Monday, 11 October 2010

The Laborers of the World! Behold the Three Nobel Prize Winning Labor Economists: Larry, Curly and Moe

In an ideal world, I would not have bothered with this year’s three Nobel Prize winners in economics; they would not have merited a mention. But this is not an ideal world.

According to the New York Times, three men won the Nobel Prize in economics for their work on “markets where buyers and sellers have difficulty finding each other, and in particular on the difficulties of fitting people to the right jobs.”

So, in a nutshell, the contribution of prize winning scholars to economics is applying the business model of dating services to the labor market.

As for the specific applications of their research:
Some of the applications of the research include understanding why unemployment rises during recessions, why similar workers get different wages, why wages do not fall much during recessions even though that might make additional hiring more attractive to employers, and how so many people can be unemployed even when there are a large number of job openings available.
Three mature, presumably fully developed adults trained as economists want to know why unemployment rises in times of recession.

Without having the slightest familiarity with their plans, let me then predict their future research topics: why some work in factories, others in department stores and still the third group in banks? Why some workers commute long hours and some don’t? Why do workers look different? Why are some workers men, others women?

But let’s not laugh, even though the characters are clownish, as behind their seemingly idiotic research stands a serious and sinister purpose. Why else would their research be funded?

Note, for starters, “why wages do not fall much during recessions even though that might make additional hiring more attractive to employers”. You do know where this line is going, right? In case you don’t, the Times spells it out for you:
Their work has suggested, for example, that unemployment benefits can have the unintended consequence of prolonging joblessness by making it less costly to be without work.
Unemployment benefits prolong joblessness. That’s one conclusion for you.

There is more. According to Robert Shimer of the University of Chicago:
“Most of these models suggest that even in a depressed economy, more generous unemployment benefits tend to raise the unemployment rate.”
And according to Prof. Lawrence Katz of Harvard:
“If you make it harder to hire and fire, then you end up with what’s called a sclerotic labor market, with less movement between jobs and more long-term unemployment.”
So, now we “know” that: i) the unemployment benefits increase unemployment; and ii) unemployment is the result of labor market regulation.

The logical policy directive, then, if you are a politician who really cares about the unemployed? Why, cut the unemployment benefits and make sure that workers are not protected by regulation.

Let me end with a question of protocol.

Aren’t three Nobel Prize winning academics entitled to a respectful treatment of their work, without being called stooges? Can’t disagreement with them, no matter how strong, be polite?

The answer is, No. It would have been Yes, if the agenda of their research had been their own, set by them. But it is not. The purpose of their research is to ennoble the ideas of businessmen beneath the veneer of science. And not ordinary, everyday businessmen, but the most self-serving, vicious, narrow minded and ignorant of the lot.

In Opinions That Men Hold, I quoted Mortimer Zuckerman from a Wall Street Journal opinion piece. Here is a longer paragraph of what he wrote:

If there is one great policy failure of this recession, it’s that we have not used the crisis to introduce structural reforms. For example, we have a gross mismatch of available skills and demonstrable needs. Businesses struggle to find the skills and talents that are needed to compete in this new world. Millions drawing the dole to sit around should be in training for the jobs of the future that require higher educational skills.
There is a gross mismatch of available skills and demonstrable needs.

People drawing dole to sit around and do nothing.

If there is one great policy failure of this recession, it’s that we have not used the crisis to introduce structural reforms”, i.e. cut the unemployment benefits and do away with labor regulation.

Sound familiar?

Enough said.