A more effective stimulus: job creation
TEXT OF COMMENTARY
KAI RYSSDAL: Lemme get back to those jobs numbers that sort of got lost in the oil story today. Much as unemployment’s a lagging indicator — it tells you what already happened in the economy — employment itself tends to lag as well. It’s only when demand for products and services heats back up after a slowdown that companies start hiring again. Sounds like it makes sense. But commentator and economist Mark Thoma says that might not hold true this time around.
MARK THOMA: Most people think of a recession as a time when layoffs increase. But changes in the number of people firms hire — not changes in the number of people losing jobs — have the most effect on employment over the business cycle.
In the two most recent recessions, the downside of the cycle was the same as it ever was. Employment tracked output with a lag. But on the upside, the hiring rate didn’t pick up as it has in the past. It took much longer for firms to begin hiring again. That’s not good news for job seekers.
Why has the relationship between output and employment changed? One possibility is globalization. Under this story, as the economy begins to recover and firms need more workers, jobs are outsourced to foreign countries where labor is cheaper.
Another possibility, and a story that seems to fit much better with the evidence, is that it’s technology. As the economy begins to turn around, firms invest in machinery and technology. This allows the company to increase output without hiring as many new workers.
If it is technology, skilled labor and people in jobs that cannot be easily digitized or replaced by machinery should do well. But the recovery will offer less certainty for jobs that are subject to these technological forces.
The Fed has responded aggressively and creatively and that should help. But fiscal policymakers should have recognized that employment tends to recover sluggishly in a recession. They should’ve implemented policies that create jobs. But they didn’t.
So the failure of regulators to prevent the problems in the first place will be compounded by the failure of fiscal policy to truly help the unemployed.
RYSSDAL: Mark Thoma is a professor of economics at the University of Oregon.
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