Friday, January 07, 2011

Why Employment is Low and Profits are High

The story runs as follows. Before the financial crash, there were lots of not-so-useful workers holding not-so-useful jobs. Employers didn't so much bother to figure out who they were. Demand was high and revenue was booming, so rooting out the less productive workers would have involved a lot of time and trouble -- plus it would have involved some morale costs with the more productive workers, who don't like being measured and spied on. So firms simply let the problem lie.

Then came the 2008 recession, and it was no longer possible to keep so many people on payroll. A lot of businesses were then forced to face the music: Bosses had to make tough calls about who could be let go and who was worth saving. (Note that unemployment is low for workers with a college degree, only 5 percent compared with 16 percent for less educated workers with no high school degree. This is consistent with the reality that less-productive individuals, who tend to have less education, have been laid off.)

In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves -- and arguably bad for society at large -- but it simply doesn't damage profits much.
That's from Tyler Cowen in Foreign Policy Magazine.


  1. It's a very well know fact that recession always cuts the flab out of economy and makes it more leaner and healthier from long term perpective

  2. Indeed . Just check it once , it seems to me the link is dead.

  3. That was my experience, no one noticed I barely did anything until they had to look closely.

  4. That's interesting Jill. I think most people's experience is the opposite. Their bosses don't know how little they actually do.

    On that note, you're hired!


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