The Cycs Need Better Arguments

A blog about business, finance, and economics.
Sept. 14 2010 2:10 PM

The Cycs Need Better Arguments

I like Dean Baker's writing: He's feisty, he pulls no punches, and he's relentless. But in a Guardian essay this week arguing that there's no such thing as structural unemployment, he's also confused and wrong.  I understand, and agree with to an extent, why he wants to fight this battle: The most prominent people making the structural unemployment argument are the ones who advocate doing nothing about it. But if his camp—the Cycs—is going to win this debate against the Strucs, they're going to have to come up with better and more accurate arguments.

For example, Baker says:

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If there are sectors of the economy where there is a substantial unmet demand for labor, then we should expect to see wages rising rapidly in these sectors. This is a simple supply and demand story. If demand exceeds supply, then we should expect to see wages rising as firms compete for workers. There is no major sector in which wages are keeping pace with the overall rate of productivity growth. Wages have been rising pretty much at the rate of inflation in most sectors for the last year and a half.

Ummm ... no. In fact, average hourly pay—adjusted for inflation—is rising, and is significantly higher than when the recession began. David Leonhardt has a handy chart and discussion here . I won't argue that this proves Baker's interpretation wrong, but if he's going to cite numbers, he should cite them accurately.  

Similarly, Baker says:

If employers can't find enough skilled workers, then we would expect them to have their existing workforce put in more hours. So, there should be sectors of the economy where average weekly hours are increasing. The evidence refuses to cooperate here also. The greatest increase in average hours over the last year has been in mining and logging and manufacturing, industries that are not typically thought to be centers of new economy skills.

Note the sudden appearance of a straw man. Who said anything about new economy skills? Baker seems to think that the only kind of economic mismatch that matters is low-skilled workers who can't get high-tech jobs. Sorry, but that's a remarkably crude, one-dimensional reading of mismatch theory . In fact, two of the three sectors Baker cites are excellent examples of mismatch. Most American workers do not live within commuting distance of either mines or timber forests, and so whatever employment opportunities might exist there are simply off the table.

But look, can't we all just get along? Strucs vs. Cycs is ultimately a false dichotomy: Our current unemployment problem has both structural and cyclical components. The sooner everyone acknowledges this, the sooner we can apply fine minds like Dean Baker's to solving the problem.  

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