At The New Republic William Galston explains the size of the "jobs hole":
Despite the modest economic recovery since the recession ended in mid-2009, total employment remains more than 5.5 million below the level of 2007 and about 1.6 million below where it was when President Obama took office. . . To regain full employment (5 percent, which happens to be the same as the level when the recession began) with the pre-recessionary labor force participation rate, we would need 150.7 million jobs—10.1 million more than we have today. That’s a reasonable measure of the hole we’re still in, two and a half years since the official end of the recession.If growth is indeed the key to reducing persistent unemployment, then I think we can eliminate several of the problem definitions that I presented from ITIF earlier this week:
3. Regulatory uncertainty (implication: finalize legislation, lighten regulatory burden)
4. Unskilled workforce (implication: train workers, streamline immigration)
5. Not enough innovation (implication: invest in R&D, innovation-friendly policies)
7. Weakened U.S. competitiveness (implication: strengthen manufacturing, invest in skills, R&D)
These five remaining problem definitions are like the blind man and the elephant -- where in this case the elephant is innovation policy.
Should the tag line for the 2012 election be -- It's innovation, stupid?
29 comments:
financial crisis are different though
not all require the same methods to get out
If innovation means inventing a great new product that gets manufactured in China, I don't see how that solves our problems. If innovation were to develop a perpetual motion machine, then maybe. Other than that, how, exactly, is innovation going to produce jobs in the United States in the near term? Let's not use 'innovation' as a cover for magical thinking.
Does that follow?
In September this year, the US economy supported 131,488,000 jobs. In July 2004, the US economy supported 131,489,000 jobs. Yet in that time, GDP has grown from $11.8T to $14.6T - 24% growth.
Of course that is good news for all of us with jobs - we are paid an average of 24% more. But it suggests that pure economic growth doesn't necessarily help with jobs. The economy has expanded while jobs have returned to their 2004 levels because productivity has grown.
I'd be the last to suggest we should artificially restrict productivity growth in the name of increasing employment - competitiveness is a key part of maintaining what employment you have - but economic growth does not necessarily lead to increased employment.
I rather suspect this goes in cycles. As the economy grows, employment grows. But as the economy shrinks, productivity increases faster than usual. So at the end of a recession you have a smaller number of people creating the same economic output as before the recession. Economic growth then needs to accelerate to pick up those people who lost their jobs during the downturn. Returning to the same level of output is not enough (as we see now); it must be bettered.
I'm heading towards contradicting myself, so I'll stop!
Innovation is built on intellectual, financial, and human capital. Since 2000 we have weakened all three. Intellectual capital is mainly patents - property rights in your inventions and we have significantly weakened our patent system. Financial capital has been undermined by Sarbanes Oxley and run away government spending and regulation. Human capital has been undermined by the requirement to expense stock options.
Bill Gates developing nuclear reactor with China
Gates notwithstanding, we have the innovation, but are afraid to use it. Some technology is universally viable while others are only suitable for limited, circumstantial deployment and use. It would be desirable to make selections based on optimal suitability, rather than idealistic -- though profitable -- fantasies.
Of course, there is more to it, but its discussion is highly ideologically oriented, and therefore political. So, I'll leave it be.
Well, I'll add one note. The policy of out-of-sight and out-of-mind is unsustainable.
I'm unclear how you can eliminate 6 given that we have above recession GDP, but have 5.5 million fewer jobs.
It is commonly accepted that faster innovation is always a good thing and always leads to faster growth, but I wonder if there is a point where it can actually begin sabotaging growth. ie: Technology is rendered uncompetitive faster than it can recuperate its costs or new methods and technologies are disseminated and used faster than they can be validated.
Did Japan stop innovating 20 years ago?
Any examples of nations that have been able to get out of a runaway credit bubble collapse without actually dealing with the credit and asset bubble?
Innovation isn't a cure all. There are no technological solutions to our social problems.
Eternal economic growth is unsustainable, as I said yesterday:
"One of the main aims of automation and information technology (IT) has been to increase productivity – more product or service per man hour of 'labor'. The more 'productive' are automation and IT, the fewer workers needed to meet market demands.
With the recent large, worldwide, downturn of economies, employers have finally begun to make the most of automation and IT. As a result, they find less need for additional workers.
But greater unemployment means poorer customers, and therefore reduced ability to pay – that effectively reduces demand.
This is one inevitable long-term consequence of unregulated capitalism – an Achilles' heal – that is bound to increase "Income Inequality"!
Whether this mechanism has finally set in – or, like Malthusean limits on growth – is yet to 'materialize', it can no more be ignored than can the problems of unsustainable depletion of natural resources.
An attractive long-term 'cure' is reduction in population growth, reduction in the average work-week, and reduction in "Income Inequality" through increased hourly 'wages'.
This can only be accomplished by increased transparency in market transactions, and regulation of 'free' markets so as to reduce lying and cheating, and reduce GROSS inequities."
Regulation for transparency, honesty and 'equity' should be able to generate a continually increase in quality of life. Education, research and development would be promoted for THESE reasons, rather than for classical 'free market motives' – unsustainable
growth in marketing of products and services.
Roger, I think the one thing missing from your analysis at present is government regulation. In many areas of the US, there are strong impediments to investment due to government regulation. These could include planning restrictions, environmental regulation, labor regulations and OH&S regulations. The other issue is, of course, that government all too often is busy picking "winners" and favoring them with easy passage through all the regulative thicket, only to see them turn into expensive losers. Eg Solyndra.
It is no accident that the states doing best economically tend to be those that have lighter regulation. At the same time, those tend to be the states that have participated least in the housing boom and bust, which was also partly driven by excessive regulation, particularly regarding land use.
- 8 - Len - How do you get away with differentiating 'growth in marketing of products and services' from 'a continually [sic] increase in quality of life'? So far as I can see, they are inextricably linked.
My bad, you did mention regulation.
One other thing that occurs to me is that a good deal of the unemployment would still be due to the housing overhang from the bubble bursting. Only time can fix that.
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"The more 'productive' are automation and IT, the fewer workers needed to meet market demands."
This is simply untrue. The ditch digger running a backhoe is more productive and is accordingly paid more than one using a shovel. That greater pay means greater demand for other goods and services.
Perhaps a better example is the the manufacture of sewing needles. At one time this was done by hand one at a time. Only the very rich could afford sewn clothing. The automation of sewing needle production has helped produce many more jobs in the mass production of clothing. This has been good for all. The practice of stripping the dead to reuse their clothing has as a result thankfully passed into history.
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From John by email:
"Innovation of course creates jobs. But innovation isn't the only major influence on job creation.
Two major issues aren't adequately addressed in this discussion or the prior one.
First, why are about 2 million jobs, requiring technical skills and education, not being filled for several years? From what I read, the companies can't find people with adequate skills to fill them. If we brought in more highly skilled workers from SE Asia, we could fill those jobs. These people would buy homes and appliances, which in turn would would create local jobs.
Secondly, if governments in different ways remove money that individuals could spend (and create jobs), then those jobs won't get created. In particular, new air and water pollution regulations are likely to raise electricity rates by around 10% nationally, which will probably cost about 1 to 2.5 million jobs, according to recent studies of cross elasticities of electricity prices and unemployment.
If we limit the discussion to innovation, we miss important reasons joblessness remains so high."
-13-John
Thanks, in my warp view of the world, both immigration policy and tax policy can be considered key elements of innovation policy;-)
I have just watched a debate with William Watson - an economics professor from McGill University. He sated that it has been shewn that 40% of the recent rise in inequality is related to technology.
The idea that technology can be eliminated as a cause of persistent unemployment seems to contradict this.
Regarding immigration, raising the ceiling for H1B visas has become controversial because of a vocal segment that argues that highly skilled immigrants “take” jobs from US-born workers. They usually argue too that greedy employers take advantage of the visa-holders by underpaying them. (I don’t deny the possibility because each visa and visa-holder qualifies for and retains the H1B by having a sponsoring company. There are competing studies, but I doubt the underpayment hypothesis primarily because work for a high-tech company with well-defined labor classifications: the furriners get paid the same as the native-born.)
SarBox (Sarbanes-Oxley) has had a detrimental effect on capital formation because its stringent requirements make IPOs much more onerous and risk-laden. That’s why the center of the IPO business has shifted to London and appears to be increasing in Asian markets.
Regarding training, lots of companies do have apprenticeship programs but the really big obstacle is that it’s hard to teach math to an old dog, and that’s the area where many of the unemployed are weak. Locally there’s a been longstanding high demand for CNC-operators but candidates can’t complete the coursework because their math skills are abysmal.
Among the few smart things South Carolina is known for is using its technical college system to provide specialized training as an inducement for companies to locate in the state. It started with BMW in the early 1990s and was one of the inducements that landed the Boeing plant. The school develops specialized curricula based on the employers’ needs and trains candidates. The company then hires however many of those graduates appear to meet the requirements; there’s a probationary period and if the company fires them, the company’s unemployment and other levies are not affected. This is a boon to the employers, the newly trained employees, and the school system itself in that a given curriculum can be tweaked to provide trained candidates for new employers.
Many economists think we are not in a typical business-cycle recession, but a balance sheet recession. I'm not sure where that would fall on your list of problem definitions.
There was quite a bit of innovation in the 1980s and into 1990s, thanks in large part to deregulation of various markets, from telecommunications to commercial airlines, letting folks like Osborne, Gates, Wozniak, Jobs, Ellison, and McGowan achieve fame and fortune or fail spectacularly. These folks created enterprises that have made others rich while providing great jobs to millions of people worldwide. They did so in a relatively free market without much regulation while in some cases battling the government for a chance to compete against a monopoly like McGowan did.
I don’t see a lot of evidence in favor of government-directed markets. In fact, one of today’s great business leaders, T.J. Rodgers, describes the idiocy of our national solar policy in today’s Wall Street Journal: Subsidizing Wall Street to Buy Chinese Solar Panels. He concludes: We should stop reflexively indicting Wall Street "greed" and focus instead on Washington as the disruptive force in one market meltdown after another.
Our current solar policy subsidizes Wall Street to create employee-less corporations that buy and install Chinese solar panels in the U.S. Wall Street and consumers understand that free markets are borderless; Washington does not. Moreover Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to "help" the American solar industry, while the ITC threatens to levy a tariff on those solar panels, which would raise the price of solar energy to U.S. homeowners. In short, Wall Street pockets the money and consumers get higher solar-energy prices. Sheesh!
Rodgers too has the correct view of the players: Wall Street’s job is to make money, get used to it. Washington’s job is to play politics by pretending it’s helping the little guy, when all it does is redistribute whatever money it can get its hands on to the unworthy.
As for the ethics of those involved in regulating, innovating, financing, and investing, as clearly as he saw the invisible hand of the free market, Adam Smith knew that such a market could only exist if there were a foundation of morality and trust. Nobody but crooks will work with crooks, the trick is to identify then avoid them.
Tom #10
The emphasis should no longer be on GROWTH! Once the market is near saturation, replacing old products with newer 'better' products will increase quality of life without requiring NET growth in productivity.
Motivation for innovation will remain – but be somewhat different. Education and innovation will continue to be the catalysts for increasing quality of life. This will also tend to limit ENORMOUS disparities in quality of life.
Abdul #12
"The ditch digger running a backhoe is more productive and is accordingly paid more than one using a shovel. That greater pay means greater demand for other goods and services."
BUT, fewer workers are then NEEDED to provide any given level of productivity! And this can lower the demand for new workers – and THEIR "demand for other goods and services".
This is how automation and information technology can eventually undermine the classical idea that growth in productivity INSURES that growing demand for products must lead to equitable prosperity.
My last look at the BLS numbers has college grads at 4.9%, HS Grads 9% and HS dropouts at 25%. That says to me that whatever jobs you create need to be low skill level. I suspect new home construction was absorbing them before the recession. The oil field boom in N.Dakota is probably a good model. It's innovation in a way.
Len #19 –
Innovation is not “replacing old products with newer 'better' products.” Planned obsolescence is a quaint notion that few can afford to practice today. Rather it’s creating new products and services to do not just the same old stuff, but also something new. That’s why growth occurs. I did not know that I wanted a tablet PC, satellite radio, free long-distance calling, or a revolver that shoots both .45 Colt and .410 shotshells, but when some smart folks offered these products at prices that I could afford, I got ‘em. While I’ve not needed a heart valve or artificial joint, it is nice to know that somebody out there offers such just in case I do.
There may or may not have been altruistic motives that led to the development of these products. Perhaps in every case the developers and backers were just looking for a way to get rich. Yet there’s no doubt that innovations in communications, for example, have alleviated suffering and improved the lives of the poor worldwide.
What are we to do with the low-skilled in this country? Whoever figures that out ought to earn a fortune, no? But what are the barriers to their entering the workforce? It’s not just education, their low level of accomplishment is in most cases a symptom of low self-esteem, lack of direction, or whatever. We must acknowledge that millions of low-skilled illegals find employment doing landscaping, construction, slaughterhouse work, etc., so language skills and education levels, even the ability to speak English, are not the issue. Perhaps willingness or ability to work hard, show up on time, are. Note too that much of this work is performed “in the shadows” on a cash basis. Does that make you wonder if minimum wage laws make much sense?
As for the proprietor’s #1, ReasonTV has an eight-minute video that examines why the 2009 Stimulus Bill was not a Keynesian stimulus, why it did not work. It’s not a political diatribe, but a thoughtful, documented examination of why it failed.
The traditional solution to this problem for most of human history has been to initiate a war. (I mean a really serious one in which hundreds of thousands die.) I hope the US doesn't decide to follow this path.
heyworth
I am afraid to say that the US does follow that path (albeit not yet resulting in "hundreds of thousands" dead soldiers): the US has the highest military spending worldwide. This is known as 'military Keynesianism' and provides employment big time.
http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures
21. "It’s not just education, their low level of accomplishment is in most cases a symptom of low self-esteem, lack of direction, or whatever. We must acknowledge that millions of low-skilled illegals find employment doing landscaping, construction, slaughterhouse work, etc., so language skills and education levels, even the ability to speak English, are not the issue. Perhaps willingness or ability to work hard, show up on time, are."
This is why I believe much of the blame for current economic difficulties should be placed with the education system and prevailing societal culture. In the interest of boosting "self-esteem" we have got it exactly backwards; well-performing children have high self esteem because they are well performing not the other way around. Insulating children from "feeling bad about themselves" is creating a generation of entitled narcissists who expect to grow up to be Jay-z or Gandhi.
@Reiner Grundmann
I think you have completely misunderstood my point. The traditional solution I refer to is not to spend a lot of money on military hardware (which I agree the US already does); it is to initiate a war in which large numbers of young men die, hence solving any unemployment problem.
heyworth
No worries I did get your point but it is not convincing (whereas military Keynesianism is). Your claim presupposes some kind of all knowing ruler who sends his subjects to the slaughterhouse in order to reduce unemployment. This is bizarre. Historical examples please.
In the minds of the rulers, reducing unemployment is not the aim. It is simply a serendipitous side effect. Best example is probably WWI.
You may also not be getting Aussie humour. My original post was tongue in cheek.
OK - I am glad it is my lack of sense of humor rather than you digging a hole ;-)
I'm sure you have a sense of humor - just different from mine :)
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