Tuesday, January 04, 2011

Out With The Old, In With The New! Or Not...

James Galbraith (and Digby and ql) thinks that we should lower the retirement age so that the youngsters can find jobs:

In the United States, the financial crisis has left the country with 11 million fewer jobs than Americans need now. No matter how aggressive the policy, we are not going to find 11 million new jobs soon. So common sense suggests we should make some decisions about who should have the first crack: older people, who have already worked three or four decades at hard jobs? Or younger people, many just out of school, with fresh skills and ambitions?

Urg, this seems to be one of those zombie concepts that just refuses to die. Galbraith's analysis is based on the assumption that there's a fixed amount of work to be done and that if the old folk just step aside those positions will suddenly be available to the new generation. Allow me to quote Mr. Krugman:

Economists call it the "lump of labor fallacy." It's the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950's that automation would lead to mass unemployment.) As the derisive name suggests, it's an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

Clearly, reality is more complicated. The young people have to be in the right place and have the right skill set, there are all sorts of knock-on effects to changing the retirement age, and so on. I'm really surprised that Digby is falling for that; she's usually such a sharp thinker.

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