Your Lying Eyes

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17 May 2012

Stuctural or Cyclical?

There's a little skirmish going on between the Keynesians and the more conservative economists over the underlying source of our current travails. Team K (Keynesians), most prominently represented by Krugman, insist the problem is lack of aggregate demand which can be solved by government the handing out jobs. Team S (Structuralists), insist unemployment is structural, meaning the unemployed lack the proper skills to be productive in today's economy, and so such government intervention would be useless. Here's the K-Man:
What does it mean to say that we have a structural unemployment problem? The usual version involves the claim that American workers are stuck in the wrong industries or with the wrong skills...but...contrary to what such stories suggest, job losses since the crisis began haven’t mainly been in industries that arguably got too big in the bubble years. Instead, the economy has bled jobs across the board, in just about every sector and every occupation...So all this talk about structural unemployment isn’t about facing up to our real problems; it’s about avoiding them, and taking the easy, useless way out. And it’s time for it to stop.
It sounds to me though that it's the Keynesian-approach that is the easy way out. Who wouldn't want increasing wealth to be as easy as spending a whole bunch of government-created money? No one who believed that such policies could work would object to doing it. Tyler Cowen, from Team S, responds here. While characteristically opaque, I think what Tyler is saying is that "structural" unemployment need not be concentrated in specific industries, but can be manifested in widespread chronic unemployment. Let's remember that this Great Recession wasn't a shot out of the blue - we had the Internet Bubble bursting in 2000, followed by 6 years of very anemic growth accompanied by a massive housing bubble. This has been going on for quite awhile.

One thing I don't hear too many people discussing these days is the apparent unwillingness of Corporate America to train their own workers. There is much gnashing of teeth over the dearth of STEM graduates and it is indeed distressing seeing so many young people graduating college with useless majors like journalism and communications. But in past decades people with non-technical degrees - or quite often just high-school graduates - could get hired by a large corporation and learn COBOL or accounting basics or whatever. A few months ago I heard the chairman of Caterpillar complain on SquawkBox about the lack of trained mechanics to service their high-tech equipment. No one on the panel asked him why Caterpillar doesn't train them.

One obvious disincentive is poaching - companies get real sore about investing in employee training only to have newly-trained workers leave for a higher salary. In the old days, presumably, a mutual sense of loyalty limited this problem. But such ideas are now quite passe. Corporate America's view of colleges is now much like the NFL's - a recruiting ground for fully-trained star players who only need some additional coaching on some organizational specifics. It's probably a no-brainer for any young person that if you're smart enough to do well in engineering or computer science or quantitative analysis that's how you ought to proceed. But if you're not - and the vast majority are not - it's pretty tough to figure out which field is going to get you somewhere. When companies did their own training, that kind of took the guess work out of the equation.

My feeling is that Krugman is wrong and we cannot cure our ills by artificially boosting aggregate demand - and that the problems run deep as the Structuralists contend. But this structural problem is much deeper, and no one is really thinking very deeply about what to do about it.

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Blogger Steve Sailer said...

Defined benefit pensions tied to Caterpillar-trained employees to Caterpillar, right?

May 19, 2012 2:02 PM  
Anonymous Andrew said...

Great point, but defined benefit pensions by their nature are much more valuable to longer term, older employees. They are also great for pushing older employees out the door through enhanced early retirement benefits.

They're not going to tie a 30-year old with a couple years of experience to a company, particularly when the company has no intention of retaining that employee through to retirement.

May 29, 2012 10:57 AM  

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