Asymmetrical Information

I don't blame Enron, I blame the fear of regulators from the OCC. Sarb-Ox is a hideous, hideous monstrosity.

Outsourcing isn't helping the appeal of the industry that much either.

When people complain about a sluggish employment market, they are not complaining about the unemployment numbers, which are lower than they were under Clinton during the Enron debachle. They complain because the number of people participating in the employment market (and thus are considered unemployed, rather than simply not looking for work) seems relatively high.

There is an intesting discussion here, where the author looks at three different trends which one author claims accounts for 3 million missing workers--and explores those "trends" more closely. For example, he notes that in one report, 1.1 million missing jobs were attributed to the fact that the growth trend in the 1960's of women participation in the workforce has appeared to reach a plateau of 80% in the 1990's from 40% half a century before. Yet interpolating growth from the 1950's to the 1990's as a straight line makes little sense unless you assume that labor force participation of women in the work force should be above 100% in the middle of the 21st century.

It may be the case that Enron and a number of Dot Com companies employed far more people than they should, and those people were otherwise unemployable as they haven't been able to find a job in the next decade. However, Enron only employed 20,000 people total. When we're talking a theoretical employment shortcoming in the millions (if the above research is to be believed), it would take several hundred Enrons before the numbers allow you to draw the conclusion that the Enrons of the 1990's account for the huge labor force participation gap that was being bandied about just a few months before.

your whole industry became a permanently less attractive place to work, rather than suffering a temporary downturn in demand

I think a big chunk of the problem, in the software industry at least, is that a lot of people in it have a seriously inflated idea of what their labor is worth. They remember those dot-com days when the demand for even marginally-competent tech people exceeded the supply for several years running. They base their expectations on that anomaly.

Dan,

Bingo.

"Corporate crooks didn't just steal your money; they also stole your jobs."

Jobs are not property, therefore they cannot be stolen. Only communist countries had 'everybody has a right to a job'(if only in a labour camp) laws, that could have been violated.

Jaybird squawks:
>Outsourcing isn't helping the appeal of the industry that much either.

Which industry?
Probably NOT the California electric-power-supply industry, which is the one that got Enronned-up, but is also one that's not a natural candidate for "outsourcing," so which industry IS it that's supposedly lost its appeal to potential employees?

When I hear "extremely tight labour markets of the late 1990's", I immediately think "Information Technology".

When I hear "lingering unemployment in the current recovery", I also think "Information Technology".

When I hear "your whole industry became a permanently less attractive place to work", I *TOTALLY* think "Information Technology".

When Acceture (formerly known as Anderson Consulting) was taking newly minted Archelogy majors, giving them 2 weeks of computer programming training and billing them at $300/hour because the labor supply was so tight, its not hard to understand why they had a hard time finding a job later.

Good software engineers are worth their billing rates, but they are also 10-20 times more productive than the worst developers.

Don't forget that the internet was exploding during this time. Traffic was doubling every six months and the industry was hard pressed to keep up. Which was one of the reasons for the dot com bubble.

Once demand flattened to a growth rate of 20% to 30% a year there were several years worth of overcapacity already built up that had to be worked off. i.e. we had to work off about six months of capacity expansion at the dot com rate.

This meant essentially no demand (other than maintenance) for the next three or four years. Hard hit were fiber optics companies. Server companies. etc. Of course there were ripple effects.

In the mfg. company where I work (exec. level), we have doubled sales while only adding 20% to p/r in last ten years. Yet no one is working any harder or longer. Why? Because widespread usage of personal computers has allowed each office person to do the work of two people needed in 1990. On the shop floor, one person can run two CNC machines whereas fifteen years ago, each machine needed an attendant. Thus the promise of
computerization has been realized!
Also, do the unemployment stats measure self- employed consultants? I have at least two friends who make a great living as IT consultants but were in the traditional workforce ten years ago. Seems to me the ranks of self-employed consultants, mom and pop B&Bkeepers, etc. is greater than ever.

The unemployment rate that is based on the household survey of employment includes the
self employeed.

The number that gets the headline and financial markets react to on the first Friday of each month, payroll employment, does not include the self employeed.

I'm working as a contractor (and thus probably invisible to the Establishment Payroll Survey) in wireless telecom, one of the industries supposedly stuck with overcapacity. Fact is that there has been a labor shortage in cellular RF infrastructure since at least spring. I'm merely a computer geek who stumbled into the field a few years ago, and I've had to turn down work. When I spent a few days earlier this summer working with a travelling engineer, he had three headhunters hounding him to leave his current contract and take on the ones they had to fill.

People (including me) complain about out-sourcing. But I knew people in software in the mid-to-late 90's that were making $200/hour. And they were surprised that corporations went looking for a cheaper labor market. (Add it up - that's 400 grand per year, assuming a 2000 hour working year 8 hours per day, 5 days a week, 50 weeks a yr. with 2 weeks vacation and couple of sick days.)

And then of course it became clear that the internet and software generally wasn't really going to change the face of the world overnight, so a lot of those jobs are just gone. Not gone overseas - just plain gone.

Manufacturing products overseas makes sense only when the cost of transporting them to market approaches zero. If oil keeps going the way its going, this will change.

The bubble drew people into technology work who had absolutely no business there. They screwed up so consistently and so publicly that management perceptions were persistently poisoned against the rest of us.

The problem isn't so much the companies that completely imploded (Enron, WorldCom, the DotComs) as the ones that survived but saw so much carnage around them that some are still twitchy even today.

I'm a numbers guy, but one story I love about how unusual the 1990s were comes from a client in San Francisco that had to pay $50,000 to hire a receptionist during the bubble.

The problems are a LOT more complex than that.

We are in the midst of a global economic war, of the type that occurs only once every few hundred years. (You might want to take a look at Angus Maddisons work over at OECD. Maddison is the leading macroeconomic historian of his generation.)

China has lost as much factory jobs as America and other industrialized countries. Automation is the culprit there.

Problem is, China has a huge peasant population, and those factory jobs were the only thing keeping a revolution in check.

Same thing in many other parts of the world. So America gave technical outsourcing to those countries in exchange for dominance of the agricultural market. WHich is why we have Nafta, Cafta, etc. (It helps the Senate Finance comittee members are all from agricultural states).

Should have worked. Did initially, we got GMO soybeans in and a bunch of other stuff. But other nations out bargained our USTR, and by last November, it was pretty much a lost cause.

Even we IT people don't have that much of a problem with outsourcing, nerd society has always been a meritocracy.

Its the corruption and outright crimes that drive us up the wall. I am one of Chertoffs biggest fans, but DHS's main brief should be economic sabotage, not terrorism.

We also set up a tax loophole (America companies didn't have to pay taxes on non repatriated earnings) so American companies would have funds to purchase foreign companies springing up during this time.

Nice plan. Unfortunately, it didn't work. We got outplayed. Again. Last November, Congress passed a bill allowing all those funds to be repatriated at 5% rather than 35%, because the economy needed the infusion of money. It's worked, thats why the economy isn't far worse than it is.

Does anyone believe that IRAQ was because of WMD's or to help Iraqi's free themselves?

Iraq was about creating markets. If we can free up the oil wealth to create a middle class there, there would be a tremendous market for American goods. One big enough to offset the (supposed) Chinese market that the Chinese control.

Should have worked, but the miltary did not use the original oil spot ideas, and now, its those markets are out of reach. It is still salvageable, by the way, but the same idiots that abandoned oil spot are still in charge.

Theres lots more (I posted a list elsewhere of some of the major initiatives.) but the fact is, nothing has worked. Reasons vary.

Nobodies fault, really, America is facing the most dangerous and sophisticated economic enemies it has ever faced, that we are even holding our own at all is something to be tremendously proud of. We are WAY outmatched in almost every aspect.

The only things we haven't tried require the country to be united, and given the political atmosphere at present, that isn't going to happen.

Uniting, however, may be the only thing that can save America from an ignomious collapse in a few years.
randyjg2(at) yahoo.com

Wouldn't the Corporate crooks have kept more people working, at better wages and for longer, than if they had run their businesses honestly?

The crooks basically sucked money from the stockholders to keep their businesses afloat long after they should have failed. As a side effect of these frauds, lower level workers kept their jobs. A lot of ordinary people ended up with good paying jobs for several years that they would not have had based just on economic efficiency.

So whatever harm they did otherwise, I don't think hurting the average worker is on the list.

I disagree with that interpretation, Shannon. Stringing people out on a job that doesn't really exist has an opportunity cost: it minimizes their chances to find and develop other skills (and in some cases, promotional advancement or seniority privileges) that might remain useful after the bubble collapses -- especially when many of them were drawn into a particular industry (e.g. programming, IT, some types of engineering and technical fields...) with only marginal competency, in order to fill an artificial labor shortage.

At best it would seem to be a break-even effect.

Two essays by Paul Graham http://www.paulgraham.com/ -- "Inequality and Risk" and "After the Ladder" -- provide interesting thoughts on the future of careers and how the dismantlement of top-heavy corporate structures during the 90s broke an implicit contract in rewards for potential high achievers. Many high achievers who chose a track on a corporate ladder found out their hedge against the risk of starting out on their own was unfounded... but far too late in their lives. Graham argues that prior notions of risk for potential high-achievers are not only ill-founded now, they may have been for some time.

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