"Economic Growth" doesn't mean "job growth&qu

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pandabear
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10 May 2011, 10:22 am

http://news.yahoo.com/s/yblog_thelookou ... job-growth

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Does growth lead to jobs? Economists have long thought so. But thanks to tectonic shifts in the nature of the U.S. financial landscape, the direct relationship may be weakening. And that could have big implications for how we define a healthy economy.

That growth and job creation go hand in hand is a basic assumption of our economic conversation—so uncontroversial that it needs little explaining.

Here's how deeply ingrained the link is: In February, Mark Zandi, the respected chief economist for Moody's Analytics, concluded in a study that the Republican proposal to cut $60 billion in spending would cost the economy half a percentage point of growth this year, or 400,000 jobs. The GOP disputed the finding that growth would suffer. But no one questioned the connection between growth and jobs, which was based on a standard formula similar to that frequently applied by economists of all stripes.

But consider this: Between the fourth quarter of 2007 and the second quarter of last year, the U.S. economy lost almost 8 million jobs, an enormous figure by historic standards. Yet during that same period, economic activity declined by only 1.3 percent, according to the National Bureau of Economic Research—a far less dramatic dropoff than the huge number of jobs lost would predict using conventional models. By the same token, the latter half of last year saw solid economic growth, including record corporate profits, but weak job creation, with unemployment stuck around 9 percent. That was the "jobless recovery" we heard so much about.

In other words, the established link between economic growth and job creation hasn't held up lately, during either up or down periods. And in both cases, it's the jobs side that has lagged.

A recent study released by the Political Economy Research Institute at the University of Massachusetts Amherst suggests the experience of the last few years hasn't been a fluke. Economists Deepankar Basu of Amherst and Duncan K. Foley of The New School for Social Research write that "the close relationship between [growth and jobs] that characterized the U.S. economy over the two decades after World War II has been weakening since the mid-1980s." The result has been "jobless recoveries," and "output-less crashes"—employment lagging behind growth during both good times and bad.

Why might this be happening? Basu and Foley point to two major factors.

One is pretty well recognized: globalization and the off-shoring that's come with it. Shipping U.S. jobs abroad naturally lets companies increase their output while creating fewer domestic jobs.

The other has received less attention: the increasing share of the economy made up of the "FIRE" industries, finance, insurance and real estate. Between 1995 and 2009, those sectors accounted for more than one quarter of U.S. GDP growth. But compared to sectors like manufacturing, which has declined steadily over the same period, the FIRE industries don't generate many jobs in relation to their contribution to growth.

Part of the problem, Basu explained in an interview with The Lookout, is that financial firms' total output—and thus their contribution to GDP growth—may be exaggerated. Most financial services aren't explicitly priced, so the firm's output is calculated by looking at the total compensation paid to each employee. But as we've learned in recent years, employee compensation on Wall Street often bears little relation to the value of the services involved. So, Basu and others have argued, the output of the finance sector is inflated. As finance and the other FIRE sectors make up an increasing share of the economy, that artificial difference between growth and employment becomes heightened.

Not everyone is willing to go as far as Basu and Foley. In an interview with The Lookout, Gus Faucher, the director of macroeconomics at Moody's Analytics acknowledged that it takes longer these days for economic growth to translate into job gains, in part because employers have become better at squeezing their existing workforce to boost productivity. That, he said, explains the "jobless recovery" we saw at least until this year.

But eventually, he argued, one will follow the other. "Once you get GDP growth, you will get job growth" sooner or later, he said. That may already be happening: Each of the last three months has seen more than 200,000 jobs created, even as growth has slowed.

Still, the lag time may be significant. Even if the economy continues to add jobs at the pace we've seen so far this year, it'll take till late 2016 to get back to the pre-recession unemployment rate.

If the growth-jobs link is indeed weakening, it may call for a wholesale shift in approach from policymakers. For one thing, of course, it's another reason to look skeptically at free trade policies that have encouraged off-shoring, as Basu and Foley argue.

But other common strategies—for instance, some of the tax breaks for businesses that President Obama and Congressional Republicans agreed to in December—might also merit a rethinking. If there's no longer as strong a connection between jobs and GDP, it's more likely that the growth those tax cuts produce will come from investments in machinery, or from hiring overseas workers, rather than from domestic job production. And if that's the case, then more direct job creation strategies might be more effective at bring down unemployment.

After all, it's not U.S. economic growth itself that most people are looking for—it's jobs. If one no longer leads as surely as it did to the other, then maybe it's time to re-evaluate what the goal is.



Discuss amongst yourselves.



techstepgenr8tion
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10 May 2011, 11:34 am

Talk to myself on it?

Lets see.......I agree on the decoupling under the outsourcing circumstance, I agree that more hypothetical paper pushing markets can be overinflated.

My suggestion though, instead of just taxing the rich at...say... 90% at a certain point where its deemed that they have more than they'll ever need to have exactly the standard of living - for life - that they've earned, we could instead say that we'll tax 90% on anything that isn't turned directly back into job creation. Credits would likely be by the head, by the experience and pay level (proportionally better to meaningful jobs with strong living wages).

I know, it might sound unconservative of me to say that, just that if the facts would indicate that the rich are aimlessly collecting more than they can do anything with and if gaps are widening, jobs are decreasing, rather than take it from them and give handouts - which most often rots the brains, ethics, and general character and integrity of those who receive such check - just create jobs so that, if we all agree that people should be producing members of society, it will be there. Obviously it would never be that simple: trying to figure out how colleges and statistics on degrees obtained would directly effect how the entrepeneurs are asked to route their industry would never work and you can't tell someone with very poor working memory to become an engineer because the field they'd be strong in has little or no demand. Its always a mess but I think something in this direction *could* grab the best of each economic model and even, if its a rules based system, its something you may not need to balloon bureaucracy for.


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JakobVirgil
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10 May 2011, 11:45 am

I have often thought the business of government stops being business
when the corporations stop being beneficial to the people.


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ruveyn
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10 May 2011, 2:29 pm

JakobVirgil wrote:
I have often thought the business of government stops being business
when the corporations stop being beneficial to the people.


Corporations are chartered as limited liability business firms who purpose is to produce goods and or services which will yield a profit for the stock-holders. There purpose is not to be beneficial to the people, although if a corporation produces goods and services that are needed by the public, the public will benefit. But that is a side effect, not a purpose.

ruveyn



JakobVirgil
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10 May 2011, 3:43 pm

ruveyn wrote:
JakobVirgil wrote:
I have often thought the business of government stops being business
when the corporations stop being beneficial to the people.


Corporations are chartered as limited liability business firms who purpose is to produce goods and or services which will yield a profit for the stock-holders. There purpose is not to be beneficial to the people, although if a corporation produces goods and services that are needed by the public, the public will benefit. But that is a side effect, not a purpose.

ruveyn


so government should have no interest in helping corporations?


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ruveyn
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10 May 2011, 9:31 pm

JakobVirgil wrote:
ruveyn wrote:
JakobVirgil wrote:
I have often thought the business of government stops being business
when the corporations stop being beneficial to the people.


Corporations are chartered as limited liability business firms who purpose is to produce goods and or services which will yield a profit for the stock-holders. There purpose is not to be beneficial to the people, although if a corporation produces goods and services that are needed by the public, the public will benefit. But that is a side effect, not a purpose.

ruveyn


so government should have no interest in helping corporations?


Absolutely. No subsidies for businesses. If they cannot succeed then they should fail and die.

ruveyn



AceOfSpades
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10 May 2011, 10:13 pm

ruveyn wrote:
JakobVirgil wrote:
ruveyn wrote:
JakobVirgil wrote:
I have often thought the business of government stops being business
when the corporations stop being beneficial to the people.


Corporations are chartered as limited liability business firms who purpose is to produce goods and or services which will yield a profit for the stock-holders. There purpose is not to be beneficial to the people, although if a corporation produces goods and services that are needed by the public, the public will benefit. But that is a side effect, not a purpose.

ruveyn


so government should have no interest in helping corporations?


Absolutely. No subsidies for businesses. If they cannot succeed then they should fail and die.

ruveyn
That's right. Without corporate welfare, tax breaks, and progressive taxing they get neither perks or handicaps. They will succeed or fail through no help from the government.



Awesomelyglorious
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10 May 2011, 10:23 pm

I am unsure that massive taxation on certain projects, for the aims of creating jobs, will do much other than destroy wealth. I mean, if you even wanted to create jobs, you'd probably create some form of employment subsidy to reduce the price of labor, rather than any more heavy-handed project to determine what industries create jobs more than others.

Even then, the real issue is probably a lot harder to fix than that, as the decoupling presented is talking about a large economic change, and I have personal doubts that this is just a matter of sectors and international trade, as one of the biggest issues is the substitution of capital for labor, as computers can do jobs that people used to do, or that used to require more people, and/or require skills that involve some level of specialized knowledge. I mean, from what I understand, international trade is publicly presented as the big issue, but a number of studies actually tend to say that tech differences are really a bigger issue.



ruveyn
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11 May 2011, 8:28 am

AceOfSpades wrote:
]That's right. Without corporate welfare, tax breaks, and progressive taxing they get neither perks or handicaps. They will succeed or fail through no help from the government.


Corporations are the major "welfare queens" of the system right now.

ruveyn



pandabear
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11 May 2011, 10:54 am

Awesomelyglorious wrote:
I have personal doubts that this is just a matter of sectors and international trade, as one of the biggest issues is the substitution of capital for labor, as computers can do jobs that people used to do, or that used to require more people, and/or require skills that involve some level of specialized knowledge. I mean, from what I understand, international trade is publicly presented as the big issue, but a number of studies actually tend to say that tech differences are really a bigger issue.


It is just easier to blame Chinese for stealing our jobs than technology. I'm old enough to remember the Japan-bashing of the 1970s, when they started to give our automobile industry some real competition. Now, there are more Japanese than American cars on the road, even in the upper Mid-West. And, by the way, Consumer Reports will tell you that the Japanese produce by far the best automobiles on the market.

No politician wants to be perceived as coming out in favour of reducing productivity (by, for example, getting rid of computers and bringing back typewriters) just so that more people can have jobs.

With technology and international trade, there really isn't a need to have everyone working in order to produce all that we need.

Still, you see governments wanting to raise retirement ages, and people being pressured to work longer and harder.

If our economy really requires a smaller workforce, then it would be better to encourage more leisure, by reducing the retirement age, and by encouraging one spouse to stay at home with the kiddies.



ruveyn
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11 May 2011, 10:59 am

pandabear wrote:

It is just easier to blame Chinese for stealing our jobs than technology.


Jobs are not property so they can not be stolen.

ruveyn



pandabear
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11 May 2011, 11:14 am

ruveyn wrote:
pandabear wrote:

It is just easier to blame Chinese for stealing our jobs than technology.


Jobs are not property so they can not be stolen.

ruveyn


True, but many people may react either angrily or anxiously when they perceive their livelihoods as being threatened.