November 7, 2003
The Great Job Machine
Apparently unconvinced by last week's eye-popping growth figures, economic pessimists remain fixated on the labor market. Today's release of the Labor Department's latest employment figures, we are told, will give a true picture of the pace of economic recovery.
But the monthly statistics, while relevant within the larger context of all economic indicators, don't tell the whole story of what is happening with Americans' jobs. Focusing on net employment gains or losses misses the real show, the long-running drama that drives the economy forward.
While it may seem that little progress is being made on the jobs front, beneath the surface the economy is doing what it's done for decades: orchestrating a relentless and enormous recycling of jobs and workers.
Large-scale upheaval in jobs is part of the economy; the impetus for it comes from technology, changing trading patterns and shifting consumer demand. History tells us that the result will be even more jobs, greater productivity and higher incomes for American workers in general.
New Bureau of Labor Statistics data covering the past decade show that job losses seem as common as sport utility vehicles on the highways. Annual job loss ranged from a low of 27 million in 1993 to a high of 35.4 million in 2001. Even in 2000, when the unemployment rate hit its lowest point of the 1990's expansion, 33 million jobs were eliminated.
The flip side is that, according to the labor bureau's figures, annual job gains ranged from 29.6 million in 1993 to 35.6 million in 1999. Day in and day out, workers quit their jobs or get fired, then move on to new positions. Companies start up, fail, downsize, upsize and fill the vacancies of those who left. It is workers' migration to new and existing jobs that keeps the country from sinking into some Depression-like swamp.
Yes, this disruption can be very hard on some workers who lose their employment and have trouble adapting. But in the larger sense, the turmoil in the labor market is vital to economic progress. A good part of the turnover takes place in a handful of industries, like restaurants and retailing, but to greater or lesser extent the churning grinds on across the board, in bad times and good. Tallies of net jobs lost or gained capture only a fraction of the flux in the job market. As this plays out, most workers end up better off.
Societies grow richer when new products emerge that better meet consumers' needs, and when producers adopt new technologies that reduce costs by making workers more productive. In a dynamic, innovative economy, these forces unleash waves upon waves of change. Some industries and companies prosper while others wither. Some companies find themselves with too many workers while others struggle with too few. A free-enterprise system responds by moving resources — in this case workers — to where they're more valuable.
For example, e-mail, word processors, answering machines and other modern office technologies are cutting jobs for secretaries but increasing the ranks of programmers. The Internet opened jobs for hundreds of thousands of Webmasters, an occupation that didn't exist as recently as 1990. Digital cameras translate to fewer photo clerks.
A century ago, 40 of every 100 Americans worked on farms to feed a nation of 90 million. Today, after one of history's most brutal downsizings, it takes just two agricultural workers out of 100 workers to supply an abundance of food to a nation more than three times as large. Suppose we'd kept 40 percent of our labor on the farm. Absurd, yes, but if we had, we wouldn't have had enough workers to produce the new homes, computers, movies, medicines and the myriad other goods and services of our modern economy.
Likewise, the telecommunications industry employed 421,000 switchboard operators in 1970, when Americans made 9.8 billion long-distance calls. Thanks to advances in switching technology, telecommunications companies have reduced the number of operators to 78,000, but consumers ring up 98 billion calls. Let's face it: Americans are better off with more efficient long-distance service. To handle today's volume of calls with 1970's technology, telephone companies would need 4.2 million operators, or 3 percent of the labor force. Without the productivity gains, a long-distance call would probably cost 40 times what it now does.
Microeconomic failure is not macroeconomic failure. Quite the opposite, "failure" is the way the macro economy transfers resources to where they belong. It is the paradox of progress: a society can't reap the rewards of economic progress without accepting the constant change in work that comes with it. Efforts to soften the blows, by devising policies or laws to preserve jobs or protect industries, will lead to stagnation and decline, the biggest threat to American workers.
Job losses for farm hands and telephone operators came so long ago that they don't sting anymore. Today we see the benefits clearly and forget the costs. That's harder to do in the short term — it rightly distresses us to see newspaper photographs of laid-off industrial workers. But these are the economic forces that raise living standards.
Since 1980, Americans have filed 106 million initial claims for unemployment benefits, each representing a lost job. Facing unemployment and rebuilding a life can be hard on families, but the United States today is better off for allowing it to happen. Even with the net decline in jobs over the past three years, during the past decade total United States employment has risen to 130 million from 91 million since 1980, a net gain of nearly 40 million jobs. Productivity, measured by output per worker, increased a staggering 56.2 percent.
Some people tend to forget this. The almost daily drumbeat of reports and "expert commentary" about a so-called jobless recovery prompts the question, "What's gone wrong with the labor market?"
The surprising answer: nothing.
Job growth will come, as it always has in the past. The economy, meanwhile, is as busy as ever in shifting labor from one use to another to make the country richer and more productive.
W. Michael Cox, chief economist of the Federal Reserve Bank of Dallas, and Richard Alm are co-authors of "Myths of Rich and Poor."