The Stone City

Words Made to Last

Friday, October 21, 2005

The Great Motivator

A comment thread at Crooked Timber, following a post on whether resistance to same-sex marriage is motivated by an attempt to recreate the past, took a diversion into economics with one comment:

I would take all these attempts to restore the Golden Age Of The Family a lot more seriously if they were combined with attempts to restore its economic base; full employment and jobs for life.
This is, of course, a dishonest complaint: work miracles first, it says, and then I'll grant you a fair hearing. But the desire for "full employment and jobs for life" is nonetheless valid, and deserves an explanation of why it can't be done.

Megan McArdle gives a useful introduction to the concept of structural unemployment:

Skill implies specificity. Some skills are general, like reading, but many more are very specific; knowing how to run a metal lathe doesn't teach you very much about perming hair or setting a broken bone.

What that means is that when the industrial composition of our economy changes, because machines can do some jobs better than people (word processors instead of secretaries), because other countries can do some things better than we can (Chinese-manufactured electronics), or simply because some markets got overcrowded (telecoms and web retailers), it takes a lot longer for employment to adjust than it used to, because workers' skills are very specific to their old industries or jobs.

And, in my reply to the original comment, I used another example:

The Miners’ Strikes in Britain in the 1970’s provide an instructive example. With the demand for coal declining, and the cost of extraction from older pits increasing, the Coal Board attempted to close some of the most unprofitable pits. But this would necessarily have resulted in a decrease in the number of miners employed, leading to two rounds of strikes (the first won by the miners, the second by the rest of society). If you can never change, you will never grow.
[More on the Miners' Strikes, here.] It should be clear that the postwar period, when industries established during the war were redirected to civilian use and grew with recovering demand, could sustain very low levels of structural unemployment; indeed, the idea of structural employment itself came under attack during this period, as people generalized from their current circumstances. [Here is an example from 1965.]

The reported level of structural employment is a measure of the insecurity of jobs. But it is also a measure of confidence, in the sense that if unemployment were a more awful fate, workers would be forced to take more active measures (such as holding multiple jobs, or retraining while still employed) to avoid it.

To remain productive throughout a working lifetime, most workers must change and learn new skills. This is unpleasant and humbling, and they can certainly be forgiven for disliking the process. But if our economy -- and with it our standard of life, and the scope of out abilities to learn, explore and protect -- is to grow, this process cannot be avoided. The jobs the coal miners defended so tenaciously were, by today's standards, terrible jobs to have. Their pay was above the median for the time, but very low compared to today's.

Can companies, or governments, or unions decide when retraining is due? Not realistically. There is a Hayekian knowledge problem, worse even than the problem of pricing because it involves the employee's own preferences and abilities. Forced (or subsidized to the point of coercion) retraining will waste time and effort and reduce each worker's freedom to choose the best path for himself, as well as compounding the humiliation of being moved from a more prestigious but obsolescent job to a lower rung on a newer ladder.

The benefits of retraining are all deferred into the uncertain future, while its costs are real and immediate. How can we get workers to swallow this bitter pill? More generally, how can we make workers give thought to their own futures, e.g., prefer growing to dying industries, thus applying their own knowledge to solve their own resource allocation problem? There is only one way: something bad must happen to them if they don't. In this case, that something is the possibility of a layoff from a dead-end job in a dying sector, followed by a stint of humiliating poverty, hopefully ending in a new job in a viable sector.

If nothing bad happens to those who do not plan ahead -- if full lifetime employment is universally guaranteed -- people will have no need to plan, and will not do so effectively. Fear is the great motivator, the only one powerful enough to extract the needed tribute of attention and effort.

This is a regrettable truth, and I have tried to phrase it in a way that shows its ugliness. We may imagine a world where fear can be replaced with some more humane combination of altruism, curiosity, ambition or steely self-discipline, but that is not the world in which we live. The miners' strikes again illustrate this principle; the miners struck for the "right" to mine coal which their employers did not even want (as its extraction cost more than the market price). They did so not because they were evil, but because they were merely human.

Too much fear condemns many to lives of hopeless overwork; too little dooms the whole society to stagnation and eventual poverty. The balance is a policy choice; for example, American policy has sought a different balance from Europe's.

Those working at a job of little value to society, if they are being paid more than the value of what they produce, are impoverishing that society as surely as dole riders or (in the short term) students. If such jobs are widespread, all of society suffers until finally all are too poor to overpay the underemployed. They are like cancers of the economy, whose voracious feeding starves the vital functions.

"Greed and fear" are widely quoted as the main drivers of investment decisions. In fact, they are even more: they are the fuel for the great engines of the economy.