The New Joblessness?

Roger Lowenstein at the New York Times had an article a few days ago about changing unemployment patterns. Two things jumped out at me:

First, the doom-and-gloom reference to Okun’s law ( and how the current unemployment trends seem not to be following it) is just silly. I’m not an economist, and I’d never heard of Okun’s law before, but just a quick read of the Wikipedia article makes it clear that Okun’s law doesn’t claim that there’s any particular, unchanging relationship between unemployment and GDP. It’s actually a pretty simple formula that just captures an observed linear relationship between two data points, complete with variables that have to be estimated and a magic constant. It’s this constant that’s changing, which, yes, is interesting (I’d like to know how it has changed over time, for instance), but to act like this change is a surprising and dangerous departure from established economic canon seems more than a little sensationalist.

Second, this sentence, “It’s hard to give a definitive explanation for this trend, but among the reasons are a decline in innovation in the aftermath of the tech boom, leading to fewer new businesses, and the aging of the population.” has a pretty glaring problem. The latter point about the aging population is fine, but the former, the idea that we’re currently suffering a decline in innovation, actually contradicts the entire point of the article. The changing constant in Okun’s law that we’re supposed to be wringing our hands over? What that actually captures is how much output we get per worker, and the way that it’s changing implies that we’re getting more. How, exactly, do you think you get more output per worker except through innovation? “Presumably, before companies start to rehire laid-off workers, they will ask their current employees to work more.” Right, “presumably” they won’t invest in improved processes and technologies that cut costs and increase productivity, they’ll just ask all their employees to stay later.

Why rant on this particular article? It hits really close to an idea that I’ve been trying to flesh out for myself for a while, the idea that high unemployment is going to be the normal state of things moving forward, and that we need to start thinking seriously about how we’re going to adjust to that reality, including rethinking altogether whether employment should be considered a social goal in and of itself. Given that mindset, this article (aside from being simply incorrect) seems needlessly pessimistic, as well as pessimistic about the wrong thing altogether. More on all this to come.

27 July 2009