Krugman - Lumps of Labor

[realFedUp]

http://www.nytimes.com/2003/10/07/opinion/07KRUG.html

Lumps of Labor
By PAUL KRUGMAN

Published: October 7, 2003

Economists call it the "lump of labor fallacy." It's the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950's that automation would lead to mass unemployment.) As the derisive name suggests, it's an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

Sure enough, the lump-of-labor fallacy has resurfaced in the United States — but with a twist. Traditionally, it is a fallacy of the economically naïve left — for example, four years ago France's Socialist government tried to create more jobs by reducing the length of the workweek. But in America today you're more likely to hear lump-of-labor arguments from the right, as an excuse for the Bush administration's policy failures.

The latest lump-of-labor revival came to my attention when I realized how eagerly certain commentators were picking up on a new study by economists at the Federal Reserve Bank of New York. In it, Erica Groshen and Simon Potter argue that the pattern of laying off workers during recessions and rehiring them during recoveries has changed: since 1990 employers have become much less likely to rehire former workers. It's an interesting study, and it might — repeat, might — shed some light on why businesses have added so few jobs during our so-called recovery.

continued

[culoclown]

1. I see this all the time with my un- and underemployed relatives

who blame their economic woes on all the fureners taking their jobs: only so many jobs and the fureners are taking them all to hear them tell it. I find trying to reason with them is pointless. They simply refuse to believe even as they and their children slide down into poverty that turning the poor against each other has always been a very effective way to keep the sheeple in their place.

[realFedUp]

2. Good point

Welcome to DU.

[chiburb]

13. Excellent point, but even worse...

Is when WE start buying into "Its the foreigners fault". Krugman warns that unless we keep the pressure on the policy makers to effect real change:

"— if politicians and the public believe that new jobs can't be created, they will stop pressuring our leaders to find more effective policies. And that would be a shame, since the Bush administration has resolutely refused to try the policies most likely to improve the employment picture."

As many threads on DU indicate, WE have already shifted our focus off of Bushco and on to the foreigners.

[JohnyCanuck]

3. I just wish Krugman would explain where the new jobs might come from.

When the factory jobs went oversees, everyone was told to say goodbye to their relatively high-paying jobs on the factory floor and retrain for IT jobs and a bright new high-paying, high-tech career. Now the IT jobs are going to the Phillipines and India, what's the next job wave that the newly trained programmers and networking techs should be paddling frantically to catch? I've read somewhere that the only jobs that are safe from being shipped overseas are some in the medical profession like doctor's and nurses and law enforcement and of course there's likely to be an expanding need for security guards and prison guards into the foreseeable future.

[Larkspur]

4. And don't forget the military

With war as a service to oil and military-industrial corporateions, cannon fodder will be needed, and you will get to follow your job overseas.

[Beetwasher]

5. How about Public Works projects

rebuilding the infrastructure of the country? A new power grid, roads, bridges etc. How about an investment in alternative energy sources? An AID's vaccine initiative? Bio-technology? All of these are areas that can be initially funded as public works and will create jobs, including hi tech jobs. The US could lead the world in developing Hydrogen Fuel cells and bio-technology, and if the gov't invested heavily it would have a HUGE payback economically speaking...

[benfranklin1776]

6. Great Idea.

Specifically when the American Society of Civil Engineers recently released a report on the nations infrastructure that graded our entire system, which includes the state of schools, roads, bridges, transit systems as a D plus and noted that the federal government isn't even spending in these areas to match the rate of inflation. They recommend a significant increase in investment in these areas. Such investment would be anti-recessionary in that it would create jobs and address critical needs. The benefits of such investment would be considerable and long lasting unlike the ephemeral benefits of tax largesse for the very richest.

[JohnyCanuck]

7. IT jobs were supposed to be hi-tech jobs for the future.

At least that's what they told the laid off factory hands, when they were encouraging everyone to upgrade their computer skills and get an MCSE so they would be employable in the hi-tech, knowledge based economy.

Wouldn't jobs in bio-tech and other knowledge based fields be susceptible to the same forces shipping the IT jobs overseas and which previously shipped good quality manufacturing jobs overseas. Why pay lab techs $25/hr when you can have the job done in India for 10$ an hour. If Indian IT workers, engineers, financial analysts and accountants are doing the work that used to be done by US IT workers, engineers, financial analysts and accountants, presumably Indian bio-tech scientists or energy researchers could do the same work as the US bio-tech scientists or energy researchers at half the costs as well. If the gov't publicly funds new initatives as you suggest, what's to prevent the coporations taking the gov't grants and sending the research work overseas? After all it would increase their bottom line, which is why they're now shipping the existing high-tech jobs overseas, and it's not like a corporation owes anything to anyone except increasing the bottom line for the shareholders in the next quarter.

So the computer programmer (who might have been laid off from his job in the factory and already retrained himself once to be a programmer) is told that he can't compete with Indian progrmmers and their low wage rates so he should retrain as a bio-tech specialist. He's already in his 40's and supporting a family but he dips into his retirement plan, takes out student loans, sells his house or whatever he has to do to raise the money and goes back to school for a few more year to train in bio-tech. He graduates and gets a lucky break and finds a lab technician job (increasingly unlikely the older he is, especially without work experience in the field) and after working for a four or five years as a lab technician, what's he supposed to train for next when he's told the lab is moving all of its work to Indonesia because the lab technicians in Indonesia are just as good as US lab technicians and will work for half the wages?

[benfranklin1776]

8. All great points and this is why we desperately need a new trade policy.

One which insists on enforceable labor and environmental standards such that it would discourage the race to the bottom in wages and working conditions and a domestic policy which offers job retraining to workers that have been dislocated and seed money for workers who wish to buy their own closed facilities and run them themselves. Until there are fundamental structral changes in how we approach trade and improvements to the safety net for dislocated workers expect that the decline will continue and the Rethugs will start preaching about how high unemployment is a normal economic condition.

[Beetwasher]

9. Correct and also

while some jobs may very well go over seas, initially if investment in these new technologies comes from the gov't via a public works type of program, it would mean that jobs would HAVE to be here. Any companies wishing to take advantage of any of the developments resulting from publically funded initiatives would have to create the jobs HERE and keep them here.

Also, we still for instance make LOTS of computer chips in this country and the reason is we have the top notch facilities. Biotech and alternative energy/hydrogen fuel cell facilities would be initially started here and for that reason the facilities to make them would be here and stay here as would the jobs. These are industries that would be hard to move overseas if they are originally developed and perfected here.

[Beetwasher]

10. Govt' Grants have rules

Quite simply, to get the money, you wouldn't be allowed to take your work overseas. See post #9 as well.

[benfranklin1776]

11. I agree that is an absolute must have condition.

American taxpayers should not subsidize the means of their own unemployment.

[chiburb]

12. Krugman DOES explain, at least partially...

"Since 2001, sensible economists have been pleading for federal aid to state and local governments so schoolteachers and police officers needn't be laid off because of a temporary fall in revenues. They've also urged the administration to stop dragging its heels on much-needed homeland security spending, not just because such spending is needed to make the country safer, but also because it would create jobs and put more income into the hands of Americans likely to spend it. (And if you're worried about spending's leading to increased deficits, why not cancel some of those long-run tax breaks for upper brackets?) Until we've done the obvious things, there's no reason to despair about job creation."