Over and over we see people wonder how the U.S. economy can grow despite very high unemployment. We’re told that growth can’t be sustained with so many people out of work, and that eventually we need to see new job creation.
But what if many of the laid-off workers weren’t producing anything to begin with? Then their disappearance from the U.S. production equation wouldn’t reduce output… and in fact might it would make individual companies stronger since they would now be producing the same amount of output, or more, with lower costs.
Keep in mind, we have had a recovery in output, but not in employment. That means a smaller number of laborers are working, but we are producing as much as before. As a simple first cut, how should we measure the marginal product of those now laid-off workers? I would start with the number zero. If a restored level of output wouldn’t count as evidence for the zero marginal product hypothesis, what would? If I ran a business, fired 10 people, and output didn’t go down, might I start by asking whether those people produced anything useful?
There is another striking fact about the recession, namely that unemployment is quite low for highly educated workers but about sixteen per cent for the less educated workers with no high school degree. (When it comes to income groups, the lowest decile has an unemployment rate of over 30 per cent, while it is three per cent for the highest decile; I’m not sure of the time horizon for that income measure.) This is consistent with the zero marginal product hypothesis, and yet few analysts ask whether their preferred explanation for unemployment addresses this pattern.
Well, the reason why so few are using this explanation is probably because it’s an ugly thing to say on the national stage, even if in many cases it might be the ugly truth.
Note this doesn’t mean everybody who lost a job wasn’t productive, and we realise a lot of people are going through hard times. Yet this shouldn’t prevent debate of the above.