Peter Orszag of the CBO made a number of interesting points this morning. He’s
a fiscally conservative, left-leaning economist, and I’m sure that he would
agree with Dean Baker on many,
many things. But on one of Baker’s top talking points, there seems to be a big
difference. Baker is worried about the recent sharp decline in productivity
growth; Orszag isn’t.
Orszag takes a line close to that of the Economist,
pointing out that "a lot of the downtick in productivity growth seems to
be related to the fact that employment is still stable in the construction sector
while income has declined." Baker doesn’t
like that line of argument:
This is a sector that relies heavily on undocumented workers. The article
suggests that firms are reluctant to lay people off and therefore are "hoarding"
workers in the face of the housing downturn. That is behavior that you would
expect to see in a heavily unionized sector. It is more likely that many of
the undocumented workers never showed up on the payrolls during the upturn,
so there is no job loss recorded when they stop being employed during the
downturn.
The thing is, you have to be consistent. Baker’s quite right that in the construction
industry, illegal workers tend to be the first to lose their jobs. That keeps
official employment figures high, and with income in the sector falling, productivity
numbers are sure to look atrocious.
But if you take into account the effects of illegal workers on productivity
now, in the downturn, then you also need to take into account the effects of
illegal workers on productivity during the construction boom. It could well
be, in fact, that a large amount of the recorded productivity gains
over the past few years was in fact attributable to large increases in the number
of illegal workers in the construction industry.
The question is whether the fall in productivity is a temporary thing, which
will be corrected when the other shoe drops in the construction industry, or
whether it’s something more serious. Maybe in fact it’s the rise in productivity
during the construction boom which we should be taking a second look at.