Tuesday, November 11, 2003

More on Job Losses
See, here is what I was talking about. People are always losing jobs, 106 million in 23 years. But, we also have gained 146 million. I had mentioned the saddle industry, but Cox of the Federal Reserve Board and Alms use farmers (obvious) and phone operators (not so obvious). The lesson is that short-sighted efforts to "save jobs" create way more problems than they solve.

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.
"What's gone wrong with the labor market?"
The surprising answer: nothing.

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