Ask the experts: Unemployment

This week the focus of our program is on unemployment and what having long-term unemployed workers means for our economy. April’s job numbers, released today, have many optimistic about a turn-around in our economy. 165,000 jobs were added this month and the unemployment rate dropped to 7.5 percent from 7.6 percent in March. The New York Times spoke with Steve Blitz, an economist with ITG, who is quoted saying, “It’s back to normal for this cycle, this number is back to the mainstream of what we’ve seen in this recovery.” However, Mr. Blitz also noted, “many of the new jobs were in lower-paying sectors like retail and food services.”

This surge of employment in low-skilled industries does not address the drought of American mid to high-skilled workers, who have not been able to fill vacancies in sectors such as manufacturing and high-tech. In this week’s program, Rick Karr introduced us to a program in Seattle by The National STEM Consortium, an alliance of ten community colleges in nine states, that works to (re)train workers for high-demand, mid-skill technical careers. The Consortium seeks to stem the tide of an increasingly chronicled inhibitor to the recovery: the skills gap. We spoke with experts on the issues surrounding American workers’ ‘skills mismatch’ back in February. In this edition of Ask the experts, we’ve consulted two of the nation’s leading economists on the stubborn problem of American unemployment and what fixes we might attempt to lower the rate.

Keith Hall is a senior research fellow at the Mercatus Center at George Mason University.  From 2008 until 2012 he
served as the thirteenth Commissioner of the Bureau of Labor Statistics. Dr. Hall’s research interests include labor markets, labor market policy, and economic data.

From 2005 to 2008, Dr. Hall served as Chief Economist for the White House Council of Economic Advisers where he analyzed a broad range of fiscal, regulatory and macroeconomic policies and directed a team that monitored the state of the economy and developed economic forecasts.  Prior to that, he was Chief Economist for the U.S. Department of Commerce and spent ten years at the U.S. International Trade Commission where.  He has been on full time faculty in the Economic Departments at the Universities of Arkansas and Missouri, and has published a number of papers on international trade and international trade policy.

Follow Keith on Google + here.

Mike Konczal is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality,
and a progressive vision of the economy. His blog, Rortybomb, was named one of the 25 Best Financial Blogs by Time Magazine.

His writing has appeared in the Boston Review, The American Prospect, the Washington MonthlyThe Nation, Slate,
and Dissent, and he’s appeared on PBS NewsHour, MSNBC’s Rachel Maddow Show, CNN, Marketplace, and more.

Follow Mike on Twitter @rortybomb.

How can we (or should we) incentivize or educate small businesses to train potential workers who may not have the precise skills businesses are looking for but who have been in the workforce before?

Keith Hall: The magnitude of the labor market challenge that we face is much too large to be primarily a worker skills problem. We are over 10 million jobs below the employment rate we had prior to the start of the recession. First and foremost we need a much stronger economic recovery. The best thing we can do to help is listen to small business concerns and reduce the huge economic policy uncertainty that exists for them. For example, the National Federation of Independent Business conducts a monthly survey of small business owners. When asked to list their single most important problem, “taxes” and “government regulations and red tape” have consistently ranked first and second – even ahead of “poor sales.” A distant seventh on the list of concerns is “quality of labor.”

One reason the magnitude of the employment problem is under-appreciated is that the unprecedented disengagement from the labor force has made the official unemployment rate a poor indicator of the recovery.  For example, the unemployment rate peaked in October of 2009 at 10.0 percent. That month, the employment rate (the share of the population with employment) was just 58.5 percent. Although the unemployment rate today is much lower (7.5 percent), we are still at a very low 58.6 percent employment rate. This has occurred because we’ve averaged 132,000 new jobs per month since then – only enough to keep up with our growing population; and that means nearly 100 percent of the unemployment rate drop was from a decline in labor force participation, not from job creation.

Unemployment among youth is a particularly difficult, systemic problem.  According to the Bureau of Labor Statistics, in July 2012 the youth unemployment rate was 17.1 %. Some have said job creation and apprenticeships are potential tools to curbing this issue. What do you think is the most prudent course to address this specific age group’s unemployment?

KH: The problem of high youth unemployment is not necessarily an indication of anything lacking in education or skills.  Basic job creation will help the most and increased use of apprenticeships to keep youth engaged in the labor market may contribute as well. In a sense, youth are taking a double-hit from this recession.

First, their unemployment rate rose more than it did for the rest of the labor force, and as a result they are over-represented in the number of long-term unemployed. When employers cut jobs, they do what they can to let attrition reduce employment levels and don’t generally layoff more than they need to. This leaves fewer open positions for new graduates.

Second, experienced workers have been much less likely to shift jobs as they normally would to advance in their careers.  Older workers have even delayed retirement as their wealth has taken a big hit from the recession. This may continue to severely impact younger workers for years. According to the Bureau of Labor Statistics, two-thirds of new jobs are replacement jobs. This means that even when younger workers find jobs, many will likely remain behind in their careers and suffer from years, or even decades of lower earnings growth as they have fewer opportunities for advancement.

Some argue that it is not simply structural unemployment that is preventing the unemployed from getting jobs because all types of workers are still unemployed. Is this a far assessment of the long-term unemployment problem?

KH: Yes it is. Economic data indicates that most of the current unemployment remains because of the very slow economic recovery. After the recession officially ended, the economy grew 2.4 percent in 2010. In 2011, growth slowed to 2 percent and in 2012 it slowed further to just 1.7 percent. Historically, economic growth of just 1.7 percent is consistent with only about 120,000 new jobs per month – well below the actual 183,000 monthly average we had last year. Productivity only grew 0.7 percent as businesses held on to workers despite weak sales. The labor market has actually been out-performing GDP growth.

Historically, long-term unemployment follows a predictable business-cycle pattern; rising months into a recession and remaining elevated well after a recession. The explanation for the latter is that we need above average economic growth to fuel much stronger job growth than we’ve experienced to see a significant reduction in the number of long-term unemployed. It may well be the case that we will have a rise in structural unemployment later on, but we won’t know that until we have a much more robust economic recovery. In any event, increased government spending on worker training is likely to have very little payoff when there is such modest job creation.

Konczal: I think this is an incredibly important thing to note. The economy remains weak for those who have jobs in addition to those without them. People with jobs aren’t quitting their jobs to find new ones. They also aren’t receiving raises, sometimes even for the cost of living. People who have only been unemployed for a short period of time still face a weaker job market. And if you look at the long-term unemployed, there’s nothing particularly distinct about them; there aren’t really any specific industries or occupations that are over-represented.

When unemployment hit 4 percent in 2000, a lot of the “problems” of the long-term unemployed turn out to be an illusion, and employers went out of their way to train people or otherwise bring them up to speed.

At this point, is there anything the Federal government can do or has not done so far to address the national unemployment numbers? Is the problem better served on the state level?

KH: While I certainly believe that lack of job creation is the most important economic problem we have, I think that the Federal government needs to focus first-and-foremost on setting the right conditions for private sector economic growth. There is a tremendous amount of economic policy uncertainty at the moment that is undoubtedly helping to hold back job growth. This needs to be resolved.

One thing the Federal government should not do is rush to intervene in labor markets. Training workers for jobs that don’t exist is a waste of taxpayer dollars and can serve to suppress market wages when there isn’t a labor shortage.  For example, the Recovery Act Green Jobs Program allocated $500 million to the Department of Labor to prepare workers for careers in energy efficiency. Even after a 2011 Inspector General report recommended that they re-evaluate the program “given the current demand for green job-related skills and the job market for green jobs,” the program continued on to an unsuccessful completion. Last year, another Inspector General report noted that less than 12,000 participants found and retained employment for longer than six months. This is a very poor payoff in a labor market where millions are unemployed.

MK: The biggest problem for the long-term unemployed is just a general lack of jobs, rather than them not meeting the specific needs of employers. At least for the near future, Congress and the Federal Reserve could do more on this front. Certainly, they can ascribe to a “do no harm” approach, and not cut the recovery off before it begins. Further, Congress could pull back on some of the austerity in place for 2013-2014, and the Federal Reserve could commit to a quicker recovery.

 

Comments

  • roger

    Someone (with a nice, safe, high-paying job) at the end of the PBS ‘Need to Know’ program on unemployment made a rather bland and generic statement about ‘what a shame it would be for the long-term unemployed to leave the workforce forever’. What he neglected to mention was that for many of the long-term unemployed, ‘leaving the workforce permanently’ is NOT voluntary or desired, and is basically a polite euphemism for homelessness, poverty, misery, and an untimely death.

  • unsustainability

    What should be asked is what impact will have legalizing up to 33 million illegal and legal immigrants in next decade or so have on employment opportunities, and on pay scales/benefits? And what already unsolveable growth problem will not be exacerbated by this? Apparently our economic/political system has no understanding of just what causes unsustainability, and only has conditioned reflex understanding of what short-term money/power demands.

  • Georgina Klanica

    I am long term unemployed, with a master’s degree and twenty years’ experience. My field is not a STEM field, but one that is still recommended by many sources to students entering college. I believe there are multiple reasons as to why the high unemployment rate persists:

    1) myths – many employers treat the long term unemployed as “untouchables”, likely dismissed for cause or possessing outdated skills – neither of which is typically true. Some will not hire below a worker’s last pay level, assuming the person will leave quickly for something better, which no longer exists, even though the employer will be getting an appreciative worker at a bargain. Others put huge amounts of time and money into recruiting a worker, starting with sorting through hundreds of applicants, only to repost the position because a “purple unicorn” (perfect hire) did not materialize. The expectation is, other than locating the restroom and coffee pot, that that a new hire will perform and produce from day one as though he/she has been there for a decade.

    2) unwillingness of employers to educate/train adult workers – I myself would be fine with a change in career and signing a reasonable length contract for a work/study program. Unlike recent H.S. grads, adult workers have children, mortgages, etc. We cannot afford the expense of going back to school full time for a lengthy period w/o an income, especially if a good-paying job is not guaranteed at the end (and likely won’t be, because of lack of experience in the new field).

    Add to this unwillingness in investing in employee knowledge poor forecasting of staffing needs, and the result is employers unnecessarily demanding more foreign worker visas. It is every bit as costly, in both time of money, to get foreign workers as it is to educate fellow citizens while simultaneously offering on the job experience.

    3) Lack of incentive (tax credits) to employers to hire the long-term unemployed.
    - All of the barriers above would vanish if the incentive added to the bottom line above the costs.

  • http://tiny.cc/ewcollins Eliot W. Collins

    How about no more immigration (legal or illegal) until the unemployment rate drops? We apparently have a surplus of workers.

    Another option is to have people whose government-funded job is simply to be a consumer. They can work at home, and their job will be to buy things.