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Article Artículo

Can High Unemployment Slow Productivity Growth?

I see that my co-author Jared Bernstein has been pondering this question. While this sort of thinking can get you thrown out of the church of mainstream economics, I think that he is very much on the mark. Let me throw out a few reasons.

First, there is an issue about the money available to firms to invest. While larger and more established firms likely to have little problem financing investment in the current low interest rate environment, smaller and newer firms may find it difficult to get access to capital. For them a rapidly growing economy can be strong sales growth and higher profits, both of which are strongly linked to investment. This is a finding from an old paper by my friend Steve Fazzari and Glenn Hubbard (yes, that Glenn Hubbard.)

A second reason why productivity can be tied to growth is that firms will have more incentive to adopt labor saving equipment in a context of a rapidly growing economy. When they see additional demand for their products, they have to find a way to meet it. Of course they can hire more workers or have the existing workforce put in more hours, but another option is to find a way to produce more with the same amount of labor. Of course profit maximizing firms should always be trying to produce more with the same amount of labor, but they may not follow the economics textbook. Meeting increased demand can give them more incentive to do so.

A third reason is changes in the mix of output. At any point in time we have many high paying high productivity jobs and many low paying low productivity jobs. When we have a strong labor market, people go from the low paying, low productivity jobs to the higher paying high productivity jobs. This means that many people now working at fast food restaurants, the midnight shift at a convenience store, or as greeters at Walmart will instead find better paying jobs in a strong labor market leaving these low-productivity jobs unfilled.

The rapid growth of jobs in low-paying sectors in this recovery has been widely noted. Rather than reflecting an intrinsic feature of the economy, this could be the result of the failure of demand to create enough growth in the high-paying sectors. This is again a story where the causation goes from growth and low unemployment to high productivity.

Dean Baker / October 27, 2015

Article Artículo

Workers

Immigrants and the Wages of Less-Skilled Workers
Does competition from immigrants lower the pay of less-educated native born workers? On its face, the obvious answer would be yes — competition lowers prices, and the price of labor is not special. However, the macroeconomy is not quite that simple. For o

David Rosnick / October 26, 2015

Article Artículo

Health and Social Programs

Inequality

World

Life Expectancy and U.S. Health Care Spending: An International Comparison

Health researchers have noted an oddity in the relationship between healthcare spending and life expectancy: while greater spending is generally associated with greater life expectancy, average life expectancy in the U.S. isn’t even close to what we’d predict given its level of healthcare spending. As can be seen in Figure 1, which depicts life expectancy and healthcare spending for all OECD countries and countries counted as “advanced economies” by the IMF, the U.S. is a clear outlier when it comes to healthcare spending and life expectancy (the U.S. is highlighted in red):

CEPR and Nicolas Buffie / October 26, 2015

Article Artículo

Government

Workers

Should College Students Really Be Working More?

With the costs of college tuition skyrocketing, the affordability of higher education is becoming a major issue in the 2016 presidential campaign. Some commentators have argued that the proper solution to rising costs is putting more money in the pockets of students. Specifically, they argue that colleges should expand their work-study programs so that students can get jobs and pay their tuition.

If students want to work full- or part-time jobs to pay for their textbooks, housing, tuition, etc., it would be unfair to deny them that opportunity. However, it should be noted that asking students to work their way through college is unlikely to have a large effect on college affordability, for one simple reason: most college students are already employed.

CEPR and Nicolas Buffie / October 23, 2015

Article Artículo

Thomas Friedman Says It's All So Complicated

Yes folks, back in the good old days we just had the Soviet Union and the U.S.:

"I was born into the Cold War era. It was a dangerous time with two nuclear-armed superpowers each holding a gun to the other’s head, and the doctrine of “mutually assured destruction” kept both in check. But we now know that the dictators that both America and Russia propped up in the Middle East and Africa suppressed volcanic sectarian conflicts."

But now we have ISIS and Al Qaeda and so many other small radical groups. It is all so complicated. And when we get to the economy:

"Robots are milking cows and IBM’s Watson computer can beat you at 'Jeopardy!' and your doctor at radiology, so every decent job requires more technical and social skills — and continuous learning. In the West, a smaller number of young people, with billions in college tuition debts, will have to pay the Medicare and Social Security for the baby boomers now retiring, who will be living longer. 'Suddenly,' argues Dobbs, [Richard Dobbs, a director of the McKinsey Global Institute] 'the number of people who don’t believe they will be better off than their parents goes from zero to 25 percent or more.'

"'When you are advancing, you buy the system; you don’t care who’s a billionaire, because your life is improving. But when you stop advancing, added Dobbs, you can 'lose faith in the system — whether that be globalization, free trade, offshoring, immigration, traditional Republicans or traditional Democrats. Because in one way or another they can be perceived as not working for you.'"

Okay, we get it, Thomas Friedman is very confused. But that's not new. Let's try to look at the substance.

Dean Baker / October 22, 2015