Reports from the Economic Front

a blog by Marty Hart-Landsberg

The Failed Market

Labor conditions are terrible.  We all know it but here is a telling illustration from a Wall Street Journal article of just how bad things are. 

The chart below shows what has happened to full time workers who lost their jobs between January 2007 and December 2009 after holding them for three or more years.   As you can see, fewer than half of these workers have found new employment.  And of those who were lucky enough to get new full time employment, the great majority were forced to take a significant pay cut.   

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Many economists, always anxious to defend capitalism, are now arguing that we have high unemployment rates not because we are suffering an economic crisis but rather because we have a skills-mismatch.  In other words, corporations want to hire, it is just that workers don’t have the skills that the corporations need.  Said differently, the system is fine–it is the individuals that need correction. 

John Miller and Jeannette Wicks-Lim explain the argument and respond to it as follows:

The skills-gap message is coming from many quarters. Policymaker-in-chief Obama told Congress in February 2009: “Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education.” His message: workers need to go back to school if they want a place in tomorrow’s job market. . . .

Economists and other “experts” are most likely the source of the skills-gap story. Last August, for instance, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, wrote in a Fed newsletter: “How much of the current unemployment rate is really due to mismatch, as opposed to conditions that the Fed can readily ameliorate? The answer seems to be a lot.” . . .

The skills-mismatch explanation has a lot to recommend it if you’re a federal or Fed policymaker: it puts the blame for the economic suffering experienced by the 17% of the U.S. workforce that is unemployed or underemployed on the workers themselves. Even if the Fed or the government did its darndest to boost overall spending, unemployment would be unlikely to subside unless workers upgraded their own skills.

The only problem is that this explanation is basically wrong. The weight of the evidence shows that it is not a mismatch of skills but a lack of demand that lies at the heart of today’s severe unemployment problem.

President Obama’s claim that new jobs are requiring higher and higher skill levels would tend to support the skills-gap thesis. His interpretation of job-market trends, however, misses the mark. The figure that Obama cited comes from the U.S. Department of Labor’s employment projections for 2006 to 2016. Specifically, the DOL reports that among the 30 fastest growing occupations, 22 of them (75%) will typically require more than a high school degree. These occupations include network systems and data communications analysts, computer software engineers, and financial advisors. What he fails to say, however, is that these 22 occupations are projected to represent less than 3% of all U.S. jobs.

What would seem more relevant to the 27 million unemployed and underemployed workers are the occupations with the largest growth. These are the occupations that will offer workers the greatest number of new job opportunities. Among the 30 occupations with the largest growth, 70%-21 out of 30-typically do not require more than a high school degree. To become fully qualified for these jobs, workers will only need on-the-job training. The DOL projects that one-quarter of all jobs in 2016 will be in these 21 occupations, which include retail salespeople, food-preparation and food-service workers, and personal and home care aides.

In fact, the DOL employment projections estimate that more than two-thirds (68%) of the jobs in 2016 will be accessible to workers with a high school degree or less. Couple this with the fact that today, nearly two-thirds (62%) of the adult labor force has at least some college experience, and an alleged skills gap fails to be convincing as a driving force behind persistent high unemployment.

If employers were having a hard time finding qualified workers to fill job openings, you’d think that any workers who are qualified would be snapped right up. But what the unemployment data show is that there remains a substantial backlog of experienced workers looking for jobs or for more hours in their existing part-time jobs in those major industries that have begun hiring-including education, healthcare, durable goods manufacturing, and mining.

Most telling are the underemployed-those with part-time jobs who want to work full-time. Today there are more underemployed workers in each of the major industries of the private economy than during the period from 2000 to 2007, as Arjun Jayadev and Mike Konczal document in a recent paper published by the Roosevelt Institute. Even in the major industries with the highest number of job openings-education and health services, professional and business services, transportation and utilities, leisure and hospitality, and manufacturing-underemployment in 2010 remains at levels twice as high or nearly twice as high as during the earlier period (measured as a percentage of employed workers).

Purveyors of the mismatch theory would have a hard time explaining how it is that underemployed workers who want full time work do not possess the skills to do the jobs full-time that they are already doing, say, 20 hours a week.

This kind of theorizing means that the administration is just not ready to take this crisis seriously.  And that may be because although working people are suffering, profits are soaring.   

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