Where Goeth the Economy?

Here’s the new thread that picks up from where Pluto posed good questions based on his valid observations:

My academic training and research was heavy on labor market theory and much lighter on economic theory. What I fear is being missed is the disruption to the labor market that is being suffered, along with the economic and structural factors that will prolong the disruption as well as emerge from the disruption. There's some "The Chicken or The Egg" issues here, as far as I see.

My research was in "dual labor market" theory, and predominantly the structural side. I had colleagues who looked at the sociological side, and we shared data, as the phenomenon is both structural and sociological in nature. In short there are two distinct labor markets, "Primary" and "Secondary". The Primary market is what we normally think of in terms of desirable employment. Earnings are a statistically predictable factor of education, experience, age, tenure on the job, etc, and jobs have established reasonable security and upward mobility ladders, even if that ladder is simply longevity raises. Job turnover in the market is modest.

The Secondary market shows none of the above predictors of earning, stability and upward mobility. Earnings are predicted by the prevailing minimum wage and hours worked. The market is oft times colloquially referred to as "burger flipping", for example, even though there are numerous other industries in the farm and service sectors involved.

I looked at the structural reasons why such jobs exist (actually the industries that were characterized by a predominance of such jobs), and there is more to that than fits in the allowable space here. The sociologists looked at the incumbents in the labor market, and germane to our discussion here is that once someone spends 18-24 months or so in Secondary labor market employment, the probability of entering or returning to Primary labor market employment decreases drastically, without regard to the person's education, experience, etc. Amongst ourselves, we called it the "Roach Hotel" phenomenon - many check in, but few check out. It is not unusual, for example, for even a scientist who has to “flip burgers” for a couple of years to remain in that state. The contributing factors are complex and many.

One major question was if the residency in Secondary labor market employment was a product of the nature of the employing industry or the laborers themselves. The answer was strongly suggested to be both. It was a saprophytic relationship, more or less. At least at that time, and while I have been away from the field for nearly 30 years, what we learned then would be generally applicable now.


Very briefly, however, Secondary labor market industry has grown since the days of my graduate/dissertation research (76-82), and more industries have developed employment practices and relationships that have Secondary market characteristics. I must state here that I returned to active military service in 83 and left that world behind, so I am not as closely involved with the material. However, from my view, many jobs have been "converted" to employment with at least some Secondary market structural characteristics since 82, and I would offer "independent contracting" as an example, due to the inherent instability therein. Pay may be higher in some fields of contracting, but surety of employment from one contract to the next is not predictable, future earnings are not predictable and all too many contracts limit future employment options (contract or direct hire by contractor, contractor's clients or competitors and their clients) in a given field. As an aside, many "independent contractors" do not meet the eligibility criteria for unemployment benefits when their contract is terminated. Thus, in my view, over the past two decades, we have actually created a new, higher pay category of Secondary-like (and thereby imprisoning and unstable) employment.

A second concern is that we created good jobs in "bubble" fields that appeared in the short term to be traditional Primary market employment, but because of the unsustainable growth, were not. Home construction for example. The underlying causes of these jobs was tenuous and non-sustainable at best.

So, to the conclusion. The current crash and high unemployment has eliminated many jobs in the Primary market. Further, the “Secondary-like” fields, such as those that employ contractors at reasonable pay, is displacing Primary market jobs, undermining employment security. That puts millions into the “desperate for work” category who will accept anything to hold their heads above water. Typical answer – “temporary” Secondary market job, if it can be found.

Whether we want to accept it or not, I fear that this recession is profound enough to reshape the overall labor market. The “engine of growth” of the past three decades, irresponsible and boundless personal credit and debit, was not, is not and cannot be sustained. Consumers account for 70% of our GDP and cannot continue the debt fueled spending spree. Home values for many, now at 1999 levels, will not rise to the mortgaged value for another 8 years or so, trapping many people with “upside down” mortgage situations into paying to hold on until they finally get some equity, sell at a loss or allow foreclosure. There will not be home equity to finance consumer spending for a few years, if that trend return at all.

Thus, the trend of our nation’s wealth moving more and more into the hands of the top few will continue. Manufacturing companies and other “necessary” industries will staff at “lean and mean” levels, or shift manufacturing to lower cost overseas facilities/sources to maximize profits. Employment in Secondary labor markets will grow disproportionately as the portion of the population that does not amass wealth will grow, and we will see the “underclass” expand.

And, to address the implications for foreign policy, as more and more of the population becomes economically disenfranchised, the remaining holders of wealth will entertain more and more adventures overseas if it doesn’t conflict with their economic goals, while many of the poor and nearly poor will accept it as a result of their feelings of helplessness and/or the only source of national pride available.

That’s the “Readers’ Digest Condensed Version” of a very complicated issue. Please feel free to pick at it, challenge it, reject it and/or expand on it. Nothing would make me happier than to find I have reached an inaccurate conclusion.

How’s that for cynicism? Now, in closing, all of us at the university that were working in dual labor market theory at the time agreed on one point. It was a depressing subject.