Friday, February 19, 2010

Composition of US Employment

In the interests of furthering yesterday's debate on the fate of poor Errol (taken here as a representative of young male blue collar workers in general) I present above a graph of all US employment by major category.  These are absolute numbers, and the data comes from the Bureau of Labor Statistics.  A few notes:
  • Manufacturing peaked in 1979 and has declined absolutely since then (and of course even more so relative to population).
  • Information work has been declining since 2000.  Speaking just from subjective experience working in Silicon Valley, this is probably mainly due to outsourcing to India.  Silicon Valley companies hardly hire college graduates in the US anymore - most places have an outsource operation of some kind, and that's where the 20-somethings are.
  • Construction employment is collapsing since the bursting of the housing bubble - since there's currently an oversupply of houses, offices, etc, this will probably continue to collapse for quite a while.  This is also where government infrastructure stimulus projects would be most likely to help.
  • Financial employment is also declining.  Probably many people would consider this to be a good thing - we are a badly overleveraged society, and need to scale back and simplify our financial sector.
  • Leisure/Hospitality has been growing steadily.  These jobs are generally low paying.
  • Education/Health has been growing steadily (probably this is mainly health).  However, most people feel like healthcare cost inflation is a big problem and would like to see this trend stop.
From the narrow perspective of joining a growth sector that pays decently, Errol might be well advised to retrain as a nurse.  However, as a guy who enjoys tinkering with machining parts in his garage by himself, it would probably be a completely inappropriate use of his natural tendencies and talents to take up a career that involves full time caring for people.

Would commenters care to suggest where on this graph Errol should look for his future?

Also, for background, here is the employment/population ratio for guys ages 25-54 (ie who in some sense should be working, according to traditional western cultural ideas).  As you can see, about 15% of the male workforce has gone MIA since the 1950s.

So an argument that manufacturing jobs will be replaced by some other kinds of jobs needs to come to grips with this data.


Mike "Pops" Black said...

The government of course, the military specifically. I'm not sure if the AF is hiring, not a lot of attrition in drone pilots but someone with a clean record, some skills and a little maturity is probably welcome.

Burk said...

Hi, Stuart-

Despite the trends, there are still three times the manufacturing jobs as information tech jobs, for instance. So, if Errol is really good at what he does and likes, there is still a place for him in manufacturing. It becomes a differential proposition of whose skills are best matched to which sector, not which sector happens to be going up or down at the moment. I hear Tesla needs a couple of employees.

Stuart Staniford said...

Burk - well, clearly, if one is *really good* at what one does, then one is more likely to keep a job, even in a rapidly declining sector like manufacturing. But, definitionally, most people are more-or-less average at what they do (and it sound like Errol, a young man with a mixed resume, would probably be in this class). And, the average employee is clearly being forced out of manufacturing - something like half of the jobs have gone (if we adjusted for population), and if present trends continue, most of the other half will go over the next twenty years.

So we are talking about several tens of millions of people in all. What do you propose they all do?

I suggest that "living in their parent's basement with occasional low paying part time jobs" is a recipe for serious societal instability, along the lines I outlined yesterday.

Stuart Staniford said...

Pops - I'll look up the stats on military employment this evening.

Manolo said...

Interesting, from the DOT: Vehicle Miles Driven unchanged in December

over at calculated risk:

Makes one ponder ...

Nick G said...

" most people feel like healthcare cost inflation is a big problem and would like to see this trend stop"

I find that baffling. We should expect employment to decline in mature industries like farming, mining and manufacturing, and grow in advanced service sectors like medicine and education.

Don't people want to live longer and healthier lives? Do they want the only growing sector to be entertainment?

People shouldn't be encouraged to want something for nothing...

James said...

I guess someone has to raise The Theory of Comparative Advantage. I don't believe everything that I was taught when I was young, but I still do believe it is a good counter to the argument that "wages are lower in China, and there are *lots* of Chinese, so we will all soon be unemployed.

(I am not sure that this is the argument that Stuart is making, but to the degree that it is the argument that someone is making I think Comparative Advantage is a good model to counter that argument.)

Not that this theory tells us that everything is going to be peachy keen for Errol. This paper by Krugman lays out nicely why Errol still has more challenges ahead of him than someone who is more highly skilled. But the argument made is that he will have a job - albeit one with lower wages than he would have absent international trade.

Finally, to anyone who isn't convinced by The Theory of Comparative Advantage, I would offer the opinion that The Theory of Comparative Advantage is a harder concept than it seems.

And yeah - I am a pretty huge fan of Paul Krugman. He has both brains and heart.

Burk said...

I just read the Atlantic article, and still can't figure out why Errol needs to find machinist employment. He has been a cook for a while, and other things.

The main issue is the macroeconomic situation of unemployment and money credit implosion. This isn't rocket science- we should use the same answer used the last time, classic Keynesian economics, where the government offers a last-resort job to anyone who wants one. This solves both unemployment, our infrastructure problems, and macroeconomic stabilization. For more details, please study the blog of William Mitchell.

Stuart Staniford said...

So, for you fans of comparative advantage and the idea that the economy will generate plenty of jobs of some appropriate kind, I ask again - why is the employment population ratio for men aged 25-54 down to 80% and still trending down?

Stuart Staniford said...

Burk - I did glance at a few posts at William Mitchell's, but the one's I picked seemed to be heavy on snark about folks who disagreed with him, and light on insight. Could you point to a few specific posts that you think are particularly good?

Stuart Staniford said...

James - I want to say another thing about the theory of comparative advantage. I think it's a poor approximation of what is happening with China. It's fundamentally an equilibrium theory about free trade between countries with reasonably free markets, and assumes that labor is pretty fungible between the creation of the different types of products at issue.

I suggest this has several obvious problems here. China is not a free market country - instead it's a country with some free enterprises managed heavily by a large intrusive state which has a grand strategy to bring about extremely rapid industrialization of the entire country. Secondly, the rate of change is such that the situation is likely to be far from equilibrium. Thirdly, I don't think uneducated labor and educated labor are all that fungible.

Burk said...

Hi, Stuart-

Yes, Bill is verbose and humorous, so it takes some work to get the drift, but it really is very good stuff, especially at this time when virtually everyone misunderstands macroeconomics and is terrorized about deficits. Here is one example covering the very basics, extended the week after to China, actually:

For a dry-er presentation of the same ideas, see Randall Wray;

James said...

Stuart asked:
> why is the employment population ratio
> for men aged 25-54 down to 80% and
> still trending down?

I would argue that there is a short term trend and a long term trend. The short term trend (since 2004 say) is due to the recession (which I fear may turn into a depression).

I believe the long term trend is due to (i) The fact that people in more affluent societies will tend to work less, and (ii) The rise of women in the workforce.

Stuart - I would strongly encourage you to read the piece by Krugman about why the Theory of Comparative Advantage is trickier to grasp than it might first appear (if you have not read it already):

He starts out complaining about people who are not that bright or mathematically inclined, but later moves on to discussing why people who are extremely bright and mathematically inclined will have good reason to be skeptical of the model. He explains that "if one tries to explain the basic model to a non-economist, it soon becomes clear that it really isn't that simple after all" and that "try to explain the model to an adult, especially one who already has opinions about the subject, and you continually find yourself obliged to backtrack, realizing that yet another proposition you thought was obvious actually isn't".

Two of the key (sub) assumptions that Krugman argues are "justified by the whole fabric of economic understanding but are not at all obvious to non-economists" are:

- International trade is a long-run issue, and that in the long run the economy has a natural self-correcting tendency to return to full employment.
- Countries have central banks, which try to stabilize employment around the NAIRU; so that it makes sense to think of the Federal Reserve and its counterparts acting in the background to hold employment constant.

I can post another comment later defending these assumptions if it would be worthwhile.

Finally, in answer to your earlier comment - I must disagree with your assertions that Comparative Advantage is "fundamentally an equilibrium theory about free trade between countries with reasonably free markets, and assumes that labor is pretty fungible between the creation of the different types of products at issue". Neither free markets nor fungibility of labor are presupposed by the model.

Stuart Staniford said...

Burk - from the Krugman paper you cited: "The basic Ricardian model envisages a single factor, labor, which can move freely between industries."

Burk said...

Hi, Stuart-

That was not my cite, but I agree with Krugman's basic drift here. Comparative advantage is a solid theory, even when some of its premises are not fully realistic, or only play out over longer periods than desirable.

Labor is transferrable across industries, with a great deal of pain involved, admittedly. My basic point would be that labor is far more transferrable when the labor market is favorable- i.e., when the state takes its responsibility (and capability) to soak up unused labor seriously.

Gary said...

I say Errol should get back to school and get the confidence to become an entrepreneur. On teh chart, Professionals are still doing fairly well. A good machinist is no dummy - training and retraining is key to keeping up productivity. He should do what any motivated person should when they can't get a job and go to community college. Our comany has hired a number of "Errols" that were lyed off when lumber mills closed and went back to school to learn electronics. Instilling confidence and skill in individuals can go a long way to solve these problems.

Stuart Staniford said...

Sorry Burk - I meant James, but was in haste. James had asserted that the Ricardian comparative advantage model did not assume labor fungibility, but also pointed me to the Krugman reference, which clearly does assert it to involve labor fungibility.

James' points and references seem worth taking up at greater length, and I will do so in a future post.

James said...

First let me be upfront and confess that I am at the edge of my understanding of this subject.

That said, I believe that when Krugman says "the basic Ricardian model" he is referring to one simplified form of the model that is most often used, but not to every manifestation of the model. That is to say that I believe there are more sophisticated forms of the model which do not presuppose the fungability of labour.

I believe that the basic insight of the model is that a country can benefit as a whole if it trades with another country, even if that other country can manufacture everything more cheaply than the first country.

I don't deny that there will be some winners and losers in the country that enters into such a relationship - but I believe it is the position of mainstream economists is that problem is better solved through tax policy or the like - i.e., the nature of comparative advantage will give the country a bigger pie and the country can use other means to fairly apportion the slices of that pie.

Furthermore my understanding of the body of theory is that those workers who "lose" as a result of trade with the low cost country, do not lose by means of unemployment but by means of lower wages. Perhpas the key element of difference between Stuart and I does not have so much to do with whether the model of Comparative Advantage is valid, but whether its assumptions about constant employment are valid.

Anonymous said...

John Michael Greer has an interesting entry in his blog (Here) that dovetails with the discussion of Comparative Advantage.

Also, for what it's worth, Comparative Advantage (as given by Ricardo) assumes that there is no free flow of capital, a situation that I think you can persuasively argue does not really exist in the globalized market as it currently exists.