The virus as a PSST shock

David Autor and Elisabeth Reynolds write,

The COVID crisis appears poised to reshape labor markets along at least four axes: telepresence, urban de-densification, employment concentration in large firms, and general automation forcing. Although these changes will have long-run efficiency benefits, they will exacerbate economic pain in the short and medium terms for the least economically secure workers in our economy, particularly those in the rapidly growing but never-highly-paid personal services sector.

Pointer from Tyler Cowen. Also discussed by Timothy Taylor.

I keep emphasizing that a recovery in terms of employment will require a massive amount of entrepreneurial experimentation. I think that deregulation and cutting payroll taxes are the best hope there. If instead you get a lot government debt/money being issued with an inflexible economy, the only result will be bidding up prices for the offerings of the surviving businesses.

On the payroll tax cut, I believe that President Trump is correct. I wrote,

government ought to be encouraging the transition to new activities that are profitable in a virus-conscious economy. One way to do so would be to pay businesses a wage subsidy to hire workers. Another method would be to cut the payroll tax. An economy-wide incentive to add workers would have more bang for the buck than a costly effort to keep uneconomical businesses afloat.

It is sad that even some Republican Senators prefer Keynesian remedies. Shows you how little influence I have.

9 thoughts on “The virus as a PSST shock

  1. The biggest problem with cutting payroll taxes right now, is that no one has dealt with the looming shortfall for Medicare Part A which previously was forecast for 2025 or 2026. The pandemic has only brought that shortfall closer. Insofar as sustainable market alternatives for hospital organizational patterns, we basically need local markets which can replace hospitals in millions of communities. However, as far as I know, the necessary entrepreneurial framing has yet to occur. Unfortunately there’s little guarantee it will come to pass, should hospitals lose a basic funding source first. This is one of the main reasons I’ve promoted time arbitrage for so long, to coordinate healthcare with other services and broad education spectrum in local settings.

  2. Regarding the quote… “the only result will be bidding up prices for the offerings of the surviving businesses”. An alternative view is that essential goods are closer to being commodities so it is harder to raise prices. Recent events might be demonstrating that much employment was supported by the supply of non-essentials and the supply of a greater diversity of offerings and geographic convenience.

  3. Excellent points notwithstanding that I concur fully. No doubt Washington would perform better were your influence greater.

    With respect to PSST shock, the rigidity of USA employment has for years incentivized alternative earning arrangements that covid will only accentuate.

    “I keep emphasizing that a recovery in terms of employment will require a massive amount of entrepreneurial experimentation. “

    57 million people in the USA are self-employed, more than a third of the workforce.

    Etsy shares are up 135% this year. EBay is up 50%. Shopify is up over 100%. Perhaps this portends a stirring in small scale entrepreneurial activity.

    Fiverr is up about 250%. Upwork is up about 30%. McKinsey projects that 50% of the USA workforce will be freelance by 2027.

    Farmers markets have grown by 500% over the past 20 years.

    Pod and small group learning tutors may be experiencing a bubble but some percentage of families may decide to opt out of the assembly-line model of education for the long term.

    Growth in personal services franchises might offset covid-related declines in food franchising.

    In whichever direction one turns there is ample evidence that such massive amounts of entrepreneurial experimentation is in fact being conducted by average people every day.

    • I am totally supportive of the self-employed, but the Pew Research Center and the BLS certainly do not think that 57 million Americans are in that group….

      “About 16 million Americans are self-employed, according to BLS data from July of this year. But the impact of the self-employed is wider: A Pew Research Center report found that self-employed Americans and the people working for them together accounted for 30% of the nation’s workforce, or 44 million jobs in total in 2014. Only about a quarter of self-employed people (3.4 million) had employees of their own, though, and those who did have workers didn’t have very many: Among self-employed people with employees, the median in 2014 was three and the average was 8.6.

      “The BLS estimate, derived from a survey of households, may undercount the self-employed. According to the Internal Revenue Service, there were 25.5 million nonfarm sole proprietorships in 2016 (these are all unincorporated businesses) – a count based on Schedule C filings of profit or loss from business.

  4. “Entrepreneur” appears nowhere in the Autor and Reynolds piece. Their trajectories make logical sense, but I was disappointed to find the same old – mostly Keynesian – policy prescriptions. Pretty much completely ignores the excessive burden that government places on individual entrepreneurs and small businesses.

  5. .I think that deregulation and cutting payroll taxes are the best hope there—ASK

    Eliminate property zoning entirely and, to the maximum extent possible, legalize streetside vending, or truck-vending. End the lockdowns immediately.

    I’ve been waiting for inflation for 40 years. I give up. I do not think inflation will be a problem.

  6. Arnold:

    In 2008 Scott Summer had as little influence among macroeconomists and policy makers as you do today among economic thinkers.

    But he had a good idea (an assessment I know you dispute) and kept at it. Ten years later the macroeconomic opinion leaders and central bankers have moved much closer to his position on monetary policy.

    You have a good idea (PSST). Don’t give up!

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