Mobility, Mismatch, and McJobs

by Reihan Salam

A new study from Greg Kaplan and Sam Schulhofer-Wolf tells us that the answer is no. And so, the authors suggest, the “concern that unemployment remains high, in part, because the once highly mobile American worker has suddenly become unable or unwilling to move across the country for a job” is groundless. 

If spatial mismatch is a non-issue, is skills mismatch an even bigger problem we had assumed? Tyler Cowen and Jayme Lemke have argued that “zero marginal product workers” are at the heart of the employment problem:

In essence, we have seen the rise of a large class of “zero marginal product workers,” to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves — and arguably bad for society at large — but it simply doesn’t damage profits much. It’s a cold, hard reality, and one that we will have to deal with, one way or another.

Another view is that the persistence of high unemployment has everything to do with weak aggregate demand. Cowen and Lemke were critical of this view in January:


The simple Keynesian explanation for the initial unemployment is that aggregate demand — the country’s combined spending and investment — has been too low. But it’s unlikely that spending is the only problem, as unemployment is too high and too persistent relative to similar episodes of disinflation in recent history. If weak demand was the main problem, profits should be collapsing too, but they are not. Investment and corporate profits have been fine for some time now, and they are broadly within the range of pre-recession estimates.

There’s a second problem with the Keynesian story, which relies heavily on the notion that real, inflation-adjusted wages are sitting at too high a level. If unemployment causes someone real suffering, why wouldn’t he or she be willing to take a lower salary to get a job and ease the pain? But rather than falling, private-industry wages are currently on the rise — up nearly 60 cents per hour since the end of the recession. There are plenty of good theories why it is hard to cut the wages of employed workers — long-term contracts pose legal challenges, and fragile worker morale threatens to collapse under the stress of wage cuts. But it’s harder to explain why unemployed workers can’t find new jobs for less pay, especially if output is recovering, profits are high, and corporations are sitting on a lot of cash. [Emphasis added]

On Tuesday, Annie Lowrey of Slate wrote a piece suggesting that not-great job have played a big role in the weak jobs recovery:

The National Employment Law Project took a closer look at employment and jobs-growth data in February. What it found wasn’t encouraging. The advocacy group says that just 14 percent of recent job growth comes from high-wage industries. About half comes from low-wage industries. According to NELP’s report, restaurants and food services businesses, “especially” fast food outlets, comprised 7 percent of hiring. And most gigs, NELP found, came “from rapid hiring by the temp industry,” meaning the positions that often come without benefits, health care, or much income security.

The picture contributes to a larger, yet equally depressing, labor-market story: The country has produced far too few good, stable, middle-income jobs over the past 10 or 20 years, not just the past three. One of the most prominent economists making this case is David Autor of MIT. “Two forces are rapidly shifting the quality of jobs, reshaping the distribution of earnings and job opportunities,” he writes in a recent paper. One is educational stagnation among men and gains among women. The other is “employment polarization, whereby job opportunities are increasingly concentrated in high-skill, high-wage jobs and in low-skill, low-wage jobs.” Thus comes the frightening possibility of a “barbell” shaped economy, with jobs at places like fast food joints and universities—but not a lot of jobs in between.

A few quick thoughts:

(1) It seems that at least some unemployed workers are finding are finding new jobs at less pay, thus addressing the puzzle identified by Cowen and Lemke.

(2) Annie’s article reminded me of the Spence and Hlatshwayo on “the evolving structure of the American economy and the employment challenge,” which I discussed in a recent issue of NR.

(3) I’m not as concerned about the “barbell” shaped economy if jobs in the middle are generally shifting to the right rather than to the left. To achieve that outcome, however, we’d need to do a better job of upskilling the current and future workforce. Upskilling the current workforce is notoriously difficult, as most formal job training programs have proven very disappointing. I tend to think that the approach advocated by Rick Hess, Andrew Kelly, and Olivia Meeks in “The Case for Being Bold” is our best bet. But their approach to revitalizing STEM education will take a long time to bear fruit.