Blame Game: Don't Fault Workers for Stubborn Unemployment

Last Updated Feb 2, 2011 7:12 PM EST

The U.S. Labor Department's closely watched payroll report, due out Friday, is expected to show that companies added 140,000 jobs in January. That's marginally better than the December numbers, but it's still disappointing -- the economy must create 150,00 jobs per month just to keep pace with the working-age population growth.

Something to look for in the data is what percentage of those new positions goes to the long-term unemployed, defined as people who have been jobless for at least 27 weeks. As of December, some 30 percent of the 14.7 million unemployment Americans had been without work for at least a year, according to a recent report by The Pew Charitable Trusts. By comparison, the number of long-term unemployed after the dot-com bubble topped out at roughly 2 million.

That problem is worsening, even as the economy shows signs of life. Between December 2009 and December 2010, the number of long-term unemployed shot up 25 percent and now account for roughly two out five unemployed workers. Although the economic recession officially ended 19 months ago, not until many of these people are back on the job will we be able to say that the "great contraction" is over.

Long-term unemployment affects all age groups, although once they lose their jobs people over age 55 have a harder time reentering the work force (click on adjoining chart to expand). Interestingly, a college education is no lifeline in this listless labor market. Of unemployed people with a bachelor's degree, 31 percent have been out of work for at least a year. That compares with 33 percent for the unemployed without a high school degree.

Virtually no profession is immune. Every (nonfarm) sector is affected, with more than 20 percent of jobless people across industry having been unemployed long-term.

What employee skill gap?
Everyone knows this trend is destructive. It saps morale -- millions of Americans have given up trying to find a job, and so aren't even counted in the government's unemployment figures -- and consumes federal spending to maintain jobless benefits. Where there's disagreement is on the root cause of long-term unemployment.

One school of thought is that companies have jobs to fill, but can't find qualified workers. The recession has changed the structure of the economy so that employment is plentiful in some industries, including health care, but hard to find in areas battered by the housing crash, such as construction. The result, according to some economists: a mismatch between workers skills and available work.

But other experts reject this view, attributing prolonged unemployment chiefly to sagging economic demand. Fill every available job in the country and that would still leave more than three-quarters of the unemployed without jobs, notes economist Dean Baker of the Center for Economic and Policy Research:
If the economy were actually suffering from a problem of structural unemployment, then we should be seeing substantial sectors of the economy, either by region or occupation, where wages are rising rapidly. We don't see this. There is no major industry or occupational grouping where there is evidence of large pay increases. We should also see big increases in average weekly hours, as firms try to work their existing workforce harder due to the unavailability of additional workers. We don't see this either.
In other words, the data provide essentially zero support for the claim that the economy's problem is that workers don't have the right skills for the available jobs.
A recent study by researchers the Federal Reserve Bank of San Francisco supports Baker's contention. Their conclusion: Stubborn unemployment stems mostly from cyclical business conditions, not structural changes in the economy.

That's no reason for companies and the feds not to boost investment in job training, education and career development. And simply as a matter of common sense, employees should always be polishing their skills and, as my editor says, building new professional muscles.

But let's quit pretending that the way out of the jobs slump is by sending everyone back to school. There's another tool -- it's called fiscal policy, and it has worked wonders over the years in hauling our famously resilient economy back on track. Over the long term, it makes sense to move workers to where the jobs are. But for the immediate future, let's focus on creating jobs where the workers are.

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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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