No matter how large a jobs effort the government puts forward, revitalizing the manufacturing sector holds the key to long-term success.

While there are many similarities between our time and the Great Depression, there is a crucial difference: In the late 1930s, the United States produced over one-third of the world's manufactured goods, while in 2008, the American manufacturing share was down to 18 percent after being trashed by outsourcing and imports. By increasing demand for products through government action, FDR was able to set the country up for the "Great Prosperity" from the end of WWII until the 1970s. Now, even with a large second stimulus, we will not be able to experience a new era of prosperity until we rebuild the manufacturing sector.

Recently, a crop of articles has appeared that argue that "our economy will thrive only when we make what we invent," as Susan Hockstein, President of the Massachussetts Institute of Technology, recently concluded in a New York Times op-ed. Hockstein is challenging the idea that the United States can somehow be a world-class source of innovation without actually producing the new products. As she points out, in the past, "with design and fabrication side by side, insights from the factory floor flowed back to the drawing board." She echoes the research of Professors Pisano and Shih, from an article in the Harvard Business Review, in which they wrote, "The U.S. has lost or is in the process of losing the knowledge, skilled people and supplier infrastructure needed to manufacture many of the cutting-edge products it invented." When engineers could go down to the factory floor and look at the results of their design decisions, it was much easier to create yet more innovations. A major criticism of a corporation (such as GM) used to be that the design engineers would take their designs and "throw them over the wall" to the factory floor without worrying about how the designs fared in a factory setting. Now we throw the designs over the Pacific Ocean to China.

By contrast, as John Gertner writes in the New York Times Magazine, "As the former White House economic adviser Lawrence Summers put it, America's role is to feed a global economy that's increasingly based on knowledge and services rather than on making stuff." The benefits of separating production and innovation have been accepted as conventional wisdom for the past few decades, exemplified by Summers's statement.

But reintegrating innovation -- that is, science and engineering -- with production -- skilled production workers and operations managers -- is necessary. Back in the Great Depression, the Russians bought American factories and imported American engineers to create their industrial system. (Germany also helped, much to their later regret.) Now, after decades of closing down factories, throwing engineers and skilled production workers out of work, re-orienting those professions to military work and much of the educated class to finance, the U.S. is in the position of a developing country. We must try to catch up to Europe and Asia in any way that we can.

It won't be easy. On the one hand, Hockstein points out that "to make our economy grow, sell more goods to the world and replenish the work force, we need to restore manufacturing -- not the assembly-line jobs of the past, but the high-tech advanced manufacturing of the future." On the other hand, Gertner reports that advanced electric car battery makers are forced to buy Korean companies and import Korean engineers in order to get up to speed with cutting-edge technology. A battery maker tells him, "That's where the know-how was -- it was nonexistent in the U.S."

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While the increasing recognition of the importance of manufacturing is encouraging, we are still witnessing the very beginning of the effort to tackle solutions. Hockstein calls for more research dollars from the Federal government and support for more graduates and skilled workers in advanced manufacturing fields. While these are a good start, they won't solve the underlying problem. What we need is an industrial policy, a coordinated set of initiatives that the government pursues to make up for the many market failures we are currently experiencing. But as Gertner points out, "Even now, as unemployment ravages the country, so-called industrial policy remains politically toxic. Legislators will not debate it; most will not even speak its name."

Further to the left on the political spectrum, writers such as Leo Hindery recognize that "America's manufacturing sector must be a cornerstone of the nation's economy and thus one of the essential drivers of the recovery we are still searching for." He calls for a requirement that government purchase goods made in America, a tax credit for rebuilding existing American factories, eliminating the tax credit for off-shoring factories, and enacting a temporary trade tariff, among other policies. He also advocates for a national infrastructure bank and extending various programs to help with the creation of a green energy economy. In a similar vein, Dave Johnson of the Campaign For America's Future writes about a multi-pronged set of policies to revive manufacturing: deal with the trade imbalance with China by pushing it to stop making its currency artificially weak, have the government purchase American-made goods, implement a price on carbon in order to encourage a transition to a green economy, and create an industrial policy, for instance with tax incentives and training programs. He also argues that the president could embark on many of these policies now.

While all of these proposals would be a giant step forward politically, and in fact are probably beyond the limit of feasibility in this age of rabid Republican opposition, unfortunately they only begin to put us on the path to a world-class manufacturing system. The Koreans, Chinese, and Japanese directly subsidize companies, make it easy for scientists and engineers to get degrees, aid the import of technology, help companies work together, and engage in many other techniques for building manufacturing industries. According to the New York Times, a partial cause of China's rise as a solar energy producer and the simultaneous decline of the United States comes from "free or subsidized land from local governments, extensive tax breaks and other state assistance... China has focused on building the competitiveness of the country's manufacturers." Since labor is a small part of solar panel costs, cheap labor has not been a key to success in China.

We could combine the ideas of a second stimulus, building a green infrastructure, and rebuilding the manufacturing economy by creating environmentally sustainable transportation, energy, and urban national systems, as I have argued. There are myriad examples of countries pulling themselves up the ladder of manufacturing competency, including the United States. The reality is that in order to be wealthy in the long-run, an economy must be based on manufacturing. As hard as it will be to move the politics of this country toward that reality, in the end it will be easier than making pretend that manufacturing is not important.

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

Friday's jobs numbers came out just in time to make today's Labor Day celebration highly depressing. We can look forward to Obama's jobs speech this week, but will he say anything to turn the situation around? Roosevelt Institute Senior Fellow Jeff Madrick joined Keith Olbermann on Countdown to discuss what needs to be done. "The country is in a mess," Jeff says. "The American job machine is broken."

Obama's jobs speech can't just be empty campaign rhetoric with an unemployment crisis like ours. "He has to be bold," Jeff says. After months of a stagnant economy, "he can say the facts changed," Jeff points out. "As John Maynard Keynes once said, 'When the facts change, I change my mind. What do you do, sir?'"

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So what are the solutions that could help real Americans? We can invest in infrastructure -- painfully obvious after Hurricane Irene -- and clean energy, Jeff suggests. On top of that, "it can be done through an FDR Washington hiring program," he points out. "There's a lot to be done in America," and Obama could take a page from the WPA and employ Americans to get it done.

None of this will come for free, but isn't it worth spending the money to put the country back on track? "What he can tell the American people is, 'Do you want a dumb deficit, or do you want a smart deficit?'" Jeff says. "If we don't do something bold we're going to get a dumb deficit and lots of people out of work and malaise. We can get a smart deficit and get us working again." The choice seems pretty obvious when Labor Day is marred by 9 percent unemployment.

When given an ultimatum between children and career, many women go with the latter.

In the debate over work-life balance, there's one argument we can't seem to move past: Women have made a choice to have kids. Now they have to live with their decision and all of its consequences.

But this argument rests on an underlying assumption that, when challenged, just doesn't hold up. If faced with a stark choice between work and family, the Jack Welches of the world seem to think women are going to choose family, while men are going to choose work. Otherwise the idea of a workforce that doesn't need time off for childbearing doesn't make sense. Kids need to come from somewhere. It follows, therefore, that the expectation is that women will "opt out" to raise families rather than pursue a career. (We're not even going to talk about the opt-out debate in this post, as Joan's been over that already.)

But what happens if women don't choose family? What happens if they choose career? The cover story in this week's Economist illustrates what happens when women are given a stark choice between having children and a having a successful career. It turns out -- surprise! -- that a lot of them don't choose children.

The article, titled "The Flight from Marriage," documents a trend among Asian women who marry and have children later in life -- or not at all. The article indicates that non-marriage rates for women in their mid-thirties are pushing 20 percent in the wealthiest countries in Asia, including Japan, Taiwan, and Singapore. And unsurprisingly, the non-marriage rate rises with education level. In Thailand, 13 percent of women with a high school education are still single by age 40, compared with 20 percent of university graduates.

The decline in marriage rates has also led to a dramatic dip in the fertility rate, to as low as 1.1 in Hong Kong -- fully half of the replacement rate. (Unlike in, say, Scandinavia, very few Asian births take place out of wedlock.) The overall fertility rate in East Asia has fallen from 5.3 in 1960 to 1.6 today. That's obviously not sustainable, and many of the countries affected are scrambling to offer incentives to persuade women to have children. Among the benefits being offered? Better work-life balance, including subsidized childcare and parental leave for both mothers and fathers. As the Wall Street Journal noted a few months ago, affordable child care has a significant effect on a country's fertility.

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See that, Mr. Welch? That's work-life balance -- as an economic necessity. If it comes down to it, career women in the United States could always pull a Lysistrata and stop having babies until the men come around. But come on. We shouldn't need to get to that point.

Now, the reasons for the low marriage and birthrates in Asia are manifold, as the article describes, and include not only poor work-family polices but also inflexible divorce laws and rigid adherence to traditional social roles. (According to the article, the average Japanese woman does 30 hours of housework to a man's three -- talk about Chore Wars!) Because the tradition is for Asian women to "marry up," it's more difficult for educated and successful women to find a husband whose status matches or exceeds her own.

But the relationship between work-life policy and birthrate holds elsewhere as well. Take a look at Europe. The countries with the worst work-family policies are also, by and large, the countries with the lowest birthrates. Germany, for example, has notoriously bad work-life policies -- and a birthrate around 1.41 children per woman. Those countries with the highest birthrates, including Norway, Sweden, and France, tend to provide parents with the most support.

Business in a capitalist society has one goal and one goal only: to make money. This is often given as a justification for denying the value of policies that help employees achieve (or even attempt) work-life balance. But fertility trends show that this attitude is hugely shortsighted. There's no question that a career is now an option for most women. And the trends show that, when given an all-or-nothing choice between career and family, many women will choose career.

An aging population is a huge financial burden. It makes no sense to disincentivize reproduction. We simply can't afford to.

Joan Williams is the author of Reshaping the Work-Family Debate and Unbending Gender. She and Rachel Dempsey are co-writing an upcoming book about gender bias against professional women.

Alan Krueger's work with David Card was seminal when it first came out, but it has also stood the test of time.

Alan Krueger's recent appointment to head the Council of Economic Advisers has led to renewed interest in his book on minimum wages, coauthored with David Card, called Myth and Measurement. In that book, published in 1995, the authors forcefully argued that the evidence showing minimum wage increases killed jobs was fragile. Their own case study comparing fast food restaurants in New Jersey and Pennsylvania after a minimum wage increase in New Jersey showed that if anything, employment rose in New Jersey following the legislated hike.

Myth and Measurement went on to argue that the totality of evidence pointed towards the inadequacy of the simple supply-and-demand model for understanding the labor market for low-wage workers. Instead, they argued employers have some power to choose wage polices: paying a little bit more would attract more workers to a company and reduce the number leaving the company because of a better offer, but would mean higher labor costs due to paying more to those who would have stayed at the firm anyway -- the "inframarginal" workers. Card and Krueger called this the "dynamic monopsony" model, and they argued that it accorded with the data much better than the canonical supply and demand model.

The reaction to the book was unforgettable, even for those of us who were mere undergraduates at the time. Mixed in with praise for the authors' clear-headed (if brave) analysis was scathing commentary from established labor economists who considered Myth and Measurement nothing short of heresy. In his 1995 review of the book in Industrial and Labor Relations Review, Daniel Hammermesh scolded the authors that "[a] wonderful world of reduced inequality through higher wage minima with no loss of jobs is regrettably not an option." It has been an eventful 16 years since the publication of that book, so it seems a good time to take stock of how the authors' central theses have stood the test of time. Writing a retrospective review of Myth and Measurement is particularly tempting, since I just finished a review of the more recently published book Minimum Wages by David Neumark and William Wascher for the Journal of Economic Literature, which should be coming out in September. (For the uninitiated, Neumark and Wascher have staked out a position in the minimum wage debate arguing that minimum wages reduce jobs and increase poverty, and therefore implementing them is generally an undesirable policy.)

So what have we learned from -- and since -- Myth and Measurement? Let me highlight three things. First, it is useful to understand the methodological contribution of Card and Krueger's work. The idea of using "natural experiments" -- where there is a sudden change in policy -- was a hallmark of their work and since then has become a standard device in the empirical economist's toolkit. Additionally, the idea that geographical proximity is a good way to construct a control group has been strongly vindicated by many studies, including ones looking at minimum wage impacts. Indeed, today there is a plethora of studies using border discontinuity designs. While there were problems with their case study when it came to properly accounting for statistical power (something that I take up below), overall Card and Krueger's work has made a lasting (and positive) methodological contribution.

Second, Card and Krueger's own follow-up work (Card and Krueger 2000), as well as subsequent studies, largely validated the claim that fast food employment does not drop in any meaningful way in response to the kind of minimum wage increases that we have seen in this country. While critics typically focused on the fact that they found sizeable positive effects on jobs in some cases, the more policy relevant point of the book was that minimum wages do not seem to "kill jobs" while they raise wages at the bottom. This point has been firmly borne out by careful follow up research.

And finally, the idea that search frictions may mediate minimum wage impacts has been taken up by numerous papers since Myth and Measurement -- and has become much less controversial than at the time it was proposed. All in all, I would consider that a pretty good track record for any book in economics.

Findings on Employment

Let's begin with the book's core empirical findings about the impact of minimum wages on jobs in the fast food industry. What most stirred up the profession was that in some of Card and Krueger's specifications, employment in New Jersey actually rose in response to the mandated wage increase in a statistically significant fashion. The positive effect was inconsistent with the competitive model, but was consistent with a monopsonistic model where employers have some wage setting power.

However, the authors pointed out that in other specifications (especially those that were not weighted by firm size), the estimates were much less precise. They argued that "at a minimum, we believe that our estimates call into question the prediction that an increase in the minimum wage will lead to significant employment losses at affected firms. In particular, even our least precise estimates reject the hypothesis that the elasticity of demand for labor by fast-food employers is greater than 0.3 in absolute value."

Subsequent research that built on Myth and Measurement has found that while the sizeable positive effects in some of their specifications were likely due to chance, the lack of job loss was very much a robust finding. Card and Krueger's own subsequent analysis in 2000 using Unemployment Insurance filings by firms (which was closer to the universe of firms in the two states than their original sample) over a longer period already moved towards this view, as the employment elasticities, while still positive, were smaller in magnitude and not statistically distinguishable from zero.(1) My own work with William Lester and Michael Reich (2010) demonstrated this point by comparing contiguous counties across state borders and pooling over 64 different border segments with minimum wage differences over a 17-year period (1990-2006). It's like doing 64 different NJ-PA "experiments" and pooling them together. In the figure below, the dark line shows the distribution of the measured employment elasticity across the 64 "experiments." The four vertical lines are four different published estimates from individual case studies in the literature.

Local areas are buffeted by all kinds of economic shocks, and even if these are not correlated with minimum wage increases on average, they lead to clustering in the data, leaving us with less statistical variation than may be apparent at first glance. Such clustering was not accounted for in Card and Krueger's work or virtually in any work during that time, which explains why a sizeable positive effect could be found by chance alone. Since then, we have learned that computing standard errors without accounting for such clustering can lead to false precision. At the end of the day, however, our key conclusions were similar to Card and Krueger's, as the implied labor demand elasticity was effectively zero, and "statistical bounds (at the 95% confidence level) around our contiguous county estimates of the labor demand elasticity as identified from a change in the minimum wage rule out anything above 0.48 in magnitude." (The labor demand elasticitity measures the proportional change in employment for a group of workers in response to a proportional change in their wages.) Importantly, although one of the common criticisms of Myth and Measurement was that it only considered short-run responses, we also showed that was not a fatal flaw. Even when we considered long-term effects using a 17-year panel, the finding of no disemployment effect remained.

What about other research since Myth and Measurement that has looked at the effect of minimum wages on jobs in the U.S.? The most common since the 1990s has been the "state panel" approach pioneered by David Neumark and William Wascher. Like the individual case study, it uses only differences in minimum wages across states to form inference. However, instead of comparing two areas that may be similar based on, say, proximity, the "state panel" studies effectively compare all states to all states, while accounting for possible differences by including statistical controls. The state panel approach has tended to find negative effects, especially when considering a high impact demographic group such as teenagers.(2) For example, in their 2008 book titled Minimum Wages, Neumark and Wascher review 10 state panel studies following up on the initial controversy; nine out of 10 of these studies find evidence for jobs loss.

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There are some obvious virtues for the state panel approach, since it uses a lot more variation than an individual case study. However, it also assumes that we can find enough control variables to include in our regression that will make Texas look like Massachusetts. As it turns out, this is a heroic assumption that badly biases the results.

In a series of papers (Allegretto Dube Reich 2009, 2010; Dube Lester and Reich 2010, 2011) we show the nature of bias in the state panel studies. The kind of states that have tended to have higher minimum wage in the past 20 years have been quite different from those who have tended to have lower minimum wages. As an example, today 11 states plus DC have a local minimum wage of at least $0.25 above the federally mandated minimum of $0.25/hour. Eight of these 11 states are either in New England or on the West Coast. (The remaining three are Illinois, New Mexico, and Nevada.)

In other words, there is a very strong regional component to the minimum wage variation. This can lead to very misleading inference if we compare teen employment growth in, say, Texas and Massachusetts. Given factors such as climate, proximity to Mexico, and others that are usually not fully accounted for in state panel approaches, we might expect very different trends in employment in those states quite apart from minimum wages. Similarly, the growth rate in low-wage jobs has been quite different in states like Texas, North Dakota, and Indiana even thought these states have had the same binding minimum wage (i.e., the federal) over the past two decades. Unless one controls for the "unobserved" (or more accurately "not directly observed") sources of heterogeneity in the growth prospects across areas, conclusions may be badly flawed. A telltale sign of this flaw that our studies revealed is that in the state panel model, the job losses occur substantially prior to the actual change in policy.

So what are some ways of correcting the deficiencies of the state panel approach? One fruitful way is to recognize the core insight of Card and Krueger's research design that compared areas across the NJ-PA border. When comparing places directly across a border, many other (potentially unobservable) confounding factors are roughly similar. We implemented this strategy in numerous papers using a variety of data sets (QCEW, QWI, CPS, Census). The results were unambiguous: whatever group we considered -- restaurant workers, teenagers, teenagers of disadvantaged backgrounds -- the state panel approach always produced an erroneous negative estimate when it came to employment. Once we accounted for the regional heterogeneity, there was no employment loss to speak of. Other authors who have accounted for such heterogeneity largely confirm that employment effects from minimum wage increases in the US have been close to zero or even positive (e.g., Addison et al., 2009, 2011).

Inadequacy of the Simple Supply and Demand Model of the Labor Market

Another important part of Myth and Measurement argued for the inadequacy of the simple supply-and-demand model in thinking about the low-wage labor market. Card and Krueger's primary evidence for this view was that employment didn't fall, and may have risen, in response to a minimum wage increase. A simple model of "monopsony" is a firm that has some wage setting power due to search frictions. Employees say to themselves, "If my employer doesn't give me the raise I was promised I might look for other jobs, but there is no guarantee I'll find one to my liking immediately." Conversely, raising the wages a little won't immediately lead to a crush of workers outside the office, since only a fraction of potential workers may find out about it.

In Card and Krueger's dynamic monospony model, separation and recruitment rates are functions of the wage rate and so the model allows positive firm-level labor supply elasticities. They argue that empirically plausible magnitudes of the labor supply elasticities facing a firm are consistent with small positive or zero effects of a minimum wage increase on employment levels. Why? Because firms do not fully internalize the gains from paying a slightly higher wage. A higher wage reduces quits and increases recruitment among "marginal workers," thereby increasing employment. But a higher wage also means paying more to those who would have stuck around anyway -- the "inframarginal workers." This logic means firms don't raise wages as high as is "efficient" from a societal, as opposed to a profit maximization, perspective. When a minimum wage hike raises the bottom wage, it leads to fewer quits and more recruitment, and hence greater employment. Of course eventually, if the wage is raised enough, the firm may simply go out of business. But over a range, the effect of increasing jobs at some firms may dominate the reduction of jobs from firms not producing at all.

So how has subsequent research spoken to the issue of "dynamic monopsony" or "search friction"? One piece of evidence comes from this year's Nobel Prize in Economics to Professors Peter Diamond, Dale Mortensen and Christopher Pissarides "for their analysis of markets with search frictions." In other words, thinking about the labor market in terms of search frictions has become eminently respectable. Indeed, Dale Mortensen's paper (with Kenneth Burdett) in 1998 formalized the dynamic monopsony model in an equilibrium context with search frictions and competition. Such a model can help us understand a variety of facts about the low wage labor market: why similar workers are paid differently, why there is so much job-to-job mobility, and -- wait for it -- why minimum wage policies could have little in the way of disemployment effects. Indeed, in some cases, by compressing the wage distribution, minimum wage increases may actually improve the functioning of the labor market.

In recent work with Michael Reich and William Lester (2011), we estimated the effect of minimum wages on separations and new hires, along with the effects on employment and wages. We find a striking pattern when we consider either a high-impact demographic group (teens) or a high-impact sector (restaurants): while the effect of minimum wages on employment is close to zero, both separations and new hires fall sharply in response to a minimum wage hike. As we then go on to show, this "trifecta" of results -- strong positive wage effect, close to zero employment effect, and strong negative turnover effect -- are a signature of a Burdett-Mortensen type model with a sizeable amount of search frictions. We estimate that the "labor supply elasticity" facing the firm falls in the 4 to 10 range, suggesting wages are about 10-20 percent lower due to employers' market power. While quantitatively our estimates of labor market power are in the lower range of Card and Krueger's suggestions, the qualitative importance of search frictions is borne out in the data with more careful work. And more recent firm-level studies, such as those surveyed by Ashenfelter, Farber and Ransom (2010) in an entire volume of the Journal of Labor Economics devoted to the issue of monopsony, have indeed found labor supply elasticities consistent with substantial wage setting power.

Today, thankfully, we do not need a large positive minimum wage effect on employment to motivate the use of more realistic models of the labor market. The importance of frictions is borne out through many other types of empirical evidence -- including the extent of wage dispersion, especially for similar workers, or how turnover responds to minimum wage policies, to name a few. Many papers (e.g., Flinn 2006, Giuliano 2007 ) have looked at how minimum wage effects may vary when the labor market is characterized by search or information frictions. The fourth volume of Handbook of Labor Economics has an entire chapter by Alan Manning on "Imperfect Competition in the Labor Market." In that sense, Myth and Measurement was a harbinger of things to come.

Standing the test of time is a challenge for any work, but especially so for a book that has elicited such vitriol from some corners of our profession. In another review of the book in Industrial and Labor Relations Review, labor economist Finish Welch had this to say: "I question David Card and Alan Krueger's models and how they do empirical research. Although the notoriety surrounding Myth suggests important conclusions that challenge economists' fundamental assumptions, I am convinced that the book's long-run impact will instead be to spur, by negative example, a much-needed consideration of standards we should institute for the collection, analysis, and release of primary data." Sixteen years later, it is safe to say that the book's long-run impact has not been on standards for collection, analysis and release of primary data. Instead, what has happened is that today, writing a paper arguing that moderate increases in minimum wage do not have any appreciable effect on jobs because the labor market exhibits search friction is not a conversation stopper or a career ender. On that count alone, Myth and Measurement should be considered a success.

(1) Neumark and Wascher (2000) evaluated payroll records from restaurants from a sample that was in large part collected by the restaurant industry-funded organization Employment Policies Institute and found that the policy clearly reduced employment. However, as shown in Card and Krueger (2000) who used administrative UI records, this was likely driven by the selective nature of that payroll data.

(2) The reason labor economists studying minimum wages have focused so much on teens is not because we think that the impact on teens is especially important from a policy perspective. Rather, the reason is because such a high fraction of teens (around a quarter) earn the minimum wage, making them the canary in the coalmine when it comes to detecting minimum wage effects. A similar logic applies to studying restaurant workers.

Arindrajit Dube is an Assistant Professor in the Department of Economics at the University of Massachusetts Amherst.