Low Skills Aren't Causing the Unemployment Crisis
Worker training is not the issue. A growing wage-productivity gap might be.
Worker training is not the issue. A growing wage-productivity gap might be.
More than 12 million people in the United States are pounding the pavement, searching for a job without luck. This is fewer than a few years ago -- we had a high of nearly 16 million unemployed in 2010 -- but far more than at any point in recent memory prior to the Great Recession.
Why are people out of work? Some economists have been arguing that today's high unemployment is explained by a mismatch between the skills that employers are looking for and the skills that the unemployed have. "Firms have jobs, but can't find appropriate workers," the Minneapolis Fed President Narayana Kocherlakota said in Michigan in 2010. "The workers want to work, but can't find appropriate jobs." Indeed, there were 3.7 million unfilled job openings in the United States in June of this year, according to the Bureau of Labor Statistics.
However, it's unlikely that this phenomenon is a major driver of persistently high unemployment. In 2007, only about five percent of people in the United States who wanted a job couldn't find one. Eighteen months later, nearly ten percent of those who wanted a job couldn't find one. Did the skills of the labor force deteriorate so demonstrably in a year and a half that millions were suddenly unemployable?
Of course not. What happened was the collapse of the housing bubble and the ensuing financial crisis, which stripped trillions in wealth from family balance sheets and sank demand for goods and services.
Indeed, most economists agree that today's high unemployment is "cyclical." That is, we agree that most people are out of work because of the recession and its lingering effects on the labor market, not because there is something wrong with the unemployed.
For example, the New York Times' Binyamin Appelbaum reported from the annual conference of the Federal Reserve Board last August that "pretty much everyone here is upset about the breakdown of fiscal policy, which is becoming a principal drag on growth." Demand and cyclical factors explain unemployment, rather than what economists might call "structural" factors, such as a lack among the unemployed of adequate skills or incentives to find a job.
Given that the problem of unemployment is not the fault of the unemployed but rather insufficient demand for their labor, solutions should address that macroeconomic root cause. While it is always important to make sure that workers -- and especially low-wage workers and young people -- have access to the education and training that they need to make the most of their career, investments in workforce development will not be enough to solve today's unemployment problem. If the unemployment rate was half what it was today, then education and job training could push it down even further. But that's not where we are.
To solve the jobs problem, we need to find a way to make up for the gap in demand that continues to plague the U.S. economy. Because this recession was caused by the collapse of a still-struggling housing market, we cannot expect our recovery to be driven -- as is typical -- by an increase in housing purchases.
And we need to ensure that the mistakes of the past that destabilized our economy are not repeated. Among other things, an important way to make sure that we have stable growth moving forward is to make sure that the financial sector focuses on its true value to our economy, which is making capital available for productive investment and realigning the growth in wages with the growth in productivity. For decades, U.S. workers have produced more goods and services for each hour of work. But their pay has not risen commensurately, which has contributed to the instability in demand. Indeed, income inequality has increased, requiring a growing share of the middle class to pile on debt just to make ends meet. That's not a sustainable jobs plan.
A good way forward in the short term would be for policymakers to make the kinds of investments that will enhance productivity and growth in the years to come but will get people back to work now. Investments in our nation's roads and bridges, school upgrades and new construction, and fixing our nation's energy grid are all good ideas for right now. (The Center for American Progress estimates that the U.S. needs to spend, at a minimum, an additional $129.2 billion a year over the next decade to keep pace with the country's infrastructure needs -- a level of investment that could produce over two million new jobs.) We also should focus on stemming the tide of job losses among school teachers and public safety officers and, instead, put them back to work educating the next generation and keeping our communities safe.