Two posts from Matthew Klein.
96 per cent of America’s net job growth since 1990 has come from sectors known to have low productivity (construction, retail, bars, restaurants, and other low-paying services were responsible for 46 percentage points of total growth) and sectors where low productivity is merely suspected in the absence of competition and proper measurement techniques (healthcare, education, government, and finance explain the remaining 50 percentage points)
since 1990. . .a whopping 88 per cent of the total rise in the price level boils down to four sectors of the US economy [health care, education, housing, and prescription drugs]:
Pointer from Tyler Cowen. There is much to chew on, and probably much to quibble about. What I want to suggest is that the relative price shifts involving the New Commanding Heights sectors of health care and education in relation to goods-producing sectors ought to be considered much more important than the comparatively trivial amounts by which the “aggregate price level” (a concept for which I have little use, but so be it) has wiggled around.
Over the past 25 years we have had major structural shifts in the economy. I claim that those structural shifts have played a larger role than monetary policy in the behavior of employment and “the aggregate price level.” But if you look at both the journalistic accounts and the academic literature, I am confident that you will find many more mentions of monetary policy than of structural change in interpreting economic events. If I had any influence, that would change.
Finance being low productivity is total nonsense.
Are you sure? Depends how you define productivity, for instance in terms of real output.
The article has that portion linked to a presentation that suggests that finance is not actually producing much net positive value for the overall economy.
Just because a field is full of highly compensated professionals doesn’t mean they are actually producing net positive outcomes. Hanson says this about medicine,for example, and one can make the argument for professors in many disciplines. And how about realtors?
Indeed, high incomes may just reflect successful rent-seeking or a survivorship bias in counting only the gains of those who won zero sum games.
Anyone who thinks this doesn’t understand what the actual product of financial services is.
Care to elaborate?
Isn’t monetary policy more of a cyclical issue while these structural changes are secular?
And what do these all have in common? They are all domestic markets. Just what is expected from exchange rates. Money has played a large role, but primarily that of others.
The question is “why these jobs”. The partial answer is that for anything that doesn’t have to be done locally, given relatively open global trade, people in developed countries demand wages higher than poorer foreigners of equal capability, and are thus not competitive.
Therefore, the labor force in these counties is increasingly reallocating to performing functions which, by law or by socially conducted demand or by their nature, must be performed physically close to some local counterparty.
Even if you automate these jobs, or broadcast over the internet, or relax the regulations, then that just means another round of reequilibration, leaving only jobs of a character which makes performance by (relatively) expensive close humans necessary.
But if a job must be done by humans, for whatever reason, it is subject to human limitations and resulting restraints on productivity, which means low growth rates.
This is especially true when the service demanded has time of performance for human-speed absorption as an essential element. Think of an hour massage, waiting a table over the course of a meal, Shakespeare play, Mozart opera, football game, opening statement to a jury or, ahem, hours of classes over a semester for most students.
Maybe eventually most people are doing “humans servicing other humans” jobs, which can’t be sped up. So average growth rates stay low. I’m guessing inflation too.
These don’t have to low pay low productivity though. Investment in innovation can have large returns and where these are done matter greatly. It is hard to create many in any narrow domain, but less so in many different domains. Otherwise low pay low productivity work will be fleeting as they are displaced by technology. Moving up the value scale isn’t an option.
I would say the issue is not the level of labor productivity but the rate of change. There are highly paid surgeons who don’t perform any more surgeries per day than they did a generation ago.
But Moravec’s paradox is important here. Many of the skills that are hardest to automate are also the easiest for humans to do, and require little human capital. Those skills are not scarce in supply compared with demand, so pay is low. And if pay is low, the incentive to automate is less.