I thought this blog post by Prof. Vollrath was very clear and interesting in informing how to think about technology and “good jobs.”
Hoping or trying to recreate the employment structure of 1950 is stupid. We don’t needthat many people to assemble stuff together any more because we are so freaking good at it now. The expansion of service employment isn’t some kind of historical mistake we need to reverse.
Any job can be a “good job” if the worker and employer can coordinate on a good equilibrium. Costco coordinates on a high-wage, high-benefit, high-effort, low-turnover equilibrium. Sam’s Club coordinates on a low-wage, low-benefit, low-effort, high-turnover equilibrium. Both companies make money, but one provides better jobs than the other. So as technology continues to displace workers, think about how to get *all* companies to coordinate on the “good” equilibrium rather than pining for lost days of manly steelworkers or making the silly presumption that we will literally run out of things to do.
It seems like the Walmart/low-wage workers raises may be an indication that employers realize the importance of making better jobs, but the U.S. is not nearly there yet. It seems like EPI is very focused on the issue of how to create good jobs. It’s tough with little collective organizing by/for workers.
When we think about a post-recession world, it is interesting to consider than the slow wage growth is related to “pent-up wage cuts” resulting from downward nominal wage rigidity. Still, unsatisfactory wage growth and low job quality have been issues for a while. Workers wages and productivity have decoupled. First, we had polarized job creation (growth in the top and the bottom). Now, we mostly have job growth at the bottom of the income distribution. Those lower-paying jobs are going to workers who are better educated (and presumably more indebted).
There are two trends that I have come across in the academic research, and I wonder if (and how) they might be related:
1) The labor market and firms have become less fluid and less dynamic. “[T]hat reduced fluidity has harmful consequences for productivity, real wages and employment.”
This seems like an observation that should raise a red flag for rent-seeking/market power watchers. [From the more conservative side, there have been attempts to attribute the decline in U.S. dynamism (a “start-up deficit”) to increasing or more stringent regulations. This hypothesis, as conceptualized by Prof. Tabarrok, did not return any discernible results that related regulation to business dynamism.]
In my mind, (at this moment, at least) there might be two factors that might be causal (or at least correlated) with decreasing dynamism and fluidity. One, I suspect, is an insufficient social safety net. It would be interesting to see a comparison of start-ups and dynamism in an economy with a basic income, for example. The idea is that people would be more willing to take risks–start businesses, quit their jobs, innovate, etc.–if they had a more attractive fall-back option, if they ended up failing. It might have something to do with debt (which is the same social safety net story, more or less) caused by education, health, or housing costs. The second thing related to reduced dynamism, and the second research area I wanted to mention, is the rise of finance.
2) Profs. Cecchetti and Kharroubi recelty released a paper through the BIS (very interesting place for this to come from) that lays out a comprehensive argument for why and how finance has crowded out real economic growth. They also have a pithily titled blog post “Finance is great, but it can be a real drag, too.” Prof. Cecchetti starts out with a couple anecdotal paragraphs about how college students have gone from wanting to work on “galactic structures, superconductors, computer algorithms, subcellular mechanisms, and genetic coding” to wanting to get “high-paying jobs” in finance. This rings true with my experience. Although, personally, I think attitudes may have changed, but another important factor is where the jobs/money actually are/is. Anyway, here is the briefest summary of the results:
For the past few years, one of us (Steve) has been studying the relationship between economic growth and finance. The results are striking. They come in two categories. First, the financial system can get too big – to the point where it drags productivity growth down. And second, the financial system can grow too fast, diminishing its contribution to economic growth and welfare. …
We can think of additional reasons why finance causes problems for economic growth, and we’ve written about them extensively on this blog (see, for example, our pieces on credit ratings, conflict of interest, Ponzi schemes, and leverage). Most important, when intermediaries fail to perform the critical screening and monitoring necessary to ensure efficient allocation of resources, productivity suffers and the financial system as a whole can become vulnerable to crises.
So, what should we conclude? Many observers (especially the largest financial intermediaries themselves) are critical of the increased regulation of the financial sector following the crisis of 2007-2009, arguing that it will slow economic growth. We, too, can think of some misdirected regulatory efforts that may diminish long-run efficiency without reducing systemic risk (see, for example, our take on raising the maximum loan-to-value ratio for mortgages to 97%).
But, we strongly support the authorities’ efforts to raise capital requirements in order to make the financial system safer. If anything, the research on finance and economic growth strengthens that view, suggesting that there will be little, if any, cost in terms of economic growth even if further increases in capital requirements were to lead to some shrinkage of the size of the financial sector in the advanced economies.
I’m not sure how direct the linkages are, but I think that the rise of finance has been important in wage growth and job quality. I have the same impression (picked up in large part from my time at CAP and UNC CCC) that Prof. Cecchetti expressed, that finance greatly improves people’s lives when properly harnessed. Today though, the evidence has begun to accumulate to a point where it is pretty clearly that the U.S. financial sector has gotten too large. I find it hard not to suspect that the overgrowth has led to rent-seeking behavior and market power accumulation, and that has had effects on business dynamics and the labor market that we have not teased out completely (yet).