The author suggests changes in management behavior and labor bargaining power. I don’t have a particular problem with these points, but in my mind they answer more questions than they answer. He notes that since the 1970s the unions have been weaker, a lower real dollar minimum wage, competition from imports, and competition from low-skilled immigrants.
This all sounds an awful lot like wage arbitration, and to be more specific, wage arbitrations caused by a globally networked economy. American labor is competing with countries where labor is much cheaper relative to the goods produced than here.
I would add to this, technology improvements that allow more work to be done by less people, and currency manipulation by many of the big exporting countries.
The effect is illustrated here, with blue being the actual number of jobs versus black the (hypothetical) number of jobs normally produced.
Robert J. Gordon, Northwestern University, Voxeu, 22 August 2011 (ht: NC)
Thus labor’s weakened bargaining situation with changes in management behavior toward greater emphasis on cost-cutting in recessions accounts for roughly 3 million lost jobs in the current jobless recovery. The other 6.72 million would have been lost even with the earlier responses because the output gap was so large.
A change in labor market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labor and growing assertiveness of management. But even with the labor-market institutions of 1955 through 1985, the weakness of aggregate demand in the recession and recovery would have cost roughly 7 million jobs instead of the 10 million jobs that are actually missing compared to normal economic conditions such as occurred in 2007.
The recession itself is usually and correctly traced to the collapse of the housing bubble and the post-Lehman financial panic. But the recovery has been unusually weak, completely unlike the economy’s rapid bounce-back in 1983-84, and this requires an explanation as well. The best place to start is the double hangover approach, which explains not just the collapse of residential structures investment but also the continued and growing weakness in consumer spending. Perhaps the most surprising result of this essay is that the spending component responsible for the largest share of the missing jobs is not residential investment but consumer spending on services.