Another option is that these non-stifled sectors have seen big boosts in demand and thus their prices are rising. Again, that violates the strong empirical regularity of business cycle comovement. In a traditional deflationary downturn, virtually all sectors are negatively affected, with a few notable exceptions. What kind of business cycle would this be, if half the economy is seeing a positive 3.2% worth of demand-side pressures?
In “Inflation and Unemployment,” James Tobin (1971) proposed that there might be two sectors of the economy, one with demand expanding and the other with demand contracting. If prices and wages were flexible, then you could reach full employment at any rate of inflation. However, if nominal wages will not fall in the contracting sector, then you get a trade-off between inflation and unemployment.
What Tyler is arguing is that if this model were applicable in reality, then we would observe recessions as sharp contractions in some sectors while other sectors continue to expand. Instead, he suggests that declines are broad-based. Of course, many people claim that if many sectors are declining at once, then we must be experiencing a decline in aggregate demand, as opposed to structural unemployment.
My thoughts:
1. Has the shortfall in employment been widespread or concentrated? I think that if one looks across industries, it seems fairly widespread. Yes, health care has held its own. Yes manufacturing has taken a large share of the job losses. But overall, things look widespread.
2. However, if one looks at demographics, I think it looks more concentrated. Older workers have held their own (and moreso, relative to the previous trend). Young people are being devastated.
3. What would a central planner (or a ruthless free market) do with average young people in an “average is over” world? (I have not yet read Average is Over, but let me steal the phrase.) I think that the solution would be to have many young people become personal servants, taking care of old people or rich people. However, this is not something that young people want to do. It is not what their parents, teachers, and political leaders are telling them to do. Instead, our society has arrived at a tacit agreement that is it is preferable for young people to live off of a combination of government benefits and parental support.
4. This “tacit agreement” would hold at any rate of inflation. If we managed to raise the rate of inflation, I do not think it would do much to deal with unemployment.
4) Presently too much wealth is caught by the expanding sector, a problem which needs to be addressed. However, supply side does not yet have organized means to address the expanding sector problem which in turn harms production and output of the most efficiently produced goods – especially with an inflation cap. Plus, the internal “inflation” which needs to be addressed is also the main problem for diminished employment opportunities.
If unemployment is driven by sticky wages, shouldn’t young people have an advantage. They have no wage expectations and should be more flexible. Where as older workers are unwilling to take a pay cut.
If all the young people turned in to servants and nurses for rich old people at low wages, where is all the ‘average’ people family formation going to come from. These positions require a lot of schedule flexibility and limits the ability to grow your family. Then only rich and well off have children who don’t want to settle for servants or nurses for rich old people.
And isn’t this happening in Singapore except immigration is keeping these positions filled?
It’s not the same form factor, but working in a low-skill job in healthcare (or any other service sector) feels to me like the same economic niche as ‘servant’