Some Jobs Aren’t Needed
Updated January 17, 2011, 07:00 PM
Tyler Cowen is a professor of economics at George Mason University. His blog, Marginal Revolution, covers economic affairs. Jayme Lemke is a doctoral fellow at George Mason University. They are co-authors of “10 Percent Unemployment Forever?” in Foreign Policy magazine.
With the release of the December jobs report, employment now officially sits at 9.4 percent and over half of those people have been out of work for over six months. That’s the highest long term unemployment rate since World War II. On top of that, more than 12 million people would like to be employed in full-time jobs but have either given up looking or can only find part-time work.
Many laid-off workers are not being hired back because they were not adding much value to their companies in the first place.
Yet despite the employment situation, the United States economy continues to recover. Consumer spending is up and investment and corporate profits are doing fine. So how is it possible that by some indications we are currently living in the worst economic conditions since the early 20th century, and by other measures we are living in the most economically productive time in all of history?
Here’s a simple story to explain part of this complex picture. A business owner is hit hard in 2009 by the recession and for reasons of cash flow and profitability is forced to fire one of her 20 employees. Some time passes, 2010 comes around, and sales are all back to normal. The business owner has learned to make do with the smaller staff. In terms of output per worker, the business is actually more productive than before.
This caricature is more or less the nature and scale of what has occurred in the U.S. economy over the past 18 months. About one in 20 labor force participants lost their jobs, yet sales are back to normal. The obvious but uncomfortable implication is that many of those workers were not adding much value to their companies in the first place. In other words, there had been many “zero marginal productivity jobs” on the books, propped up by the previous boom and the housing bubble.
Once you see many of these jobs as having adding little economic value, it becomes difficult to imagine a quick fix. It is unlikely that just waiting for wages to fall will reemploy these people, nor is additional fiscal stimulus from the government likely to help. The unemployment problem seems daunting.
What will it take to reemploy these individuals? A slow and painful but eventually productive process of reallocating labor resources towards new and more valuable uses needs to take place and indeed it is already partly underway, albeit at a slow pace. High-performing industries are taking in new workers (hospitality and health care each added about 40,000 jobs in December), and just shy of 70 percent of unemployed workers have made or plan to make major career field changes according to a recent Pew Research Center survey.
The economy’s changing composition, if accompanied by robust economic growth, also will help many of the unemployed. A worker who wasn’t worth much sweeping up the back room is suddenly valuable when new orders are flowing in and he is needed to ship the goods out the door. And if all those new orders require keeping the warehouse open late, the company may need to bring in a new night watchman. So a rising tide eventually lifts most boats. At some level of business expansion, a worker who previously didn’t have a productive place can become important.
The problem is not over for the persistently unemployed workers, and it’s hard to forecast how long it will take to return to a much lower unemployment rate. Still, U.S. labor markets are relatively free, training opportunities are numerous, and America has not ceased to be a land of opportunity. The current discomfort is not a death rattle, but we do need to learn to live with the growing pains.