The Job Assignment Problem
By Arnold Kling
The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.
I agree that high productivity growth is very good news and that it portends increases in hiring. But I caution against thinking of the economy, as Blinder does, in conventional Keynesian terms, where we all work in the GDP factory making GDP units.
One way to describe the Recalculation Story is to note what I call the job assignment problem. Suppose that it were your job to assign every worker in the United States a job. You have to decide who will be a manicurist and who will be a dental assistant. You have to decide who will work in a biotech lab and who will work on a web site.
Obviously, this is a ridiculously complicated task for any one person. It has become more complicated in recent years, as the variety of goods and services has increased.
The last time we had anything close to a centrally planned economy was during World War II, when the government assigned a lot of jobs quite directly. My father’s score on the mechanical aptitude test he took in the army was so poor relative to his other scores that they suspected him of deliberately hiding his ability. However, they did not make him a mechanic.
But those were simpler days, when men were either driving tanks or building them. In today’s economy, the job assignment problem is much tougher.
The Recalculation Story is simply that the job assignment problem has become too difficult for the market to solve quickly, using its tools of price signals and incentives. Government could step in and assign lots of jobs to lots of people, but that would probably come at a loss of the productivity growth that really ought to be our focus.
What people are calling a “jobless recovery” is what I would call the market taking a long time to solve the job assignment problem. Where should the market assign this year’s graduating college seniors, who have spent four years learning about the evils of capitalist oppression and the virtues of not working for a profit? I know a lot of parents with twenty-somethings living at home who would like to see that job assignment problem solved. Unlike Professor Blinder, I am doubtful that the solution will arrive quickly.