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Monday, June 30, 2003

Population Number Gyrations

Joerg's back with some comments. Firstly he does not buy the seventies demographics argument about inflation. I don-t expect him to: yet. This is definately a release beta 1.0 idea. I am simply suggesting it should be looked into, it is a hunch, nothing more at this stage. Of course tracking the thing, with leads and lags, could be kinda tricky.

The second point is indeed interesting. As predicted by theory (mine that is) the decline in assett markets and insecurity about pensions is forcing more older people to work longer. What we don't have is a breakdown of the kind of work these people are doing and the salaries they are receiving. Clearly in many kinds of semi-skilled, and unskilled employment there is very little if any 'youth premium', in fact possibly there is quite the reverse. When I emphasise the youth premium I am definitely referring to knowledge economy, high value end activities, the ones where the OECD countries have to earn their 'higher standard of living' premium. The same phenomenon of workers over 55 starting new jobs in lower wage sectors is certainly evident in Japan. My point is if many of us are to face new careers from 55 to 75 with longer hours and lower wages, what will be the consequences for aggregate demand and for living standards.

70s inflation closely tracked capacity utilization - which was heavily gyrating in the short term. It seems unlikely that capacity utilization tracked credit. But if it did, we would have to look at interest rates, wouldn´t we? I.e., the culprit would be a misguided policy management paradigm. Surely population numbers didn´t gyrate along with the other indicators.

Calls for structural labour market reform notwithstanding, the market for labour is one of the toughest to be in on the selling side. It is quite definitely a market that is regulated by price more than the would-be "reformers" imagine. In fact, it may well be that the youth premium - younger workers´ higher flexibility, adaptability etc. - is nothing but a ceteris paribus-affair - i.e., essentially irrelevant. Listen to what Dean Baker has to tell us about the U.S. job market: "Declining 401(k)s are still driving older workers back into the labor force, as the number of employed people over age 55 rose by 36,000 even as the total number of employed people reported in the household survey fell by 200,000. Since February of 2001, there has been a reported increase in employment of people over age 55 of 2,451,000. Women have accounted for 1,494,000 of these new workers, a remarkable 18 percent increase in the number of women over age 55 who are employed." Are these older workers a) forced onto employers´ payrolls by evil regulators, b) more productive than younger workers, c) just outcompeting younger workers, not least on account of lower wage demands (or maybe other kinds of adaptability that are social rather than cognitive in nature)? The lesson to be learned here is that an economic downturn provides for far more efficient labour market reform than any economic analyst can ever aspire to. It is just not clear that the overall effect is in any way beneficial.

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