The case for economic turbulence

Is a volatile economy good for American workers? To judge by the news accounts of layoffs and downsizing and families grimly adjusting to straitened circumstances, the answer would seem to be no. Three in five jobs for 22- to 55-year-old workers last three years or less. In a typical quarter of the year, about one in 13 jobs ends. For certain obvious reasons, labor-market turbulence has a reputation as a wrecker of lives, families and pocketbooks.

But is it really? Economists Clair Brown, John Haltiwanger and Julia Lane have their doubts. On closer inspection, they note, job turnover and firm disappearance have positive effects, in the aggregate. A clerk's job at a retail warehouse is replaced by a computer, but the warehouse firm can use the savings to hire a better and better-paid office manager. As workers lose jobs in one niche or sector, they gain in another, moving on to better jobs and higher pay. In the software sector, new businesses are more productive, over a five-year period, than the firms they replace. This new-business productivity gain, the authors show, is true generally across sectors--generating efficiency, products and, most important, jobs. And new businesses tend to pay more.

In short, America is not becoming a nation of part-time Wal-Mart cashiers or burger flippers. In four of the five sectors studied by the authors--semiconductors, software, financial services, retail food and trucking--the growth rate for full-time jobs exceeds the growth rate for jobs in general. (Retail food is the exception.) Separate research, conducted by Ann Huff Stevens at the University of California, Davis, shows that the average tenure for employed U.S. male laborers has been broadly stable over the past 35 years....

The data in the book, based on a new U.S. Census program, is impeccable. Yet only in the final chapter do the authors move into the broader territory of public policy. They conclude that America's competition, deregulation and economic turbulence are largely desirable. By contrast, French labor policy, which tries to prevent firings and guarantee lifetime jobs, is counterproductive. Indeed job creation has largely stalled in Western Europe as older jobs are protected at the expense of the young and at the expense of women who wish to move into the work force more than their counterparts in earlier generations once did....

Arguably "volatility in the aggregate" was never the main concern in the first place but rather a shorthand for other worries, like comparative standard of living. In my view, the contemporary critics of labor markets are still more wrong than right. As Virginia Postrel has noted, Best Buy is full of people--few of them rich--buying flat-screen TVs. The obsession with measuring median wages misses a broader story about growing wealth, higher asset values, growing flexibility, growing buffers against risk, and growing opportunities for consumption.

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