Lots of people lose jobs even in a "good economy". By Matthew Yglesias

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Lots of people lose jobs even in a "good economy"

We need free markets + full employment + a strong safety net

With media layoffs once again in the news, I’ve noticed a resurgence in the doomer narrative that claims the labor market must be in bad shape because we’re constantly hearing about layoffs.

We saw this last year when prominent technology companies announced layoffs, but as I wrote then, the United States is a large country and there are always companies doing layoffs. In fact, despite the many newsworthy layoffs in 2022, the overall volume of layoffs was below average. A year later, we’re again reading about newsworthy layoffs, but the overall volume was still below average in 2023. Companies are hanging on to their workers.

This does raise the interesting question of why it seems like we hear more about layoffs these days.

One reason is almost certainly that a company’s noteworthiness doesn’t necessarily correspond to the number of people it employs. Meta, for example, has about 10 times the market capitalization of Lowe’s, and is a cultural influence in a way that the Pepsi to Home Depot’s Coke could never be. But Lowe’s has more than quadruple the number of employees. These big tech companies are so successful in part because the powerful scale effects of software mean they can grow their revenue disproportionately to their cost base, while for Lowe’s to grow, it needs to open more stores and hire more people, which holds profit margins down.

Media industry layoffs themselves are the apogee of this trend. The Wall Street Journal laying off 20 staffers in its DC bureau is a national news story, whereas Cava opening one restaurant in San Diego is barely even a story in San Diego.

That’s just a reality; some sectors of the economy get more attention than others. And the nature of capitalism is that even when “the economy” as a whole is doing well, some individual businesses, and even whole sectors of the economy, will be suffering. It’s not possible to have an economy that’s growing and dynamic without failures and losses. And if you think about it for a minute you’ll see that you wouldn’t want a legal framework that ensures nobody’s employer ever goes out of business or needs to close a location.

Which isn’t to say we should be indifferent to the suffering those closures cause. Instead, the fact that even a strong economy features failures and layoffs is a crucial argument for a strong social safety net. The economy is not, in fact, a rising tide that lifts all boats: It’s a tide that rises on average, but with a ton of unpredictable individual variation that we can smooth out with public policy.

Ups and downs are normal

Shortly before the pandemic, my neighborhood saw a wave of restaurant closures. Not because the local economy was in bad shape, but because commercial rents in the area were soaring in a way that made several longstanding businesses non-viable. That was sad for longtime regulars and for some of the staff and other stakeholders. But it’s also an essentially unavoidable aspect of a dynamic market economy. Restaurants in the area were generally thriving, which is why rents were rising. But some businesses had higher revenue per square foot than others, and so it was the laggards who closed, giving others an opportunity to try to run a business in a high-demand, high-cost area.

And, of course, not all of them will succeed.

There’s a spot near my house that, when I first came to DC, was a funky coffee shop called Sparky’s. For a long time after that it was home to Cork, a wine bar, until Cork moved across the street. Then it was The Meatball Shop, which failed, and then a restaurant called Mexicue opened and also failed, and now it’s an Indian restaurant. I feel bad for people who lost their jobs or investments during those previous failures. But it’s not a problem for the American economy that businesses sometimes fail, it’s an integral aspect of economic competition — if you want to open a restaurant in a busy restaurant district, there is a good chance that you will fail.

In the spirit of nostalgia, I desperately miss Sparky’s; it’s where I wrote my first book and used to smoke cigarettes while losing at chess. But Sparky’s was the kind of place that can only survive when rent is low. Its viability at the time was a result of the deeply depressed state of mid-aughts 14th Street, itself a legacy of the 1968 riots and the crack wars of the 1980s. The current iteration of the neighborhood is much nicer, but less cool than the version that existed 20 years ago.

All of which is just to say that there’s a difference between business closures and job losses being a sad story for the individuals involved (which they absolutely are) and being a crisis for the economy as a whole. Sometimes there is, in fact, an economy-wide crisis. But even in a healthy, growing economy, whole sectors can sink or shrink.

Progress involves destruction

As a kid, I learned to develop film and make photographic prints. This was something that my mother, an artist, taught me, and it was also an optional arts and crafts activity at my summer camp.

Today, film photography is a hobby for some people, but photo development used to be a job that a person could do for a living. It was never a huge share of national employment, but it was quite widespread — anyone taking pictures needed a photo development shop where they could drop off film and then pick up prints. And, of course, on a more professional level, any kind of magazine or publishing company needed to develop film and make prints.

By the time I got to college, the decline of analog photography was underway (this is much clearer in retrospect) but digital cameras were still really crappy. I worked for a campus alt-weekly, where we had a darkroom, and sometimes photographers would make their own prints and we would scan them for the paper. Other times they would just drop film off and someone else would develop it, and we would usually use a negative scanner to put the image into PageMaker rather than bothering with a print. I wasn’t on the photo team, but since I did know how to develop film, I sometimes helped out, especially junior year when I was editor-in-chief and had to spend a lot of time hanging around the office.

If I’d been 10 or 20 years older, these might have turned out to be useful skills.

But digital photography was so much cheaper, faster, and easier that it started massively displacing film long before it came anywhere close to matching film in quality.1 I ended up being too young to ever use this skill professionally. But the truly unlucky ones were those whose businesses were wrecked and skills dramatically devalued when they were middle-aged. In a strong economy, if you lose your job, you can get another one. But if you lose your job at age 45 because your entire field is shrinking, then that job is almost certainly going to be a lower-status role for lower pay in an area where you don’t have relevant skills and experience.

That sucks. Something along those lines, in fact, happened to my mother, who had a high-ranking role as an analog graphic designer at Newsweek when desktop publishing software started to transform the industry. There also used to be tens of thousands of companies that manufactured horse-drawn carriages, and around the middle of the twentieth century over 300,000 people worked as telephone operators. The landscape was dotted with typewriter repair shops.

But it’s not bad for society that desktop publishing software was invented or that we have digital photography or cars. I don’t subscribe to the techno-optimist fallacy or insist that every instance of change and disruption is for the better. But clearly, on average, humanity has advanced thanks to productivity-enhancing technology. The problem with productivity-enhancing technology, though, is that if it happens to be you, personally, who is displaced, just being told “well, in the long run, average living standards rise due to productivity increases” doesn’t help.

Making the tide work

Here’s what does help.

The private economy supports public services via taxation. And if the economy grows, so does the tax base. So if the tide is rising on average thanks to a competitive economy and improving technology, then we can have better parks and schools and libraries and museums and better transportation infrastructure and safer streets. Will those things actually happen? Well, that’s hard to say. But they can happen if policymakers make appropriate choices in the face of a growing economy.

The government can also guarantee that everyone gets a minimum public pension when they retire, that people who are sick get cost-effective treatment without going bankrupt, and that parents of young kids get extra cash to cover the expenses of a household with more people in it.

This kind of thing is often thought of in terms of redistribution — we take from those with the means and distribute to those with the needs. But if you think about it over the course of an entire lifetime, it’s also a way of smoothing out some of the functions of luck.

If you look at any given cohort of broadly middle class Americans — people who work hard, stay consistently employed, and gain skills and experience on the job — some people have the good fortune to learn a trade or profession that remains consistently in demand across their entire lifetime, but others find out that a field that was growing during their 20s and 30s starts to shrink in their 40s and 50s. Some people have careers disrupted by spells of unemployment through no fault of their own. Twenty years ago, Cosi was an important fast casual chain in DC and other east coast American cities. Cosi is gone now, but Chipotle, which was small back then, has grown enormously. The failure of Cosi and the success of Chipotle isn’t really due to any difference in the efforts of their rank-and-file employees, but if you worked consistently for Chipotle, you had chances to get promotions, whereas if you worked for Cosi, you probably got laid off.

People naturally like to defend their interests. And they come up with all kinds of ways — trade protection, occupational licensing, arbitrary regulations, anticompetitive rules — to try to defend themselves from catastrophic economic misfortune. And out of all the possible options, the one that’s most fair and most efficient, most friendly to growth and least likely to leave people falling through the cracks, is to let markets and competition work while using taxes to finance public services and a safety net.

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