Sunday, February 26, 2012

Potential Output

Some Links about Unemployment as Something Other than a Labor Surplus.

I brought up the idea very briefly in class that labor markets can be in equlibrium and we can still have what you would still call "too much" unemployment.  Here are a couple of people discussing the idea in more detail.

Dan Keuhn has a series of posts:
A quick argument with someone who thinks wages are too high.

The blog Economic Thought (by way of Keuhn) uses graphs to illustrate the idea.

Finally, there is this:

I'm posting this exchange somewhat reluactantly.  I like that its a kind of "debate".  However, I think The Slack Wire side of it comes off as kind of hysterical.  There is too much good high level stuff in the post though, so just try to ignore the anger.

Sunday, February 19, 2012

Class is Canceled Feb 19th.


Both Econ 206 and Econ 215 are canceled.  This is the third stomach flu in 6 months to attack my family.  I will not be at Queens College tomorrow, Sunday Feburary 19th.

Saturday, February 11, 2012

On Structural vs Cyclical Unemployment.

I am extremely reluctant to link to this news story from PBS Newshour.  I do not like to post material for class that I'm not thrilled with since I do not like to write lengthy explanations of the material.  However, I am trying to do two things in this semester.  First, I want to use more video/news in class to illustrate examples.  This was a request made last semester in the course evaluations and I think it makes a certain amount of sense.  Second, I am trying to make more current event material available in general because 1. It justifies my lectures and 2.  I think it's useful in helping you learn the material.  Structural vs cyclical unemployment isn't the kind of story to show up very often in an accessible format, so I am stuck with what I have been given.

Anyway, this video comes by way of Mike Konzcal's excellent blog: Rortybomb:

Okay, so, I feel like a major problem with this piece is that it clearly has made up it's mind that the unemployment problem is structural.  I can see why.  The structural story lends itself to TV journalism nicely.  They can go to a couple of locations, interview a couple of managers or owners complaining about the lack of  qualified workers and call it a day.  But it's important to bear in mind that they are presenting mostly anecdotal evidence.  Konzcal, who appears in the story, doesn't get a lot of screen time but he does pose an important counter to the structural story.  As he points out, for the structural story to make sense, you would expect to see unfilled job openings and wages increase.  Neither of which shows up in the aggregate data.

As i said in class I am agnostic on the structural vs cyclical unemployment debate, though I find a lot more to disagree with in the structural position than with arguments for cyclical unemployment.  For instance, the structural story is often told about construction and manufacturing.  However, I feel that if you want to talk about low skilled labor you also have to talk about retail and food service and other sectors that have been on the rise and are also sectors that employ a lot of low skilled workers.  So, lets look at a broader measure of unskilled workers.  Here is a chart that shows the cumulative change from 1980-2012 in employment across four low skill sectors: leisure and hospitality, retail, manufacturing and construction.

I should point out that this is a very rough estimate of the impact of employment changes for "low skill" workers.  Not everyone who works in these industries can be called low skilled.  Anyway, another way to make the point the graph is making is to point out that since 1980 hospitality and retail have added around 11.2  million jobs while manufacturing and construction have lost only 6.4 million jobs.  That total, since its from last month (Jan 2012) is actually kind of distorted since all four sectors have been shedding jobs since the recession.  Before the recession (roughly), from Jan 1980 to Jan 2008 10 million "low skill" jobs had been added.  For the structural story to stick then, you have to to assume we have "reverted to trend" and that around 5 million jobs were not "real" jobs.

Anyway, the point is, in order to tell the story of structural unemployment for low skill workers you have to be able to incorporate the increase in employment in other low skill sectors that are growing.  I have not seen a lot of arguments for structural unemployment that have actually looked at the long run trend in different jobs of different skill level.  So, lets compare job growth in these "low skill" sectors with job growth in "high skill sectors".  Our proxy for high skill will be professional and business services and education and health services.

Here we see much more growth in "high skill" jobs than in "low skill" jobs.  Another way to put this is that  total nonfarm employment has grown by 135% since 1980.  In the high skill industries in the above graph employment grew 85% and in the low skill industries employment only grew by 12% (in 2008 it had grown by 23%).  I want to point out that nothing about that graph suggests that the collapse in jobs created for unskilled workers is structural.  It could very easily be due to the fact that housing is going through a cyclical downturn while the rest of the low skilled service industry is experiencing the same stagnation you see even in the high skilled industries.  This is easily attributable to normal business cycle dynamics.

However, if you wanted to read that graph as a story of structural unemployment then you can tell the story of how the growth of "skilled" employment has slowed down since the salad days of the 1990s but it continues to grow and has recovered more or less to its trend.  Unskilled  labor, however, seems to actually have been on a slight downward trend since its less spectacular 1990s.  Here we can tell a story of the housing boom (and I guess even the tech boom) "artificially" propping up unskilled employment which has now reverted to its pre-1990 level where it "should" be.  Of course, then you have to argue convincingly the definitions of the words in scare quotes.

Anyway, the cyclical vs structural debate tends to run along liberal vs conservative lines.  Conservatives tend to want to frame this as a structural employment problem so they have a reason to throw up their hands and say "nothing can be done" from a public policy perspective.  Roughly speaking, that seems to be the takeaway of the news report above.  However, if the unemployment issue is all about skill levels the ONLY response is a public policy response since the vast majority of the educational system is publicly run.  On top of which, the expansion of education would provide more jobs now for all skill levels.  We would need to hire low skilled workers to build the buildings to house the high skilled workers who should be training workers for the skills they need for a 21st century economy.

Links about the Mankiw Walkout

I've brought the Mankiw walkout a number of times in class.  Here, for those of you that are interested, are some links explaining what went on and why it's been on my mind so much.  It is important to point out as Steve Marglin does (below) that this isn't about Mankiw's class per se, but about the way econ gets taught.  Mankiw is just a good poster child for the problems with traditional teaching of economics becuase his textbook(s) are "industry standard".

Here is a quick NPR news story about the walkout.

Here is the Harvard College newspaper article mentioned in the NPR story.

This is one of the better soul searching articles by the co-author of another best selling econ textbook, Robin Wells.  I use her textbook in my Econ101 class.

Here is Mankiws op-ed reply to the walk out.  I don't think it's that great of a reply and its a little self serving.

Here is a good summary of/reply to the Mankiw op-ed.

Finally, here is a video of a half hour lecture by Steve Marglin.  Some of the walkout was driven by the fact that students were not given the option to take Marglin's more holistic course.

Saturday, February 4, 2012

Some Links About Apple.

Here are a couple of links about Apple and China.  

Here is the article I brought up in class about where the value added to the iPod comes from along the globalized production chain: An iPod Has Global Value. Ask the (Many) Countries That Make It.  The article breaks down what parts of the iPod get made where.  While I was trying to find the Times article I came across this article by Yuquig Xing.  The article talks a lot about the same things, but its a little more technical.  Anyway,  there is this really interesting part:
The gross profit margin of the iPhone was 62% when the phone was launched in 2007, then rose to 64% in 2009 due to reductions in manufacturing costs (table 3). If the market were perfectly competitive, the expected profit margin would be much lower and close to its marginal cost. The surging sales and high profit margin suggest that the intensity of competition is fairly low and Apple maintains a relative monopoly position. Therefore, it is not the competition but profit maximisation that drives the iPhone’ s assembly to China.
An interesting hypothetical scenario is one where Apple had all iPhones assembled in the US. Assuming that the wage of American workers is ten times as high as those of their Chinese counterparts, the total assembly cost would rise to $68 and total manufacturing cost would be pushed to approximately $240. Selling iPhones assembled by American workers at $500 per unit would still leave a 50% profit margin for Apple. In this hypothetical scenario, the iPhone could contribute to US exports and reduce the US trade deficit, not only with China, but also with the rest of world. More importantly, Apple would create jobs for US low-skilled workers.
Xing then does that thing that all economists do when confronted with evidence that the "market" is not working which is to reflexively say that the government should not get involved but that Apple should take it upon itself to do better.  Anyway, read the whole article, there is also a good section on how pointless it is to try to get China to increase the value of its currency.

Anyway, I remain agnostic on whether the iPhone should be made in the US or in China but the articledoes point to the fundamental critique pushed by Mike Daisy (more on him below) that there is essentially "no reason" (besides supernormal profits) why workers in China could not be paid more (ten times more!) or at the very least there could not be some fraction of that spent on making sure Foxconn plants don't occasionally explode.

There is another, more subtle issue here.  Do Apple's supernormal profits come from not only maintaining it's monopoly position on the consumer end but also by putting the squeeze on Foxconn (as an important customer) to produce at extremely low costs.  Here the fact that this is not just an Apple problem but that Foxconn makes electronics for a wide variety of electronics manufactures comes into play.  Even if Apple were to insist on slightly lower profit margins (slightly higher prices)  to raise living standards for workers one would expect a fair amount of push back from electronic manufacturers producing products in more competitive markets.  These firms simply cannot afford to have costs of production increased (in theory, at least).  In this way making this issue all about Apple is not useful.

Okay, last but definitely not least, here is a link to the Mike Daisey 'This American Life" episode (also, appropriately available on  iTunes) that got everyone talking about this issue in the first place.  I'm putting this last because it will be more relevant later in the semester when we turn to discussing development and long term growth.  As I said in class, we will be looking at these issues from 35,000 feet.  This podcast, better than anything else I can think of, is an important reminder that economies are made up of people.  It also pushes people to not accept the process of development as necessarily brutal.  Daisey's insistence that the invisible hand does not absolve us of our responsibilities as people is an important message that goes beyond just thinking about the crap we buy.