Explaing the Basics of Finding a Job to Economists

[Author's note: this is a comment on an article that ran on FiveThirtyEight five years ago (how the time flies!). I just found the draft laying around in the back-end of this here blog and thought "yeah, might as well post it." Better late than never, and anyway, I don't think mainstream economists have gotten any smarter in the intervening half decade.]

A website ostensibly aimed at intelligent people ran this article the other day, entitled Out of Work, Out of Luck.

As Bill Black says, it's impossible to compete with unintentional self-parody:

Economists aren’t sure why being out of work for more than six months makes finding a new job so much harder.

Really?  How about this: 'cause having a big gap in your employment history looks shitty on your resume.  Who are these "economists" and what planet do they come from?  And when is the last time they actually had to participate in our earthly labor market?

Once they cross the six-month threshold, their odds of finding a job drop off dramatically.

Know why?  The "economists" probably can't figure it out but the obvious reason is that employers (like everyone else) uses rules of thumb.  Unemployed for a couple of months is one thing, but once the magic half-year mark is crossed that gap suddenly raises red flags.  I would guess that employers, like economists, have an unconscious cut-off for acceptable absence from employment at six months.  Just a guess.

In the present, it means the long-term unemployed are, for all practical purposes, no longer part of the job market; most of them aren’t going to find jobs even if the economy improves. That means there’s less “slack” in the job market — a concept my colleague Andrew Flowers explained in more detail on Wednesday — than we might otherwise think.4 It looks like the Federal Reserve has reached the same conclusion: The Fed has been pulling back on its efforts to stimulate the economy, despite continued high unemployment and low inflation, suggesting it thinks the long-term unemployed are gone for good.5

[snip]

“The lesson I take away,” Krueger said in an interview this week, “is try to prevent the short-term unemployed from becoming long-term unemployed.”

How about this for a lesson: we need to come up with something effective to help the long-term unemployed, especially since there are likely to be ever more of them/us in the future...maybe a bailout or access to the Fed's discount window.  Re-defining the structural unemployment rate upwards is obviously not a solution.

And apparently we define slack in the labor market not as the number of people who want a job, but the number of people we can reasonably expect to get hired.  Hmmm...dubious.  I think slack is everyone who wants employment but can't find it.  A Job Guarantee program would address this, but the Fed only creates unlimited funds for banks, not the unemployed.

The Paradox of Profit Pt. 3

Industry is carried on for the sake of business, and not conversely; and the progress and activity of industry are conditioned by the outlook of the market, which means the presumptive chance of business profits...[The] consequences for the theory of business make it necessary to keep the nature of this connection between business and industry in mind. The adjustments of industry take place through the mediation of pecuniary transactions, and these transactions take place at the hands of the business men and are carried on by them for business ends, not for industrial ends in the narrower meaning of the phrase.

The economic welfare of the community at large is best served by a facile and uninterrupted interplay of the various processes which make up the industrial system at large; but the pecuniary interests of the business men in whose hands lies the discretion in the matter are not necessarily best served by an unbroken maintenance of the industrial balance. Especially is this true as regards those greater business men whose interests are very extensive... Gain may come to them from a given disturbance of the system whether the disturbance makes for heightened facility or for widespread hardship, very much as a speculator in grain futures may be either a bull or a bear. To the business man who aims at a differential gain arising out of...disturbances of the industrial system, it is not a material question whether his operations have an immediate furthering or hindering effect upon the system at large. The end is pecuniary gain, the means is disturbance of the industrial system... so far as touches his transactions in this field it is, by and large, a matter of indifference to him whether his traffic affects the system advantageously or disastrously. His gains (or losses) are related to the magnitude of the disturbances that take place, rather than to their bearing upon the welfare of the community.

The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community...Broadly, this class of business men have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges.

~Thorstein Veblen, from Theory of Business Enterprise