Paul Krugman really doesn’t like the possibility that there is a structural shift in employment, because it weakens the argument for the massive Keynesian spending spree he’d like to see the government initiate. To that end, he published this piece on his blog February 13th.
Before we go on, some readers may wonder what a structural shift is and why it weakens the argument for Keynesian spending. A structural shift is when employment permanently shifts (well, as much as anything is permanent in economics) from one economic sector to another, say from construction to healthcare.
The reason that a structural shift weakens the Keynesian’s argument is that moving workers from one sector to another takes time. They may need retrained. They may need to move to another location. Think of our construction worker moving to health care. He or she probably doesn’t have the skills to be immediately employable in health care. Some sort of education or training has to happen first.
This poses a problem for Keynesian expansionists, because their argument is that the only problem is a drop in aggregate demand (consumer spending) brought about by….well, animal spirits. Since there is no real problem, government can increase spending (it doesn’t matter what you spend the money on. You could dig holes and fill them back up), fool the consumer into thinking she is better off, and voilá, aggregate demand goes up with the government spending.
Problem solved. It’s a beautiful thing.
However, spending can’t solve the problem of unemployment brought about by a structural shift. It takes time to retrain the affected workers. There are things government can do to speed the process, but spending willy-nilly is not one of them.
Hope that clears things up. Let’s get back to Krugman’s piece.
He claims that unemployment in every sector has just about doubled since the recession began, and that this is proof that no structural shift is going on. He has a nice chart to show the increase in unemployment by sector.
There is a problem though. The Bureau of Labor Statistics—the same source that Krugman claims originated his data—reports that construction jobs fell by 2 million, or 26.7 percent, from December 2007 through December 2010, while education and healthcare jobs grew by1.2 million, or 6.5 percent.
This appears to contradict Krugman’s data, but it is possible that both sets of data are true. If they are both true, then Krugman is being no less dishonest than if he created his numbers out of thin air.
If Krugman is telling the truth when he presents a graph showing that unemployment approximately doubled from 2007 to 2010 in both the construction and the education and healthcare sector, then is must be that large numbers of unemployed construction workers migrated to being unemployed education and healthcare workers.
There is no other possible explanation.
This, of course, completely contradicts Krugman’s argument. If his data are true, he’s using data that confirms a structural shift to argue that there is no structural shift, by neglecting to disclose the jobs data I’ve disclosed above.
Krugman is not a dumb guy. He has a well-deserved Nobel Prize for his work on international economics. He has a career of looking at data, in depth and with insight. His failure to provide the entire story has to be considered something besides an oversight. We have to conclude that he’s purposely being deceitful.
I don’t know why a guy with all of Krugman’s gifts and accomplishments would use data deceitfully. It is a shame, though, that an economist at the top of his profession and with the New York Times bullhorn uses that bullhorn to confuse instead of to enlighten.
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Petulant Politics
Mr. Watkins,
I think you DO NOT know what you are talking about. I feel you wanted to make the negative statement about Keynesian economics and chose to use Krugman's post to do this. Your points don't make sense from an economic point of view or a logical one.
Please allow me to explain.
See, you say that Krugman must be wrong since his RATIO states that unemployment has more than doubled in construction and you found that employment has increased by 1.2 millions of jobs. If you think about it, this is easily possible. You are thinking of some strange zero sum maze in your mind.
I will paste in my calculations that prove you wrong that I posted on your blog:
"Getting to the point. Let me clarify my terms. If you go to the BLS site you can see exactly how he created a ratio of 2010 to 2007 unemployment. You are correct. Nobody said anything about rates. In construction, unemployment went from 757 to 1801, between 2007 and 2010. This indeed corresponds to the ratio of 2.3 in Krugman’s post.
Now, you go on to use the employment data to show he is being somehow dishonest. Well, my friend, why did you not look at ratios with employment data like the Krugman? You just use numbers and percentages to make your point. If you look at the employment ratios, you can see that the average ratio is about .94 with a standard deviation of .1. Guess what? The “percentage error” for both the employed and unemployed ratio averages are both around 10%. This implies that the ratios for both are not experiencing high variability. I see this as lending further credibility to his argument.
It is true in the statistics that the number of employed increased in health and education by 1.2 millions and a ratio between 2007 and 2010 of 1.07. I will give you that. It is also true that the number of unemployed went up by 668 thousands and there is the unemployment ratio of 2.16 between 2007 and 2010. Both are correct.
Your erroneous conclusion is that you cannot have increases in unemployment and increases in employment in at the same time. You can. The workforce in education and healthcare (counting both employed and unemployed) increased by 1.9 millions. How to say it. The pie is increased. I think you wanted to tell a nice story against Keynesian economics. I am not sure this was the way to do it.
Do have a good day."
I think you can follow this. Your tactics are not above the board and I think you add your politics to your bent.
First, you confuse the
First, you confuse the measurement of absolute changes in employment across sectors with measuring the amplitude of the cycle of log employment. In terms of deviation from trend all of these sectors have suffered equally. So yes, employment has grown in absolute terms in the education and healthcare sectors, but that employment growth is well below the trend we saw in those sectors prior to the recession.
Secondly, what makes you think that employment growth in healthcare and education are autonomous structural signals from the private sector? Education and healthcare are two of the sectors most heavily dependent on government spending! Just ask yourself -- who hires teachers and who hires carpenters? The fact that these sectors continue to grow in absolute terms is actually crystal-clear proof of the positive effect of the automatic stabilizers and additional discretionary stimulus from the Federal Government.
The idea that we need to wait it out and "adjust" while our thousands of unemployed bricklayers go to med school and become doctors is insane. Look around the country and you see infrastructure in desperate need of repair. People out of work in the home construction industry can easily adapt their skills to other similar areas with real needs. And the inflationary effect of this would be minimal. If there is any sector with small capacity to absorb demand it would be healthcare. Doctors and MRI machines don't pop up overnight. But our army of the unemployed are still using healthcare services -- the only difference is that without a job, they access it through Medicaid whereas before it was through private insurance. The demand load on the healthcare sector will not change, and in fact might lessen, since people who work are less likely to get sick than people who are unemployed.
As you note, none of this means the Federal government should spend "willy-nilly". It should target under-served areas and focus on job creation in whatever skill areas are suffering. But it is really fantastical to think that the most adaptive economy on the planet changed to such a degree over the course of just one year that we now have to "wait it out" while 2+ million construction workers go back to school to teach high-school science.