WSJ Delves Into Reasons for High Unemployment

[Pangloss]

Fascinating piece in today's Wall Street Journal, and no, it's not a claim that unemployed Americans are sitting high on the hog with unemployment compensation and refusing to look for work. Some conservatives won't like this article because it shows that the people are disconnected from the demands of businesses. Some liberals, like Paul Krugman, an "economist" who's busy today blasting Republicans, because it doesn't support the narrative about evil corporations hoarding cash.

 

Check out this chart, based on statistics from the US Department of Labor:

 

 

This quote is fascinating:

 

If the job market were working normally—that is, if openings were getting filled as they usually do—the U.S. should have about five million more gainfully employed people than it does, estimates David Altig, research director at the Federal Reserve Bank of Atlanta. That would correspond to an unemployment rate of 6.8%, instead of 9.5%.

 

So what's broken? Well there appear to be two stories here: Qualifications and allure.

 

Education and training appears to be a problem for filling many jobs.

 

Longer-term trends are at play. For one, the U.S. education system hasn't been producing enough people with the highly specialized skills that many companies, particularly in manufacturing, require to keep driving productivity gains. "There are a lot of people who are unemployed, but those aren't necessarily the people employers are looking for," says David Autor, an economist at the Massachusetts Institute of Technology.

 

Gee, good thing the Obama administration is going after for-profit institutions, which is the only sector of education that trains these kinds of employees. Good luck getting Microsoft or Cisco certification, or training for a contractor's license, at a state university.

 

In other cases the jobs just aren't attractive enough to draw applicants. The employer may not be able to raise wages because of international competition, and the job just has no allure.

 

At Emirates, four cabin-crew job fairs the airline held in Miami, Houston, San Francisco and Seattle attracted an average of about 50 people each, compared to a global average of about 150 and as many as 1,000 at some events in Europe and Asia. "I would have liked to have seen more and would have expected to see more," says Rick Helliwell, vice president of recruitment.

 

...

 

[According to the Labor Dept] the disparity is most notable in manufacturing, which has had among the biggest increases in openings. But it is also appearing in other areas, such as business services, education and health care.

 

What do you all think?

 

Here's a link to the article:

http://online.wsj.com/article/SB10001424052748704895004575395491314812452.html?mod=googlenews_wsj

[Cap'n Refsmmat]

Gee, good thing the Obama administration is going after for-profit institutions, which is the only sector of education that trains these kinds of employees. Good luck getting Microsoft or Cisco certification, or training for a contractor's license, at a state university.

Dunno about that. Our local paper had an article about for-profit institutions; basically, most of their courses are offered by community colleges for a fraction of the cost, and the default rate on student loans by for-profit institution graduates is the highest around (40%). Students graduate and discover they can't get a job with their certifications, and they just paid $20,000 for them. I think the skills they're referring to aren't the ones you get at a typical for-profit place:

 

But other employers with lots of applicants say the pool of qualified workers is small for specialized jobs. Carolyn Henn, head of hiring at environmental consultancy Apex Companies, says she recently received about 150 applications for an industrial hygienist job paying as much as $47,000 a year, which requires special certifications and expertise to oversee projects such as asbestos cleanups. That is about three times the amount she received for similar jobs before the recession. But she says the number of qualified applicants—about five—is less than she got before.

 

[...]

 

Manufacturers of high-precision products such as automobile and aircraft parts are in a particularly tough spot. Global competition keeps them from raising wages much. But they need workers with the combination of math skills, intuition and stamina required to operate the computer-controlled metalworking machines that now dominate the factory floor.

 

These are not skills you get at the for-profit institutions. I just glanced around a few sites and the most technical their programs got was networking and "PC technician." One offers an industrial engineering BSc, but, well, so do most state schools.

[Pangloss]

These are not skills you get at the for-profit institutions.

 

The term "for-profit institution" covers a lot of ground, including virtually all trade schools that teach specific skill sets, such as cooking, mechanical service (auto, airplane repair, etc), electronics service, contractor's schools, and so forth. Many of these types of institutions also qualify for Federal financial aid, and have in recent years and in many examples been conglomerated and consolidated into large corporations (example).

 

My reasoning behind lumping them together with for-profit institutions that offer bachelor's degrees (i.e. they focus on general education and attempt to conform to standards for communication and broad knowledge) is that they are lumped together by the Department of Education as a sector and attacked for its practices. This is not without merit, however, and precedes the Obama administration. We saw an example of that here last week with a local Kaplan campus whose parent company shut down enrollment after unethical recruiting practices were uncovered (including citing regional SACS accreditation ("jus' like Harvard") when they really had national ACICS accreditation, and coaching students through entrance exams).

 

But Bush precedent and logical concerns notwithstanding, there is a strong perception (shown in dropping stock values) that the Obama administration will more-vigorously pursue for-profits. This article supports the notion that while a reasonable prosecution of violators makes sense, an ideological attack is probably not a good idea. Not only does the for-profit sector employ a great many people directly, it also generates employees for critical jobs that are currently going unfilled (though not, of course, when those employees got coached in their exams!).

 

(That wasn't intended to be the main point of my OP, but I'm happy to discuss it further. Really what I was looking for here is discussion about appropriate training and qualifications and whether that's holding back the economic recovery. The media seems more focused on corporate hoarding and unemployment compensation, but I think this article indicates a larger, and more interesting, story.)

[swansont]

The "for-profit" link is behind a paywall, but the teaser includes (and ends with)

 

The unexpected guidance cut stoked worries surrounding the troubled sector, which is under government scrutiny for fraud and …

 

Is the administration "going after" them in other ways? Because fraud seems like a pretty good reason to go after them.

 

And if you are going to disagree with Krugman (and we know you are going to disagree with Krugman), at least do so by addressing the points he makes or fails to make, rather than the poison-the-well scare quotes (he is an economist by profession). He's not mentioned in the article. Why bring his name into it, other than to bash him? It's just ad hominem. You never supply anything to support your claim that he opposes the story.

[Pangloss]

Thanks, try this link:

http://online.wsj.com/article/BT-CO-20100806-711721.html

[swansont]

Still says "to continue reading, subscribe now"

[john5746]

Try this one

 

I believe the allure argument, but I am very skeptical in regards to the qualification argument. From my past experience, I think it is due to employers unwilling to invest in their employees.

[Pangloss]

Bleh, that one's coming up subscriber for me now. WSJ is pretty annoying about that stuff, sorry about that. The for-profit thing was a sidebar anyway. The main article in the OP is still available without subscribing.

 

I agree with the point about investing in employees -- that's always seemed like a shortcoming to me as well. I've worked for employers who did that, and employers who didn't, and it seemed like the former category did better over the long run. It seems to run hand-in-hand with the bit about promoting from within.

 

(I also get pretty tired of MBAs who think they know everything. But that's another story.)

[iNow]

Some liberals, like Paul Krugman, an "economist" who's busy today blasting Republicans, because it doesn't support the narrative about evil corporations hoarding cash.

 

<...>

 

What do you all think?

I think that despite your desire to blast Krugman and others, your narrative (and that presented by the WSJ which you used as your source) is just that... narrative, and one which is not supported by fact or evidence.

 

I like data, so will share some:

 

 

http://rortybomb.wordpress.com/2010/09/20/the-stagnating-labor-market-2-what-can-the-employed-tell-us-about-the-unemployed/

 

Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.

 

<...>

 

BLS provides data that allows us to look deeper and break this down by industry for the period 2000- current. Could this be a result of a hangover in finance and construction? Here is a chart of underemployment in construction and finance:

 

 

 

The number has approximately doubled since the financial crisis and recession, and has plateaued into a new, higher, steady state. Could this be a skills story, as these workers can’t be retrained?

 

Now let’s look at how sectors that are not finance and construction did. The following is a graph that does the same calculation for a mix of all other sectors that are not finance or construction:

 

 

The pattern is almost identical.

 

The following is a chart that looks at the average underemployment between 2000 and 2007 and compares it to the average underemployment in 2010. In each of the 13 sectors we look at the ratio increases dramatically. Even more interesting is that none of them are less than they were before. This is a sign that underemployment is rising in every sector, not just those with hangovers from the bubble.

 

 

There’s been a recent series of influential papers that argue that structural unemployment doesn’t happen at the sector level but instead at the occupational level.

 

Workers, after all, don’t work sectors; they work occupations. One can be a maintenance worker or an accountant for a manufacturing firm or for a high-tech start up. If the demand for skills moves between maintenance workers and accountants, you could see problems in all sectors, even though it’s still a change in the demand for occupational specific human capital.

 

Looking at this too we see the same exact pattern: every one of the nine occupations we obtained data on had a doubling, at least, of underemployment. Services employees are twice as likely to be working part-time for economic reasons as they were before the recession began, for instance.

 

 

Everywhere we look, across occupations and sectors, people with the skills to work their jobs are more likely to be working part-time for economic reasons in 2010 than they were before the recession. This is a story of aggregate demand, not a story of skills mismatch.

 

 

.

 

 

Now, I won't go so far in this particular post to suggest that the Wall Street Journal is a biased rag not worth the crap wiped on it by various homeless folks in NYC, but I will say that the data clearly refutes the narrative you've shared here that unemployment is low due to improper skills and training rather than low demand.

[Pangloss]

First, thanks for reminding me that what the Wall Street Journal offered was just an opinion, based on filtering the data in a certain way. It's not a fact, as I stated in post #59 of the Ending the Bush Tax Cuts thread (here).

 

What you've shown above is another interpretation of the data, looked at through a different filter, which is a perfectly reasonable thing for them to do.

[swansont]

Interesting. I had not previously noticed the WSJ graphs were percentages; at first I thought the data were in conflict with the numbers from rortybomb, but they aren't. Openings rising faster than hires does not mean there are more openings than hires. It's not just filtering the data a certain way, it's presenting it in a way to make it seem that they say one thing, when they don't.

[iNow]

I had not previously noticed the WSJ graphs were percentages;

 

<...>

 

It's not just filtering the data a certain way, it's presenting it in a way to make it seem that they say one thing, when they don't.

Nice catch.

[Pangloss]

Interesting. I had not previously noticed the WSJ graphs were percentages; at first I thought the data were in conflict with the numbers from rortybomb, but they aren't. Openings rising faster than hires does not mean there are more openings than hires. It's not just filtering the data a certain way, it's presenting it in a way to make it seem that they say one thing, when they don't.

 

Hmm, you're right, I missed that as well.

[iNow]

More data debunking the assertion that our current unemployment problems are structural (due to improper or inadequate training):

 

 

http://epi.3cdn.net/c1218e8213c58051e4_tlm6b5tf9.pdf

 

Our view that this is the correct explanation for the jobs crisis is rooted in data—the observed collapse of overall output, reductions in consumption, and extensive excess capacity. The policy conclusion drawn from this narrative is that we need faster growth to increase the demand for workers and reduce unemployment.

 

Yet, there has been increased attention to a competing narrative, the possibility that a large share of current high unemployment is “structural,” meaning that the problem is that those who are unemployed are not well-suited to the jobs becoming available.2 This would be, for instance, because their skills are inadequate, have deteriorated, or are not applicable to the industries that are expanding, or that the unemployed simply do not live in the places where the jobs are. Some make claims about structural unemployment because certain aggregate relationships, such as between job openings and unemployment, do not appear to be following historical patterns, suggesting a possible skill mismatch. Others have postulated that employers have substantially revamped their production processes in this downturn, thereby eliminating the need for many of the types of workers who are currently unemployed. Still others note that the housing bubble lead to a bloated construction sector and many of those jobs will never come back, leaving many workers needing to switch to new jobs for which they may not be qualified.

 

Of course, it matters whether the claim is that structural unemployment is a large or small share of unemployment at this stage of the business cycle. Unless our current unemployment problem is primarily structural, policies to alleviate cyclical unemployment are still appropriate. Thus, this paper addresses and questions the claim that structural unemployment is the predominant reason that unemployment is high. There has been little evidence offered to support the claim of extensive structural unemployment, and we find that the pattern of employer behavior regarding job openings, layoffs, and hires does not support such a claim. This matters quite a bit for guiding policy.

 

<...>

 

The competing explanation, as mentioned above, is the one we find most plausible: the economy is operating far below its potential output because of a shortfall in demand caused by an extreme loss of financial and housing wealth that caused a cut back in consumption. Thus, there are simply not enough jobs to go around.

 

<...>

 

We increasingly hear or read claims that we have a serious structural unemployment problem, even to the extent of claiming that most of the unemployed beyond a normal (full-employment) rate face structural problems in finding work. This implies that unemployment difficulties reside in the workers who are unemployed: they either are located in the wrong place or do not have the required skills for the currently available jobs. If this is so, then macroeconomic tools such as fiscal policy (spending or tax cuts) or monetary policy can not address our unemployment or long-term unemployment situation. Surprisingly, perhaps amazingly, there is no systematic empirical evidence for such assertions.

 

<...>

 

Before policy makers adopt this framework—that much of our unemployment is structural—they should require much more evidence than is currently available. This is especially the case because common sense would suggest that the problem the unemployed face is a scarcity of job openings, a feature of the labor market facing every group of workers regardless of education, sector, occupation, and location.

 

 

 

The Wall Street Journal is nothing, if not consistent. Consistently... wrong, that is.

 

 

 

 

 

http://krugman.blogs.nytimes.com/2010/09/21/who-you-gonna-believe/

 

Suppose you had spent the last five years actually believing what you read from the usual suspects — the WSJ opinion pages, National Review, right-wing economists, etc.. Here’s what would have happened:

 

In 2006 you would have believed that there was no housing bubble.

 

In 2007 you would have believed that the troubles of subprime couldn’t possibly spread to the financial system as a whole.

 

In 2008 you would have believed that we weren’t in a recession — and that the failure of Lehman was unlikely to have bad consequences for the real economy.

 

In 2009 you would have believed that high inflation was just around the corner.

 

At the beginning of 2010 you would have believed that sky-high interest rates were just around the corner.

 

Now, we all make mistakes and get things wrong — although it’s striking how often the trolls on this blog feel the need to accuse yours truly of saying things I didn’t. But after this string of errors, wouldn’t you at least begin to suspect that the people you find congenial have a fundamentally wrong-headed view of how the world works?

Edited September 27, 2010 by iNow