

It's More Complicated Than That

Atrios writes,

This chart provides the explanation for why the unemployment crisis does not get the policy response it requires.

The chart breaks down unemployment by educational achievement, showing that job losses and recovery from those losses soften for each level of education achieved, and that the recession has been difficult to those with no college education, not much better for those with some college education but no degree, and brutal to those without a high school diploma.

On one hand you could argue that if the picture were reversed - if college grads and postgrads were experiencing 12 - 14% unemployment while high school dropouts were experiencing 6% unemployment - that we would have a financial industry scale bail-out of the entire economy to try to "fix" things. But you know what? If such an employment picture emerged, it would indicate that our economic system was in a state of collapse. In our society it's far from a surprise that higher educational achievement correlates with greater employment opportunity, even (perhaps especially) during financial downturns.

But there's another side to things. A big part of the reason that the lower end of the job market is suffering is that our society is no longer particularly good at creating low-end jobs. Sure, during the housing boom there were jobs - but they're not coming back any time soon. Atrios has complained about various government policies being intended to "reinflate" the housing bubble; I suspect he was right. But beyond investment in major infrastructure projects, there's little that can be done to create construction jobs. Political and practical constraints make it pretty much impossible to create a massive, federally financed public works program that could directly employ people until the economy "recovers" to the point that they can reasonably find private employment.

It's easy to say that the government could do more, or that it would do more if our society were turned upside-down. But please fill me in, having ruled out a reinflated housing bubble, what concrete proposal could realistically end the employment crisis the lowest-skilled workers?