6/23/2011 8:30 PM ET|
Simple ways to attack unemployment
Even as the economy recovers, joblessness has barely budged. Solutions are out there, and waiting will only put the US at a disadvantage in the global economy.
At his press conference after Wednesday's meeting of the Federal Reserve's Open Market Committee, Fed Chairman Ben Bernanke said that employment is picking up -- at a frustratingly slow pace.
I think that's dead wrong, and not just because the official unemployment rate climbed to 9.1% in May from 9.0% in April and 8.8% in March.
The numbers now show that the jobs problem in the U.S. isn't simply cyclical unemployment -- the kind the rises and falls with the cycles of the economy -- but also a rise in structural unemployment -- the kind that doesn't go down very much even when the economy picks up. The kind of patience that Bernanke advocates is absolutely the wrong medicine for an increase in structural unemployment.
Right now the numbers are starting to show a troubling and startling divergence: The number of job openings is rising, but the number of people working isn't climbing nearly as fast.
It looks increasingly like one "gift" from the Great Recession is a rise in the permanent unemployment rate, even in a good economy. That will mean more people out of work for the long term, with all the pain that imposes on those workers and their families. And it will mean that the U.S. economy as a whole will grow more slowly than in the past -- and than it might have without the damage inflicted by the Great Recession.
Remember 4.6% unemployment?
You know all about cyclical unemployment by now. The official unemployment rate, which doesn't include discouraged workers who have stopped looking for work or workers with part-time jobs who would like full-time employment, stood at 9.1% in May 2011. Way back in 2007, before the global financial crisis and the Great Recession, the official unemployment rate was 4.6%. In 2008, as the recession started to bite, it climbed to 5.8% and then, in 2009, it rocketed to 9.3%.
The unemployment rate follows, with some lag, the economic cycle. In 2007, the economy grew at an annual 3.2%, 2.3%, and 2.9% rate in the second, third and fourth quarters, respectively. In 2008, the annual growth rate dropped to a negative 0.7% in the first quarter, rebounded to a not-terribly-robust (but at least positive) 0.6% in the second quarter, and then fell off a cliff in the third quarter, dropping at an annual rate of 4% before finishing the year at a negative 6.8%. The next year started grimly, with the economy shrinking at a 4.9% annual rate.
But the unemployment rate hasn't dropped very much as the recovery from the Great Recession has progressed. The post-recession unemployment rate did dip briefly to 8.8% from a high above 10%, but now it seems stubbornly stuck above 9%. That's after a 5% annual growth rate in gross domestic product in the fourth quarter of 2009 and growth rates of 3.1% and 3.7% in the first and fourth quarters of 2010.
Why hasn't unemployment shrunk?
That's been a big puzzle to economists. The explanations are all over the political and economic map: The 2009 economic stimulus package was too small. Or too big. Businesses are reluctant to hire because of inconsistent or intrusive regulation. The continuing decline in housing prices has sapped consumer confidence and spending. Rising income inequality has put a huge burden on the middle class. And on and on.
What most of these explanations share, however, is a belief that unemployment would shrink as the economic cycle shifted from recession to growth -- except that something has happened this time to interfere.
A very few voices have worried that maybe the slow recovery in job growth from the Great Recession is a sign of structural problems. And that's looking more and more likely.
For instance, in the manufacturing sector, which has led the economy during the recovery, the number of jobs has declined since January 2009, but the number of available job openings has climbed to 230,000 from 98,000. Manpower, the employment company, reports that 52% of leading U.S. companies report difficulties in hiring essential staff. In 2010, Manpower's survey showed 14% of companies reporting difficulties. McKinsey Global Institute found in a survey of 2,000 companies that 40% had positions open for at least six months because they couldn't find suitable candidates.
That data too anecdotal for you? Sorry, but there aren't any good comprehensive statistics on how many companies should be hiring but aren't. It's too subjective. How many of the companies in McKinsey's survey, for example, are using the "no suitable candidate" explanation as an excuse to avoid hiring?
But there are estimates. Harry Holzer, an economist and public policy professor at Georgetown University, estimates that the unemployment rate would be 8% instead of 9.1% if existing job openings could be filled. The International Monetary Fund estimates that 25% of U.S. unemployment is structural.
If those estimates are anywhere near right, then most of U.S. unemployment is still cyclical. And it should be attacked with the available tools for creating demand in the economy. You know what those tools are, since we've tried most of them -- not always in the best or most efficient fashion, I'll grant you.
The Federal Reserve has tried to create demand (even for houses) by keeping interest rates low. Congress and the president have tried to create demand by spending on infrastructure (too little, I'd argue), tax cuts and investment tax credits to business, to mention a few approaches.
It's quite possible that these measures haven't worked because the Great Recession was the deepest economic downturn in the U.S. since the Great Depression and that cyclical downturns, when they're deep enough, are very difficult to reverse. Certainly the duration of the Great Depression suggests that.
But it's also possible that these cyclical measures have been ineffective because they've attacked only part of the unemployment problem. If companies can't find workers with the right skills, then creating demand won't reduce unemployment very quickly. Think of this mismatch of workers' skills and job openings as yet another force slowing down job creation. If a company has to train new hires to bring their skills up to speed, it has to be 100% convinced that the state of the economy makes the expenditure worthwhile. No company is going to spend six months training a worker only to discover that the orders it was counting on haven't come in the door.
How to speed up job creation
There are ways to attack this structural unemployment problem. The federal and state governments could pay for worker training through an expansion of community college systems, grants to workers (unemployed or employed) for training or subsidies to company- or industry-run apprenticeship programs like those in Germany.
Some of the existing programs in these areas -- community college funding, for example -- have been hit hard by state and local budget cuts. And there's certainly a spirit in the land (I've always wanted to use that phrase) that says we can't afford such frills.
Except that these aren't frills. And they wouldn't be even if the United States wasn't trying to figure out a way to speed up job creation after the Great Recession.
If you look around the world -- and take a point of view that stretches beyond the Great Recession -- you'll see that the great economic challenge of the next decades is competing on productivity and the skills of an economy's workforce. I don't think you can escape that competition even if you're China -- rising wages and incomes in that society are pushing the cheap-labor jobs to countries such as Indonesia, Bangladesh and Vietnam. Moving up the value chain is the next game every economy will have to to play.
And the United States doesn't seem to be half-trying.
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
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What's not being said here is the mis-speak that employers are using. Saying you have jobs but can't find qualified candidates simply means 'we really don't have jobs but we want to act like we do and blame the American workers'. There are many, many American workers who are unemployed but have the essential skills needed to perform the work required. The fact is most employers don't want to pay for those skills, they want to have their employees work for just above minimum wages.
I've hired many workers who have minimal skills and trained them to be highly competent workers who have a great work ethic. There are many highly qualified workers waiting to show their knowledge and skills but they must be willing to work for $8-12 per hour if they want a job, which is way below a living wage. Pay them prevailing wages, one that will provide for food, shelter and clothing and they will work.
All employers want to have workers who will match China's wages so they can compete in world markets. The fact is the American quality of life must drop so far that we must live in sub-standard housing and share it with other families, give up on medical care and any senior assistance programs...such as social security and medicare. We must become a huge company town in which we are dependent on our employers.
Unemployment remains high because companies have found ways to get by with fewer workers. Many positions that were deemed unnecessary in times of crisis will never be filled again. Many positions have been consolidated by some means (such as have someone travel between several locations, or using phone support, instead of having a local person). Companies don't hire people to benefit the public, or the economy. They hire people to benefit the company. They are only going to hire when ABSOLUTELY necessary. Years ago, when this decline started, I said that the job market will never be back to where it was.
The first step in dealing with unemployment is admitting that the numbers being used are totally false. Unemployment in the US isn't 9.1% it is close to 22%. When the so called stimulus money, that was used almost entirely to float public sector jobs, runs out virtually al of those jobs will be unfunded and will remain unfunded which means most of them will also be unemployed.
Meanwhile our inept government is still pumping trillions of dollars into foreign banks.
No one in Washington is facing the cold fact that we have no choice but to cut US military spending, And we have to cut it not by 5, 10 or even 25% we have to cut it by 70%.
The one thing that we do know as an absolute fact is that the moves required to save America aren't going to come from a Republican OR a Democrat. We have over 60 years of proof that neither party will or even can take the required action.
IMHO, a big part of the problem is that people who made, say $75 -$100K in a profession for 10 - 12 years are now being offered $30K - $40K for the same job with more responsibilities. Companies will not hire the qualified individual because they know that the person who made double what they are offering will most likely continue to look for a higher paying job and leave if they manage to find one.
American businesses have been offshoring jobs for the past thirty or more years and it's a big puzzle to economists as to why the unemployment situation is so bad? Are these economists seriously that stupid? Millions of illegal immigrants and immigrants using H1 Visas undermine citizens for the remaining jobs. Millionaire, billionaire and trillionaire companies are too cheap to want to train anyone. The citizenry can't afford to go to school for training on their own. None of this is rocket science but ALL of it is repairable.
When the economy was "revved up", it was pretty common for a person to accept a job across the country, sell their home quickly (for a profit) and move. Unfortunately, homes are not that easy to sell, and many of the employers are hiring either temp workers or they are looking for "home runs"--those employees with unblemished resumes (but not overqualified). Those employees are becoming less common. A gap of employment of a few weeks or previous employment at a higher level is enough to eliminate an otherwise solid candidate. Since it is an employers market, the employer has the luxury of being picky.
With candidates unwilling/unable to move for a mediocre job possibility and employers waiting for the perfect candidate, that % of jobs unfilled is likely to stay that way......
they have it all wrong, the un-employment rate is much, much higher then what they are saying, there not including all those un employed people who have ran out of un- employment funds and are still un -employed
I was in the manufacturing world for 30 years. In the 80s I had 5 reps visiting from different steel firms. My main supplier had 20 reps nation wide and you could get / do anything in the US. In 2006 when I retired, because the market collapsed, there were 2 reps. My guy told me that he was retiring and that the company had no plans to replace him, leaving 1 rep for the entire country and 1 large steel mill still running anything other than exotics for the aerospace industry and the few US manufacturers.
PC brought the end of America's education system in the 70s and today people don't have either an education or any skills and many don't have any work ethics.
The days of "Union Scale" employment has come to an end as has the time of 5 out of 10 people holding public sector jobs.
But anyone who thinks this is a Bush, Obama or even a Reagan thing needs to look much further back. This has been building for 70 years or more. Many of us have been seeing these days coming and we have been ignored or, worse, denied. Even now politicians are saying this situation "couldn't have been foreseen" when the truth is that it has been obvious for decades. But the Democrats and the Republicans have taken turns cooking the books to make things look far better than they are. America is in for serious austerity just like Greece. Greece doesn't have a snowballs chance of repaying its debts and any talking heads who say otherwise are lying to your face.
Some people are saying that employers are taking advantage and lowballing potential workers but the truth is that most are barely keeping the doors open.
I don't buy the argument that it is structural. All the factors are valid but the most critical is lack of demand and customers. A lot of college grads are without jobs. Employers set up internal universities to train employees to do the work. Cosumers have too much debt and stagnant salaries for years. No house ATM. high gas prices.
No jobs and mooolah to spend. We are following japan the next few years and a lost generation of young people and lost skillsets. Very sad and tragic.
Attn: All News media
Do not deviate from the most critical now. Focus only on how to create:
or 25+ million unemployed will revolt
I made circuit boards for 1000's of different companiies before my company closed the doors last year due to overseas competition.One that stands out is G.E. which has not paid a dime in taxes in this country in 10 years.Who do you think the I.R.S. will bill first? You guessed it. Me. Poooooor pitiful meeeeee! During the same time period G.E. contributed millions of dollars to the democratic party.When are the people going to wake up and see the corruption in the government of this country and throw all these gangster style crooks off of capital hill? Answer: When they become as broke as I am. I am presently in T.A.A ./ I.T.training for a new career but we need a president with a vision and the kudos to back it up like F.D.R. and the "New Deal" You can not expect the common man to train for I.T. or Engineering jobs.We need large prodjects to employ the common laborer. Stop giving handouts to dope dealers.
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