Workers are different

It is true, and yes it is obvious … however, just because it is obvious doesn’t make it a useless fact – in truth it is an essential, and oft ignored point to keep in mind.  As raised here (ht MR):

Those of us who actually work in industry and are involved in large engineering projects of the type the stimulus was designed to ‘stimulate’ could have told you this without waiting for a study. We tried to. No one was listening.

It is maddening to hear ‘workers’ talked about as if they are interchangeable – Oh, a whole bunch of home construction workers have been layed off? Don’t worry, we’ll build a road or a bridge and employ them!” The only problem being that the type of construction home builders are trained for has nothing to do with bridges.

This is an undeniable fact – and is something that it is important to keep in mind when discussing labour market dynamics.  Now, the article goes on to say that only Austrain economists look at this issue – I call bull on that, there is a whole bunch of literature on heterogenous labour in labour economics, during the recession New Zealand economists have constantly talked about job mismatch (an understanding of that is one of the reasons why any stimulus spending has been more targeted), and the only reason it is often not modelled explicitly is because it can be hard to describe/make the model solve.

Even in the most general and non-detailed areas of applied macroeconomics, economists often use empirical models with some sort of implied labour market friction that is meant to proxy the mismatch – not a perfect solution, but definitely an indication that it isn’t being ignored.

In fact, I’ve been reading a lot of commentators in NZ discussing the areas where skill shortages still existed in the middle of the recession – in this country policy analysts, economists, and humans all seem to have a good understanding of the differences in labour and the value of human capital … maybe this is just an issue that NZ is more informed on.

4 replies
  1. JC
    JC says:

    “maybe this is just an issue that NZ is more informed on.”
    Yep, we learn it from age three.. its called a “lollyscramble”.

    • Matt Nolan
      Matt Nolan says:

      I don’t understand what you mean – how does a lollyscramble teach us that people have different skills and abilities more than any other life experience.

      Also, we always had macintosh lollies when I was at a lollyscramble, and they weren’t that exciting – if anything they were hard and hurt my teeth.

  2. DT
    DT says:

    Its a good point about targeting. Of course, some industries are seen as more effective at speedily creating stimulus than others, which then feeds through to increased demand in other industries. This could outweigh the imbalances of not targeting the spending in a balanced way. Bryan Philpott (I think) looked at these issues towards the end of his lecturing career.

    • Matt Nolan
      Matt Nolan says:

      There is of course one key issue with targeting – if underlying demand for a product is permanently lower, why would we want to keep employment in that industry instead of retraining?

      If there is a temporary slump in employment in an industry, the only real reason we should intervene is if the company is liquidity constrained – and direct intervention might not make sense in that context either.

      The key point I take out of it is that demand tends to vary more greatly than people’s skill sets allow for – potentially indicating that there is a smoothing role that can be filled by greater access to skill training.  Sounds like a good reason to integrate the benefit, tax, and education systems more fully:


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