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Saturday, August 06, 2016

How Low-Skilled Workers Could Rescue the US Economy

Their re-entry into the labor force will help power a revival in growth over the next decade, a Harvard economist argues

By Adam Creighton
Wall Street Journal Blogs
August 2, 2016

Remember those low-skilled workers, the ones who are disappearing from the work force because globalization and technology have passed them by? The ones whose economic frustration is driving populist politics around the world? 

New research by Harvard economist Dale Jorgenson offers a cheerier outlook for both them and economic growth.

His new study, which breaks down THE FORCES PROPELLING US GROWTH SINCE 1947 - the year the transistor was invented - and projects them forward to 2024, anticipates a boom in LOW-SKILLED WORK that rekindles economic growth to the tune of 2.49% a year from now till then, a little above the 2.34% experienced from 1990 to 2014.

“Those workers will fill service jobs in a growing economy,” he suggests.

“While the average quality of the labor force will begin to flat-line, the number of hours worked will rebound as employment-participation rates flick back to near where they were before the Great Recession, the paper says.” Among men and women ages 25 to 35 with only high-school qualifications, these rates are still 10 percentage points below their peaks in the early 2000s (at just under 80% and 60%, respectively).

“There are a lot of hours out there that aren’t being employed properly and they will be employed,” Mr. Jorgenson said in an interview, noting participation rates were already starting to rise as wages rose and employers struggled to fill positions.

“Some of the pessimism about the growth outlook stemmed from a misreading of the past and a misguided faith in official economic statistics,” he said.

Paul Krugman famously said “productivity isn’t everything, but in the long run it is almost everything.” But Jorgensons paper, written with a senior economist at the U.S. Bureau of Economic Analysis, shows increases in capital and labor have accounted for 80% of economic growth in the U.S. since 1947.

Capital contributed 50% and improvements in the quality and amount of labor 30%, the economists found, leaving total factor productivity - typically seen as a black box, the excess of economic growth over and above improvements in labor and capital = contributing 20%.

“The standard story doesn’t have as clear a concept of the quality of the labor and quality of capital that goes into growth,” Mr. Jorgenson said.

The study does point to a one drag on growth: a looming plateau in educational attainment as the higher-education sector reaches a saturation point. Almost 40% of young Americans enter the labor market with college qualifications, more than double the level of the 1950s. “There’s a limit to how many can go. There are diminishing returns to having more people in study,” Mr. Jorgenson said.

But the Harvard professor also said that national statistic agencies over the last decade have failed to adequately capture the falls in prices of some goods and services, such as cloud computing, which were spreading rapidly throughout the economy. That would understate the contribution of information technology to investment and GDP growth, for instance.

“There’s quite a lot of evidence that the economy is growing faster than we think,” he said.

SOURCE

Posted by Elvis on 08/06/16 •
Section Dying America • Section Workplace
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