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22 March 2010

The Dim Prospects for Improved Employment

Bryan Caplan reports that he entered into a $100 bet with Mike Shedlock (Mish) in which the latter asserts that unemployment will not dip below 8% for the next 5 years. That's a brave bet on Mish's part (except that it's only for $100), but he might have better prospects of winning than first appears. Mish's argument was that there's little prospect of construction leading the way out. Caplan believes it doesn't have to be construction that leads us out, it could be any sector, but you can't at this moment predict which.

I disagree that it could be any sector. If you're going to lead a charge into full employment, construction seems to be the ideal sector. Construction mixes a multitude of skills - laborers, semi-skilled, craftsmen, on-site managers, numbers crunchers, and of course engineers - so that it draws broadly from the work force. And while many of the jobs require skills, they're fairly portable. Most any construction worker can adequately ply his trade at any construction site. If you know how to work with concrete, you don't need a two-week training class to work it at Site B once you're done with Site A.

Manufacturing, on the other hand, requires very specific tasks depending on the product being made. If you've got Widget A mastered at Factory X, you might have a good aptitude for learning how to make Widget B at Factory Y, but you've still got to train at it. While number of manufacturing jobs have plummeted over the last 40 years, manufacturing output has actually continued to grow.

So manufacturing does not seem a likely savior of our workforce. Well there's always the service sector. But with consumer credit still at crushing levels, do we really expect $5 Lattes to push down unemployment? Nor would I count too much on the financial services sector to pull through.

In the first two quarters of our recovery from the 1982 recession, residential investment contributed .92 and 2.28 percentage points to GDP growth, and this positive contribution continued for the next five quarters. In the last two quarters this time around, this sector contributed only .43 and .13 points. The big contributors to our 5.9% growth last quarter were inventory growth and exports - neither of which are promising signs for job growth. (Source: BEA, NIPA Table 1.1.2).

Our refusal to actually address the fundamental problem underlying the economy - excessive debt - along with the current over-saturated housing market pretty much guarantees very slow job growth ahead.


Blogger Michael Carr - Veritas Literary said...

It does make me wonder what a hyper-advanced economy will do to provide employment. Farming and manufacturing have become more and more mechanized, and I could even see construction going this route with modular homes becoming more and more prevalent.

It's already at the point where very few people actually make or grow anything anymore.

March 23, 2010 9:54 AM  
Anonymous non_de_guerre said...

Ziel, I sent you an email of a New York Times op-ed piece recently that explained how the U.S. manufacturing productivity and output figures are a fraud. When the Commerce Department tallies up U.S. industrial output, they assume all goods manufactured by U.S. companies are produced in the U.S. This is how they've been able to conceal the true steep decline of U.S. manufacturing activity. With your fondness for statistical analysis, I can't believe you're still being suckered by the "increasing U.S. industrial output" fallacy.

March 23, 2010 10:48 PM  
Blogger ziel said...

still being suckered by the "increasing U.S. industrial output" fallacy.

Well that could be. I did some analysis of that and commented on Razib's blog post that the numbers were a little dodgy. The data at the Fed site is hard to make sense of, though (surprise surprise).

March 24, 2010 7:52 AM  
Anonymous Dano said...

Deflation is real and will come over the next decade. Unemployment will force wages down which forces house prices down which for a lot of people wipes out the retirement cushion of "oh we plan to downsize"

March 26, 2010 8:42 AM  

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