Macro Roundup

Local Labor Supply

"... Figure 7 reports estimation results for population headcounts. In Figure 7a, we find negative but insignificant impacts of trade exposure on the size of the working-age population, though the point estimates grow as the time interval lengthens. The next three panels of the figure make clear that these negative effects are driven by one age group, those 25 to 39 years old. For adults ages 18 to 24 and 40 to 64, the impact of greater import competition on population headcounts is negative but small and highly imprecisely estimated for all time differences. The finding of no net impact of trade exposure on CZ populations is consistent with Faber et al. (2019), while the greater responsiveness of younger adults echoes Bound and Holzer (2000), who show that less-experienced workers are more relatively more mobile in the face of adverse shocks. For the 2000-2019 time difference, the coefficient estimate of􀀀5:89 (t-value=􀀀2:52) indicates that when comparing CZs at the 25th and 75th percentiles of trade exposure, the more-exposed CZ would have a􀀀3:89 (􀀀5:89 ) percentage-point larger decrease in headcounts for this age group. For comparison, the 75th- 25th percentile difference in population growth across CZs for individuals ages 25 to 39 over 2000 to 2019 was 20:96 (= 16:08 + 4:84) percentage points. Cross-CZ spillovers transmitted via net migration appear to be modest and concentrated on a narrow age group....The impact of trade exposure on the total working-age population is negative for both the 2000-2010 ( =􀀀2:42, t-value =􀀀1:92) and 2000-2019 ( =􀀀3:47, t-value=􀀀1:84) time differences, and marginally significant in each case. When we examine the impact on the native-born population, we find a smaller and much less precisely estimated effect: the impact coefficient for 2000 to 2019 is􀀀0:75 (t-value =􀀀0:79). This contrasts with impacts on the foreignborn, for which greater import competition significantly reduces population headcounts over 2000 to 2019 ( =􀀀 6:79, t-value =􀀀2:05). When looking at age subgroups within these populations, we see negative significant impacts of import competition on native-born workers ages 25 to 39 ( =􀀀5:03, t-value =􀀀2:29), which aligns with the results in Figure 7, and on foreign-born workers ages 40 to 64 ( =􀀀12:70, t-value =􀀀2:08). Whereas native-born labor-supply responses are strongest for younger workers, for the foreign-born they are strongest for older workers…”

"... Estimation results appear in Figure 8, where outcomes are in terms of log income and transfers relative to the total population of a CZ, except for total labor compensation, which is relative to wage and salary employment.39 The impact of exposure to import competition on personal income per capita in Figure 8a is negative at all time horizons and precisely estimated for most time differences from 2000 to 2014 forward. Negative effects reach their peak for the 2000 to 2015 time difference, for which the impact coefficient is􀀀3:64 (t-value =􀀀2:55)…”

"... Figure 9 presents estimates in which we divide the sample of CZs into groups based on whether the share of the college-educated in their working-age populations was above or below the population weighted national median in 2000. There are 336 CZs in the former group and 386 in the latter group.We consider four outcomes: the manufacturing employment-population ratio, the total wage and salary employment-population ratio, the log working-age population, and log personal income per capita. To keep the time horizon the same across outcomes, we evaluate time differences from 2001 to 2002 to 2001 to 2019. To control the false discovery rate when evaluating differences in coefficient estimates across sample splits, we compute and display minimal Benjamin-Hochberg q-values based on the number hypotheses being tested. Although both higher and lower-educated CZs experienced declines in manufacturing employment, the negative impacts of trade exposure on overall employment in Figure 5 are concentrated in CZs with relatively few college-educated workers, as shown in Figures 9a and 9b. These results are consistent with those in Bloom et al. (2019), who study the 1992 to 2012 time period. For the 2001 to 2019 horizon, the first two figures show that in less-educated CZs, a one percentage point increase in import penetration over 2000 to 2012 predicts a 1:74 (t-value =􀀀4:07) percentage point decrease in the manufacturing employment-population ratio and a 2:47 (t-value =􀀀3:59) percentage point decrease in the total wage and salary employment-to-population ratio. Across all CZs (see Figure 5), trade-induced changes in manufacturing and total employment-population ratios are very similar at long horizons, indicating that employment impacts on non-manufacturing employment are null. For CZs with relatively few college workers, the substantially larger impact on total employment than on manufacturing employment reveals a negative impact of trade exposure on non-manufacturing employment, as shown in Appendix Figure A17. Despite manufacturing job losses being compounded by non-manufacturing losses in these CZs, there is no effect of trade exposure on the log working-age population (Figure 9c). It thus appears that more trade-impacted CZs with fewer college-educated workers did not experience differential out-migration, though they did experience larger declines in personal income per capita, as shown in Figure 9d. Since economically-motivated migration would tend to mitigate the local disemployment effects of trade exposure, one interpretation of these results is that the lack of migration is both symptom and cause of the slow adjustment process. In CZs with more-educated working-age populations, the pattern of adjustment is qualitatively different. Impacts of trade exposure on manufacturing employment (Figure 9a) are negative, but somewhat smaller and less precisely estimated. Impacts on the total wage and salary employment population ratio are small and imprecise for short time differences and then become large, positive, and marginally significant for long time differences. For the 2001-2016 time difference and beyond, we easily reject that impact coefficients for wage and salary employment-population are the same in more- versus less-educated CZs. This trade-induced increase in the total employment-population ratio must imply a corresponding positive impact of trade exposure on the non-manufacturing population ratio, as seen in Appendix Figure A17. As critically, more-educated CZs adjusted to adverse trade shocks in part through net outmigration. For all time differences except 2001 to 2006, we reject that impact coefficients on the working-age population are equal for more versus less-educated CZs. At the 2001 to 2019 time difference in more-educated CZs, a one percentage point increase in import penetration is predicted to cause a 9:13 (t-value =􀀀3:31) percentage point decrease in the working-age population, or an annual population decline of approximately one-half a percentage point. The impact coefficient on log non-manufacturing employment at the 2001 to 2019 time difference of 6:04 (t-value = 2:37, Appendix Figure A17b) implies that more of the increase in the non-manufacturing employment population ratio occurred through the out-migration of labor rather than through greater job growth. Like less-educated CZs, more-educated CZs also see negative impacts of trade exposure on personal income per capita (Figure 9d). Distinct from less-educated CZs, these impacts reach their maximum negative value for the 2001 to 2012 time difference and then diminish over time, becoming close to zero for the 2001 to 2016 horizon and beyond…”

David Autor, David Dorn and Gordon Hanson, "On the Persistence of the China Shock," Brookings Papers On Economic Activity, September 9, 2021, https://www.brookings.edu/wp-content/uploads/2021/09/On-the-Persistence-of-the-China-Shock_Conf-Draft.pdf

David Autor returns to the China stock and finds the initial impact of the China shock has been persistent though stopped intensifying a decade ago, "...We evaluate the duration of the China trade shock and its impact on a wide range of outcomes, building on analyses in Autor et al. (2013a) and Acemoglu et al. (2016). This shock plateaued in 2010, enabling study of its effects for nearly a decade past its culmination. Adverse impacts of import competition on manufacturing employment, employment-population ratios, and income per capita in more trade-exposed U.S. commuting zones are present out to 2019. Reductions in population headcounts, which indicate net out-migration, register only for foreignborn workers and the native-born 25-39 years old, implying that exit from work is a primary means of adjustment. More negatively affected regions see larger increases in the uptake of government transfers, but these transfers primarily take the form of Social Security and Medicare benefits and replace only a small fraction of lost personal income. Adverse outcomes are more acute in regions that initially had fewer college-educated workers and were more industrially specialized. Impacts are qualitatively—but not quantitatively—similar to those caused by the decline of employment in coal production since the 1980s, indicating that the China trade shock holds lessons for other episodes of localized job loss. Import competition from China induced shocks to income per capita across local labor markets that are much larger than the spatial heterogeneity of income effects predicted by standard quantitative trade models. Even using higher-end estimates of the consumer benefits of rising trade with China, a substantial fraction of commuting zones appears to have suffered absolute declines in real average incomes...."

Autor also did an exercise looking at the China shock relative to the collapse in demand for coal and the housing bust and finds that the China trade shock was different, "...In summary, we observe that Chinese import competition, the fall in demand for coal, and the Great Recession each reduced employment and labor incomes as these shocks unfolded. CZs with greater shock exposure did not experience large declines in population in any of these cases, suggesting that migration did not disperse the local impacts of these shocks. CZ more exposed to the Great Recession eventually experienced a substantial recovery of their employment rates, and faster population growth. Those with greater exposure to the China or coal shocks instead endured persistently depressed employment rates and labor income levels, combined with a slow decline in population. The comparison with the coal shock in particular indicates that the China shock’s long-lasting impact on CZ labor market conditions and the sluggish population response to depressed local labor market conditions was not without precedent. However, the large magnitude of the China shock, which had a sizable impact on many local labor markets in the US, sets it apart from shocks such as the decline of the coal sector whose impact was more limited in scope. As the United States prepares for potentially more job loss due to the ongoing energy transformation and expected changes in oil and gas production, the failure of local labor markets to adjustment successfully to the coal and China trade shocks reminds us that the adjustment process is typically slow and sclerotic, unlike the textbook model of frictionless labor market adjustment..."
The basic story, "...The first wave of China shock research found that greater import competition caused localized job loss in manufacturing, declines in earnings for low-wage workers, and greater economic distress across a wide range of outcomes. The primary mechanism of adjustment to trade exposure was exit from work, rather than increased employment in non-manufacturing or migration to other regions. The impacts of rising import competition, originally documented for 1991 through 2007, are manifest out to 2019, nearly two decades after China’s accession to the WTO in 2001 and nine years after the plateau of China’s export surge. More trade-impacted CZs suffered durable increases in joblessness and decreases in personal income per capita that are not close to being offset by government transfers. The resulting economic distress appears to be most acute in local labor markets that lacked abundant supplies of college-educated workers—consistent with the dearth of human capital hypothesis—and that were narrowly specialized in labor-intensive manufacturing—consistent with the reverse agglomeration hypothesis. For CZs such as North Hickory, North Carolina, the consequences of the China trade shock have been profound and long-lasting….”
"...In more trade-exposed regions, we find that negative effects on manufacturing employment continue to build well beyond the culmination of the trade shock itself. Adverse impacts persist out to 2019, nearly a decade after the shock reached peak intensity. Although the trade shock did generate modest net out-migration, this occurred only among the foreign-born and native-born adults ages 25 to 39. Impacts of the trade shock thus appear to be long-lasting and to entail suppressed participation in work, which is evident in declines in wages and salaries and personal income in trade-exposed regions. Income losses are only minimally offset by the increased uptake of government transfers, which also remain elevated to the end of the analytic window. Why has the China trade shock had such enduring consequences? One explanation is that the shock itself never stopped intensifying. We find little support for this idea. China’s spectacular manufacturing export growth slowed dramatically in the last decade, by which point China’s reform driven boom had run its course and the government had begun to rollback reforms (Lardy, 2019; Brandt et al., 2020; Brandt and Lim, 2020). Export growth also did not simply move en masse from China to other nearby countries. Whether we look at the U.S. market presence of China alone or combined with Vietnam and other Southeast Asian nations, to which China has begun to offshore some labor-intensive activities, the trade shock reached peak intensity around 2010 and stabilized thereafter. Although the China trade shock did not unwind, it did plateau, letting us examine its consequences for nearly a decade beyond its full expression...."

"...We conduct preliminary analyses of two other explanations for why trade-exposed labor markets suffered long-lasting hardship. One hypothesis is that many traditional manufacturing regions were poorly positioned to recover from job loss because of a dearth of college-educated workers, who are in high demand by sectors that are expanding nationally (Glaeser et al., 1995; Diamond, 2016; Bloom et al., 2019). A second is that specialization in a narrow set of industries left these regions exposed to industry-specific shocks that, once industry decline initiated, would set in motion a process that is self-reinforcing (e.g., Dix-Carneiro and Kovak, 2017). We find some support for both the dearth-of human- capital and reverse-agglomeration hypotheses. We also discuss other mechanisms that may be at work, though we do not provide a definitive, mono-causal explanation..."

"...China’s post-2010 slowdown is also apparent when we compare its trade performance to the U.S., which is helpful for defining the shock facing U.S. manufacturing industries. A simple method to evaluate China’s relative export success is to use the Balassa (1965) measure of revealed comparative advantage (RCA), which is the ratio of a country’s share of world exports in a particular sector to its share of world exports of all goods.13 In Figure 2, we show the gap between the log China and log U.S. RCA for manufacturing and non-manufacturing. China began with a modest comparative advantage in manufacturing over the U.S. in 1991—as indicated by a China-U.S. manufacturing versus all goods export differential of just 2.0 percentage points in that year. By 2011, its manufacturing-versus-all goods export differential over the U.S. had leaped to 13.1 percentage points, before falling and rising over the ensuing eight years. After 2010, the China-U.S. relative RCA exhibits little trend. By construction, China’s RCA in non-manufacturing compared to the U.S. exhibits approximately the inverse pattern, dropping steadily through the 1990s and 2000s and then remaining at negative levels after 2011. China’s comparative disadvantage in non-manufacturing relative to the U.S. reflects the success of U.S. firms in exporting agricultural products, certain mineral products, and oil and gas, to the rest of the world, as well as market forces in China that have concentrated factors of production in manufacturing at the expense of other sectors. Even though China’s export growth in manufacturing slowed after 2010, it still could have contributed to overall U.S. manufacturing import growth by offshoring production to other low wage countries. Chinese firms have been active in building industrial parks for export production in Southeast Asia, and in Vietnam in particular. To investigate this possibility, in Figure 3 we plot shares of U.S. imports and import penetration in the U.S. market for China alone and for China combined with low-income countries in Southeast Asia. We select these countries—Cambodia, Indonesia, Laos, Myanmar, Philippines, Vietnam—based on their per capita GDP in 2010 being less than that of China. We also add neighboring Bangladesh to this group because in recent decades multinational companies from Asia have expanded apparel factories in the country (Heath and Mobarak, 2015). Figure 3 underscores that China’s exports to the U.S. dwarf those of Southeast Asia. In 2010, China accounted for 23.4% of U.S. manufacturing imports, whereas the Southeast Asian nations accounted for just 2.6%. In 2018, these figures were only modestly changed, at 23.6% and 3.8%, respectively. Although Southeast Asian countries did gain a larger share of U.S. imports, the increase over the 2010 to 2018 period was just 1.2 percentage points. Import penetration, shown in Figure 3b, tells a similar story. Whether we look at China alone or combined with low-income Southeast Asian nations, its U.S. market presence largely stabilized after 2010..."

Evidence, "...This section presents our main empirical results for the impact of trade exposure on U.S. commuting zones. We use equation (2) to estimate how the 2000-2012 trade shock affected CZs over2000 to 2019, focusing on three sets of outcomes. The first are ratios of manufacturing employment, non-manufacturing employment, total wage and salary employment, and unemployment to the working-age population (defined as individuals ages 18 to 64 years old). We measure employment using the Bureau of Economic Analysis’ (BEA) Regional Economic Information System (REIS), unemployment using Local Area Unemployment Statistics (LAUS), and population using the National Vital Statistics System, where we aggregate data from the county to the CZ level. Trade shock impacts on these outcomes reveal the direct consequences on manufacturing employment, and the magnitude of labor reallocations to unemployment, non-employment, and other sectors. A second set of outcomes are population headcounts, overall and by nativity and age-based subgroups, which reveal whether exposure to import competition led to net reductions in the resident population (e.g., due to out-migration). A third set of outcomes are per capita personal income, labor compensation, and government transfers, overall and by program type, which reveal the impact of trade shocks on average income and its components, and allow us to quantify the degree to which government transfers offset income losses caused by trade exposure. We measure income, earnings, and government transfers using county-level data from the REIS. For most series, we use 2000 as the initial year.Summary statistics on outcome and control variables are reported in Appendix Tables A1 and A2; Appendix A.2 contains further details on data sources and variable construction…”

Employment Outcomes

"... Figure 5 shows the cumulative impact of trade exposure for progressively longer time differences (1 to 18 years)....The results for manufacturing employment in Figure 5a show a negative effect of trade exposure that builds quickly and then stabilizes.... As one moves past 2012, the negative effect of greater import competition on manufacturing employment continues to grow, even though the trade shock itself no longer appears to be intensifying. Given a decadalized increase in import penetration over 2000 to 2012 of 0:89 percentage points (Table 1),the implied reduction in the manufacturing employment share over 2001 to 2019 is􀀀1:59 (=􀀀1:790:89) percentage points, relative to the overall 2001-2019 change in the manufacturing employment share of􀀀2:68 percentage points (Appendix Table A1). Alternatively, when comparing CZs at the 25th and 75th percentiles of trade exposure, the latter would be predicted to have a reduction in its manufacturing employment share that is 1:18 (=􀀀1:79 ) percentage points larger than in the former over 2001 to 2019. This compares to the 25th-75th percentile differential change in the manufacturing-employment-share of􀀀2:17 (=􀀀3:79 + 1:62) percentage points for the same period. Exposure to import competition from China thus appears to account for a large share of net manufacturing job loss in US commuting zones after 2000.29 Those losing jobs in manufacturing may move into other sectors, into unemployment, or out of the labor force. Simultaneously, they may move to another commuting zone.30 In Figure 5b, we consider the impact of exposure to import competition on the CZ share of the working-age population employed in non-manufacturing industries. Impact coefficient estimates are close to zero at all time intervals and are imprecisely estimated (e.g., the impact coefficient for the 2001-2019 period is 0:05, t-value= 0:06). We see no evidence that on net non-manufacturing sectors absorbed local workers released from manufacturing due to the China trade shock.31 The wide standard error bounds in Figure 5b are suggestive of heterogeneity across CZs in how non-manufacturing absorbs displaced manufacturing workers, a possibility we explore in section 4.4. The fall in manufacturing employment and absence of offsetting job gains in non-manufacturing imply a decline in total wage and salary employment in trade-exposed CZs, confirmed by Figure 5c. Decreases in the employment-population ratio are comparable in magnitude to those for manufacturing employment. The effect reaches its maximum value for the 2001 to 2017 period: the impact coefficient of􀀀1:91 (t-value=􀀀2:70) compares to􀀀1:88 (t-value=􀀀5:89) for manufacturing employment at the same horizon. The impact attenuates modestly late in the period, ending at􀀀1:74 (t-value=􀀀2:35) over 2001 to 2019, which is close to the manufacturing impact at this horizon. At long time horizons, much of the net absorption of manufacturing job loss is through increases in nonemployment. Amior and Manning (2018) argue that changes in the local employment-population ratio summarize changes in local average real income. By this logic, the China trade shock would have substantially altered the distribution of well-being across CZs, a possibility we explore in more detail below through our analysis of personal income per capita. Figure 6a maps the actual change in wage and salary employment-population ratios across CZs for the 2001 to 2019 time period. While the national employment rate barely changed over this period (+0.19 percentage points), the map reveals considerable variation across space, with lower employment growth in parts of the South, Midwest and Northeast, and faster employment growth in the Great Plains and some of the Western and Northeastern coastal areas. In Figure 6b, we map the implied impact of the China trade shock (as measured in (1) for 2000 to 2012) on changes in employment-population ratios for the same 2001 to 2019 time period. A visual comparison between Figure 6’s two panels shows a striking correlation, as many of the CZs that lost employment overall (in panel a) were also more adversely affected by the trade shock (in panel b).This correlation suggests that the China shock had an important influence on the differential employment growth across U.S. regions in the last two decades. The top 5% of CZs in terms of implied reductions in employment-population ratios, which are listed in Appendix Table A4, include a preponderance of locations that in 2000 were relatively highly specialized in manufacturing and had relatively few college-educated workers. In 2000, 33 of the 38 most exposed CZs had a manufacturing employment share above 25 percent, relative to the population-weighted median of 15.4%, and 33 of 38 had a college-educated share of the working-age population below 20 percent, relative to the national population-weighted median of 23.4%. The distinctiveness of trade-impacted commuting zones motivates the heterogeneity analysis we undertake in section 4.4..."

“…One way American firms have improved their moats in recent times is through creeping consolidation. The Economist has divided the economy into 900-odd sectors covered by America’s five-yearly economic census. Two-thirds of them became more concentrated between 1997 and 2012 (see charts 2 and 3). The weighted average share of the top four firms in each sector has risen from 26% to 32%....These data make it possible to distinguish between sectors of the economy that are fragmented, concentrated or oligopolistic, and to look at how revenues have fared in each case. Revenues in fragmented industries—those in which the biggest four firms together control less than a third of the market—dropped from 72% of the total in 1997 to 58% in 2012. Concentrated industries, in which the top four firms control between a third and two-thirds of the market, have seen their share of revenues rise from 24% to 33%. And just under a tenth of the activity takes place in industries in which the top four firms control two-thirds or more of sales. This oligopolistic corner of the economy includes niche concerns—dog food, batteries and coffins—but also telecoms, pharmacies and credit cards….”

Economist Staff, "Too much of a good thing,"The Economist, March 26, 2016, https://www.economist.com/briefing/2016/03/26/too-much-of-a-good-thing

Too much of a good thing

AMERICA’S airlines used to be famous for two things: terrible service and worse finances. Today flyers still endure hidden fees, late flights, bruised knees, clapped-out fittings and sub-par food. The profit bit of the picture, though, has changed a lot. Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google. Even as the price of fuel, one of airlines’ main expenses, collapsed alongside the oil price, little of that benefit was passed on to consumers through lower prices, with revenues remaining fairly flat. After a bout of consolidation in the past decade the industry is dominated by four firms with tight financial discipline and many shareholders in common. And the return on capital is similar to that seen in Silicon Valley.

What is true of the airline industry is increasingly true of America’s economy as a whole. Profits have risen in most rich countries over the past ten years but the increase has been biggest for American firms. Coupled with an increasing concentration of ownership, this means the fruits of economic growth are being hoarded. This is probably part of the reason that two-thirds of Americans, including a majority of Republicans, have come to believe that the economy “unfairly favours powerful interests”, according to polling by Pew, a research outfit. It means that when Hillary Clinton and Bernie Sanders, the Democratic contenders for president, say that the economy is “rigged”, they have a point.

Opportunities

An intense burst of consolidation will boost their profits more. Since 2008 American firms have engaged in one of the largest rounds of mergers in their country’s history, worth $10 trillion. Unlike earlier acquisitions aimed at building global empires, these mergers were largely aimed at consolidating in America, allowing the merged companies to increase their market shares and cut their costs. The companies in question usually make no pretence of planning to pass the savings they make this way on to their customers; take their estimates of the synergies involved at face value and profits in America will rise by a further 10% or so.

Profits are an essential part of capitalism. They give investors a return, encourage innovation and signal where resources should be invested. Their accumulation allows investment in bold new ventures. Countries where profits are too low—Japan, for instance—can slip into morbid torpor. Firms that ignore profits, such as China’s state-run enterprises, lurch around like aimless zombies, as likely to destroy value as to create it.

But high profits across a whole economy can be a sign of sickness. They can signal the existence of firms more adept at siphoning wealth off than creating it afresh, such as those that exploit monopolies. If companies capture more profits than they can spend, it can lead to a shortfall of demand. This has been a pressing problem in America. It is not that firms are underinvesting by historical standards. Relative to assets, sales and GDP, the level of investment is pretty normal. But domestic cash flows are so high that they still have pots of cash left over after investment: about $800 billion a year.

High profits can deepen inequality in various ways. The pool of income to be split among employees could be squeezed. Consumers might pay too much for goods. In a market the size of America’s prices should be lower than in other industrialised economies. By and large, they are not. Though American companies now make a fifth of their profits abroad, their naughty secret is that their return-on-equity is 40% higher at home.

Most explanations of America’s high profits draw on national-accounts data which show that the fall in the share of output going to workers over the past decade is equivalent to about 60% of the rise in domestic pre-tax profits. Scholars typically have three explanations for this: technology, which has allowed firms to replace workers with machines and software; globalisation, which has made it easier to shift production to lower cost countries; and a decline in trade-union membership.

None of these accounts, though, explain the most troubling aspect of America’s profit problem: its persistence. Business theory holds that firms can at best enjoy only temporary periods of “competitive advantage” during which they can rake in cash. After that new companies, inspired by these rich pickings, will pile in to compete away those fat margins, bringing prices down and increasing both employment and investment. It’s the mechanism behind Adam Smith’s invisible hand.

In America that hand seems oddly idle. An American firm that was very profitable in 2003 (one with post-tax returns on capital of 15-25%, excluding goodwill) had an 83% chance of still being very profitable in 2013; the same was true for firms with returns of over 25%, according to McKinsey, a consulting firm. In the previous decade the odds were about 50%. The obvious conclusion is that the American economy is too cosy for incumbents.

In 1998, Joel Klein, who ran the antitrust operation at the Department of Justice (DoJ), declared that “our economy is more competitive today than it has been in a long, long time.” He may well have been right. In the post-war boom American firms grew into mighty conglomerates; in the 1960s J.K. Galbraith, a left-leaning economist, predicted the rise of a symbiotic “industrial state” in which large companies worked closely with the government. But in the 1980s deregulation opened some industries, such as telecoms and railways, to competition. And a new doctrine of shareholder value led big firms, such as RJR Nabisco, to be broken-up and sprawling conglomerates to become focused. In the 1990s American firms faced a wave of competition from low-cost competitors abroad (and, reciprocally, focused their energy on expanding overseas).

Since then the pendulum seems to have swung back. Huge companies, long the focus of American worries about competition, have not actually got any bigger. In 2014 the top 500 listed firms made about 45% of the global profits of all American firms, as they did in the late 1990s. Instead they, and other companies, have become more focused. The strategy can be seen as an amalgam of the philosophies of two deeply influential business figures. Jack Welch, the boss of General Electric for two decades at the end of the 20th century, advised companies to get out of markets which they did not dominate. Warren Buffett, the 21st century’s best-known investor, extols firms that have a “moat” around them—a barrier that offers stability and pricing power.

These data make it possible to distinguish between sectors of the economy that are fragmented, concentrated or oligopolistic, and to look at how revenues have fared in each case. Revenues in fragmented industries—those in which the biggest four firms together control less than a third of the market—dropped from 72% of the total in 1997 to 58% in 2012. Concentrated industries, in which the top four firms control between a third and two-thirds of the market, have seen their share of revenues rise from 24% to 33%. And just under a tenth of the activity takes place in industries in which the top four firms control two-thirds or more of sales. This oligopolistic corner of the economy includes niche concerns—dog food, batteries and coffins—but also telecoms, pharmacies and credit cards.

Concentration does not of itself indicate collusion. Other factors at play might include regulations that keep competitors out. Business spending on lobbying doubled over the period as incumbents sought to shape regulations in ways that suited them. The rising importance of intangible assets, particularly patents, has meant that an ability to manage industry regulators and the challenges of litigation is more valuable than ever.

The ability of big firms to influence and navigate an ever-expanding rule book may explain why the rate of small-company creation in America is close to its lowest mark since the 1970s (although an index of startups run by the Kauffman Foundation has shown flickers of life recently). Small firms normally lack both the working capital needed to deal with red tape and long court cases, and the lobbying power that would bend rules to their purposes. A lack of lobbying clout and legal savvy may also help explain foreign firms’ loss of momentum. In the 1990s adventurers from abroad piled into America, with the share of output from foreign-owned subsidiaries rising steadily. But foreign firms seem to have lost their mojo. Since 2003 their contribution has been flat at about 6% of private business output.

Another factor that may have made profits stickier is the growing clout of giant institutional shareholders such as BlackRock, State Street and Capital Group. Together they own 10-20% of most American companies, including ones that compete with each other. Claims that they rig things seem far-fetched, particularly since many of these funds are index trackers; their decisions as to what to buy and sell are made for them. But they may well set the tone, for example by demanding that chief executives remain disciplined about pricing and restraining investment in new capacity. The overall effect could mute competition.

Quantifying the effect of the corporate America’s defences is tricky. Profits are not the whole picture. In some industries—banking is a case in point—rent-seeking will result in high pay to an employee elite instead. But one can get a crude sense of what is going on by dividing the profits all firms generate into the “bog-standard” and the “exceptional”. Over the past 50 years return on capital has averaged about 10% (excluding goodwill) and that is what investors tend to demand, so let that represent bog-standard profits. The excess on top of that—which may reflect brilliant innovations, wise historic investments in intangible assets such as brands, or, perhaps, a lack of competition—is the exceptional bit. For S&P 500 firms these exceptional profits are currently running at about $300 billion a year, equivalent to a third of taxed operating profits, or 1.7% of GDP.

I love you, you pay my rent

About a quarter of America’s abnormal profits are spread across a wide range of sectors. Returns on capital, concentration and prices have risen in many pockets of the economy. The cable television industry has become more tightly controlled, and many Americans rely on a monopoly provider; prices have risen at twice the rate of inflation over the past five years. Consolidation in one of Mr Buffett’s favourite industries, railroads, has seen freight prices rise by 40% in real terms and returns on capital almost double since 2004. The proposed merger of Dow Chemical and DuPont, announced last December, illustrates the trend to concentration. After combining, the companies plan to split into three specialist companies each of which will have a higher share of its market than either original company had before the deal. They say the plan will yield $3 billion in cost savings. Since 2008 American mergers have sought to remove recurring annual costs of about $150 billion from industrial ledgers. Few firms that are not regulated utilities have public plans to pass these gains on to consumers.

Concentration is contagious. As firms become more powerful those elsewhere on associated chains of customers and suppliers bulk up in response. Google now dominates internet searches for flights and hotels. This has led Expedia, the leading internet travel-agent, to beef up by buying two of its main rivals over the past two years. The spectre of very big online travel sites dominating the purchase of hotel rooms has led the hotel firms to consolidate, too, with Marriott agreeing to buy Starwood this month. (A Chinese firm, Anbang, may make a counter-bid).

Roughly another quarter of abnormal profits comes from the health-care industry, where a cohort of pharmaceutical and medical-equipment firms make aggregate returns on capital of 20-50%. The industry is riddled with special interests and is governed by patent rules that allow firms temporary monopolies on innovative new drugs and inventions. Much of health-care purchasing in America is ultimately controlled by insurance firms. Four of the largest, Anthem, Cigna, Aetna and Humana, are planning to merge into two larger firms.

The rest of the abnormal profits are to be found in the technology sector, where firms such as Google and Facebook enjoy market shares of 40% or more. By Silicon Valley’s account such penetration reflects the popularity and inventiveness of the products on offer, some of which are free to consumers. Today’s dominant firms could be tomorrow’s Nokia or Blackberry: Apple now trades on just 11 times earnings, suggesting investors expect it to decline. Firms such as Uber and Airbnb are a rare source of disruption in the economy, competing fiercely with incumbents.

But many of these arguments can be spun the other way. Alphabet, Facebook and Amazon are not being valued by investors as if they are high risk, but as if their market shares are sustainable and their network effects and accumulation of data will eventually allow them to reap monopoly-style profits. (Alphabet is now among the biggest lobbyists of any firm, spending $17m last year.) A fall from grace in the tech world is not as bad as you might imagine. Microsoft’s operating profits today are twice what they were in 2000, when Mr Klein was prosecuting it in an antitrust trial. And the “sharing economy” startups that are being so highly rated by some investors mostly seek to dominate their markets. The large mountains of cash they are burning today can only be justified if they eventually mature to enjoy very high market shares and margins.

In the past, periods of high and stable profits have ended. Just three years after Mr Galbraith made his 1967 prediction of a cosy, collaborative business world, it was already toast: profits had collapsed by a third relative to GDP as recession struck. Today’s profits, too, may be more vulnerable than they look. If wages finally pick up it could crimp margins. The earnings-per-share of listed firms have fallen slightly in the past few quarters, though a strong dollar and declining oil revenues explain much of that. Some observers of the stockmarket argue that it is already signalling more decline. The gap between the real yield on equities and that on government bonds suggests that either firms are riskier than ever, bond yields are freakishly low, or that profits face a cyclical downturn.

Even so, it is hard to identify a mechanism by which profits might fall to more normal levels. Investors and managers continue to place extraordinarily high profit multiples on businesses with “moats”. The cable television industry is supposedly under pressure from the likes of Netflix and Amazon Prime. Yet in 2015 Charter Communications, a cable company, bought Time Warner Cable for $79 billion, or 26 times its free cash flow, which implies that it believes it will be in a position to raise prices. When Heinz (part-controlled by Mr Buffett) bought Kraft Foods in 2015, it paid 31 times the free cash flow and promptly slashed spending to boost margins, suggesting it felt the threat from rival makers of cheese slices was rather small.

Antitrust, but verify

Perhaps antitrust regulators will act, forcing profits down. The relevant responsibilities are mostly divided between the DoJ and the Federal Trade Commission (FTC), although some industries, such as railways and telecoms, also have their own regulators. The DOJ and FTC are busy trying to police the mergers-and-acquisition boom. Rather than contest every deal they select cases that set new precedents and argue them in court: of the 15,000 deals between 2005-14, about 3% have been subject to close scrutiny.

Together the two bodies have roamed far and wide. The DoJ has blocked domestic deals, such as the takeover by AT&T of T-Mobile USA in 2011, and cross-border combinations that would have caused concentration in global industries, such as the merger of two chipmakers, Applied Materials and Tokyo Electron, in 2015. The FTC spends a big chunk of its time looking at health care. It has blocked hospital mergers and fought “pay-for-delay” deals in which pharmaceutical firms try to stop generic competitors from launching rival products when patents expire. The DoJ is casting a beady eye over the airlines.

Yet the system suffers two limitations. One is constitutional. The two bodies’ job is to police infringements of a well-established and mature body of law through the courts. This leaves them admirably free of overt political interference and lobbying but it also limits their scope. Lots of important subjects are beyond their purview. They cannot consider whether the length and security of patents is excessive in an age when intellectual property is so important. They may not dwell deeply on whether the business model of large technology platforms such as Google has a long-term dependence on the monopoly rents that could come from its vast and irreproducible stash of data. They can only touch upon whether outlandishly large institutional shareholders with positions in almost all firms can implicitly guide them not to compete head on; or on why small firms seem to be struggling. Their purpose is to police illegal conduct, not reimagine the world. They lack scope.

The second limitation is intellectual. America’s antitrust apparatus has gone through periods of leniency (1915-35) and stridency (1936-72). By the 1980s the Chicago school of free-market thought was ascendant. Its insistence that the efficiency benefits of big mergers should not be dismissed had a big influence on the courts. Antitrust guidelines which held that any deal involving a firm with a market share of 35% or more should be considered suspect on principle have been set aside in favour of a more granular approach, with regulators looking ever more closely at the specific effects of a deal. To work out if a deal lowers consumers’ level of choice or lets firms hike prices they will study micro-markets in specific regions.

Who does not prefer the rifle to the blunderbuss, the scalpel to the axe? Such sophistication allows regulators to demand clever remedies, such as the disposal of subsidiaries. But with their heads deep in data and court rulings that set fine precedents, the scientists of antitrust are able to sidestep some troubling questions. If markets are truly competitive, why do so many companies now claim they can retain the cost synergies that big deals create, not pass them on to consumers? Why do investors believe them? Why have returns on capital risen almost everywhere?

These legal and intellectual limitations of the antitrust apparatus raise the question of competition to the political sphere—currently, alas, a realm well supplied with blunderbusses and axes wielded haphazardly and at the wrong targets. Americans’ mistrust of their economic system and the companies that make so much money in it has so far been channelled into calls for protectionism and government intervention. Free trade should be limited. Health-care firms should be more regulated. Foreign firms—particularly Chinese ones—should be discriminated against. Wages should be forced up. Taxes on companies should be raised.

Memories of the future

Nowhere has the alternative approach been articulated. It would aim to unleash a burst of competition to shake up the comfortable incumbents of America Inc. It would involve a serious effort to remove the red tape and occupational-licensing schemes that strangle small businesses and deter new entrants. It would examine a loosening of the rules that give too much protection to some intellectual-property rights. It would involve more active, albeit cruder, antitrust actions. It would start a more serious conversation about whether it makes sense to have most of the country’s data in the hands of a few very large firms. It would revisit the entire issue of corporate lobbying, which has become a key mechanism by which incumbent firms protect themselves.

Large firms no longer employ all that many people in America: the domestic employee base of the S&P 500 is only around a tenth of total American employment. New firms would invest more, employ more staff, and force incumbents to invest more in order to compete. If this sounds pie in the sky, consider the shale revolution over the past decade. Although the industry is now suffering from low oil prices, it is a rare example of entrepreneurial spirit taking on a stodgy industry to the benefit of all. A new commitment to competition could be the source of optimism that America is desperately searching for. After all, it is only a healthy dollop of greed and a belief in a better future that prompts people to start from scratch and try to cross the moat that has been dug around corporate America.

"... With this in mind, what is perhaps most dramatic about America’s giant defense budgets is their R&D component. Right now it runs to over $100 billion and makes up 14.6% of overall spending. The overall DoD allocation to “RDT&E” can be somewhat misleading since it includes a large element for testing as opposed to R&D proper.The American Association for the Advancement of Science compiles detailed figures for different types of government research funding. It credits $73 billion to the military account in 2020, below the all-time high reached in 2010, but sharply up from $53.58 billion in 2015. Spending on military R&D matches all Federal government spending on civilian R&D. It runs at twice what the Federal government spends on health and twenty times the Federal government’s spending on energy research. In global competition, the scale of America’s military R&D puts it in a league of its own...."

Chartbook #36 After Afghanistan: No Post-American world

The images from Afghan of American retreat sent shock waves around the world.

They sparked anxious talk of a post-American world.

As I argue in a New Statesman long read, a very different picture emerges if you look at the broader stance of the Pentagon.

What the budgets of the world’s largest military superpower tell us is not only that America’s defense effort is running at a historically high levels, but that its priorities are shifting towards high-tech weaponry for the deployment of military force at a planetary scale.

Since the Pentagon’s budget ebbs and flows, historical perspective is helpful. After the wind down of the 1990s, US military spending was driven to new heights by the Global War on Terror. Much of that spending was on on-going operations and on the Army which was fighting the war on the ground. Overall spending peaked in 2010 at $840 billion.

The latest increase began under Trump as the Pentagon's budget was pushed back to over $700 billion. Whilst spending on personnel and operations continues to decline, procurement and R&D spending have risen 30 percent from their recent lows.

So far, the Biden administration shows no appetite to reverse the direction of Trump’s defense policy. The request for National Defense in 2022 is $752 billion (of which $715 billion is DoD).

The Pentagon and the US military-industrial complex are a giant moloch, driven by many interests that do not map in any simple way onto the visions of military planners. But, nevertheless, in the spending patterns we can see a shift towards the priority of high-tech, great power confrontation with China. The momentum is not with the army but the air force, the new Space Force and the navy. R&D spending is gigantic.

To get a sense of the scale of the ambition, the US navy is a good place to look.

In an era of counterinsurgency wars and American global dominance, the navy lost priority. The number of operational vessels fell to a low in the 270s. The new focus on confrontation with China and the ambition of the Trump administration has kicked naval planning into a new high gear. Reading and writing about it you can’t help feeling transported back to 1900s. Not for nothing the US navy was the incubator for American geopolitical thinking.

Initially, the Trump administration limited itself to endorsing the Navy’s 2016 force structure assessment that proposed growing the fleet to 355 ships. This target was given the force of law by Congress.

But in the last days of the Trump administration in December 2020, Secretary Esper took the unusual step of releasing a detailed new shipbuilding plan - BattleForce 2045 - that called for 403 crewed ships and 143 uncrewed ships by FY 2045.

As the Congressional Budget Office remarked in rather stunned tones: “In CBO’s estimation, over the next 30 years, the Navy would spend a total of a little more than $1.0 trillion (in 2021 dollars) building the ships and unmanned systems in its December 2020 plan—an average of $34.1 billion per year. That amount of funding, each year for 30 years, would be unprecedented since World War II. Half of the funding would be for submarines, about one third would be for aircraft carriers and surface combatants, and the remainder would go toward amphibious ships, combat logistics and support ships, and other items.”

The great technological innovation contained in the Trump-era naval planning is the provision for a large fleet of unmanned vessels. The plan provides for between 119 and 166 unmanned medium surface vehicles (MUSVs) and large surface vehicles (LUSVs) and 24-76 extra-large unmanned undersea vehicles (XLUUVs), for a total of between 143 and 242 systems. As the CBO explains: “The LUSVs would operate in conjunction with other ships, carrying offensive and defensive missiles that manned ships could employ as needed. MUSVs would serve as sensor or command and control platforms, providing information about opponents to other ships in the Navy’s fleet. Although the Navy’s plan is less specific with respect to XLUUVs, they could carry a variety of payloads to support naval operations. The Navy is still developing its concepts of operations for unmanned systems, which increases the risk for both cost growth and delays in their construction and operations.”

In other words, this is a high-tech, futuristic stuff. They are going to have a lot of it. But they don’t know what it is going to do yet.

As the CBO notes: “Although the plan calls for building a significant number of unmanned systems, they represent a small fraction of the overall costs of the plan—an average of about $1.2 billion per year, or 4 percent of all shipbuilding costs.” For sake of comparison a single Ford-class aircraft carrier costs $ 12 billion. So, if an Orca, priced at a few tens of million dollars, can sink an aircraft carrier costing billions ….

How much of this will ever be realized remains unclear. According to analysts at CSIS, the aim of Esper’s maneuver may simply have been to “set a new baseline by which the new administration’s shipbuilding plans would be compared.”

The naval planners of the Biden administration are trying to sort out the mess left by their predecessors. Guestimates as to the final target for the fleet lie between the 320s and the 390s. But the basic focus of the Esper plan is likely to remain: submarines, new classes of smaller vessels, uncrewed ships.

One complicating factor is that the navy does not necessarily agree with the priorities of the DoD. In particular, the admirals don’t want a fleet of small aircraft carriers for launching F35s. Congress for its part is passionately attached to large shipbuilding goals and a minimum carrier fleet of 11 vessels. It is quite likely that advanced missile technology and the development of those cheap unmanned vessels will render the entire plan moot.

But there is no doubting the ambition. The withdrawal from Afghanistan in no way signals a retreat from global ambition.

The navy is only one part of the overall budget. Juggling the different components is a vastly complex business. Relating them to actual strategy even more so.

As think tankers at CSIS point out: “It has been about 15 years since DoD explained, even roughly, how it calculated the force levels that it was proposing. The Trump administration was typical. Its 2018 National Defense Strategy sought to “defeat aggression by a major power, deter opportunistic aggression elsewhere, and disrupt imminent terrorist and WMD threats” while defending the homeland and maintaining nuclear deterrence. That required 58 total Army brigade combat teams, 355 Navy ships, about 1,200 Air Force aircraft, and a Marine Corps of 185,000 personnel. There was no description about how the administration determined these very specific force levels from the very general description of strategic goals that it was proposing. This was not unusual. The Quadrennial Defense Reviews of 2014 and 2010 had the same lack of connection.”

In other words, America’s grand strategists formulate goals, the Pentagon draws up lists of things it wants, those have huge costs but it is unclear how each of these decisions relates to the other.

To address this issue, a consortium consisting of the Center for Strategic and International Studies, the American Enterprise Institute (yup), and War on the Rocks (the military news and opinion website), have “collaborated to address a shared concern: a lack of understanding about how defense strategy and security objectives are translated into concrete budget choices … The Joe Biden administration’s leaders have asserted that they view China as the “pacing threat” for the Defense Department. Yet how strategic priorities are translated into specific programs in the budget remains largely vague and imprecise. The Defense Futures Simulator will change that, making the process of aligning strategy and resources more accessible, transparent, and engaging.”

They are not the only group to offer you the chance to play grand strategist. The Congressional Budget Office also offers an “Interactive Force Structure Tool”.

Unfortunately, the CBO tool does not cover procurement costs, only operational and maintenance costs. But, with some back of the envelope calculations it can be augmented to provide a full overview of cost.

Last week, noted US security expert Barry R. Posen used the CBO’s force structure tool to devise his own US strategy that would involve stripping America’s commitment to NATO to the bare bones of the strategic nuclear deterrent. This would enable a reduction of 14 US army maneuver brigades, 315,000 personnel, two dozen squadrons of tactical air and littoral combat ships for a total saving of about $78 billion.

A Posenesque strategy would have dramatic implications for European defense. Europeans would have to step up to a considerable degree. It would no doubt produce howls of protests from Atlanticists and be seen as further evidence of “American retreat”. But, it would in fact have no significant impact on America’s strategic nuclear weaponry, its high seas fleet or its air force.

This is one of the insights that emerges from looking into the Pentagon budget. Personnel are very expensive and are getting more so. The Army, as opposed to the navy and airforce, employs a lot of people and that makes it exorbitantly expensive to maintain and operate. To maintain just one Armored Brigade Combat Team complete with National Guard component - numbering 30,000 men and women - at operational readiness, costs c. $ 4.1 billion per annum. That is the same as maintaining and operating America’s entire ICBM nuclear submarine fleet or the eight Minuteman III missile squadrons that provide the first line ground-based nuclear deterrent. Of course, developing and procuring the ultra high-tech submarines and missiles is a different matter.

This distinction between development, capital procurement, operational costs and personnel makes it imperative to break down any spending figures into their different components. As calculations like Posen’s suggest, the US could easily downsize its ground forces and tactical air component, saving tens of billions, whilst substantially increasing its throw weight, its global reach and its high-tech advantage.

********

With this in mind, what is perhaps most dramatic about America’s giant defense budgets is their R&D component. Right now it runs to over $100 billion and makes up 14.6% of overall spending.

In global competition, the scale of America’s military R&D puts it in a league of its own.

In a recent article Gholz and Sapolsky argue that America’s R&D advantage in military technology is so large that it is hard to see its losing its preeminence any time soon. I would not like to make a wager on that one way or another. But if the question is whether or not the shift in posture in Afghanistan implies a more general retreat from global power the answer is clearly no. The intention is the reverse. The US is seriously gearing up for a new era of global military competition. Given the focus on high-tech competition that will have broad implications for economic and industrial policy both in the US and across its alliance network.

Economist Staff, "Flush with billions, Databricks has momentum and big plans,"The Economist, September 4, 2021, https://www.economist.com/business/2021/09/04/flush-with-billions-databricks-has-momentum-and-big-plans

Flush with billions, Databricks has momentum and big plans

Hi, just checking in. Can I put in some more?” The bosses of promising startups are bombarded by such texts these days. Big funds in particular are falling over themselves to grab a piece of the tech pie (see chart). Yet one founder seems to have received more than his fair share of pitches: Ali Ghodsi, the chief executive of Databricks. And he has said yes to many. On August 31st the company confirmed that, only six months after a $1bn financing deal, it had raised another $1.6bn, valuing it at $38bn—$10bn more than after the previous round. Among the Silicon Valley cognoscenti, these numbers cement Databricks’ status as the most hyped company of the hour.

Databricks was founded in 2013 to commercialise Spark, a piece of open-source software that processes reams of data from different sources to train algorithms which then become the engines of ai applications. The firm added features, including code that makes it easier for developers to program the system as well as manage their workflow, and offered the package as a cloud-based subscription service.

Yet Databricks only really took off when it added another component called “lakehouse”. It is a combination of two sorts of databases, a “data warehouse” and a “data lake” (hence the portmanteau). Both have historically been separate because of technical constraints and because they serve different purposes. Data warehouses are filled with well-defined corporate data that allow a firm to look into its past, for instance at how its sales have evolved, something called “business intelligence” (bi). Data lakes are essentially a dumping ground for all sorts of data that can reveal a firm’s future, including whether sales are likely to go up or down. Yet this separation is increasingly inefficient and unnecessary, explains Max Schireson of Battery Ventures, an investor in Databricks. “Doing bi and ai in different systems today is kind of stupid,” he notes.

Firms have jumped on what Databricks offers, in particular incumbents worried about being disrupted by an ai-driven startup. Comcast, an American broadband provider, uses it to allow its customers to use their voice to select movies; abn Amro, a Dutch bank, to recommend services; and h&m, a fashion retailer, to optimise its supply chain. Databricks now claims more than 5,000 customers and annualised subscription revenue of $600m—75% growth year-on-year.

Throwing Databricks at Snowflake

Mr Ghodsi has set his sights even higher. “Ultimately, everything data should be on Databricks,” he says. He is planning on investing the newly raised capital to keep growing and become the leader in lakehouse systems. Nobody should fault Mr Ghodsi, who once taught computer science at the University of California, Berkeley, for his ambitions. Yet realising them will not be easy. Other firms are already pushing into the territory. He will probably be able to fend off the three big cloud-computing providers: Amazon Web Services, Google Cloud Platform and Microsoft Azure. Although they have more than enough resources to compete and provide integrated ai packages, they share one big problem. Firms increasingly prefer not to store all their data in a single cloud, fearing they will get stuck with one vendor. Instead, they opt for products, such as Databricks’, that run across several clouds.

Snowflake is a different story. It, too, is building lakehouses. It is also taking a different approach. Whereas Databricks is adding bi to its ai platform, Snowflake, which has grown up in the data-warehouse world, is adding ai to its cloud-based bi package, meaning that their respective products will increasingly overlap. Whereas most of Databricks’ code is open-source, Snowflake’s is proprietary. And whereas Databricks has mostly stuck to a “land-and-expand” strategy, whereby small software deals grow into bigger ones, Snowflake practises a more conventional top-down sales model that focuses on big deals from the start.

All this will make for a battle over the next few years. But it could be rudely interrupted if Microsoft snaps up Databricks. The software firm is already one of Databricks’ investors and co-operates closely with it. Among other things, Azure offers a version of Databricks’ platform and Microsoft uses its name in presentations about its strategy, something it rarely does with other firms. It would be a good fit. At its core, Microsoft is still a company selling tools for developers to write applications and platforms to run them on. And Databricks represents both a complement and a strategic threat: it lets data, rather than people, write the code.

Databricks’ ipo is not meant to take the firm public, according to some analysts, but to put a price on it, so that negotiations can start somewhere. But the hype surrounding the company could thwart such plans. Snowflake is now worth about $90bn. If Databricks’ ipo outdoes Snowflake’s, its asking price may well be north of $100bn. And like Pinterest, a social-media firm which Microsoft considered buying earlier this year, it may become too pricey even for a company as loaded as world’s biggest software firm.

Economist Staff, "Finding living planets,"The Economist, September 4, 2021, https://www.economist.com/schools-brief/2021/09/04/finding-living-planets

Finding living planets

Most pieces in this series of briefs have stayed within the realm of the biological, examining life at the levels of the species, the individual, the organ and the cell. But the first dealt with a subject central to biology but not inherently of it: molecules. No molecule can be said to be truly alive, and not all molecules are biological. But some are, and they are biological in distinctive, illuminating ways, revealing how life gets things done and passes information down the generations.

This last brief takes on a similar, though far vaster subject. Like molecules, planets do not have to be biological. But at least one is, and in a distinctive, illuminating way that reveals how life has consequences far beyond the organisms embodying it. Earth’s past, present and future cannot be understood without appreciating the planet’s biological aspects. And that appreciation is, in turn, crucial to finding other planets on which biology plays a role.

The idea that Earth is in some way alive, or can be treated as if it were, is common to many mythologies and sensibilities, and has been a theme in science for centuries. Its modern form, though, dates from the 1960s and the insights of James Lovelock, a British scientist then working at jpl, a laboratory in California that is responsible for most of America’s planetary science.

In thinking about the detection of life on other planets Dr Lovelock turned to a broad definition of the phenomenon: one offered by physicists and based on thermodynamics, the science of heat, work and order. This is that life uses, or creates, flows of matter and energy that allow it to increase and maintain complexity within itself. In doing so it deals with the universe’s natural tendency to break down complexity, thus creating disorder (known in thermodynamics as entropy), by actively increasing the entropy of the rest of the universe while reducing its own—exporting disorder, as it were.

Armed with this definition, Dr Lovelock proposed detecting life elsewhere by looking for signs of order, particularly in the form of chemical disequilibria—namely, intrinsically unlikely mixtures of chemicals that would have to be maintained by the persistent export of entropy. He concluded that the most detectable such order, at a planetary level, would be found in the composition of the atmosphere.

On Earth, a variable amount of water vapour aside, 99% of the atmosphere is nitrogen and oxygen. Most of the last 1% consists of argon, helium and neon (“noble” gases that demonstrate their nobility by being inert and fundamentally pointless), and other trace gases such as carbon dioxide and methane.

As Dr Lovelock pointed out, this mixture is way out of equilibrium. Oxygen and methane react with each other. Such reactions take place constantly in the atmosphere. For these gases to be present simultaneously requires active sources of one or both. On Earth, life provides these. Plants, algae and some photosynthetic bacteria produce oxygen. Single-celled archaea called methanogens produce methane.

What is more, with energetic encouragement (as offered, for example, by bolts of lightning), oxygen and nitrogen will react with each other too, creating nitrogen oxides. Again, it turns out that life provides a countervailing process which lets the levels of both gases stay constant, despite the lightning. De-nitrifying bacteria produce the energy they need by turning nitrogen-bearing compounds like those oxides back into gaseous nitrogen, thus continuously topping up the level in the atmosphere.

The atmospheres of Earth’s neighbours, Mars and Venus, provided a stark contrast to this picture of biologically driven instability. They contained no pairs of gases that, at concentrations observed, would be likely to react. They were in equilibrium. This led Dr Lovelock to two conclusions: that there was no life on Mars and Venus; and that Earth’s atmosphere was, to a certain degree or in a certain sense, alive. It was not made of cells or enclosed in a membrane. Nor could it reproduce. But the flow of energy and matter through the living bits of the planet kept the atmosphere in disequilibrium and held entropy at bay. Life’s imposition of order and disequilibrium thus operated beyond the boundaries of cells, individuals and species.

The first of these conclusions was not popular. Many scientists wanted to send robots to Mars to look for life. To be told from the off that such searches would be fruitless served no one’s interests. But fruitless they have proved so far to be.

The second conclusion led Dr Lovelock to hypothesise that Earth behaves, to some extent, as a living organism, in that biology-based processes provide it with a degree of self-regulation which the system as a whole uses in order to keep itself to life’s liking. This “Gaia hypothesis” was highly controversial in the 1970s and 1980s. The views of Dr Lovelock, his followers and his opponents have since evolved. The idea that life actively seeks to keep the environment to its liking, a crucial feature of the hypothesis in its early days, is not now widely held. It is, however, universally agreed that the composition of Earth’s atmosphere depends on biological activity and that various feedback mechanisms which maintain the planet’s habitability have biological components.

The idea of Earth’s environment being a creation of its evolving inhabitants, rather than a background against which they evolve, seems on the face of things quite unlikely. Earth’s living organisms are estimated to contain about 550bn tonnes of carbon. Add in the other elements and remember that living things are, by weight, mostly water, and you might get up to a few trillion tonnes all told. The atmosphere weighs 5,000trn tonnes. How could a thin green smear of life which weighs less than 0.1% of that be calling the shots?

Most of what life does with this energy is chemical: building molecules up, breaking them down and dumping some of the eventual waste products into the environment. And this chemical activity is persistent. The cycling which moves carbon from the atmosphere into living things (through photosynthesis) and back to the atmosphere (through respiration) has been fundamental to the planet’s workings for billions of years. The same goes for the cycling of nitrogen. The great biogeochemical cycles are older than any mountain range, ocean or continent. Their work mostly done by bacteria and archaea, they predate the dawn of animals and plants.

The composition of Earth’s atmosphere before the prokaryotes got their membranes on it is a subject on which there are few data. But the geological record makes one thing clear: it contained almost no oxygen. Significant amounts of free oxygen entered the air only after the relevant form of photosynthesis had evolved. At that point the level of bacterially produced methane—which, in the absence of oxygen, could be quite high—crashed. Because methane is a greenhouse gas, so did the temperature. Roughly 2.5bn years ago the “great oxidation event”, as it is known, plunged Earth into an ice age that saw ice sheets spread to the equator.

The subsequent history of the atmosphere, during which oxygen levels have increased episodically, is coupled to life in various ways. There seems to be a link between oxygen reaching a threshold level about 700m years ago and the evolution of the first animals—it is hard, perhaps impossible, to lead an energetically profligate animal lifestyle without the extra power that oxygen provides to a metabolism.

Vaster than empires, and more slow

The advent of trees, which were able to store carbon both in greater quantities than previous photosynthesisers and in forms that were hard for other organisms to break down, saw carbon-dioxide levels in the atmosphere fall far enough to trigger another global ice age. The recovery and utilisation of some of that hard-to-get-at carbon, now transformed to coal, is seeing life alter the atmosphere in yet another way a few hundred million years on—again with climatic consequences.

Over the decades which saw this new understanding of the role life had played in Earth history develop, Dr Lovelock’s associated insights about atmospheres as signals of life elsewhere made little progress. This was partly because of a lack of atmospheres. Aside from Earth’s, the solar system contains only seven thick enough to count. There have been reports of out-of-equilibrium trace gases on Mars (methane) and Venus (phosphine), but in both cases the evidence is shaky. The most recent orbital survey found no evidence at all for methane in the Martian atmosphere.

Happily, the past two decades have revealed thousands of planets orbiting other stars. Telescopes that can examine the atmospheres of some of these which look promisingly habitable should be available soon. One, the much delayed James Webb Space Telescope, is supposed to launch this Hallowe’en. If any of the orbs it studies suggest Gaia has been working her magic there, too, then the ideas these briefs discuss may one day undergo an intriguing examination. Some will probably turn out to be universal biological truths. Others, though, may just be chance properties of life on one particular planet.

“…Here, we consider every U.S. patent assigned to U.S. inventors since 1926, and show thatthe proportion of patents relying on federally funded science has outstripped the overall increase in patenting, plateauing since a high of 30.0% in 2011(see the first figure). Despite this plateau,the absolute number of patents that rely on federally supported research has almost doubled recently, from 22,647 in 2008 to 45,220 in 2017. We count reliance when a patent is owned by the government, acknowledges government support, or directly cites a patent or science paper that acknowledgessupport….Federal support
for U.S. invention gets routed through a variety of agencies. In 2017, for example, the Department of Defense (including the armed services) supported 6.2% of the total of U.S. inventions, HHS 5.4%,Department of Energy 3.9%, National Science Foundation 2.9%, NASA 1.0%,and Department of Agriculture 0.50% (others 5.5% and unspecified 2.5%; see SM for illustrations of R&D investment and patenting by agency and by technology class)….Large, small, and micro firms all draw upon government research, as observed in patent-renewal data. Startups also depend heavily on government research, as 34.6% of the 121,765 patents assigned to venture-backed companies from 1976 to 2016 cited federally supported research; by comparison, for all corporate patents during the same time period, only 21.7% rely on federally supported research. The higher reliance of startups on government supported research may be explained by resource constraints, which inhibit internal R&D expenditure in young ventures and encourage identification and external licensing of promising technologies. It also illustrates the intended consequence of the Bayh-Dole Act and an important path of commercialization for federal science and technology research….The average percentage of prior art citations within each patent that are supported by federal research fell from a high of 15.8% in 2003 to 9.9% in 2017. By contrast, citation of scientific papers that are supported by federal research reached a historical high of 10.7% in 2017, up from 6.9% in 2004 (see SM)….”

L Fleming, H Greene, G Li and D Yao, "Government-funded research increasingly fuels innovation,"Science, June 2019, https://www.science.org/doi/10.1126/science.aaw2373

"...Men are abandoning higher education in such numbers that they now trail female college students by record levels. At the close of the 2020-21 academic year, women made up 59.5% of college students, an all-time high, and men 40.5%, according to enrollment data from the National Student Clearinghouse, a nonprofit research group. U.S. colleges and universities had 1.5 million fewer students compared with five years ago, and men accounted for 71% of the decline. This education gap, which holds at both two- and four-year colleges, has been slowly widening for 40 years. The divergence increases at graduation: After six years of college, 65% of women in the U.S. who started a four-year university in 2012 received diplomas by 2018 compared with 59% of men during the same period, according to the U.S. Department of Education. In the next few years, two women will earn a college degree for every man, if the trend continues, said Douglas Shapiro, executive director of the research center at the National Student Clearinghouse. No reversal is in sight. Women increased their lead over men in college applications for the 2021-22 school year—3,805,978 to 2,815,810—by nearly a percentage point compared with the previous academic year, according to Common Application, a nonprofit that transmits applications to more than 900 schools. Women make up 49% of the college-age population in the U.S., according to the Census Bureau....At Baylor University, where the undergraduate student body is 60% female, the admission rate for men last year was 7 percentage points higher than for women. Every student has to meet Baylor’s admission standards to earn admission, said Jessica King Gereghty, the school’s assistant vice president of enrollment strategy and innovation. Classes, however, are shaped to balance several variables, including gender, she said....The college gender gap cuts across race, geography and economic background. For the most part, white men—once the predominant group on American campuses—no longer hold a statistical edge in enrollment rates, said Mr. Mortenson, of the Pell Institute. Enrollment rates for poor and working-class white men are lower than those of young Black, Latino and Asian men from the same economic backgrounds, according to an analysis of census data by the Pell Institute for the Journal....."

Douglas Belkin, "A Generation of American Men Give Up on College: ‘I Just Feel Lost’," Wall Street Journal, September 6, 2021, https://www.wsj.com/articles/college-university-fall-higher-education-men-women-enrollment-admissions-back-to-school-11630948233

A Generation of American Men Give Up on College: ‘I Just Feel Lost’

Men are abandoning higher education in such numbers that they now trail female college students by record levels.

At the close of the 2020-21 academic year, women made up 59.5% of college students, an all-time high, and men 40.5%, according to enrollment data from the National Student Clearinghouse, a nonprofit research group. U.S. colleges and universities had 1.5 million fewer students compared with five years ago, and men accounted for 71% of the decline.

This education gap, which holds at both two- and four-year colleges, has been slowly widening for 40 years. The divergence increases at graduation: After six years of college, 65% of women in the U.S. who started a four-year university in 2012 received diplomas by 2018 compared with 59% of men during the same period, according to the U.S. Department of Education.

In the next few years, two women will earn a college degree for every man, if the trend continues, said Douglas Shapiro, executive director of the research center at the National Student Clearinghouse.

No reversal is in sight. Women increased their lead over men in college applications for the 2021-22 school year—3,805,978 to 2,815,810—by nearly a percentage point compared with the previous academic year, according to Common Application, a nonprofit that transmits applications to more than 900 schools. Women make up 49% of the college-age population in the U.S., according to the Census Bureau.

“Men are falling behind remarkably fast,” said Thomas Mortenson, a senior scholar at the Pell Institute for the Study of Opportunity in Higher Education, which aims to improve educational opportunities for low-income, first-generation and disabled college students.

American colleges, which are embroiled in debates over racial and gender equality, and working on ways to reduce sexual assault and harassment of women on campus, have yet to reach a consensus on what might slow the retreat of men from higher education. Some schools are quietly trying programs to enroll more men, but there is scant campus support for spending resources to boost male attendance and retention.

The gender enrollment disparity among nonprofit colleges is widest at private four-year schools, where the proportion of women during the 2020-21 school year grew to an average of 61%, a record high, Clearinghouse data show. Some of the schools extend offers to a higher percentage of male applicants, trying to get a closer balance of men and women.

“Is there a thumb on the scale for boys? Absolutely,” said Jennifer Delahunty, a college enrollment consultant who previously led the admissions offices at Kenyon College in Gambier, Ohio, and Lewis & Clark College in Portland, Ore. “The question is, is that right or wrong?”

Ms. Delahunty said this kind of tacit affirmative action for boys has become “higher education’s dirty little secret,” practiced but not publicly acknowledged by many private universities where the gender balance has gone off-kilter.

“It’s unfortunate that we’re not giving this issue air and sun so that we can start to address it,” she said.

At Baylor University, where the undergraduate student body is 60% female, the admission rate for men last year was 7 percentage points higher than for women. Every student has to meet Baylor’s admission standards to earn admission, said Jessica King Gereghty, the school’s assistant vice president of enrollment strategy and innovation. Classes, however, are shaped to balance several variables, including gender, she said.

Ms. Gereghty said she found that girls more closely attended to their college applications than boys, for instance making sure transcripts are delivered. Baylor created a “males and moms communication campaign” a few years ago to keep high-school boys on track, she said.

Among the messages to mothers in the campaign, Ms. Gereghty said: “ ‘At the dinner table tonight, mom, we need you to talk about getting your high school transcripts in.’”

Race and gender can’t be considered in admission decisions at California’s public universities. The proportion of male undergraduates at UCLA fell to 41% in the fall semester of 2020 from 45% in fall 2013. Over the same period, undergraduate enrollment expanded by nearly 3,000 students. Of those spots, nine out of 10 went to women.

“We do not see male applicants being less competitive than female applicants,” UCLA Vice Provost Youlonda Copeland-Morgan said, but fewer men apply.

The college gender gap cuts across race, geography and economic background. For the most part, white men—once the predominant group on American campuses—no longer hold a statistical edge in enrollment rates, said Mr. Mortenson, of the Pell Institute. Enrollment rates for poor and working-class white men are lower than those of young Black, Latino and Asian men from the same economic backgrounds, according to an analysis of census data by the Pell Institute for the Journal.

Yet the stakes are too high to ignore, she said. “If you care about our society, one, and, two, if you care about women, you have to care about the boys, too. If you have equally educated numbers of men and women that just makes a better society, and it makes it better for women.”

The pandemic accelerated the trend. Nearly 700,000 fewer students were enrolled in colleges in spring 2021 compared with spring 2019, a Journal analysis found, with 78% fewer men.

The decline in male enrollment during the 2020-21 academic year was highest at two-year community colleges. Family finances are believed to be one cause. Millions of women left jobs to stay home with children when schools closed in the pandemic. Many turned to their sons for help, and some young men quit school to work, said Colleen Coffey, executive director of the College Planning Collaborative at Framingham State University in Massachusetts, a program to keep students in school.

“The guys felt they needed to step in quickly,” Ms. Coffey said.

It isn’t clear how many will return to school after the pandemic.

No plan

Over the course of their working lives, American college graduates earn more than a million dollars beyond those with only a high-school diploma, and a university diploma is required for many jobs as well as most professions, technical work and positions of influence.

Yet skyrocketing education costs have made college more risky today than for past generations, potentially saddling graduates in lower-paying careers—as well as those who drop out—with student loans they can’t repay.

Social science researchers cite distractions and obstacles to education that weigh more on boys and young men, including videogames, pornography, increased fatherlessness and cases of overdiagnosis of boyhood restlessness and related medications.

Men in interviews around the U.S. said they quit school or didn’t enroll because they didn’t see enough value in a college degree for all the effort and expense required to earn one. Many said they wanted to make money after high school.

Daniel Briles, 18 years old, graduated in June from Hastings High School in Hastings, Minn. He decided against college during his senior year, despite earning a 3.5 grade-point average and winning a $2,500 college scholarship from a local veterans organization.

He took a landscaping job and takes home about $500 a week. Mr. Briles, a musician, also earns some income from creating and selling music through streaming services, he said, and invests in cryptocurrencies. His parents both attended college, and they hope he, too, will eventually apply. So far, they haven’t pressured him, he said.

“If I was going to be a doctor or a lawyer, then obviously those people need a formal education. But there are definitely ways to get around it now,” Mr. Briles said. “There are opportunities that weren’t taught in school that could be a lot more promising than getting a degree.”

Many young men who dropped out of college said they worried about their future but nonetheless quit school with no plan in mind. “I would say I feel hazy,” said 23-year-old Jay Wells, who quit Defiance College in Ohio after a semester. He lives with his mother and delivers pallets of soda for Coca-Cola Co. in Toledo for $20 an hour.

“I’m sort of waiting for a light to come on so I figure out what to do next,” he said.

Jack Bartholomew, 19, started his freshman year at Bowling Green State University during the pandemic, taking his classes online. During the first weeks, he said, he was confused by the course material and grew frustrated. Finally, he quit. “I don’t know what I’m going to do,” he said. “I just feel lost.”

Mr. Bartholomew’s parents and one older sister have college degrees. He was a solid student in high school and was interested in studying graphic design. Yet while working online from his second-floor bedroom, his introductory courses seemed pointless for how much he was paying, he said.

He works 40 hours a week, at $15.50 an hour, packing boxes at an Amazon warehouse not far from his house in Perrysburg, Ohio. It isn’t a long-term job, Mr. Bartholomew said, and he doesn’t know what to do next.

“College seems like, to me at least, the only logical path you can take in America,” he said. But for now, he said, it is too big a struggle, financially and academically.

Tomorrow’s leaders

Men dominate top positions in industry, finance, politics and entertainment. They also hold a majority of tenured faculty positions and run most U.S. college campuses. Yet female college students are running laps around their male counterparts.

The University of Vermont is typical. The school president is a man and so are nearly two-thirds of the campus trustees. Women made up about 80% of honors graduates last year in the colleges of arts and sciences.

One student from nearly every high school in Vermont is nominated for a significant scholarship at the campus every year. Most of them are girls, said Jay Jacobs, the university’s provost for enrollment management. It isn’t by design. “We want more men in our pipeline,” Dr. Jacobs said, but boys graduate from high school and enroll in college at lower rates than girls, both in Vermont and nationwide.

The young men who enroll lag behind. Among University of Vermont undergraduates, about 55% of male students graduate in four years compared with 70% of women. “I see a lot of guys that are here for four years to drink beer, smoke weed, hang out and get a degree,” said Luke Weiss, a civil engineering student and fraternity president of Pi Kappa Alpha at the campus.

Female students in the U.S. benefit from a support system established decades ago, spanning a period when women struggled to gain a foothold on college campuses. There are more than 500 women’s centers at schools nationwide. Most centers host clubs and organizations that work to help female students succeed.

Young women appear eager to take leadership roles, making up 59% of student body presidents in the 2019-20 academic year and 74% of student body vice presidents, according to W.H. “Butch” Oxendine, Jr., executive director of the American Student Government Association.

“Across all types of institutions, particularly two-year institutions, but also extending into public and private four-year institutions, women dominate student government executive boards,” Mr. Oxendine said.

Many young men are hobbled by a lack of guidance, a strain of anti-intellectualism and a growing belief that college degrees don’t pay off, said Ed Grocholski, a senior vice president at Junior Achievement USA, which works with about five million students every year to teach about career paths, financial literacy and entrepreneurship.

“What I see is there is a kind of hope deficit,” Mr. Grocholski said.

Young men get little help, in part, because schools are focused on encouraging historically underrepresented students. Jerlando Jackson, department chair, Education Leadership and Policy Analysis, at the University of Wisconsin’s School of Education, said few campuses have been willing to spend limited funds on male underachievement that would also benefit white men, risking criticism for assisting those who have historically held the biggest educational advantages.

“As a country, we don’t have the tools yet to help white men who find themselves needing help,” Dr. Jackson said. “To be in a time when there are groups of white men that are falling through the cracks, it’s hard.”

Keith E. Smith, a mental-health counselor and men’s outreach coordinator at the University of Vermont, said that when he started working at the school in 2006 he found that men were much more likely to face consequences for the trouble they caused under the influence of drugs and alcohol.

In 2008, Mr. Smith proposed a men’s center to help male students succeed. The proposal drew criticism from women who asked, “Why would you give more resources to the most privileged group on campus,” he said.

Funding wasn’t appropriated, he said, and the center was never built.

The University of Oregon has one of the few college men’s centers, which offers help for mental and physical health. “Men don’t need to pull themselves up by their bootstraps,” said Kerry Frazee, director of prevention services, who works with the center. “No one can do it all by themselves.”

https://www.brookings.edu/research/how-can-we-track-trends-in-educational-attainment-by-parental-income-hint-not-with-the-current-population-survey/

Note, a 2015 post from Matthew Chingos and Susan Dynarski implies that the WSJ report on college entry we by parental income highlighted yesterday is likely wrong, "....To put it bluntly, these statistics are wrong. They are based on data from the monthly Current Population Survey (CPS). It would be wonderful if the CPS provided the income of young adults’ parents, but as a rule it does not. Parental information is present in the CPS only if the young adult is currently living at home, or is temporarily away from home. The primary reason a young adult is temporarily away from home is to attend college. Once a child forms her own household, she disappears from her parents’ CPS record. If we limit our analysis of the educational attainment of young adults to those who are linked to their parents’ CPS records, we have committed the mortal sin of selection bias: selecting the sample on the variable of interest...."

Properly trained talent as a potential limiting constraint to infrastructure, “…The issue underscores a perennial challenge for the skilled trades. Not enough young people are entering the sectors, a concern for companies as older workers retire from construction, carpentry and plumbing jobs. And although many skilled trade positions have competitive wages and lower educational barriers to entry, newer generations tend to see a four-year college degree as the default path to success. Infrastructure workers tend to be older than average, raising concerns about workers retiring and leaving behind difficult-to-fill positions. The median age of construction and building inspectors, for instance, is 53, compared with 42.5 for all workers nationwide. Only 10 percent of infrastructure workers are under 25, while 13 percent of all U.S. workers are in that age group, according to a Brookings Institution analysis…. Nicholas Kadavy, a third-generation mason who owns Nebraska Masonry in Lincoln, Neb., has seen his workload triple since April. He said his company had already scheduled out work until June 2022. He wants to hire more skilled masons to finish the projects sooner, but he can’t find enough people to fill the dozen positions he has open, even though he is willing to pay up to $50 an hour — twice what he offered before the pandemic. He checks his email daily, waiting for more applications to come in. “My biggest struggle is finding guys that want to work,” Mr. Kadavy said. Even when he does hear from applicants, Mr. Kadavy said, he is unable to hire many of them because they are not qualified enough. He was already seeing a shortage of skilled masons before the pandemic, he said, and he worries that the craft is “dying” because newer generations are not pursuing the field. The nation’s public transit systems would receive $39 billion under the infrastructure bill, allowing agencies to expand service and upgrade decades-old infrastructure. But transit agencies are dealing with worker shortages of their own, facing a dearth of bus drivers, subway operators and maintenance technicians. Metro Transit in Minneapolis is trying to hire about 100 bus drivers by the end of the year, said Brian Funk, the agency’s acting chief operating officer. The agency had originally aimed to hire 70 workers by the end of June, but it met only about half of that goal….”

Madeleine Ngo, "Skilled Workers Are Scarce, Posing a Challenge for Biden’s Infrastructure Plan,"New York Times, September 12, 2021, https://www.nytimes.com/2021/09/09/us/politics/biden-infrastructure-plan.html

Skilled Workers Are Scarce, Posing a Challenge for Biden’s Infrastructure Plan

WASHINGTON — The infrastructure bill that President Biden hopes to get through Congress is supposed to create jobs and spur projects for companies like Anchor Construction, which specializes in repairing aging bridges and roadways in the nation’s capital.

But with baby boomers aging out of the work force and not enough young people to replace them, John M. Irvine, a senior vice president at Anchor, worries there will not be enough workers to hire for all those new projects.

“I’d be surprised if there’s any firm out there saying they’re ready for this,” said Mr. Irvine, whose company is hiring about a dozen skilled laborers, pipe layers and concrete finishers. If the bill passes Congress, he said, the company will most likely have to double the amount it is hiring.

“We will have to staff up,” Mr. Irvine said. “And no, there are not enough skilled workers to fill these jobs.”

Mr. Biden has hailed the $1 trillion infrastructure bill as a way to create millions of jobs, but as the country faces a dire shortage of skilled workers, researchers and economists say companies may find it difficult to fill all of those positions.

The bill could generate new jobs in industries critical to keeping the nation’s public works systems running, such as construction, transportation and energy. S&P Global Ratings estimated that the bill would lift productivity and economic growth, adding $1.4 trillion to the U.S. economy over eight years. But if there is not enough labor to keep up with the demand, efforts to strengthen the nation’s highways, bridges and public transit could be set back.

“Do we have the work force ready right now to take care of this? Absolutely not,” said Beverly Scott, the vice chair of the President’s National Infrastructure Advisory Council.

A recent U.S. Chamber of Commerce survey found that 88 percent of commercial construction contractors reported moderate-to-high levels of difficulty finding skilled workers, and more than a third had to turn down work because of labor deficiencies. The industry could face a shortage of at least two million workers through 2025, according to an estimate from Construction Industry Resources, a data firm in Kentucky.

The pandemic has compounded labor shortages, as sectors like construction see a boom in home projects with more people teleworking and moving to the suburbs. Contractors have also faced a scarcity of supplies as prices soared for products like lumber and steel.

Job openings in construction have picked up at a rapid clip after the sector lost more than one million jobs at the beginning of the pandemic. According to an Associated Builders and Contractors analysis, construction job openings have increased by 12 percent from prepandemic levels. But the sector is still down about 232,000 jobs from February 2020, according to data from the Bureau of Labor Statistics.

The issue underscores a perennial challenge for the skilled trades. Not enough young people are entering the sectors, a concern for companies as older workers retire from construction, carpentry and plumbing jobs. And although many skilled trade positions have competitive wages and lower educational barriers to entry, newer generations tend to see a four-year college degree as the default path to success.

Infrastructure workers tend to be older than average, raising concerns about workers retiring and leaving behind difficult-to-fill positions. The median age of construction and building inspectors, for instance, is 53, compared with 42.5 for all workers nationwide. Only 10 percent of infrastructure workers are under 25, while 13 percent of all U.S. workers are in that age group, according to a Brookings Institution analysis.

“The challenge is, how are we going to replace — not just grow, but replace — many of the workers who are retiring or leaving jobs?” said Joseph W. Kane, a fellow at the Brookings Institution. “A lot of people, especially younger people, just aren’t even aware that these jobs exist.”

Community colleges, which offer a variety of vocational training programs, have suffered steep declines in enrollment. A recent estimate from the National Student Clearinghouse Research Center found that community colleges were the hardest hit among all colleges, with enrollment declining by 9.5 percent this spring. More than 65 percent of the total undergraduate enrollment losses this spring occurred at community colleges, according to the report.

Nicholas Kadavy, a third-generation mason who owns Nebraska Masonry in Lincoln, Neb., has seen his workload triple since April. He said his company had already scheduled out work until June 2022.

He wants to hire more skilled masons to finish the projects sooner, but he can’t find enough people to fill the dozen positions he has open, even though he is willing to pay up to $50 an hour — twice what he offered before the pandemic. He checks his email daily, waiting for more applications to come in.

“My biggest struggle is finding guys that want to work,” Mr. Kadavy said.

Even when he does hear from applicants, Mr. Kadavy said, he is unable to hire many of them because they are not qualified enough. He was already seeing a shortage of skilled masons before the pandemic, he said, and he worries that the craft is “dying” because newer generations are not pursuing the field.

The nation’s public transit systems would receive $39 billion under the infrastructure bill, allowing agencies to expand service and upgrade decades-old infrastructure. But transit agencies are dealing with worker shortages of their own, facing a dearth of bus drivers, subway operators and maintenance technicians.

Metro Transit in Minneapolis is trying to hire about 100 bus drivers by the end of the year, said Brian Funk, the agency’s acting chief operating officer. The agency had originally aimed to hire 70 workers by the end of June, but it met only about half of that goal.

Although he is optimistic that the agency will be able to fill those remaining positions after ramping up efforts to promote the openings, he said he was still wary about some workers choosing to leave.

“We know that every day that goes by, there’s the potential that somebody else is looking at either retirement or another job,” Mr. Funk said.

Some are optimistic that policymakers will be able to scale up work force development programs to keep up with the demand the infrastructure bill would create. Projects could take several months to get started, economists said, giving the country time to train workers who are not yet qualified.

“These problems are not insurmountable,” said Nicole Smith, the chief economist at the Georgetown University Center on Education and the Workforce. “Not having a sufficiently trained work force is something that can be addressed.”

But others are worried that the bill does not do enough to draw more people into infrastructure fields, especially historically underrepresented groups like women and people of color. Although Mr. Biden originally proposed a $100 billion investment in work force development, that funding was left out in the latest version of the bipartisan infrastructure bill. The funding would have invested in job training for formerly incarcerated people and created millions of registered apprenticeships, among other things.

Last week, the National Skills Coalition and more than 500 other organizations sent a letter to congressional leadership calling on it to include the funding in a separate reconciliation bill.

“President Biden promised that economic recovery was going to be predicated on equity,” said Andy Van Kleunen, the chief executive of the National Skills Coalition. “Work force training has to be part of that answer.”