There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.And they refer to this blog entry by Karl Smith:
In the end, The Economist does me the favor of concluding:
Lets take some obvious examples. Suppose to create welded metal I need both a welder and welding torch. The welding torch goes down in price. That means that its actually cheaper to create each piece of welded metal. This will allow me as a factory owner to either lower my price, sell more welded metal while maintaining my profit margin.
However, to do this I will need more welders. So a fall in the price of welding torches, increases the demand for welders.
On the other hand suppose that I am an airline considering whether to have more booking agents or whether to invest in more sophisticated booking software. Specialized software can run well into the multi-millions but if it gets just cheap enough it might actually be a better deal than new agents.
I wouldn't blame ATMs on our jobless recovery, but surely the general skill-bias of technological change is an important part of the issue. I suspect Tyler Cowen may be right that the recession created an occasion for firms to shed "zero-marginal-productivity workers". In that case, the ranks of the unemployed are filled with wannabe workers whose labour is at present worth less to employers than the cost of employing them. This puts Mr Obama in a politically perilous position. We can expect rising aggregate demand to make it pay for some firms to once again employ some significant number of relatively low-productivity workers, but we probably can't reasonably expect the unemployment rate to return to its pre-recession level, at least not in the absence of politically unlikely employment subsidies or government make-work schemes. Given the current creeping pace of growth, the unemployment rate may not improve very much before next fall, which would bode ill for incumbents. Mr Obama can blame it on the machines and deny Republican charges that his administration made the recession worse. But jobless voters and the voters that love them tend to blame the guy in office, no matter who's really to blame.Yeah. Something like that. This is on the time scale where conventional economic thinking makes sense to me, and that's pretty much what I think. Losing the last election eliminated the possibility of "politically unlikely employment subsidies" which clinches a very long period of relative unemployment.
Where I part company from the mainstream is only in thinking it's likely permanent, and we ought to get used to it. That is, I expect them to get the short run right and the long run wrong, as usual.