Mankiw vs. PSST
By Arnold Kling
If workers were unemployed voluntarily in recessions because they were moving to new jobs in other sectors, we would expect high unemployment coinciding with high job vacancy.
Thus, he dismisses the multi-sector real business cycle model. A couple of points.
1. What Mankiw is describing here is not a standard real business cycle model. As he points out elsewhere in the paper, in a standard RBC model, productivity is temporarily depressed, and so workers prefer leisure until productivity gets back to normal.
2. The multi-sector model that Mankiw describes is closer to what I am talking about with patterns of sustainable specialization and trade. However, in the multi-sector RBC model as he describes it, the new patterns do not have to be discovered. The job vacancies are there, and the problem is that it takes workers a while to find them. In contrast, the way I think of PSST is that the new jobs have not yet been created. Entrepreneurs are still experimenting within the new technological environment. Until a lot of those experiments prove successful, job creation may be very minimal.
Suppose that in the near future many people will be working with biotechnology, as this conference might suggest. That does not imply that right now there are job openings in this sector.
Again, I will say that the most hand-waving I have to do with PSST is explaining how there can be a large imbalance, with some sectors declining before other sectors expand. Again, my hand-waving approach is to suggest that productivity rises sharply in a sector with relatively inelastic demand. That frees labor in the sector, but we do not yet know where that labor is going to land.