Thoughts on the Employment Situation
By Arnold Kling
Factory payrolls fell 85,000 after decreasing 104,000 in October. The return of 27,000 striking machinists at Boeing Co. last month helped limit the drop, economists said…
Payrolls at builders dropped 82,000 after decreasing 64,000. Financial firms decreased payrolls by 32,000, after a loss of 31,000 jobs the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 370,000 workers after declining 153,000 in the previous month.
Overall, the decline in payroll employment in November was 533,000.
In December of 1974, the decline in payroll employment was 602,000, of which the decline in manufacturing payrolls was 384,000 and the decline in service employment was 132,000. Construction employment was almost unchanged.
Decomposing the change in employment, in December 1974, the drop was almost 2/3 concentrated in manufacturing, and less than 1/4 services. In November 2008, the drop was less than 1/6 in manufacturing, and more than 2/3 in services.
I bring this up because it raises a question about whether this is cyclical or structural unemployment. See my Lectures on Macroeconomics, No. 3. For example, if people are losing jobs in securities trading, then that may be a case of permanent structural change, not temporary cyclical weakness.
I have my doubts about Keynesian remedies for structural unemployment. As I wrote in Lectures on Macroeconomics, No. 6
My tentative judgment is that the Keynesian remedies are less appropriate to the post-industrial economy. Fiscal and monetary policy may be good for kick-starting the durable goods sectors, but the Dotcom crash required more complex adjustments, involving a more educated labor force.
From 2002 through 2007, the economy fell short of providing the employment opportunities for highly-educated workers that the Internet bubble was able to generate. Meanwhile, we overheated the traditional housing and consumer durables sectors. Some of the demand for consumer durables was met by foreign producers, as our imports shot up. One could argue that the demand for housing also was met partly by foreign labor, in the form of illegal immigrants.
Another sector that overheated in this period was the financial sector. The mortgage origination, securities-trading, and risk-disguising industries ballooned. These excess financial services employees now need to find other lines of work. I cannot see how a Keynesian policy of creating inflation to reduce real wages can help with that.
As far as I know, macroeconomics does not have a proven remedy for structural unemployment in the services industry.