Capital Ideas Blog


By Andrea Mustain

From: Blog

The start of a new year did nothing to alter the dirge-like tones that have been issuing from the direction of the Bureau of Labor Statistics since the dawn of the Great Recession; as the sad song goes, the housing bust laid waste to the US job market, and (cue minor key), things have been terrible ever since. Even the most recent jobs report, which has some whistling while they work, said more about a shrinking labor force than a declining unemployment rate.

Yet Chicago Booth research suggests that, for some significant sectors of the job market, the mournful melody began many years ago—it's just that people stopped noticing when a raucous outfit now known as the housing boom rolled into town.

American manufacturing has been experiencing a steady decline since the late 1970s, but starting around 2000, "it really fell off a cliff," says Matthew J. Notowidigdo of Chicago Booth. His work indicates that, between 2000 and 2011, while manufacturing employment continued to disappear, the housing boom produced a sudden glut of jobs, temporarily masking the continuing manufacturing losses.

The research, done with Erik Hurst, also of Chicago Booth, and Kerwin Charles of the University of Chicago Harris School of Public Policy, took a close look at a decade's worth of housing market and employment data in 237 US cities. Analysis showed that for workers age 21 to 55 and without a four-year college degree (two-thirds of the population), things looked pretty darn rosy for more than half of the decade. Jobs lost in manufacturing were handily replaced by jobs conjured up by the housing boom, most of them in construction.

Yet after 2007, when the housing market took a nosedive, those construction jobs disappeared, and employment for unskilled workers picked right back up where it had left off—limping ever downward.

"All of these forces seem to be permanently destroying jobs that are not going to come back, and the policy question is, what do you do?" says Notowidigdo. "One could make the case that the government has to be the employer of last resort."

In his opinion, Notowidigdo says, the moribund US job market is ripe for government interventions ranging from wage subsidies to public works projects.

He pointed to workers in their late 40s and 50s, a group that has suffered deeply during the current bout of long-term unemployment. Programs to retrain those workers have, so far, largely failed and large-scale infrastructure projects would make good use of their existing skills, he says.

Similar noises are coming from some surprising quarters: the right. In a New York Times column, David Brooks pointed to the latest issue of National Affairs, a conservative policy journal. The lead article advocates public works projects and wage subsidies. Brooks himself says, in essence, it's about time.

So is it possible that, in the face of this development among economists and pundits, policymakers themselves might begin to change their own tune? If so, perhaps unemployment numbers might begin to make a more joyful noise—a melody more befitting a rousing polka than a funeral march.


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