Saturday, November 1, 2014
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Closing America’s Jobs Deficit

BERKELEY – The latest data on employment in the United States confirm that the American economy continues to recover from the Great Recession of 2008-2009, despite the slowdown engulfing the other G-20 nations. Indeed, the pace of private-sector job growth has actually been much stronger during this recovery than during the recovery from the 2001 recession, and is comparable to the recovery from the 1990-1991 recession.

During the last 31 months, private-sector employment has increased by 5.2 million and the unemployment rate has now fallen below 8% for the first time in nearly four years. But the unemployment rate is still more than two percentage points above the long-run value that most economists view as normal when the economy is operating near its potential.

Moreover, the number of long-term unemployed (27 weeks or longer) is about 40% of the total – thelowest share since 2009, but still far higher than in the previous recessions since the Great Depression, and about double what it would be in a normal labor market. So the US labor market, while healing, is still far from where it should be.

That is partly because the job losses during the Great Recessionwere so large – twice as large as those of previous recessions since the Great Depression. In terms of US economic history, what is abnormal is not the pace of private-sector job growth since the 2008-2009 recession ended, but rather the length and depth of the recession itself.

The downturn was a distinctive balance-sheet recession that caused sizeable declines in household wealth and necessitated painful deleveraging. Consistent with recoveries from such recessions, demand has grown slowly, despite unprecedented fiscal and monetary stimulus, and that explains why the unemployment rate remains high. Indeed, businesses cite uncertainty about the strength of demand, not uncertainty about regulation or taxation, as the main factor holding back job creation.

Public-sector demand has also contracted, owing to state and local governments’ deteriorating budgets. As a result, public employment, which usually rises during recoveries, has been a major contributor to high unemployment during the last three years. Despite a modest uptick in the last three months, government employment is 569,000 below its June 2009 level – a 30-year low as a share of the adult civilian population. According to Hamilton Project calculations, if this share were at its 1980-2012 average of about 9.6% (it was actually higher between 2001 and 2007), there would be about 1.4 million more public-sector jobs and the unemployment rate would be around 6.9%.

Recent reports suggest that there are more than three million unfilled job openings, and about 49% of employers say that they have difficulty filling positions, especially in information technology, engineering, and skilled trades. This has fanned speculation that a “mismatch” between workers’ skills and employers’ needs is a significant factor behind the elevatedunemployment rate.

But there is scant evidence to support this view. The relationship between the unemployment rate and the job vacancy rate is consistent with patterns in previous recoveries. Nor is there anything unusual about the size of mismatches between job openings and worker availability by industry.

Such industrial mismatches become larger during recessions, reflecting greater churn in the labor market as workers move between shrinking and expanding sectors; but they decline as the economy recovers. This pattern also characterizes the current recovery, and recent data suggest that mismatches between the demand and supply of labor by industry are back to pre-recession levels.

But, as the US economy recovers, technological change is accelerating, fueling demand for more skills at a time when the workforce’s educational-attainment levels have plateaued. This is the real skills gap that existed before the Great Recession, and it is getting worse over time.

The gap manifests itself in much higher unemployment rates for high-school educated workers than for college-educated workers at every stage of the business cycle. The gap also shows up in significant – andrising – inequality between the earnings of high-school educated workers and those with a college degree or higher.

Earnings gains have been especially strong for those with tertiary degrees, while the real wages of high-school educated workers, especially men, have fallen sharply. It is becoming increasingly difficult for workers with low levels of educational attainment to find high-paying jobs in any sector, even when the economy is operating near full capacity.

The US was the world leader in high school and college graduation rates for much of the twentieth century. Today it ranks in the middle of the OECD countries.

A major factor behind that relative decline has been the US school system’s failure to ensure high-quality education for disadvantaged Americans, particularly children from poor, minority, and immigrant households. According to the most recent census, about one-quarter of children under the age of six live in poverty. They are less likely to have access to early-childhood programs that prepare them for school, and are more likely to attend schools that have high student/teacher ratios and that cannot attract and retain skilled teachers.

As a result of these and other problems, the average American secondary-school student receives inadequate preparation in core subjects such as writing, mathematics, and analytical reasoning, which in turn reduces college enrollment and completion rates. The US experience is consistent with OECD evidence that students from countries with greater income inequality score lower on academic achievement tests. And a recent study by McKinsey suggests that the gaps in educational opportunity and attainment by income impose the equivalent of a permanent recession of 3-5% of GDP on the US economy.

To address the skills gap, the US must boost the educational attainment of current and future workers. That means investing more in education at all levels – in early-childhood education programs, elementary and secondary schools, community colleges, trade-school programs for specific jobs in specific sectors, and financial aid for higher education. Above all, it means addressing the income disparities in educational opportunity and attainment.

Read more from our "America Votes" Focal Point.

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  1. CommentedMark Pitts

    Pouring ever-more money into K-12 education is not the answer. The problem is that there are no performance standards for teachers.

      CommentedNanty Meyer

      Agree and disagree. Pouring money into K-12 education may indeed not be the answer. But the absence of performance standards for teachers may not be the answer either.
      Inner city schools cater to populations that suffer from learned hopelessness. The family situations are generally disheartening. The economic context within which they are called upon to behave offers no opportunity for employment that would cover their most basic needs. The fabric of society, for them, is one of concentration of poverty and despair. The problem is not money for schools in the ghettos of America, it is, in these areas, the lack of investment offering chances at legal employment that pays a decent wage and enables children to study without bullets flying over their heads...
      When poor, uneducated populations are concentrated in one sector of a city, the role models for escaping are absent. The few who make it escape. Therole models are elsewhere.
      The issue, in my humble opinion, requires a combination of public/private policies/partnerships repairing the fabric of that society, its diversity, its economic sustainability.
      The economic of prosperity are the economics of proximity. We need to bring back the jobs from overseas, and encourage small business development within the inner city.

  2. Commentedjames durante

    Oh, hey, look at that elephant in the room. Why, it is historical levels of income and wealth inequality. Not since the Great Depression have we seen such enormous maldistribution. Fixing it will require substantially more concerted political action than fiddling with educational schemes. Not until income and wealth are redistributed downward will there be satisfactory demand to allow for sustained economic expansion.

    President and their economic advisors, from Ronald Raygun to the man your mamma calls Obama, have been prevented from focusing on this as it flies in the face of that ole time religion, capitalist orthodoxy. Poor Obama; he too failed to slay the dragon (or elephant). Did he even notice it?

  3. CommentedProcyon Mukherjee

    This is an insightful article that reflects the nuances of current unemployment issues, but there is more to it than the summary would suggest that education would actually take care of the current deficit.

    If one looks at the data, the labor force participation rate is lower than the long term average; the employment to population ratio is also steadily declining, while the participation rate of those aged above 55 years has been steadily growing and is now projected to touch a whopping 23% as per this report (http://www.prb.org/pdf08/63.2uslabor.pdf).

    Alan Blinder's study suggests that off-shoring has the potential of shifting 30 million U.S. jobs, which was done in 2007; it needs to be seen in today's light whether this continuing import of labor is really beneficial for greater prosperity of America. The labor content of this import has moved from extreme brown collar jobs to extreme white collar jobs in recent times, which makes the problem even more complicated.

    But the real question is the current mismatch between what the students are pursuing to study and take up as a career and what jobs are created in America by the corporate sector. This mismatch problem is not easy to solve as the economy could be shifting from manufacturing/service to a more specialized service sector with high content of financial services and then also come back to specialized manufacturing/other service, whereas it takes time to catch up when these shifts happen.

    Procyon Mukherjee

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