Friday, December 01, 2006

Is Economic Turbulence Good for American Labor?

Is economic volatility good for American workers? It may be, according to Clair Brown, John Haltiwanger, and Julia Lane, in their new book, Economic Turbulence.

Tyler Cowen had
a positive review of the book in yesterday's Wall Street Journal:

Is a volatile economy good for American workers? To judge by the news accounts of layoffs and downsizing and families grimly adjusting to straitened circumstances, the answer would seem to be no. Three in five jobs for 22- to 55-year-old workers last three years or less. In a typical quarter of the year, about one in 13 jobs ends. For certain obvious reasons, labor-market turbulence has a reputation as a wrecker of lives, families and pocketbooks.

But is it really? Economists Clair Brown, John Haltiwanger and Julia Lane have their doubts. On closer inspection, they note, job turnover and firm disappearance have positive effects, in the aggregate. A clerk's job at a retail warehouse is replaced by a computer, but the warehouse firm can use the savings to hire a better and better-paid office manager. As workers lose jobs in one niche or sector, they gain in another, moving on to better jobs and higher pay. In the software sector, new businesses are more productive, over a five-year period, than the firms they replace. This new-business productivity gain, the authors show, is true generally across sectors--generating efficiency, products and, most important, jobs. And new businesses tend to pay more.

In short, America is not becoming a nation of part-time Wal-Mart cashiers or burger flippers. In four of the five sectors studied by the authors--semiconductors, software, financial services, retail food and trucking--the growth rate for full-time jobs exceeds the growth rate for jobs in general. (Retail food is the exception.) Separate research, conducted by Ann Huff Stevens at the University of California, Davis, shows that the average tenure for employed U.S. male laborers has been broadly stable over the past 35 years....

The data in the book, based on a new U.S. Census program, is impeccable. Yet only in the final chapter do the authors move into the broader territory of public policy. They conclude that America's competition, deregulation and economic turbulence are largely desirable. By contrast, French labor policy, which tries to prevent firings and guarantee lifetime jobs, is counterproductive. Indeed job creation has largely stalled in Western Europe as older jobs are protected at the expense of the young and at the expense of women who wish to move into the work force more than their counterparts in earlier generations once did.

Of course, none of this will silence the critics of free labor markets. The authors do show that aggregate job turnover--"volatility in the aggregate"--is not an economic villain, but the major complaints about labor markets remain. Many economists suggest that median U.S. real wages are stagnating and that the variance and unpredictability of incomes is increasing. They could easily pick out more exact features of the broader volatile landscape--such as immigration, outsourcing, information technology or weaker unions--and pin the blame there.

Arguably "volatility in the aggregate" was never the main concern in the first place but rather a shorthand for other worries, like comparative standard of living. In my view, the contemporary critics of labor markets are still more wrong than right. As Virginia Postrel has noted, Best Buy is full of people--few of them rich--buying flat-screen TVs. The obsession with measuring median wages misses a broader story about growing wealth, higher asset values, growing flexibility, growing buffers against risk, and growing opportunities for consumption.
You won't hear this story of opportunity and prosperity from economic populists and globalization protesters. In an earlier post I discussed the views of Senator-elect Jim Webb, who laid out the standard class warfare attack on the economy in a recent commentary piece. I engaged in a good little economic debate in the comments section of that post. And in this post on the minimum wage one whacked-out anti-American wrote:

It is really disgusting that after ten years minumum wage has not been raised. Since that time the cost of living has increased 5000% or more, which leads me to believe the goal of our politicians is to turn this country into a third world state so that corporations can profit at home while outsourcing more jobs....
Unfortunately, even the hard data on market vitality in the Economic Turbulence volume is unlikely to persuade such conspiracy theorists.

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