Labor, Jobs, and the Modern Economy: Discussion Section with Kevin Murphy and Erik Hurst, Part 1

Labor, Jobs, and the Modern Economy: Discussion Section with Kevin Murphy and Erik Hurst, Part 1


[MUSIC PLAYING] KEVIN MURPHY: So let’s
talk about what’s been going on in
the labor market that you think is important
to understand if we’re going to try to answer this
question for why employment growth, particularly employment
growth for less educated, low skilled men, what’s
been going on in the labor market over the last 20 years,
plus years whatever you want to focus on, it helps
us understand that. ERIK HURST: So I’m
more of the belief that there might have
been this secular trend, the structural
story in the background of this recession. So what is it for me that
I’ve been focusing on? In 2000, there were about 18
million manufacturing jobs in the United States. By 2004, that number
was about 14 million. So in a relatively
four year period, we lost about four million
manufacturing jobs. KEVIN MURPHY: This
is pre-recession. ERIK HURST: Pre-recession. KEVIN MURPHY: This is
actually the earlier– we’re not even at the
end of the boom yet. ERIK HURST: Not even at
the end of the boom yet. KEVIN MURPHY: We’ve
got 2000 to 2004 while the economy’s generally
going up over that period, we’re seeing the number
of manufacturing jobs fall from 18 million
to 14 million. ERIK HURST: 14 million. And you’re saying to yourself,
why is that important? For this group that you and
I have been talking about. These lower skilled, men without
a four year college degree, about 30% of us roughly have
a four year college degree. About 70% of us have less than
a four year college degree. So of that group,
historically, about I would say somewhere
around 20% to 25% of them worked in manufacturing. So this is a big
sector for this group. And so as those jobs
go away, there’s been a part of their labor
market that has shrunk. Now normally when parts
of labor market shrunk, something happens. People move to other
sectors, maybe. People maybe stop working
depending upon the wage that they earn relative
to the benefits they get of not working. So that happens. Now the question
that comes back is why did this show up
in employment numbers prior to the recession? KEVIN MURPHY: Why didn’t they
just show up as four million people fewer people working. ERIK HURST: Exactly. perfect. At the same time, there
was another important shock that hit these lower skilled
men in these prime ages that we’ve been
talking about, that might have offset that
structural decline– this decline in manufacturing. And that’s the housing
market was really booming during this time
period and construction jobs went through the roof. And for these low skilled
men, the same group we’re talking about,
historically about 10% of them worked in construction. Maybe 11%. That number went up to
15%, 16%, 17% by 2006. So you get this one trend
that might be more permanent. Manufacturing jobs
are disappearing from the US economy. KEVIN MURPHY: And
that wasn’t new. That had been going
on before this ERIK HURST: No,
that’s been going on. It’s been going on before this–
the magnitudes are actually bigger in the 2000s
than the ones we might have lost in the 80s. The ones we lost in the
80s happened gradually. This happened in a relatively
short period of time. We can talk about maybe
why in a few minutes , why manufacturing contracted
so sharply in the 2000s and continued to contract. KEVIN MURPHY: Might not be
unrelated to the housing boom but we’ll come
back to that later. ERIK HURST: But there
are other stories, we’ll come back to that later. So the key part of this is
that as those jobs went away– a large amount of them
went away in the 2000s, you had another shock that
ex-post was temporary. That construction jobs
boomed in the US economy were well above longer run
trends in how many houses we were building,
how many plumbers we were having, how many
electricians we were hiring in the economy. And that helped– the
word I use, I don’t know. I like this word–
sometimes I like it, sometimes I don’t– but masked
the decline in manufacturing employment. KEVIN MURPHY: The decline
in those manufacturing jobs I think we should regard
largely as permanent. That was not like, well some
temporary things were going on. We didn’t need as many
manufacturing jobs but guess what, tomorrow we’re
going to need them again. I think we think that
whether it’s China, whether it’s– whatever
forces you want to talk about, even maybe just
changes in technology– ERIK HURST: Both of those are
the ones on the table, exactly. KEVIN MURPHY: But whatever it
was, those are not coming back. ERIK HURST: Exactly. KEVIN MURPHY: Now
the construction boom as you alluded to
a moment ago, is more likely to be a
temporary phenomenon. I mean, it’s not
only turned out later to be a temporary phenomenon,
it almost by its very nature has to be a
temporary phenomenon. You can’t keep building
houses at the rate we were building them then. So we’ve gone to 2004 now. The recession is not even– ERIK HURST: Not even
coming yet, exactly. KEVIN MURPHY: But
you’re telling us, we should have seen it coming. ERIK HURST: Yes. And I’ll tell you
how we could have saw it coming, which
is easy to say ex-post, but maybe how we could have
seen ex-ante in a second. But I just want to
continue the story now, is that you go to 2007,
the housing boom collapses. And all those
construction jobs– KEVIN MURPHY: What
about ’04 to ’07? What happens in that period? ERIK HURST: Everything. The housing keeps
going a little, manufacturing stabilizing. Say this is what you’re
saying, the wiggles– so if you look at ’00 to ’04,
employment rates kind of dipped a little bit. ’04 to ’07, they kind
of went up a little. ’00 to ’07, that’s kind of where
things were roughly constant during this period. KEVIN MURPHY: So ’04 to ’07,
we have not such big trends but again, not such
a big [INAUDIBLE]. But still relative to
where we started in 2000. If I go 2000 to 2007,
I have a period that wasn’t good for manufacturing. It lost a lot early and
then maybe leveled out. Construction boomed early
and then maybe leveled out. But over the four period, we
still have this same story. ERIK HURST: Exactly. KEVIN MURPHY: Now
we are in 2007. ERIK HURST: 2007, housing
boom collapses or busts– pick your favorite word,
goes back to trend, whatever. Housing prices collapse
and at that moment, we stopped building houses. So you lose 2 and 1/2, three
million construction jobs. You lose another 2 and 1/2,
three million manufacturing jobs. And the labor
market opportunities for low skilled men, suddenly
are unveiled to be very weak. KEVIN MURPHY: But isn’t there
more than just an unveiling? And let me try to play
it out a little bit, that is, one story is we are where
we would have been in say 2010, had there not been this boom. And what was going on is we
masked it for a period of time. But isn’t there
another side of it, which is the housing boom
generated less construction employment after the
fact than it would have if the boom hadn’t occurred. ERIK HURST: Yes. Because we’ve [? entered ?]
temporally switched from building houses– KEVIN MURPHY: We build
too many we houses– ERIK HURST: Early
relative to the late. Exactly. KEVIN MURPHY: The
fact that we build so many during the boom then
we build even fewer than we otherwise would have. That’s actually
beyond just masking. ERIK HURST: That’s on
top of it, exactly. KEVIN MURPHY: And that means
that conditions for these men are just as bad in manufacturing
as they would have been. They’re worst
because of the boom. So not only did the
boom hide what happened, it exacerbated what
happened later. ERIK HURST: And you
can see the story that the added on
of building too many houses and a little
bit lower construction, you might think is
inherently temporary. In a couple year’s,
depreciation kicks and some of those old houses
that we build extra will kind of depreciate away. And those construction jobs
might come back at some point. There’s no evidence that
these manufacturing ones are coming back. KEVIN MURPHY: A
question for you. We built up a lot of
extra housing stock during that period
where we built a lot and had a booming
construction industry. Has that recovery from the
post crash construction– have we pretty much worked
off the excess housing stock that we had? Is that temporary effect that
we just talked about, kind of worked itself out? ERIK HURST: In most
markets, you’ve kind of worked through a big
chunk of that extra slack in the housing market. And you’re starting
to see now housing construction and housing
prices perform like they would in, what I’ll
call, normal times. That’s a hard word, normal
time but think about that ’97, ’98, ’99, before
the housing boom started. KEVIN MURPHY: So now
let’s go to 2000 to today. The housing– let’s call it
the construction industry is about where it would
have been had we not gone through this boom bust cycle. So it’s not worse than
it would have been, it’s about where
it would have been. But manufacturing is still
got that cumulative decline over this full period. And so what you’re saying is
if I want to understand 2000 to 2015, the ultimate
story is about what’s been going on in say
manufacturing or these broader secular trends that
you’ve been talking about. ERIK HURST: Yes. [MUSIC PLAYING]

One thought on “Labor, Jobs, and the Modern Economy: Discussion Section with Kevin Murphy and Erik Hurst, Part 1

Leave a Reply

Your email address will not be published. Required fields are marked *