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Here’s a problem:

You’re a member of a large industrial union. Your employer has a large project in the works, which will involve a new plant, new employees, and a lot of new revenue. However, you have previously priced yourself out of the market in negotiations. Now, the company is planning on building the plant on foreign soil, where productivity is probably close to parity, but the unit cost of labor is much cheaper. What do you do?

Well, you petition the government to restrict the flow of capital across borders. That’s what. Who is this evil corporation, and who are these nefarious foreigners stealing our jobs?! Boeing, and South Carolina.

In 2009 Boeing announced plans to build a new plant to meet demand for its new 787 Dreamliner. Though its union contract didn’t require it, Boeing executives negotiated with the International Association of Machinists and Aerospace Workers to build the plane at its existing plant in Washington state. The talks broke down because the union wanted, among other things, a seat on Boeing’s board and a promise that Boeing would build all future airplanes in Puget Sound.

So Boeing management did what it judged to be best for its shareholders and customers and looked elsewhere. In October 2009, the company settled on South Carolina, which, like the 21 other right-to-work states, has friendlier labor laws than Washington. As Boeing chief Jim McNerney noted on a conference call at the time, the company couldn’t have “strikes happening every three to four years.” The union has shut down Boeing’s commercial aircraft production line four times since 1989, and a 58-day strike in 2008 cost the company $1.8 billion.

The NLRB has obliged union requests to halt Boeing’s production of the plant while the decision is under investigation for “anti-union animus”. I tweeted that this was blatant union over-reach, and it is! Now, I’m on the record somewhere on the internet making the claim that if you support free markets, you should naturally support unions. That is very counter-intuitive, but the fact is that unions would be much more prevalent in almost every aspect of life in a totally free market. In Max Barry’s book, Jennifer Government, which is a story about a corporatist dystopia, the plot-line revolves around two consumers unions, US Alliance and Team Advantage. Unions would simply be a market-oriented way of organizing against monopolistic competition — and maybe not be the most efficient.

However, while I don’t begrudge the right for unions to form and attempt to bargain, I also don’t begrudge the right of management the say, “FU, we’re going somewhere else”. In an ideal world, they would do this free of government playing for either side. But in this case, we have the government contemplating restricting capital flows between states! The United States, as understood properly, is the largest free trade area in the world. That has been a huge comparative advantage for the US historically, and arguably the reason that we are at the top of the world economic pyramid today. Restricting the flow of capital makes us poorer by reducing productive employment, and increasing prices. It’s a very poor precedent to set.

P.S. I do have to hand it to labor, though…they certainly don’t seem to be afraid of taking their protectionism to its logical conclusion.

Krugman has a recent post where he cites a SF Fed study regarding the unemployment rate among recent college graduates:

Mark Thoma leads us to new research from the San Francisco Fed showing that recent college graduates have experienced a large rise in unemployment and sharp fall in full-time employment, coupled with a decline in wages. Why is this significant?

The answer is that it’s one more nail in the coffin of the notion that employment is depressed because we have the wrong kind of workers, or maybe workers in the wrong place.

And asks:

The right question to ask, with regard to all such arguments, is, where are the scarcities? If we have the wrong kind of workers, then the right kind of workers must be in high demand, and either be in short supply or have rapidly rising wages. So where are these people?

Now, not to diminish the fact that what most people refer to as “The Recession” was, in fact, the result of a demand deficiency (or more aptly, a large increase in the demand for money not accommodated by the Fed), I’d like to point to some anecdotal evidence that in reality there is a problem a skill mismatch and “recalculation” that is proving difficult to tract. To the extent that this is the problem, rather than a problem, I’m not quite sure. From David Andolfatto:

For the 15 million Americans who can’t find jobs, the labor market is like an awful game of musical chairs. There are many more players than there are available seats.

Yet at Extend Health, a Medicare health insurance exchange firm in Salt Lake City, Utah, the problem is just the opposite—a growing number of chairs to fill and not enough people with the skills to fit the jobs.

“It seems like an oxymoron in this environment that you can somehow be challenged to find great workers,” CEO Bryce Williams admits, almost sheepishly.

Extend Health’s call center workers help retirees navigate the process of signing up for commercial Medicare Advantage and drug coverage plans.

For this fall’s Medicare Enrollment season, the firm will need close to a thousand workers. The ideal candidate is over 40, with a background of financial services in order to qualify for insurance licensing.

“They need to be able to pass the state of Utah exam, which is not easy,” Williams explains. “They need to have a background in comparing the financial metrics of trying to help someone compare and analyze and give great advice.”

Andolfatto has a link to another story along the same lines regarding manufacturing workers (a field which has become highly specialized). There is also the two facts that college degrees are large fixed investments in skills that may be reduced in demand. This is something that I’m largely familiar with, as I was in school for a prized IT career before the tech bubble burst. As I know Mark Thoma has noted (though I can’t find the link), we have a disproportionately high amount of graduates in business and finance, which is probably still true, and a low proportion of graduates in applied sciences. This of course leads into the next issue: the squeezing of efficiency out of a smaller workforce. How does that relate to the degree profile of our college graduates? Because it is comparatively easy to squeeze extra efficiency out of people who work “in business”. Much easier than, say, squeezing extra efficiency out of an existing construction or manufacturing worker. So if more people are specialized in business or finance, areas that took a major hit, and also an area where substitution is comparatively easy, then there is likely a skills mismatch between there.

So yes, I believe that there is more than trivial problem of skills mismatch, which I think was nearly the whole story up until late 2008, when the large fall in expected NGDP caused various financial obligations to be much harder to service (that tends to pin people down, and reduce employment options). That is a demand story. However, as we slog out of this recession, real job growth may remain low even as we return to previous trend NGDP. We should be at least prepared to discuss the supply side when that happens.

P.S. If anyone was wondering, I’m starting to feel better, though I haven’t gotten a diagnosis as to what is wrong with me, still. Been keeping busy with confusing insurance statements, school, and work. I think I’m at the point where I can end my hiatus from blogging, and write a few things. Glad to be back =].

P.P.S. For a long time I’ve been trying to find oddball diagnoses that fit my symptoms. Doctors hate that, by the way…but I do it anyway. In any case, I’ve been stuck on Whipple’s Disease for a while. Symptoms fit like a glove.

In a fairly textbook recession (adverse shock to aggregate demand), demand for money increases, while demand for everything else produced in the economy decreases. This raises the real value of money, producing the macroeconomic dislocations resulting from what is popularly known as “price stickiness”. This phenomenon is similarly true (perhaps even more-so) within the labor market. An increase in demand for money reduces the demand for labor, which increases the quantity (and thus average quality) of labor available.

Nick Rowe noticed this phenomenon in the popular small business survey chart that is running around the blogosphere. He then said that if he were more technically capable, he would produce a graph of “poor sales minus labor quality”. I was going to produce one for him, but luckily I found this in the report:

[Click Image to Enlarge]

There is such a stark inverse relationship between the two answers that a separate index is hardly necessary (although I took the liberty of coloring the chart myself). As you will notice, taxes are always a favorite, and since the start of the Great Moderation, interest rates have hardly been of concern — which one would expect from the smoothing of business cycles and increases in foreign exchange.

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