Alan Krueger, Chairman of Council of Economic Advisers gives this nice speech.
He starts with this rumor which turns out to be true:
I should start by acknowledging the personal debt I owe to Jan Svejnar. Jan taught my introductory microeconomics class when I was an impressionable freshman at Cornell. There was a rumor among the students that Jan had managed a daring escape from Czechoslovakia when he was in high school by becoming a champion skier, and then defecting at a ski match in Switzerland. Once Jan made his way to the U.S., the rumor continued, he graduated top in his class at Cornell and then earned a Ph.D. from Princeton. I later learned that that rumor was completely true. Not only is this story a testament to Jan’s talents, it also shows America at its best — as the land of opportunity.
Ok now to the topic. He says America faces three kinds of job crisis. He calls all three together as middle class jobs deficit:
When President Obama first walked into the Oval Office, he faced three distinct but related jobs crises. First, the U.S. economy was mired in a deep recession at the end of 2008. The economy was losing over 700,000 jobs a month when President Obama took the Oath of Office in January 2009.
Second, even before the Great Recession began at the end of 2007, the U.S. was not creating enough jobs. The 2000s were on track for the worst decade of job growth in over 50 years, even before the steep job loss from the 2007-09 recession [Figure 1]. By contrast, in every preceding decade the U.S. achieved strong job growth of 20 percent or higher.
Third, inequality had been rising in the U.S. since the late 1970s. The rise in inequality initially reflected falling wages of less educated workers. Male high school graduates, for example, saw an 11 percent drop in their real wage from 1979 to 1989.
He then talks about proposals to revive this decline of jobs trend. Nice stuff on Bell Labs:
The Obama Administration recognizes the importance of geographic concentration for manufacturing activity, especially for advanced manufacturing and other creative industries. Manufacturing often takes place in hubs. Recent research by Michael Greenstone, Rick Hornbeck and Enrico Moretti finds significant spillovers within local industrial clusters. Investment in one plant creates benefits for others in the area. These spillover benefits are greatest in areas where firms employ related production technologies and where workers move across firms. These mechanisms generate agglomeration externalities, or beneficial spillovers to nearby companies. It is difficult for competitive markets to coordinate to provide the optimal number or scale of such agglomeration externalities.
This requires smart offense.
We have seen this model work before. AT&T used its monopoly power to fund Bell Labs, which became the country’s idea factory. At its peak, Bell Labs employed 1,200 Ph.D.’s, including my uncle, Robert Krauss, who later was a distinguished professor of Psychology here at Columbia.
Bell Labs’s secret was to bring scientists from diverse specialties together with engineers and production managers to improve existing products, and create new and better products. My uncle told me that the researchers at Bell Labs were given free rein to work on projects of their own choosing, and they did not need to raise grant money. But he added that Bell Labs carefully selected scientists who were likely to contribute ideas in areas of interest to the operational units, and once someone developed an idea that was useful there was pressure to apply it. The inventions that sprang from Bell Labs changed the world, including the transistor, solar panels, the first communication satellite, cellphone technology, and lasers.
The breakup of AT&T eventually led to the demise of Bell Labs. Although Bell Labs is gone, we can draw on the benefits of that model without relying on another monopoly.
Hmm. So Obama admin plans to build a national network of up to 15 Institutes for Manufacturing Innovation, serving as regional hubs of manufacturing excellence.
He points how there is a trend of reshoring in US. The firms that were outsourcing/offshoring are coming back to US:
lot of CEO’s have been telling us at the White House – that more and more manufacturing companies are considering shifting their production back to the U.S. This emerging phenomenon is known as reshoring.Before his State of the Union Address, President Obama held a meeting with manufacturing companies who are reshoring jobs. It was energizing for me to participate in this meeting.
Many said that the model of sending production off shore was reaching diminishing returns. Labor costs are growing quickly abroad and productivity is higher in the U.S. This chart shows that unit labor costs of production have grown quickly abroad and fallen in the U.S. since 2002 [Figure 10].
None of the business people we met with complained about regulations or taxes. Instead, they said that better infrastructure and assistance with job training would help accelerate reshoring.
Interesting Figure 10!!
A really interesting and different kind of speech from Prof Krueger on US unemployment..