Saturday, February 28, 2009

Surowiecki again

I'm not fond of writing in a way that suggests piling on. Obviously, anyone could take a, say, Thomas Friedman book and spend days going through and pointing out the infelicitous phrasing, the lack of willingness to climb past the self-aggrandizing neo-cliches, and the inability to take any thought to the next level. But that's pretty pointless, though I reserve the right to do that with any Friedman book or column I happen to come across.

So I'm not trying to focus on James Surowiecki of The New Yorker, even if it appears that way. It just happens that he's written on topics that interest me, so I will write about him again, even though I did so just yesterday. I actually have two points here.

1) It can be dangerous to look at what people quote in preference to reading the whole thing. Case in point, Andrew Sullivan quotes Surowiecki:
Historically, productivity has been “procyclical”: it rose during booms and fell during recessions. But not this time. Even as the economy did a cliff dive in the last quarter, productivity rose an impressive 3.1 per cent. And since, in theory, workers get paid more the more productive they are, their increased productivity has helped them avoid pay cuts.
I read this and thought, has Surowiecki missed the boat this thoroughly again? Since productivity is generally measured as output per hour of employment, all we need is what we're seeing, where the denominator (hours worked) is falling faster than the numerator (economic output). And this is true enough, and belies the Sullivan title for his post, Silver Lining Watch. It's not good news at all that we are shedding jobs faster than we can cut spending.

Added to that was the loopy application of a true-enough theory, workers get paid more as productivity rises, to a specific point in time, one short enough that the theory does not hold. If we are avoiding pay cuts (and we're not - Microsoft is cutting pay for its contingent staff [at least that's what I'm told in my comments], and Acco Brands is cutting pay by 47% for a while - so it's premature to argue that this won't happen), it has little to do with perceived productivity and more to do with the general stickiness of wages.

To my surprise, once I read the entire article, I found that Surowiecki has actually spoken to most (I stress, most) of these issues. It's actually a good piece, notwithstanding the flaw about pay cuts, that wages are not quite as sticky over the long haul as many would like to think. My conclusion is that it's important to look past the quote that Sullivan cited and read the whole thing.

2) However, Surowiecki misses something else, and it's a big something else:
Bad times have always meant job losses, of course. But what’s distinctive about the speed and depth of today’s job cuts is that, even before the recession hit, American companies were, by historical standards, running lean operations. While the economy grew at a respectable rate for much of this decade, hiring did not. So one might have thought that companies would have had less room to slash payrolls, since they were already relatively slim. Instead, the same companies that were slow to hire after the last recession have been fast to fire during this one. G.D.P., after all, actually grew for much of 2008. Yet every month companies were cutting jobs. And after the credit crisis erupted, in September, companies wasted no time: as fast as consumer spending was plummeting, businesses were cutting payrolls even more aggressively. Companies have always wanted to do more with less; nowadays it’s a positive obsession.
This is true enough, but what is completely missed is the existence of greater labor pools. I'm referring, of course, to the existence and accessibility of overseas labor. Companies don't need to, as Surowiecki puts it, "hoard labor," because they can get warm, cheaper bodies that are a T1 line away.

Missing this factor is a huge omission. What we are seeing is a revolution in the way we hire and retain labor, and how we account for it. Frankly, I don't trust any of the productivity numbers I see any more; determining this was always problematic, but the presence of giant sources of hitherto untapped labor has thrown these statistics up for grabs, and I doubt we're capturing a lot of that.

You cannot hope to understand the labor market of the 1970s and '80s without considering the influx of women, and you can't discuss today's without taking offshoring into account. That we continue to try, among the punditry and the statisticians, is a major logical flaw, and no article that misses these factors can reach conclusions we can trust.

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