Daivd Leonhardt: Dispelling the Myths of Summer About the Economy

Strangely enough, though, layoffs have very little to do with the economy’s problems. Since 1992, the Labor Department has been tracking something called “gross job losses,” which is the number of positions eliminated at a given office or job site. In 2007, these losses were at nearly their lowest point on record, just above the 2006 level. That’s right ”” last year, companies eliminated significantly fewer jobs than they did in any year of the fabulous late 1990s boom.

Unfortunately, gross job gains ”” the new jobs created ”” have fallen more sharply than job losses. Companies have gone on a “hiring strike,” notes Ed McKelvey, a Goldman Sachs economist. Existing firms aren’t expanding much, and not enough new firms are starting. The country is suffering from an innovation deficit.

Layoffs will almost certainly increase in coming months, and the pain, both financial and psychological, that comes with any individual layoff tends to be severe. The victims of these layoffs deserve help, in the form of extended unemployment benefits. But the long-term solution can’t revolve around efforts to slow globalization, technological change and other forms of economic churn. We need more churn, not less.

If you want to understand the causes of the innovation deficit, I’d recommend adding one serious book to your summer reading list: “The Race Between Education and Technology,” by Claudia Goldin and Lawrence Katz, two labor economists.

They argue that the American prosperity of the 20th century sprang largely from the country’s longtime lead in educational attainment, a lead that has all but vanished. Future prosperity won’t be based on saving yesterday’s high-wage jobs, as Mr. Katz told me. It has to start with smarter, more strategic investments in education, physical infrastructure and other things that can create the high-wage jobs of tomorrow.

Read it all.