So, unemployment is high. (I know- if you are Democratic, it’s ONLY 7.8%. And, if you are Republican, it’s REALLY 7.8% or, as Jack Welch claimed- manipulated. NOT!) These past months had anemic growth (actually, while it matched the growth in the workforce, we need to increase that number to lower the unemployment rates).
Both parties agree that the problem is our workforce lacks the required skills. That means our unemployment is “structural”. The skills they had are no longer relevant to the new jobs- or folks never learned the skills in school. All we have to do is train our workers and, voila, the unemployed problem goes away. Except—it won’t. Both political parties are wrong.
Our unemployment issue exists because companies are not hiring. Some are not hiring because they are making enough (or more than enough) money without producing more. Some are not hiring because their sales are down- people are not buying. If the problem is more of the former, then there is not much government can do- this is not China or the former Soviet Union, where the government can order companies (typically state-owned) to make more widgets, even if they are not selling- or even if they are selling.
If the problem is more of the latter, then a government stimulus could help. Whether it’s a tax cut or investing in infrastructure which fills the economy with jobs and more spending (the only “trickle down” theory that works), the economy will pick up.
But, don’t take my word that we are not experiencing structural unemployment. Edward Lazear (Stanford University, former head of the Council of Economic Advisers under Bush ) and James Spletzer (US Census Bureau) reported at the Federal Reserve retreat (for global central bankers) at Jackson Hole in September the same finding. (Their article was written on 22 July 2012, but embargoed until 1 September 2012, which is when this post was penned.) They studied the “industrial mismatch”… a match (or lack thereof) between job vacancies and hiring. If the skill set required for a set of jobs has changed, job vacancies should increase even if unemployment were to fall. But, it hasn’t.
They found that industrial mismatch increased dramatically from 2007 to 2009. Before the recession. But in the next two years- it decreased just as rapidly. And, economic structures do not change that quickly. But, mismatch rises during recessions and falls during recoveries. And, right now, the mismatch (which also measures the unbalance between supply and demand for jobs) is now down to 2005 levels.
The Brookings Institution released a slightly different report – one more granular (providing regional and local information, as opposed to just national data) about the same time. They compared the education gap- the difference between the educational levels in various local regions to the desired educational levels required for advertised jobs. They found that the difference in areas hard hit by the housing market have the highest educational gaps. (Those with the worst housing slumps are among the areas hurt the worst by the economic downturn.)
For example, Stockton (CA), Las Vegas (NV) and Phoenix (AZ) had a 10% gap, while Washington, DC and Raleigh (NC) yielded only a 2% gap. The gap for the nation as a whole was around 5%. Moreover, those areas doing better before the downturn are the same areas doing better now. But, while there are fewer jobs being offered now, the education gap is not much different than it was before the recession.
So, again, education (or training) is not the reason why the recovery is not growing by leaps and bounds. Moreover, during the downturn, many companies have received a plethora of applicants- which let them raise the educational requirement for the same jobs they offered before the downturn (because the pool of applicants is so much larger).
(There were 12 jobs (or greater) for every college degree applicant and 2.9 for high school applicants in 2007. In 2011, the numbers of jobs were halved- to 5.6 and 1.6, respectively. As such, Brooking surmises that the higher educational gaps are associated with unemployment rates about 2% higher than would be normally.)
Theoretically, that’s good news. Because we don’t have to spend lots of money- or time- retraining our workers. (We DO have to train the next generation of workers for the jobs they are likely to see.)
What it does mean is that we need to expand our economy. We need to build our infrastructure (which is desperately crying out for our attention- bridge failures, road failures, track-induced train derailments, etc). We need to offer a tax cut for those firms that hire new workers. We need to offer aid to state and local governments, so they’ll hire and not lay off, workers.
Oh, I know. The Republicans don’t want this to happen, because then Obama is reelected. Instead, we must be content that the economy stalls, that unemployment rises, because we no longer believe in the good of America, just the good of our party. (By the way, this will increase government spending- probably by $ 450 billion- which should augment growth of jobs quickly by 2 or 3 million now- and stay there for 20 to 24 months. Getting us over the hump. Because every economist agrees that there will be 12 million more jobs by 2016- no matter whether Romney or Obama is president- and we offer no stimulus and don’t continue the Bush Tax Cuts for the rich (yes, you are rich if your family’s taxable income is $250K or more- which means your gross income is between $ 300K and $400K).
Let’s get it started- NOW!
Hi Roy,
Ohhh, I can go on about this forever. I have been out of work since August 2011 and I can tell you first hand that companies are not hiring. I have even lowered my expectations to take whatever I can get, even though I am highly skilled in many areas.
These politicians are so far removed with the how and why but we won’t go there because I am so passionate and distraught about the journey. As I speak with other baby boomers especially, we all have the same stories. I have met people with PhDs, college grads, High School graduates who have found success in their careers only to find a pink slip and then try and find their way through the maze of resumes, rejections and daily hours of trying to find work.
So you are right when you say that companies are not hiring. I am walking the walk and talking the talk everyday for 14 months.
Cindy
Cindy Murphy recently posted..Day 9 – It Was 23 Years Ago Today
Thanks for the firsthand experiences, Cindy… I wish you could not so provide!!!
Great post and insight! So my question to you Roy, would you accept a role in the commerce department to help educate career politicians?
Tor Constantino recently posted..A Memorable Date Night With My Daughters
I could be tempted to get involved in government now that I am no longer trying to make my mark in this world. That was for when I was young. Oh, I’ll still work 80 or 90 hours, but I care less about getting credit now and more about seeing things done, than when I was in my 20’s, 30’s, and 40’s.
I am happy to see that “every economist agrees that there will be 12 million more jobs by 2016”. Is this increase in jobs partially the result of the baby boomers leaving the work force?
Janette Fuller recently posted..Children’s Book Review: Trockle by Holly Jahangiri
No, that is NOT an increase in the number of jobs, Janette.. But, that is one of the bigger components as to why the unemployment rate dropped below 8 % (the other is that students went back to school).
The reason is that the economy will pick up in general, and that companies can’t keep sitting on the sidelines too long.
The domino affect was very much at the front of the fall of our economy. Now you know that I don’t know my butt from a hole in the ground about most of this stuff, but it seemed that when the banks realized they had made home loans that they probably shouldn’t have and then panicked when they weren’t being paid back, the whole mess began. People who couldn’t pay mortgages couldn’t buy things, factories couldn’t sell things, people got laid off so more people couldn’t pay back their mortgages and couldn’t buy things and so forth.
Can we prop up the factories (this stands for all business) by lowering their tax rates to allow for the loss of income from unsold goods? Should the government do like Roosevelt did and hire people to fix the infrastructure, giving them jobs so they can buy things? Should be put more taxes on people who are not going to wind up in bankruptcy court because they “have enough and more”? Although we know that these people declare bankruptcy just as often because they are no more mindful of their spending than the lower economic strata?
Does it matter who becomes president if the congress is on the other side of the table.
Stay tuned. . .
Ann Mullen recently posted..What is an Inbound Marketing Coach?
The issues your brought up in the second paragraph are paramount, Ann. I, for one, do not think we should help companies with unsold goods. But, we can offer them tax incentives (for example, cut THEIR portion of the payroll tax for every increase in employment… on a sliding scale… Companies with gross revenue under 1 million- 1% on all new payroll, 2 to 50 million- 1% for all new payroll above 2 people hired, etc.)
We need infrastructure improvements and repairs. And, with interest rates low, we need to have the states and the Feds do this when it’s cheap. And, maybe given them special credit (say a 0.25% increase in remuneration for increasing labor totals by a certain amount- number of full-time people, not dollars of payroll.. etc.
But, then, I am in private industry and not government…
Roy: I personally believe that if we, as a country, would focus on improving our infrastructure to levels achieved by other (booming) nations, many of our ills would be cured. Let’s say we focus on mass transportation…hiring would increase across the board, from mechanical engineers to mechanics to maintenance workers. We’d reduce pollution, highway gridlock, dependency on petroleum products and increase opportunities for workplace commuting & travel (of course, there are many other positives…but I won’t ramble on & on). So, I guess we’re in agreement on this one! Great post…very thought-provoking, as usual!
Lynn Brown recently posted..Modify Your Mindset From “Unwilling To Do” To “CAN DO”
I’m with you all the way on this one, Lynn…
We need infrastructure repairs and improvements so that our businesses can thrive.
I was forced into “early” retirement 3.5 years ago, back in March 2009. I have the same question as Ann–does it really matter who is president when congressional makeup is of the opposite party? And I have the same story as Cindy… I decided to pursue working as a contractor while building the business of my dream; I got ONE job in the last three years. I had the expertise but not the samples of my work because of being locked down from where I last worked. An entirely different story. Anyway….. I enjoyed this perspective on the numbers, Roy… maybe because I agree on all points.
Another great addition, PeggyLee…
Part of the issue is that our government has seen fit to not enforce the age discrimination statutes and that companies have forgotten that institutional memory is critical for their optimal performance.
Wow, this is such a hot topic. There may be some truth to the gap in education and skills for the jobs that are available. In our rural community, we’ve been hit really hard, due to our few larger businesses closing shop or downsizing or moving to other locations. Poverty and unemployment are at an all time high here with the only real hope being to create your own business (that can be internet based because our local economy can barely support the businesses that are left right now) or move (which is a lot of risk, that may not materialize into a job either) or hang onto a job ( in which you are underemployed, but at least making some money). Tough times. All the way around.
In light of all of this, I’d say an economic stimulus specifically for the lowest denominator on the American caste system, lower and middle class, would be the best option for areas like ours, but it’s really just a temporary fix.
Are you being sarcastic when you say every economist agrees that there will be 12 million more jobs in 2016 regardless of what is done? Or are you estimating for people leaving the workforce? I guess I missed the memo where the economists agreed on anything anymore….
I’ll tackle your last paragraph first, Emily…
Before Romney ever averred that his undeveloped plan will create 12 million jobs, both government and non-government economists had predicted that we would grow 12 million more jobs by the end of the next presidential term. The only caveat that has been added to that plan is it will be delayed if our do-nothing Congress fails to act on the “fiscal cliff” experiment they have devised for our country.
I believe – and have believed for more than four years that we need to invest in our infrastructure. It’s falling apart and desperately in need of upgrades. Given the current interest rates, this is the opportune time to capitalize on it. Governor Kaine did just that three years ago, embarking on an ambitious plan to upgrade our colleges and schools, given the low costs involved. Other states should be doing so, too.
Regarding poverty and unemployment, what makes this recession different from previous ones (and more akin to the Great Depression) is that we all know someone who has been laid off or excessed. In previous recessions, this “personalization” was lacking.
Roy
Hi Roy!
i think some day ago the time is recession time because some european countries condition was bad but i think now the market is growing slowly and condition is very well and i am not getting why the hiring is not be?.in India there are many unemployment.if there are 10 post for any job then 100 emplye wait for it.so i think it is the very bad condition.
anshul recently posted..MLM Software in Noida
It’s somewhat of a “chicken and egg” story, Anshul. Corporations don’t see demand increasing, so they won’t hire (the problem is that many are still laying off folks or running “lean”- which means they don’t have sufficient folks for the tasks at hand and demand free overtime); consumers don’t feel comfortable, so they don’t spend (but we ARE buying cars…) and everyone is waiting for someone else to take the lead…