An Empirical Disagreement
By Arnold Kling
when 10% of the workers in an occupation lose their jobs, or 5% of firms in an industry go out of business, continuity isn’t merely a convenient assumption. It’s a hard fact.
So now it boils down to an empirical issue about how prevalent are discontinuities. That is a difficult issue to settle in a blog, and I certainly must allow for the possibility that I am wrong. But some examples of discontinuities that come to mind:
1. It seems that troubled firms, rather than laying off one worker at a time to lower costs at the margin, “clump” their layoffs into large batches.
2. Similarly, a company like Borders, rather than closing a few unprofitable stores, goes out of business completely.
3. When a company outsources customer support, it does not do so incrementally, by shifting cutting back its domestic customer call center by one or two workers and replacing them with a few people in India. Instead, the tendency is to move the entire call center.
I think that the better argument for continuity as a “hard empirical fact” would likely be that in spite of the fact that individual firms behave in discontinuous fashion, the aggregate market for labor acts as if it were continuous. I think that is likely to prove a better defense of continuity. However, it would not rescue Bryan’s “wing-walking” hypothesis in which unemployment could be eliminated by having every worker remain in his or her existing job at a moderately lower wage.