Having recently read Cathy Davidson’s Now You See It, I’ve been struck by the relevance of “attention blindness,” the universal tendency to focus on some things at the expense of others, due to the fact that attention is a scarce cognitive resource, to policy debates. The economist Robert Gordon has drawn attention for his “disposable worker hypothesis“:

When the economy begins to sink – like the Titanic after the iceberg struck – firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. Why are firms so much more aggressive in cutting employment costs? My “disposable worker hypothesis” (Gordon, 2010) attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.
But the rise of inequality also has boosted the income share of the top 1% relative to the rest of the top 10%. In the 1990s corporate management values shifted toward more emphasis on shareholder value and executive compensation, with less importance placed on the welfare of workers, and a key driver of this change in attitudes was the sharply higher role of stock options in executive compensation. When stock market values plunged by 50% in 2000-02, corporate managers, seeing their compensation collapse with profits and the stock market, turned with all guns blazing to every type of costs, laying off employees in unprecedented numbers. This hypothesis was validated by Steven Oliner, Daniel Sichel, and Kevin Stiroh (2007), who showed using cross-sectional data that industries experiencing the steepest declines in profits in 2000-02 had the largest declines in employment and largest increases in productivity.
Why was employment cut by so much in 2008-09? Again, as in 2000-02, profits collapsed and the stock market fell by half. Beyond that was the psychological trauma of the crisis; fear was evident in risk spreads on junk bonds, and the market for many types of securities dried up. Firms naturally feared for their own survival and tossed many workers overboard.

This strikes me as eminently plausible. Yet one wonders if we’d be better off if corporate management cared more about the welfare of workers than shareholder value. What would be the impact on productivity more broadly? Some will pay attention to what they see as corporate malfeasance. Others will pay attention to (what they take to be) the impersonal demands of economy-wide productivity.

Moreover, some will see the “disposable worker hypothesis” as central to our economic woes while others will be inclined to see it as secondary and perhaps preferable to the alternative, e.g., a sluggish corporate sector over the longer term. Gordon writes the following:

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management. But even with the labour-market institutions of 1955 through 1985, the weakness of aggregate demand in the recession and recovery would have cost roughly 7 million jobs instead of the 10 million jobs that are actually missing compared to normal economic conditions such as occurred in 2007.
The recession itself is usually and correctly traced to the collapse of the housing bubble and the post-Lehman financial panic. But the recovery has been unusually weak, completely unlike the economy’s rapid bounce-back in 1983-84, and this requires an explanation as well. The best place to start is the double hangover approach, which explains not just the collapse of residential structures investment but also the continued and growing weakness in consumer spending. Perhaps the most surprising result of this essay is that the spending component responsible for the largest share of the missing jobs is not residential investment but consumer spending on services.

This flows from the following observation, made earlier in Gordon’s article:

The surprising result that by far the biggest part of the consumption shortfall is provided by services, which has more than twice the shortfall of durable goods. Over the past two quarters the consumer-services shortfall has become even larger. The services and durables gaps were positive for the entire period between 2000 and 2006, indicating that easy credit and cash-out refinancing were used for consumer services, not just to finance consumer durables.

One might conclude that a variety of other interventions, e.g., looser monetary policy, boosting military purchases, etc., might be far more important than strengthening the bargaining position of workers if the goal is to improve the economy. Nevertheless, the “disposable worker hypothesis” resonates strongly with many observers, who consider the shift in corporate culture to which Gordon alludes to be inhumane or at the very least wrongheaded.