Examining patterns of polarisation in America, Nir Jaimovich and Henry Siu find that displacement of routine work is not a gradual process but occurs almost entirely during recessions. Since the mid-1980s, roughly 92% of job loss in middle-skill, routine jobs has taken place during or within a year of recessions (as dated by the National Bureau of Economic Research). This pattern is linked to the phenomenon of “jobless recoveries”, which followed the recessions of 1990-1, 2001, and 2007-9 but not earlier downturns.
Pointer from Tyler Cowen. My first thought is that this makes it hard to sort out cyclical and structural change.
Avent’s hypothesis is that low inflation raises real wages and induces labor-saving substitution.
I think that there might be a number of hypotheses to explain the phenomenon. For example, what we call a recession could just be a bunching up of the process of shedding ZMP workers. In theory, ZMP workers should be let go at a steady rate, but it could be that firms come to a common realization that it is time to face reality.
But read Avent’s post. It is obvious that he would regard the UK in recent years as supporting his hypothesis more than mine.
Or, businesses are run by people and its really hard to tell someone that they just aren’t needed anymore so they wait for an ‘excuse’ to let them all go.
Every RIF I’ve ever been involved in has been full of people that no one was shocked to see go.
“Every RIF I’ve ever been involved in has been full of people that no one was shocked to see go.”
Yep, and not only that, but I’ve seen what appeared to be managers intentionally collecting (or at least holding onto) a bit of ‘dead wood’ so that they’d be able to make cuts in their areas without losing anybody they really wanted to keep.
The old song goes:
“My roof doesn’t leak
When it does not rain”
When it rains you tend to do something about the roof (even if you get wet).
So, why should “structural changes” not be expected to occur as cyclical events?
I agree with Chris; when businesses are in a bad business climate, they’re far more likely to take actions that would disrupt the workforce. They’ll do layoffs, restructure internal processes to be more automated and less manual, outsource non-core functions, etc.
When times are good, most businesses would rather go after new business than “fix” internal processes. When times are bad, businesses are far more focused on the (much more personally and organizationally painful) effort of reducing operating costs, as there’s not much new business to be found.
Sure, it isn’t “rational”, but it’s very human.
Bunching suggests managers are not being paid for their productivity which may be the case but then why are in management? Bunching likely occurs naturally though as there is no need to lay people off when there is business and work to be done, but when business falls off the business must be trimmed to fit demand. They aren’t ZMP until the recession has turned their products to ZMP and both they and their products go.
Right, have to figure in the investments in his training, which are sunk costs.
There are some other forces at play – the risk of litigation, bad press, and so on, is large. But also probably somewhat invariant with RIF size. In other words, laying off 3 people might generate 1 lawsuit and 1 burst of unflattering social media commentary. Laying off 300 people might generate 4 lawsuits and about the same amount of unflattering public commentary. So “do it all at once” may be reducing some set of “fixed costs” associated with discharging people.
“For example, what we call a recession could just be a bunching up of the process of shedding ZMP workers.”
I think there is something important to this. After all, traffic jams do exist, and we even have mathematical models to help explain the dynamics. The idea certainly has a lot of appeal in explaining the fluctuations seen in employment through the year, and even in mild recessions.
However, I’m still not convinced you can get a wild fluctuation in output as seen in 2008-9 from this story alone.
I may have a post soon using ideas from the complexity economics literature to compliment this…
Every eight years, near the end of a presidential term, inflation reveals uncovered federal costs and hidden losses. These are paid with debt and firms incorporate the uncovered repeating costs as fixed, reducing labor hiring levels. Clinton avoided the problem by making taxpayers pay them up front.