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Up to this point, we’ve been talking a lot about workers transitioning from one sector of the economy into another as their jobs are made obsolete, as if this were a completely seamless process. In practice, though, workers who’ve lost their jobs often aren’t able to just seamlessly transition into new ones; the process can be extremely difficult, and the result is that workers often have to accept new jobs that are distinctly worse than their old ones. Sure, we might be able to say from our comfortably detached outside perspective that things will be better for the overall economy in the long term, but that’s cold comfort for the people who have to reckon with the more immediate effects of having their livelihoods upended in such a disruptive way. So how do we deal with that reality?

Well, as mentioned before, one possible approach is to just try to hold on to the old jobs, and to keep people in their positions even beyond the point at which those positions have become obsolete. So for instance, we might have the government clamp down and pass laws making it more difficult for firms to lay off workers, even if those workers’ productivity levels are no longer high enough to justify keeping them. But although this kind of approach might be appealing to politicians (since it doesn’t require them to actually spend any money or do anything themselves for the workers), it can have some of the same unintended downsides as minimum wage laws – namely, that by simply mandating that companies can no longer offer jobs to workers unless those jobs include a certain level of job security and/or pay, it doesn’t actually guarantee that all workers will therefore be offered secure, high-paying jobs; all it does is ensure that workers who aren’t already able to get such jobs on their own will be functionally barred from being able to get any job at all. Sowell explains:

Virtually every modern industrial nation has faced issues of job security, whether they have faced these issues realistically or unrealistically, successfully or unsuccessfully. In some countries—France, Germany, India, and South Africa, for example—job security laws make it difficult and costly for a private employer to fire anyone. Labor unions try to have job security policies in many industries and in many countries around the world. Teachers’ unions in the United States are so successful at this that it can easily cost a school district tens of thousands of dollars—or more than a hundred thousand in some places—to fire just one teacher, even if that teacher is grossly incompetent.

The obvious purpose of job security laws is to reduce unemployment but that is very different from saying that this is the actual effect of such laws. Countries with strong job security laws typically do not have lower unemployment rates, but instead have higher unemployment rates, than countries without widespread job protection laws. In France, which has some of Europe’s strongest job security laws, double-digit unemployment rates are not uncommon. But in the United States, Americans become alarmed when the unemployment rate approaches such a level. In South Africa, the government itself has admitted that its rigid job protection laws have had “unintended consequences,” among them an unemployment rate that has remained around 25 percent for years, peaking at 31 percent in 2002.  As the British magazine The Economist put it: “Firing is such a costly headache that many prefer not to hire in the first place.” This consequence is by no means unique to South Africa.

The very thing that makes a modern industrial society so efficient and so effective in raising living standards—the constant quest for newer and better ways of getting work done and more goods produced—makes it impossible to keep on having the same workers doing the same jobs in the same way. For example, back at the beginning of the twentieth century, the United States had about 10 million farmers and farm laborers to feed a population of 76 million people. By the end of the twentieth century, there were fewer than one-fifth this many farmers and farm laborers, feeding a population more than three times as large. Yet, far from having less food, Americans’ biggest problems now included obesity and trying to find export markets for their surplus agricultural produce. All this was made possible because farming became a radically different enterprise, using machinery, chemicals and methods unheard of when the century began—and requiring the labor of far fewer people.

There were no job security laws to keep workers in agriculture, where they were now superfluous, so they went by the millions into industry, where they added greatly to the national output. Farming is of course not the only sector of the economy to be revolutionized during the twentieth century. Whole new industries sprang up, such as aviation and computers, and even old industries like retailing have seen radical changes in which companies and which business methods have survived. More than 17 million workers in the United States lost their jobs between 1990 and 1995. But there were never 17 million Americans unemployed at any given time during that period, nor anything close to that. In fact, the unemployment rate in the United States fell to its lowest point in years during the 1990s. Americans were moving from one job to another, rather than relying on job security in one place. The average American has nine jobs between the ages of 18 and 34.

In Europe, where job security laws and practices are much stronger than in the United States, jobs have in fact been harder to come by. During the decade of the 1990s, the United States created jobs at triple the rate of industrial nations in Europe. In the private sector, Europe actually lost jobs, and only its increased government employment led to any net gain at all. This should not be surprising. Job security laws make it more expensive to hire workers—and, like anything else that is made more expensive, labor is less in demand at a higher price than at a lower price. Job security policies save the jobs of existing workers, but at the cost of reducing the flexibility and efficiency of the economy as a whole, thereby inhibiting production of the wealth needed for the creation of new jobs for other workers.

Because job security laws make it risky for private enterprises to hire new workers, during periods of rising demand for their products existing employees may be worked overtime instead, or capital may be substituted for labor, such as using huge buses instead of hiring more drivers for more regular-sized buses. However it is done, increased substitution of capital for labor leaves other workers unemployed. For the working population as a whole, there may be no net increase in job security but instead a concentration of the insecurity on those who happen to be on the outside looking in, especially younger workers entering the labor force or women seeking to re-enter the labor force after taking time out to raise children.

The connection between job security laws and unemployment has been understood by some officials but apparently not by much of the public, including the educated public. When France tried to deal with its high youth unemployment rate of 23 percent by easing its stringent job security laws for people on their first job, students at the Sorbonne and other French universities rioted in Paris and other cities across the country in 2006.

And Wheelan explains further:

What’s the problem [with trying to preserve less productive jobs instead of letting them be eliminated]? The problem is that we don’t get the benefits of the new economic structure if politicians decide to protect the old one. Roger Ferguson, Jr., former vice chairman of the board of governors of the Federal Reserve, explains, “Policymakers who fail to appreciate the relationship between the relentless churning of the competitive environment and wealth creation will end up focusing their efforts on methods and skills that are in decline. In so doing, they establish policies that are aimed at protecting weak, outdated technologies, and in the end, they slow the economy’s march forward.” Both politics and compassion suggest that we ought to offer a hand to those mowed over by competition. If some kind of wrenching change generates progress, then the pie must get bigger. And if the pie gets bigger, then at least some of it ought to be offered to the losers—be it in the form of transition aid, job retraining, or whatever else will help those who have been knocked over to get back on their feet. One of the features that made the North American Free Trade Agreement more palatable was a provision that offered compensation to workers whose job losses could be tied to expanded trade with Mexico. Similarly, many states are using money from the massive legal settlement with the tobacco industry to compensate tobacco farmers whose livelihoods are threatened by declining tobacco use.

There is a crucial distinction, however, between using the political process to build a safety net for those harmed by creative destruction and using the political process to stop that creative destruction in the first place. Think about the telegraph and the Pony Express. It would have been one thing to help displaced Pony Express workers by retraining them as telegraph operators; it would have been quite another to help them by banning the telegraph. Sometimes the political process does the equivalent of the latter for reasons related to the [disparity between the impact felt by the workers and the impact felt by the general population]. The economic benefits of competition are huge but spread over a large group; the costs tend to be smaller but highly concentrated. As a result, the beneficiaries of creative destruction hardly notice; the losers chain themselves to their congressman’s office door seeking protection, as any of us might if our livelihood or community were at risk.

Such is the case in the realm of international trade. Trade is good for consumers. We pay less for shoes, cars, electronics, food, and everything else that can be made better or more cheaply somewhere else in the world (or is made more cheaply in this country because of foreign competition). Our lives are made better in thousands of little ways that have a significant cumulative effect. Looking back on the Clinton presidency, former Treasury secretary Robert Rubin reflected, “The economic benefits of the tariff reductions we negotiated over the last eight years represent the largest tax cut in the history of the world.” Cheaper shoes here, a better television there—still probably not enough to get the average person to fly somewhere and march in favor of the World Trade Organization (WTO). Meanwhile, those most directly affected by globalization have a more powerful motivation. In one memorable case, the AFL-CIO and other unions did send some thirty thousand members to Seattle in 1999 to protest against broadening the WTO. The flimsy pretext was that the union is concerned about wages and working conditions in the developing world. Nonsense. The AFL-CIO is worried about American jobs. More trade means cheaper goods for millions of American consumers and lost jobs and shuttered plants. That is something that will motivate workers to march in the streets, as it has been throughout history. The original Luddites were bands of English textile workers who destroyed textile-making machinery to protest the low wages and unemployment caused by mechanization. What if they had gotten their way?

Consider that at the beginning of the fifteenth century, China was far more technologically advanced than the West. China had a superior knowledge of science, farming, engineering, even veterinary medicine. The Chinese were casting iron in 200 B.C., some fifteen hundred years before the Europeans. Yet the Industrial Revolution took place in Europe while Chinese civilization languished. Why? One historical interpretation posits that the Chinese elites valued stability more than progress. As a result, leaders blocked the kinds of wrenching societal changes that made the Industrial Revolution possible. In the fifteenth century, for example, China’s rulers banned long-sea-voyage trade ventures, choking off trade as well as the economic development, discovery, and social change that come with them.

Needless to say, the idea of wanting to protect people’s jobs comes from a place of good intentions. But well-intentioned or not, interfering with market forces always carries the risk of causing negative side effects. And in this case, the clearest side effect is that by keeping firms’ efficiency artificially low, their cost of producing goods and services is kept artificially high – which leads to persistently high prices for customers, which means that those customers’ purchasing power stagnates rather than improving over time – the functional equivalent of denying them a universal pay raise.

So what are some better alternatives? Wheelan mentioned a few already; instead of trying to keep workers locked into their old jobs, we can, for instance, provide them with resources like transition aid and/or job retraining to more smoothly and easily transfer into new ones. As he puts it:

We can do things to soften [the] blows [of creative destruction]. We can retrain or even relocate workers. We can provide development assistance to communities harmed by the loss of a major industry. We can ensure that our schools teach the kinds of skills that make workers adaptable to whatever the economy may throw at them. In short, we can make sure that the winners do write checks (if indirectly) to the losers, sharing at least part of their gains. It’s good politics and it’s the right thing to do.

The logic behind this kind of strategy is clear enough: By allowing creative destruction to take place and make production more efficient (as opposed to resisting it with legal restrictions and so on), we can decrease costs for customers, so that even if a portion of those customer savings are then taxed and redistributed to workers who’ve lost their jobs, everyone can still come out ahead overall. And if this redistribution program includes training those workers for new jobs, it can increase efficiency and customer savings further still, by making it quicker and easier for firms to find qualified workers and bring them into positions where they can be most productive.

That being said, some have made the counterargument that whenever we’ve tried job retraining programs at various levels in the past, they’ve never really been all that effective, so they might not necessarily be the best way of helping out displaced workers. Steven Malanga, for example, writes:

Although worker training is as fashionable as mom and apple pie among politicians, these programs consistently fail because they bear all the weaknesses typical of government social programs. They are frequently handed to politically connected groups to run without regard to expertise. The programs often focus on retraining for jobs in industries that politicians and bureaucrats favor now, not necessarily for industries that are most in need of workers. Meanwhile, journalists and policy makers often make the mistake of touting small programs (often run with private money) that do seem to succeed, assuming the model can work nationally, even though upsizing small, successful programs often fails.

In the 1980s, research on programs run under the Job Training Partnership Act, the key training vehicle for government programs at the time, found that they had virtually no impact on employment or wage levels among those who completed them. This was not surprising considering that the programs placed people in training for jobs with companies that were rapidly expanding at the time, like McDonald’s, which freely admitted they would have hired the workers even without the federally sponsored training. Money also went to train workers who were being hired by companies that had shut down plants in one location and reopened them somewhere else, providing a neat relocation subsidy to firms but no job gains. One commission looking at agencies running job training under the partnership legislation in New York City noted that they “do not consistently teach the right skills and overall are not of sufficient quality.”

In fairness, a lot of these criticisms seem to just come down to implementation issues, which might be fixable if administered more competently – so they shouldn’t necessarily be considered knock-down arguments against these kinds of programs. (From what I’ve read, it seems like some other countries have been able to make them work successfully, so our issues here may just be US-specific ones; more on that later.) But leaving aside the question of whether all the various logistical difficulties can be overcome, a more fundamental challenge when it comes to retraining workers is that, for a whole variety of reasons, a lot of them simply don’t take to retraining all that well. As Alexander puts it:

Although “Well, they should retrain” is a nice thought, not every 50 year old grizzled miner can learn how to program social networking software. [Many] of them just [become] destitute and miserable.

Granted, it’s not quite such a dramatically binary situation in most cases; newly-unemployed workers do typically have other choices besides just software programming on the one hand and abject destitution on the other. As we’ve already discussed, the service sector is one particular area where new kinds of jobs are being created all the time. Still, the point remains that making the transition from one sector of the economy to another doesn’t always come naturally for everybody. And this can be an especially acute problem for manufacturing workers switching to the service sector, because for a lot of them, it’s not just that they aren’t comfortable making the switch – it’s that the prospect feels almost demeaning to them on a personal level, because it feels like they’re being forced to give up the kind of rugged blue-collar self-image that they consider a core part of their identity. As Scott Sumner writes, there’s often an unavoidably gendered dimension to this kind of attitude which can complicate the whole dynamic:

What’s all [the backlash against reduced manufacturing employment] really about? Perhaps the “feminization” of America. When farm work was wiped out by automation, uneducated farmers generally found factory jobs in the city. Now factory workers are being asked to transition to service sector jobs that have been traditionally seen as “women’s work”. Even worse, the culture is pushing back against a lot of traditionally masculine character traits (especially on campuses). The alt-right is overtly anti-feminist, and Trump ran a consciously macho themed campaign. This all may seem to be about trade, but it’s actually about automation and low-skilled men who feel emasculated.

In these kinds of cases, a natural response might be to just shrug and say, “Well, that’s their prejudice to overcome, then; it’s not my problem. Why should I have to pay twice as much for a car just so these guys can feel more manly or whatever?” And this is a fair point; as much as we might all have certain types of work we prefer over others, at the end of the day very few of us actually get our first choice (otherwise most people would be actors or musicians or athletes or what have you). We ultimately have to take what’s available. And if for some men that means having to accept a job that’s less than 100% stereotypically masculine, well, that’s not exactly the worst fate in the world; having to find something to base their identity on other than their physical toughness might actually do them some good.

(Besides, it’ll usually be the case that as new service-sector jobs open up, it won’t necessarily be the old manufacturing workers who are expected to fill them anyway; workers in more closely-related fields will tend to be the ones who fill them, and then those workers’ old jobs will be the ones that are available for manufacturing workers to step into. So for instance, if a new job is created in a service-sector field like nursing or computer programming or whatever, it might be filled by someone who would otherwise have become a teacher or something – and then as they switch into this new position, it’ll mean that there will now be an extra teaching position free to be filled by someone who might otherwise have become, say, a salesperson, which will mean there will now be an extra salesperson position available… and so on down the line until eventually a job will open up in a field that’s close enough to manufacturing that a former manufacturing worker will be able to switch into it fairly easily (or at least, more easily than switching into nursing or computer programming). So the argument that “you can’t expect lifelong miners and factory workers to pick up nursing or computer programming just like that” isn’t necessarily as significant as it might seem, because usually they aren’t being asked to make such a drastic change. More often, they’ll just be switching into the profession that they’re next-best-suited-to after manufacturing. But of course, even then, they’ll still often have to overcome certain psychological barriers to changing jobs – which, if we’re being honest, can include things like old-fashioned masculine pride in some cases.)

That being said, though, we don’t want to do too much victim-blaming here. There are plenty of situations in which workers really do have to switch into new fields that are completely foreign to them; and in those cases, there are all kinds of reasons why they might struggle to adjust to their new jobs – so it would be a mistake to just chalk it all up to male insecurity (especially considering that not all of the affected workers are male!). You might have some workers, for instance, who are great at working with their hands, but aren’t so great when it comes to extended interpersonal interactions, so they’re less naturally comfortable in jobs where they have to interact with customers a lot. Or you might have workers who function well in structured environments where their tasks are well-defined, but struggle to adjust to more abstract work where the objectives aren’t always as straightforward. Other workers might have a hard time working remotely if they’ve grown accustomed to having co-workers around them all the time. And the list goes on. Probably the biggest obstacle of all, though, is just the basic problem of having a skill set that no longer matches what the market is demanding. For workers who’ve been doing the same job for years, they’re likely to find that their extensive experience in their field isn’t worth all that much in other fields, so they basically have to start from square one all over again – which often means a significant pay cut. Of course, this is exactly why giving workers easy access to job retraining can be so valuable; the more quickly they’re able to get themselves up to speed in their new field, the more easily they’ll be able to maintain the quality of life they’re used to. But whether workers are able to succeed in retraining programs depends a lot on what kind of retraining is actually being offered and whether the workers are able to adapt and fit into the new jobs that they’re being trained for – and that’s not always an easy task if they don’t have the right background. So in light of the fact that every worker is different and every situation is different, another possible alternative to systematized job retraining is to simply adopt a policy of ensuring that every newly-unemployed worker will receive generous enough unemployment insurance payments that they’ll be able to make their own choices and pursue whatever path they think will be most rewarding for them in the end. In other words, rather than trying to put every unemployed worker through the same process and retrain them for jobs that may or may not actually suit them, it might be simpler and more efficient to take the funds that would have been spent on that retraining and just give them directly to the workers instead, so that they can either spend it on retraining if that’s what they prefer, or alternatively, put it toward something like getting a degree, or starting their own small business, or whatever else they think would be the best long-term investment for them given their specific circumstances. Similarly, another policy that might be helpful in this way would be to expand the Earned Income Tax Credit – rewarding workers with some extra financial cushion just for being able to secure any kind of job at all – so that once they do find new work, they’ll still be able to maintain a decent standard of living even if the new job doesn’t pay as much as their old one did. (This would also be useful as a kind of counterbalancing incentive to the unemployment benefits, since if those benefits were too open-ended, they might otherwise incentivize workers to remain unemployed for longer than necessary.) Likewise, making things like healthcare universally available – rather than having them be tied to people’s jobs – would go a long way toward making it easier and less stressful for people to change careers. And if all else fails, of course, there’s always the possibility of having the government step in and hire unemployed people directly, as a kind of last-resort stopgap employer for people who aren’t able to find any other way of making ends meet – so that even if they’re completely unable to find any other employer interested in making use of their labor, they can at least earn a living by contributing to public works projects that do some good in their communities. But now we’re getting into arguments that would probably be best left for the next post; so for now, let’s just say that in order to achieve the best outcome for society as a whole, government can in fact have a role in providing a social safety net for workers who are between jobs – but at the end of the day, the reason for doing this is so it can stay out of the way of the market mechanism, and can allow the forces of creative destruction to replace less productive operations with more productive ones. We should always bear in mind that the market economy works best when the government strives to support it, by shoring up its weak spots with supplemental measures like social safety nets – not when it tries to override it or replace it outright with things like things like price controls and overly restrictive regulations and so on.

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