Saturday, July 09, 2005

Another Victory For Empiricism

The Truth About Job Growth

...will not be found in this post.  I cannot claim to know the truth.  However, I do know that the headlines are misleading.  Unemployment and poor economic conditions still are major issues.  I suppose, though, if you really believe in the ideology of trickle-down economics, you know that economic conditions must be improving.  And that becomes your truth.  For example, we are told by CNN that the unemployment rate is at a 4-year low.  Great.  but further down in the article:
June marked the ninth time in the last 12 months that employer payrolls came in weaker than forecasts. The 146,000 jobs added last month is barely enough to keep up with growth in the labor force, according to most economists, and it trailed the average increase of about 172,000 jobs a month added over the last 12 months.

John Challenger, CEO of outplacement firm Challenger Gray & Christmas, said employers are clearly still more cautious about adding employees than in past expansions.

"With the economy growing at a steady pace and healthy corporate earnings, the lack of much stronger job growth is a mystery," he said in a statement.
So job growth is barely keeping up with population growth, meaning that we really are not making progress.  Wages are stagnant as well:
The average hourly wage edged up 3 cents to $16.06. That was in line with forecasts and brought hourly wages up 2.7 percent over the last 12 months, while consumer prices are up 2.8 percent for the 12 months through May, meaning wages for hourly workers are barely keeping pace with inflation.
Recall that the consumer price index does not include energy costs, and the price of gasoline has gone up quite a bit.  In other words, ordinary people are doing worse.  Perhaps this tepid economic news results from a lack of information about how to stimulate job growth.  

Well, no, actually there five major indexes that rank geographic areas in terms of their potential for economic development.  These purport to show exactly what needs to be done to promote job growth.  Interestingly, the Economic Policy Institute just published a critique of the indices, and found that 34 of our 50 states could claim to be in the top 10, according to at least one index.  Their conclusion:
It is precisely because the competitiveness indexes produced by the ideological think tanks are aimed at promoting particular kinds of legislation that they do a poor job of predicting state economic growth: the measures used must pass an ideology screen, so the validity and relevance criteria go by the wayside. This is also why these rankings are ignored by the business people actually making the decisions. They should be ignored by policy makers for the same reason.
Perhaps if we really want to know what policies produce the kind of job growth that we are seeking, we should look at what actually works.  This article from CBC indicates that Ontario won a major auto plant because their workers are better trained, and because the health care costs are lower:
Toyota to build 100,000 vehicles per year in Woodstock, Ont., starting 2008
12:26 AM EDT Jul 09
CBC News

WOODSTOCK, Ont. (CP) - Ontario workers are well-trained.

That simple explanation was cited as a main reason why Toyota turned its back on hundreds of millions of dollars in subsidies offered from several American states in favour of building a second Ontario plant.

Industry experts say Ontarians are easier and cheaper to train - helping make it more cost-efficient to train workers when the new Woodstock plant opens in 2008, 40 kilometres away from its skilled workforce in Cambridge.

"The level of the workforce in general is so high that the training program you need for people, even for people who have not worked in a Toyota plant before, is minimal compared to what you have to go through in the southeastern United States," said Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, whose members will see increased business with the new plant. [...]

Several U.S. states were reportedly prepared to offer more than double that amount of subsidy. But Fedchun said much of that extra money would have been eaten away by higher training costs than are necessary for the Woodstock project.

He said Nissan and Honda have encountered difficulties getting new plants up to full production in recent years in Mississippi and Alabama due to an untrained - and often illiterate - workforce. In Alabama, trainers had to use "pictorials" to teach some illiterate workers how to use high-tech plant equipment.

"The educational level and the skill level of the people down there is so much lower than it is in Ontario," Fedchun said.

In addition to lower training costs, Canadian workers are also $4 to $5 cheaper to employ partly thanks to the taxpayer-funded health-care system in Canada, said federal Industry Minister David Emmerson.
So if you happen to have a copy of the  "Metro Area and State Competitiveness Report," toss it in the trash.  Do not pay any attention to what your pet theory says ought to work.  Instead, look at what actually does work.

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