June 04, 2013
Brad Plummer shows us two charts from a new publication from the International Labor Organization (ILO) that purport to tell us we face a tradeoff between job quality and jobs. The charts, one for wealthy countries and one for developing countries, seem to show that countries that had a deterioration in job quality saw the most job growth.
That would be bad news. The intended take away is that if we want to have jobs then workers will have to take lower pay and fewer benefits. However it is not clear that this is the story the charts actually show.
For some reason the ILO opted not to publish the regression results on which these charts are based so we have to rely on visual inspection to get a sense of the story. In the case of the developing country chart, it doesn’t look like we have much. In fact we have more countries in the wrong quadrants (negative job growth and job deterioration or positive job growth and job improvement) than in the right quadrants (positive job growth and job deterioration or negative job growth and job improvement). There are 11 countries in the wrong quadrants and 8 in the right quadrants. (I’m not counting Ukraine and Thailand, which are right on the line to my eyes.) That does not look like really solid evidence where I sit.
The fit looks a bit better for the wealthy country chart but the text is good enough to provide a bit more information on the problem of inferring causality here. It notes the improvement in job quality in Spain and Ireland, which rank #1 and #3 respectively in this category. These countries both have double-digit unemployment rates.
The governments were not taken over by a bunch of crazy populists who tried to give away everything to the workers, thereby chasing away businesses. The reason for the improvement in job quality was that they lost a large number of part-time and temporary jobs. This meant that the remaining jobs were on average of better quality. In short, the reason for the improvement in job quality was the loss of jobs.
Needless to say, issues of causality like this would arise with all the countries, which means that this sort of simple analysis likely tells us nothing about whether we need to cut wages to get jobs. (We do know that increased government spending in a downturn leads to more jobs — that one didn’t make the charts.)
This blog post is so depressing, because it shows that nonsense that purports to tell us that we have to kick workers in the face to have a good economy continues to draw a great deal of attention. Remember, we had to put up with the Reinhart-Rogoff debt cliff nonsense for almost three and a half years. That one told us that workers had to endure a long period of high unemployment to avoid getting into a debt danger zone. The argument was based on nothing, but nonetheless occupied center stage in public debate until it was sunk by the famous Excel spreadsheet error.
So here we go again. Shoddy analysis that tells the story that the rich and powerful want the rest of us to hear. Workers will just have to suck it up. How about some simple charts showing the gains from trade from allowing free trade in doctors, or maybe the deficit reduction from imposing the same sort of tax on stock trades that the UK has had for the last three centuries, or the savings to patients from having drugs sold in a free market without patent protection?
These charts wouldn’t be as popular in the Washington Post and other elite publications. Readers can contemplate this one as a homework assignment.
Addendum:
Brad Plummer has said that it was not his intention to imply there is a trade-off between job quality and jobs, but rather to point out how bad a recovery we have had. I have no reason to doubt Brad’s word, I have always found him to be a serious and responsible reporter/blogger. Unfortunately, I don’t think this is how these charts will generally be perceived. It certainly was not the way the people who called it to my attention when Brad first posted it perceived it.
Nor is it likely the intention of the folks who drew up the charts. There is a whole industry of economists (talk about a wasteful jobs program) who have been arguing for decades that if we want jobs then we have to weaken unions, reduce labor market protections and lower wages. My colleagues, David Howell, John Schmitt, the late Andrew Glyn, and I spent a great deal of time trying to show that the evidence did not support this view.
The OECD officially accepted much of argument in their 2006 Economic Outlook. However this has not stopped the argument from continually reappearing in various forms. There are a lot of folks who want to push the line that we will have to make ordinary workers suffer and are prepared to hold employment hostage to bring about this result.
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