job creation buckets

René Magritte and US Job Creation

Dec 13, 2013 • Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 171 Views    No Comments

Hearing people say that 1.5 million new health care jobs were an economic “bright spot,” I thought of the surrealist artist, René Magritte, who showed us that all is not as it appears.

Let’s start with an excellent NPR Planet Money graphic that displays recent job creation. You can see the health care bubble at the top.

From NPR: Planet Money

From NPR: Planet Money

 

Explaining the economic significance of different jobs, in a 2011 paper, Nobel Laureate Michael Spence and Sandile Hlatshwayo ask us to imagine 2 groups of workers. A Washington Post columnist suggests that we place each group in a bucket.

Bucket #1 contains workers at firms participating in a global market. Some export goods and services. Others face competition from imports. Examples include:

  • most manufacturing
  • agricultural goods
  • minerals
  • energy
  • a “healthy chunk” of business and financial services

Bucket #2 is filled with nontradable purely domestic jobs such as:

  • construction
  • transportation
  • health care
  • government
  • retailing

Our problem, though, is that one of the buckets is less valuable than the other one. Between 1990 and 2008, the global bucket generated more income for Americans at home because of the world economy. Yes,  jobs were outsourced. However, production at home for the “tradable side of the economy…moved up the value-added chain.” Meanwhile, according to Dr. Spence and his co-author, the second bucket, the “nontradable sector” had provided more jobs. But those jobs have generated less value-added growth.

In other words, the value added per employee is much more for the global bucket. And, as a result, a growing health care sector might not be a cause for smiles. Neither, perhaps, is the jobs/less expensive goods trade-off created by the global economy.

I especially liked a manufacturing diagram in the paper because it wonderfully demonstrated that each economic sector is, as Magritte conveyed, not quite what it seems.

The manufacturing sector of the economy.

From: Spence and Hlatshwayo

Concluding, the paper recommends: To create jobs, contain inequality and reduce the U.S. current-account deficit, the scope of the export sector will need to expand. That will mean restoring and creating U.S. competitiveness in an expanded set of activities via heightened investment in human capital, technology, and hard and soft infrastructure. The challenge is how to do it most effectively.”

And finally, from René Magritte:

Rene Magritte painting.

René Magritte  ”The Son of Man, 1964.

 

Sources and Resources: While I do recommend the entire Spence/Hlatshwayo paper, the Washington Post published an excellent summary. Meanwhile, the Planet Money perspective is a good complement for additional facts and a different point of view.

Related Posts

« »