BY PANOS PREVEDOUROS PHD – Marketing guru, ex-VP at Yahoo! and author of 13 books, Seth Godin believes that “the current recession is a forever recession” because the industrial age has ended and this means that the days when people were able to get above average pay for average work are over.
Self-improvement, continuous learning and investment on oneself are key to employment otherwise “never mind the race to the top, you’ll be racing to the bottom.”
While this is useful advice for those currently employed, the pressing problem is unemployment and under-employment. The Bureau of Labor Statistics (BLS) calculates the official unemployment rate by looking at those who are employed or who have actively looked for work within the last four weeks. As a result, the official rate excludes workers who have decided to drop out of the labor market altogether. The official rate also ignores those who settle for part-time work since they are unable to find a full-time job. Recognizing this shortcoming, the BLS also reports the U-6 rate, which includes those who have sought a job sometime in the last 12 months and those who have accepted part-time jobs but would prefer full time. The U-6 rate is a better representation of the ability of the economy to provide jobs. Let’s take a look at the numbers as summarized by NCPA:
- The 1948-2007 unemployment average is 5.6%.
- The unemployment rate moved from 5% in January 2008 to a high of 10.1% in October 2009, and a current rate of 8.6%.
- The U-6 rate moved from 8.8% in December 2007 to 17.4% in October 2009 and 15.6% in November 2011.
- U-6 rate is almost twice as high as the official unemployment rate and it explains the mounting public pressure for economic improvement. Jobs, jobs, jobs!
- By the end of 2011, 43% of all unemployed have been unemployed for more than 27 weeks. Besides being jobless, their skills deteriorate, which worsens their employment prospects.
Without doubt the unemployment challenge is serious. What are the causes? Several. Here is a big one: The disconnect between supply and demand for jobs. There is a glut of low skill laborer supply. There is demand for high skill, specialized jobs. Unemployed carpenters. Engineers wanted.
The problem of turning 500 unemployed carpenters to 500 engineers is impossible to legislate. In general, turning thousands of low skilled workers to thousands of high skilled workers is very difficult to solve. We need to understand and address the root causes of the problem some of which have deep cultural roots such as over-emphasis in sports instead of scholarly achievement, underperforming public education systems, and stereotypes based on race and gender. Another part of the problem is government regulations and union rules. I’ll cover these in other articles.
Instead of addressing the root causes of unemployment, politicians in the recent past responded to the cries for “jobs, jobs, jobs!” in two wrong ways: (1) They approved “make work” projects for low skill and construction labor, and (2) they “incentivized” new high tech industries.
“Make work” is the use of taxpayer funds to develop unnecessary or low effectiveness infrastructure projects, typically show-off projects or transit projects. These provide some jobs for low skill labor but in reality their unemployment problem is postponed for a few years while the tax hole becomes bigger. “Make work” policies are unsustainable. They develop dangerous dependencies for thousands of low skill laborers instead of providing opportunities for advancement and job diversification.
The current genre of “high tech incentives” is the green industry. Incentives are typically taxpayer handouts to targeted groups, e.g., relating to solar panels and electric cars. People and industry respond to incentives. While accounting in Hawaii is poor, it is much better in the UK where the conclusion was that “for every job created in the UK in renewable energy, 3.7 jobs are lost.” In Hawaii, misguided policies will likely result in more solar guys than nurses per 1,000 people; and a deeper tax hole. These outcomes are unsustainable and undesirable.
Politically expedient solutions to unemployment are both costly and ineffective. We can’t talk about solutions until we are able to wrap our brain around the issue of “jobs.” What are some of the many facets of employment and unemployment?
Unemployment varies widely by level of education. The Chronicle of Higher Education reports this: The overall unemployment rate for recent bachelor’s-degree recipients is 8.9%, compared with 22.9% for recent high-school graduates and 31.5% for recent high-school dropouts. It also varies by fields: In general unemployment is higher among recent graduates with nontechnical fields of study, such as the arts (11.1%) and humanities and liberal arts (9.4%), but it is only 5.4% for graduates who studied health or education.
The LA Times reports that college pays off: The average take-home pay of college graduates is $38,950, compared with $21,500 for high school graduates. A college graduate’s earnings would exceed a high school graduate’s by more than $1 million over 40 years.
Gender makes a difference. The Economist published detailed analysis which I’ll summarize elsewhere but the bottom line of “The Cashier and The Carpenter” is that men and women do different work for different pay. For example, by working shorter paid hours, women are managing to achieve a reasonable balance in their lives. The Economist cites results that show that work-life balance dissatisfaction is about 18% for women and 27% for men in Europe.
The New York Times reports that in the two and a half years since the recovery officially began, men age 16 to 24 have gained 178,000 jobs, while their female counterparts have lost 255,000 positions. “Apparently discouraged by scant openings, 412,000 young women have dropped out of the labor force entirely in the last two and a half years, meaning they are not looking for work. Young women in their late teens and early 20’s view today’s economic lull as an opportunity to upgrade their skills, their male counterparts are more likely to take whatever job they can find.” As a result, the next generation of women may have a significant advantage over their male counterparts in the near future.
Many of the occupations expected to have the most growth, like nurses, home health aides and dental hygienists, have traditionally been filled by women. Jobs in male-dominated industries such as manufacturing and construction have been in decline. Manual labor careers can also be hard to maintain indefinitely because youthful strength eventually fades. The pension coverage of construction and manufacturing workers is also lagging which presents a challenge for males as they age.
Knowledge and understanding of the true causes of a problem are the right foundation for crafting solutions. My series of summary articles on “jobs” throws light onto the employment and unemployment challenges. Stay tuned!
1. Jobs. Jobs. Jobs.
2. Jobs: Fundamental Trends – 2000 to 2050. How Did We Get Here and What’s in Store?
3. Jobs Hawaii: The Tourism Dependency – Opportunities and Threats
4. Jobs: The Young and Unskilled
5. Jobs: What Women Want
6. Top Jobs: 10 Hot Careers for 2012 – http://fixoahu.blogspot.com/2012/01/jobs-10-hot-careers-for-2012.html
7. The Right Job: Sustainable, Desirable Employment
Tracking the Unreported Unemployed, NCPA, January 9, 2012
Unemployment Varies by College Major, Study Finds, The Chronicle, January 4, 2012
Goodin, Seth, If You’re An Average Worker, You’re Going Straight To The Bottom, Business Insider, January 19, 2012
College is Still Worthwhile, Study Finds, Los Angeles Times, December 29, 2011
Instead of Work, Younger Women Head to School, The New York Times, December 28, 2011
Female Labor Markets – The Cashier and the Carpenter, The Economist, November 26, 2011
Worth The Candle? The Economic Impact of Renewable Energy Policy in Scotland and the UK, Verso Economics, March 2011