I have discovered a new kind of unemployment.

post by Nathan Brooks · 2020-09-24T01:04:18.266Z · LW · GW · 4 comments

This is a link post for https://seekingalpha.com/article/4361570-skill-stalagmites-technology-stalactites

Hello everybody, I have an article that explains why since 2000: business investment has been weak; the fall in the U.S net labor share; the decline in the prime age U.S labor participation rate vs large gains elsewhere; the rise in deaths of despair. The article is called Skill Stalagmites, Technology Stalactites and can be found here. I have split the piece into two parts: a 1500 word article for the general reader and a longer piece for the more sophisticated reader. There is a link to the latter at the end of the first piece.

The punchline to the article is that the 4-5% gap in the lfpr between the U.S and peer economies is a form of disguised unemployment. And this is a novel kind of unemployment, which is not caused by a fall in aggregate demand. 

The actual cause is that firms are imposing higher effort levels on workers. I can summarize the argument you will find in the main article; it goes like this:

1. Firms impose higher effort demands on workers; workers have to complete more tasks (for a higher wage) or be fired.
2. The higher wage does not compensate workers for their lost work leisure; thus workers look for less demanding job positions (or refuse to move up to more senior roles).
3. If one imagines a skill ladder, then all workers attempt to drop down a rung. This is easy for higher skilled workers, but what happens to workers at the bottom?
4. The lowest skilled workers compete for job openings with somewhat more skilled workers. Firms prefer to hire the more skilled worker, resulting in the lowest skilled workers being pushed out of employment altogether.
5. This assumes that employers can always identify the highest skilled worker from their pool of applicants. This won't always be the case; if the higher skilled worker has a bad interview or the weaker candidate has positive chemistry with the interviewer, then the objectively weaker candidate can win a job offer.
6. Thus provided the lowest skill workers are willing to keep searching for jobs they will eventually obtain a job offer and regain employment.
7. This means though that workers on the second lowest skill rung will be unable to drop down to the lowest rung unless they also increase their job search activity. And in turn this forces the workers above them to increase their job search.
8. Any person wanting a job now has to apply to many more job positions before they can get their first job offer. But after a string of failures, job seekers become discouraged and temporarily withdraw from the search process. It is this temporary withdrawal that is responsible for the drop in lfpr. For those who are the main breadwinners, the period of withdrawal will be short - perhaps only a few months. But for workers who are more marginally attached to the labor force, it could be years or forever.
9. Evidence for higher effort in the U.S can be found in the higher U.S productivity growth since 2000 vs peer economies.
10. Evidence of higher job search can be found in the elevated duration of unemployment, which in 2019 was still equal to recessionary levels. The American Time Use Survey also shows higher than normal time spent on job search.

The questions of why this is happening post 2000 and not before, and why only in the U.S and not elsewhere, are taken up in the full article.

If you have any questions of your own, please ask away.

Best, 

Nathan.

P.S The article is published on Seeking Alpha, but don't let that put you off. Though I don't have a formal background in economics, I do keep up with the relevant literature.

4 comments

Comments sorted by top scores.