Employment Recovery in Five Years?

The jobless recovery of 2010 may well be the jobless recovery of 2010-2015. The pacesetting econ blogger Mark Thoma writing his first post for the new CBS moneywatch.com blog "Maximum Utility" explains why, though he predicts 2013 as the full-employment mark:

The reason for the slow recovery is partly due to the depth of the recession — the deeper the hole, the longer it takes to crawl out of it — but it’s also because of the large amount of structural change that the economy must go through before it can recover. Prior to the recession we had too many resources in the housing, finance, and auto industries, and it will take time to move the people and resources who used to work in these industries into areas of the economy where they can be employed productively.

My bearishness comes from the realization that monetary policy can only tighten and fiscal policy can only contract in the years ahead, making any upward trend in employment happen in a contractionary context. The body economic may be climbing out of the sand at the pace of 10,000 net new jobs a day, but the macro sand will be sliding back into the hole at 8,000 jobs a day. Like that metaphor?  America has not been in this situation in nearly a century, and nobody can tell you when it ends. Fortunately, we can tell you how it ends. It ends with a new economy, even more diversified as well as focused on services and knowledge work.

Mark mentioned the structural change in the economy. That's good news and bad. The good news is that new jobs will be in new sectors with arguably better pay and quality of life (i.e. I'd rather be a movie star than a coal miner ... rather be a nurse practitioner than a seamstress ... rather be a hammer than a nail). As jobs transition from goods-production to service-provision, workplace fatalities decline and pay rises, satisfaction rises and stress eases. The bad news (and where I disagree with Mark) is that traditional policy remedies -- based on a static notion that old employers will simply rehire the old laid-off workers when stimulated artificially or by real consumption -- can only disappoint.

Manufacturing jobs are not the answer because the long-running trend is automation of line jobs. So the notion of "tiding workers over until the factory hires again" with unemployment checks for 6 months, 12 months, 24 months is delaying the inevitable structural change and basically paying people to be unemployed.

If any modern, depressed economy aims for faster job creation, it has to begin with a realistic understanding of new firm formation. It is much more about restructuring than recovering. In fact, it wouldn't hurt for policymakers to pay attention to this piece in the WSJ penned by my colleagues here at Kauffman (abbreviated here):

• Welcome immigrants seeking scientific training at our universities. Researchers at Duke University and the University of California, Berkeley, found that between 1995 and 2005 immigrants founded or co-founded 25% of all U.S. high-tech firms and accounted for 24% of international patent applications from the U.S. in 2006. One idea to boost innovation would be to grant permanent residency and work status (perhaps even automatic citizenship) to immigrants when they get their degrees in mathematics, engineering or the sciences from qualified universities....

• Unleash America's academic entrepreneurs. Currently, a university professor with an idea may commercialize it only by using his university's technology licensing office. This is an inefficient, monopolistic arrangement. University inventors should be able to use the licensing office of any other university ....

• Provide easier access to capital. The Obama administration has recently expanded some of the Small Business Administration's loan programs, raised the caps on others, and offered more aid to community banks. These are steps in the right direction. But in the longer run, we need a fundamental revision of bank capital standards,...

• Make it easier for companies seeking capital to go public. Compliance with the Sarbanes-Oxley Act of 2002, in particular, has proven to be far more expensive for smaller companies than originally intended or forecasted. Since shareholders are the intended beneficiaries of Sarbox, why not let them vote on whether their company needs to comply with some or all of its provisions....

Entrepreneurs have a proven track record of job creation, especially in the early years of their firms. Eliminating or lowering the economic and regulatory hurdles that stand in the way of their success will pave the way for sustained expansion after the government's current stimulus measures come to their inevitable end.

Comments

[Observer]

"Eliminating or lowering the economic and regulatory hurdles that stand in the way..."

Some enterprising economist might put together a list of the Top 25 regulatory hurdles, with some quantification of how much each costs in terms of jobs. Then do the next 25.

This should be fertile ground for ... just about forever.

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[Margy Rydzynski]

But what about health care costs? I didn't see that mentioned in the WSJ evaluation. And how are people going to get trained for these new jobs? Will it just be "you're on your own?"

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Tim: As I wrote on my blog, Truth on the Market, I think Tyler is pretty far off base with this one. See http://www.truthonthemarket.com/2009/04/28/what-does-tyler-know-about-law-and-economics-anyway/

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