Thursday, May 10, 2012

Another fact about the US economy to make David Brooks cry

One of the arguments trotted out for decades by people opposed to government action to stimulate employment is the idea of a "structural unemployment problem" or some variation of it, like a "natural rate" of unemployment.

Matthew Philips takes a look at the current incarnation of this argument in The False Theory of the Growing U.S. Jobs Mismatch Bloomberg Businessweek 05/03/2012:

A primary refrain of the jobless recovery is that a growing skills mismatch is largely to blame, that many of the unemployed simply aren’t qualified to fill the jobs that are out there—like trying to squeeze square workers into round openings.
Here he tosses in a comment about how both-sides-do-it, though in this case it appears to be more knee-jerk convention than anything else. It's a conservative argument.

It’s clear that we now have more of a buyer’s market than in years past and that there is something of a mismatch going on. But that’s always been the case, even when unemployment was low. The question is: Has it gotten worse?

A new report from the Federal Reserve Bank of San Francisco attempts to throw cold water on the notion that it has. Authors David Neumark and Robert Valetta recap a recent conference that looked at evidence that employers can’t find workers with the right skill set. Their conclusion? ”These mismatches do not appear to be much more severe than in the past.”
Philips goes on to discuss several points made by Neumark and Valetta relating to this issue such as: workers with mortgages underwater have less flexibility to move than in better times; and, skills mismatches don't seem to have increased qualitatively during this depression, meaning that the huge rise in unemployment since 2007 isn't because of some sudden shift in the skills required by the US job market.

The bottom line, it's about demand:

The key is demand, particularly for low-skilled workers. Are they mismatched for jobs? Sure, but that’s always true. The difference is that during times of expansion, the economy has room to accommodate them. For example, when retail sales are going gangbusters, as they did in the mid-2000s, big-box stores can afford to hire additional sales clerks and cashiers. The problem isn’t so much a lack of skills but a lack of demand. One of the hallmarks of the recovery has been a huge rise in productivity. When the crisis hit, all those low-skilled workers were pushed out of a tightening economy.

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