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Jeffrey Immelt's Remedy for Unemployment Is the Wrong Cure for the Wrong Disease

GE chief and Obama administration jobs "czar" Jeffrey Immelt is flogging a dubious theory to explain why unemployment remains so high. Writes the executive today in touting a new plan by the White House Jobs and Competitiveness Council to boost economic growth:

There are more than two million open jobs in the U.S., in part because employers can't find workers with the advanced manufacturing skills they need.
Immelt's contention is that joblessness is largely a result of so-called structural unemployment, meaning that people who are struggling to find work are mismatched for the jobs companies are creating. The evidence suggests he's wrong, or at least insufficiently right. The unemployment rate is at 9.1 percent chiefly because a massive recession has gutted household wealth, undermined economic demand and put a damper on hiring. The problem, as the jargon has it, is "cyclical," which is a fancy way of saying there aren't enough jobs.

Is there a longer-term mismatch in the labor force between workers' skills and businesses' needs? Quite possibly. After all, how many more investment bankers (or bloggers) do we really need? But blaming the current jobs crisis on structural factors is like attributing the sinking of the Titanic to fog -- relevant, but beside the point.

The discussion matters because obviously if the diagnosis of what's causing unemployment is flawed, so will be the prescription. And if the high jobless rate is primarily a cyclical phenomenon, then all the job training in the world won't lower it. The solution for that form of unemployment is to boost economic growth, which requires fiscal stimulus (an equally fanciful idea these days, perhaps).

Why unemployment is cyclical, not structural
But how can we tell that the jobs shortage isn't largely structural? First, after the financial crisis unemployment rose for people at all levels of education, including recent college graduates. If unemployment were the result of a skills gap, more highly educated workers should've had an easier time finding work.

Second, there are five or six unemployed people for every available job, underlining that the main problem seems to be a shortage of work rather than a skills deficit (click on adjoining chart to expand). Supporting that conclusion is the anemic level of job-creation since the recession officially ended in 2009 -- some 32 million jobs opened up in the first 12 months of the "recovery," far fewer than after the dot-com bubble a decade ago, itself a "jobless" recovery.

Third, companies are actually having an easier time filling positions now than they did after the last recession. According to research by the Economic Policy Institute, a Washington think-tank:

Presumably, if it is difficult to hire adequately skilled workers, then it should take longer to fill vacancies and the ratio of hires to openings should fall. In fact, the opposite has occurred: The ratio has been somewhat higher in this recovery (averaging 1.7 hires per job opening) relative to the earlier recovery (averaging 1.5 hires per job opening).
Fourth, and perhaps most intuitively, why would millions of Americans who were gainfully employed just before the housing crash suddenly become professionally obsolete after it? It's not like any innovative new industries have sprung up since 2008 that demand radically new expertise.

Unemployment buster: A new Works Progress Administration
Immelt seems to favor some kind of big public-private jobs training program to ensure that workers are well-suited for the current labor market.

And nothing wrong with that. But what this country really could use is a big public-private program that actually puts people to work. FDR didn't only train the unemployed after the Great Depression. Rather, the government hired them to do everything from renovating the nation's roads and bridges to -- hey, here's an idea -- writing for a living. Nothing cures unemployment like a job.

Image from Wikimedia Commons, CC 2.0

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