Employment Versus Debt
Employment Versus Debt
In early June, the US Department of Labor reported that three million job openings remained unfilled. That press release did not make national headlines. In contrast, another press release a month later, which told of a stubbornly high unemployment figure of 9.2 per cent, captured the media’s attention. At a time when the two US political parties are locked in a battle over how to reduce the deficit, the latest jobless numbers added fuel to the partisan fire. Yet, the barely noticed statistics about unfilled jobs — which highlight the mismatch between the demand and supply of skills — is perhaps a more telling indicator of the US economy.
In the current deficit battle, the US focuses on reducing the debt burden and not on job creation as the ultimate path to financial health. At the end of a bitter fight, the Democrats and Republicans will most likely come up with a compromise to avoid a catastrophic default on the country’s debt obligations. But there won’t be any agreement on a diagnosis for the country’s jobless recovery or bipartisan plans to kick-start the sputtering job creation engine.
Ever since the recession began, the US has operated on the belief that once the bailouts saved the financial system and stimulus spending stemmed job losses, the economy would somehow steady itself. As per the usual boom-bust cycle, the economy would pick up steam, and jobs would return. Two years after the recession formally ended, however, growth remains anaemic, 14 million are on the dole and, surprisingly, employers cannot find qualified candidates to fill 3 million jobs that remain available. Vacancies have remained steady for months while increasing numbers of jobless have either been unable to find work or have given up searching.
There are many theories on why so many remain jobless. Some suggest that job losses from the recession have created a vicious cycle in which companies have been letting people go or avoiding investment out of concern that there won’t be a market for their products. Another view is that the collapse of the property market has left many overvalued homes underwater, thus tying down jobless owners to the unsaleable property — rather than allowing them to relocate to where there are jobs. To cut costs, companies have introduced automation and process redesign and offshored work. Beyond these factors, the long-term trends that explain the lack of employment growth are structural changes in the economy shifting towards higher-skill jobs and creating a mismatch between job openings and available skills. Low-skilled workers (those with only a high-school diploma) constitute 37 per cent of unemployed from the manufacturing sector, which has shed some 2 million jobs since the start of the recession.
In a recent study, McKinsey Global Institute finds that structural changes have been underway for the past two decades. In the post-war period, business cycles determined recession and recovery, and unemployment receded as growth resumed. But since the 1990s, this pattern has changed as firms tried to increase productivity during the recession by adopting new technologies and processes. Since 2008, recession-hit companies have accelerated their automation and process redesign, taking advantage of new digital technologies to outsource their work. The nature of new job openings, particularly the technology and processes they demand, also explains the mismatch. Half of the eight million jobs lost since 2008 were in construction and manufacturing; many of the new jobs are in healthcare and education.
Two-thirds of the 2,000 companies surveyed by McKinsey said that they have difficulty filling some positions — like that of welders and healthcare workers — due to lack of specific qualifications and experience. Forty per cent of these positions have been unfilled for over six months. If all of these jobs were filled, the unemployment rate would be around 8 per cent instead of 9.2 per cent.
While economists and think-tanks have raised concerns about the structural issues impeding job creation, the US government and Congress seem focused on treating the problem as purely cyclical. The recently passed legislation to extend unemployment benefits up to 99 weeks is an apt example. This classic remedy certainly helps cushion the blow, but does nothing to address the apparent problem of long-term unemployment. Meeting the challenges of such wrenching structural changes requires a vision and political will that seem to be in short supply in Washington DC.
Nayan Chanda is director of publications at the Yale Center for the Study of Globalization and editor of YaleGlobal Online.