Labor Slack Points to Structural Employment Problem
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Source: Bloomberg

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Nice chart today from Bloomberg Briefs suggesting that we have structural problems in the labor market post-credit crisis.

The income gap based on education levels is well established; there is also a low-wage bias in the economy – we seem to be creating more of the low skill, low wage jobs than we were previously.

This substantial labor slack has persisted since the 2007-2009 recession. It appears that some people are making the decision that rather accept low paying jobs or doing “menial” labor, they prefer to not work at all. Hence, the declining labor pool.

These changes have potentially large ramifications — in such varied areas as inflation, social security and even retail sales.

 

Category: Digital Media, Employment, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “Structural Employment Problems”

  1. wally says:

    “…rather accept low paying jobs or doing “menial” labor, they prefer to not work at all.”

    When I was working as an architect (before retirement), I worked on a number of low-income housing projects for a regional housing authority. Except that these were not called “low income” projects; they are referred to as “workforce housing” projects, and you had to be employed in order to qualify to rent one of the units.
    Why this name? because everybody knows that persons working at many of the jobs available today cannot even afford a place to live at the salary levels that they are paid.

  2. S Brennan says:

    I have to disagree with you, this is upper class nonsense:

    “It appears that some people are making the decision that rather accept low paying jobs or doing “menial” labor, they prefer to not work at all.” – BR

    Anybody who has a professional background is not going to be hired as a greeter at Wal-Mart or to work on a construction site. Why? Because the employer knows the market better than you do Barry. The potential employer knows the better educated will leave the first chance they get. Perhaps, we could bring back indentured servitude, or better…slavery to solve this “problem”.

    C’mon Barry, you are better than this sloppy thinking, let’s keep it real.

    • I know you disagree, but you haven’t created a cogent reason why.

      There are all manner of surveys and interviews with people as to why they are dropping out of the labor force. Many times, there is a choice between VERY substantial pay cut or early retirement.

      • willid3 says:

        suspect that more than a few are dropping out because they are retiring. we are in the time when the baby boomers have started and retiring and that is a lot of the population. but then you can also consider that the last time the economy ‘recovered’ it looked a lot like it does now as far jobs being created. to many low wage jobs, to few others. do wonder if the mismatch is more economic that structural. as in today’s economy can only generate low income jobs. because UE doesn’t pay much, and it is taxable, so one can only survive for a very short time on it, without having to live with family. so is it because the economy has been restructured so that the majority of jobs are now low income ones, as opposed to have more of a mix? most jobs today end up having to compete with low cost countries. which means that jobs that depend on those prole as customers end up being pushed even lower as their customers incomes are pushed down

      • S Brennan says:

        Barry, you know I respect you, hell, you’re the first…and often the last read of the day, I just think you are wrong on this issue.

        Here’s a guy peeled the data and made some nice looking charts that show [graph C] that “74% of the jobless who have been removed from unemployment calculations are in the 16-54 age bracket, with only 26% in the 55 and above bracket.”. I know you like charts, so it’s worth a click. I was looking for a U-6 vs U-3 & labor participation rate [which will show that 1/2 of the "good news" in unemployment is the use of the "discouraged worker" in U-3*] when I found this site.

        Again…it’s not personal, sometimes the smartest guy in the room is just wrong…this is one of those

        http://danielamerman.com/articles/2012/WorkC.html

        * the divergence occurs at spring 2009, during the stimulus discussions.

      • S Brennan says:

        Barry, I was looking for a chart that shows U-6 vs U-3 & labor participation rate when I found this site.

        http://danielamerman.com/articles/2012/WorkC.html

        It shows “74% of the jobless who have been removed from unemployment calculations are in the 16-54 age bracket, with only 26% in the 55 and above bracket.” [Chart C]. I know you like charts so this is worth a click. If you can find a U-6 vs U-3 & labor participation rate chart you will see that 1/2 of the “good news” on U-3 is the speculative “labor participation rate”. U-6 & U-3 historically track each other [at different, but parallel paths] until spring 2009 when “labor participation rate” causes divergence. That would be about the time of the “stimulus bill” which was turned into a tax cut bill.

      • dasht says:

        Barry isn’t the number of unfilled low-wage jobs approximately 0? In many markets aren’t there ratios of at least many 10s to 1 of applicants to available positions?

        I think it makes more sense that, by in large, people are “leaving the workforce” when unemployment-related benefits run out and the expected return on continued job searching becomes negative.

        This is where you got in “trouble” when you said: “It appears that some people are making the decision that rather accept low paying jobs or doing “menial” labor, they prefer to not work at all. ”

        Nothing in the Bloomberg chart suggests that concerns about dignity (re “menial”) or preference have anything to do with it. Another possible explanation is that it would cost many people more than they’d expect to make to keep looking for work. That alternative explanation is supported by the evidence of heavy, heavy competition for low wage jobs.

  3. JesseLivermore says:

    I agree this is sloppy thinking. “Structural” unemployment, as opposed to cyclical, has a precise definition in economics. Just pointing to the difference between unemployment rate and employment/population doesn’t prove anything. For one thing, what about demographics? The country’s getting older, people are retiring. The Great Recession has not substantially affected the relative unemployment rates between “cold” sectors like housing and “hot” sectors like tech. That is, if unemployment were structural (too many construction workers, not enough jobs), unemployment would soar in the cold sectors and stay pretty much the same in the hot sectors. That hasn’t been the case. Software engineers are having a tough time of it as well.

  4. dina says:

    Even nobel prize winners are having problem in this market. Here is a comment from the IBM union website. “A manager in Almaden Research Center told me that he could have 10 Nobel Physics Prise winners reporting to him…and 5 would be rated 3′s. ”
    http://www.endicottalliance.org/archivesjobcutsreports1.htm

  5. DeDude says:

    To me it is a clear indication that the Wall Street moocher’s life style is getting more popular. More people who get an income without having a job. Just sucking/scamming/robbing money out of other peoples hard work with the help of Wall Street.

    • Not sure those jobs exist.

      Don’t let your dislike of the weasels lead you to create unrealistic scenarios

    • rd says:

      DeDude, I disagree. I think a lot of these people are actually working very hard in jobs where they just happen to be creating negative societal value while being highly compensated for it. I don’t have a problem with people who have capital investing it in productive enterprises – I do disagree with the current GOP mindset that income from this should be taxed much more lightly than income from work itself.

  6. constantnormal says:

    “It appears that some people are making the decision that rather accept low paying jobs or doing ‘menial’ labor, they prefer to not work at all.”

    Here’s a situation for you: let’s say you’re out of work, and it takes a certain amount of income to pay the car loan, mortgage, utility bills and groceries. If you are offered jobs that only pay 1/3 to 1/2 of that amount of work, are you going to take them, or continue to look until the roof falls in?

    Gotta sell some of that old life style? Your home is under water, your car is not worth what remains on its loan, and besides, if you sell the car, how are you going to get to work, assuming you take a non-living-wage job?

    Not only do we need to see more job creation, new and existing jobs need to pay more to get the middle class out of the hole they are in from decades of declining real income with rising expenses.

    As if THAT’s gonna happen …

    • cowboyinthejungle says:

      @ constantnormal

      I was just thinking along these lines on the commute this morning. Not in relation to unemployment, but to low & stagnant wages.

      I did a mental exercise to try and define “middle class” by the lifestyle connotations it brings to mind. Created an itemized list of those things one might define as middle class luxuries (safe housing, reasonable healthy food, basic transportation & utilities, etc.), add up the typical costs of those things, and compare them to the median family wage, which one might expect to fall safely within the “middle class.” Spoiler: the math doesn’t add up, even with generous estimates.

      Talk about cognitive dissonance…

  7. wisegrowth says:

    If you want to see the dynamics of how labor gets marginalized… here is the link posted today…

    http://effectivedemand.typepad.com/ed/2013/04/what-non-inclusive-growth-looks-like.html

  8. gman says:

    All of those Phds in math and science trying to find fellowships after they can’t find a paying job in their field…rather than work as a cook in a restaurant fit this dynamic also.

    http://www.theatlantic.com/business/archive/2013/02/the-phd-bust-americas-awful-market-for-young-scientists-in-7-charts/273339/#.USe9OmE_ObA.facebook

    “skills gap”..”jobs americans won’t do”(at below a living wage) “H-1B visas”

    It takes real work and effort to keep labor as weak as it is. The little game that has been played for the last 30 yrs has finally started to reach the higher end of the labor market.

    “Globalization, Automation, and Immigration all for the benefit of the median worker..trust us.”

  9. Theravadin says:

    While I agree with JesseLivermore that some of the decline in employment as a percentage of population is probably baby boomer retirement, I strongly suspect that there is a structural aspect here too. Would be good to look at employment as a percentage of working age population. The structural element has probably been building for a while, but was masked by the recent bubbles. If we take out the portions of the economy, and the jobs associated with them, that were bubble funded, I’d suspect we would find a longer, deeper structural issue hiding beneath it, both in employment rates and in median wages.

  10. rj chicago says:

    I know this will tick off alot of people who want and need a job as a judgement on my part which it is and has (un)intended consequences. Those actively looking I pray will find suitable work in the near term BUT…….
    Has it dawned on anyone that the reason that Obama got re-elected in that charade of charlatans called the election is that this provided a good excuse for the indolent of society to postpone looking or even trying to find employment KNOWING full well that the policy coming out of DEE CEE would perpetuate more of the same stuff we have been living with for the last decade at least?

    • willid3 says:

      well maybe the reason he got re-elected was because the other party was the reason the jobs collapsed the last time? and while they were in charge, if we took out the bubble jobs, we see what we have now? so what exactly were they going to do that was different from last time?
      austerity has been shown to decrease jobs ever where it has been done in recent time.

    • mitchn says:

      I do think a lot of people voted for Obama the second time around because they knew he would veto any attempt to repeal the ACA. No you could accuse them of being “indolent”; I prefer to call it common sense.

  11. Iamthe50percent says:

    What this graph tells me is that until 2010, the unemployment figures were fairly honest. But starting around 2010 for political reasons it was decided to start writing the long term unemployed out of the labor market to make the unemployment rate look better. In the household survey if when asked if you have looked for work recently you answer, “Are you kidding? I know all the employers in this town and none are hiring” you will be marked as out of the workforce even though you desperately want a job, any job. A more honest question would be, “If you saw a job advertised that you could do, would you apply?”. A yes answer means you are in the workforce and unemployed.

    A possible answer might be demographics, but I don’t think so. I’m 67 years old and all my friends that have jobs are sticking to them like glue, partly because bond rates rates are nothing and they are afraid of stocks, and partly because the President keeps threatening to cut Social Security.

    • willid3 says:

      not sure that the pre 2010 UE were any better. and post 2010 were certainly nothing to celebrate.
      could it be demographics? well us baby boomers are starting to retires. some may have been force into it though, when their jobs disappeared, along with the place they worked. some got shipped else where.

  12. rd says:

    It is not accidental that the labor force participation rate is falling back to 1979 levels.That is when the tail end of the Baby Boom was entering the labor force. We may be seeing the reverse of that process as the leading edge and middle of the Baby Boom can start to collect pensions and Social Securiy. It may also be a result of the local and state government force reductions where people are retiring instead of getting laid off.

    We know quite a few teachers. A number of them in their late 50s and early 60s put off retiring for a couple of years after the financial crisis to shore up their finances but are now leaving the workforce. it would not surprise me if many schools in our area have 10% or more turnover a year for the next few years as adminstrators and teachers retire. Many of these people have been working for 30+ years and will be walking away with pensions that are two-thirds or more of their current pay. Savings and Social Security will supplement that so they should be in good financial shape.

    The cost of housing is down (price and financing if you need it), especially if you want to move to the Sun Belt, and telecommuting makes it easier for one person in a couple to retire while the other person works part-time or remotely for an extra couple of years. There are various strategies that a married couple can use to tap into one person’s Social Security for a handful of years before switching over to the higher earning spouse’s Social Security.

    All the stats on preparation for retirement look depressing in aggregate but there is probably a significant percentage of the labor population that are over 55, have a pension they can draw on, are provided health care during retirement, and have other savings to rely on. A lot of government workers or Fortune 500 workers fall into that catregory. If they didn’t get caught in the housing bust, then they would be in a very good financial position.

  13. farmera1 says:

    Two questions I have about the falling labor participation rate:

    1. Locally many people have returned to Mexico. Local schools have lost about 50% of the lower grade students. Blow this out across the country and there have been a whole lot of people return to Mexico. I don’t know how this fits into the picture, but there are a lot less Hispanics around here compared to a few years ago.

    2. A lot of people are retiring. That has to fit in somewhere.

  14. 873450 says:

    @ wally April 8, 2013 at 11:48 am
    “…because everybody knows that persons working at many of the jobs available today cannot even afford a place to live at the salary levels that they are paid.”

    It’s worse than that. Most new food stamp applicants have jobs, often more than one, but can’t afford to feed their families. Our low-wage bias economy is replacing America’s disappearing middle class with an expanding “working poor” population that is educated and skilled, but permanently under-employed holding low skill, low wage jobs.

  15. winstongator says:

    http://krugman.blogs.nytimes.com/2012/06/08/the-structural-obsession/
    “The urge to declare our unemployment problem “structural” — a supply-side problem of some kind, not solvable by the “simplistic Keynesian” notion of just increasing demand — has been quite something to behold. It’s rapidly entering the category of a zombie idea, which just keeps shambling forward no matter how many times it has been killed.”

    • Angryman1 says:

      Well, since we won’t be doing a “keynesian” fiscal expansion anytime soon, you may as well call that structural as well.

  16. constantnormal says:

    So far as I can tell, there are only three significant factors at play here:

    1) demographics, with the largest chunk of our population in a Very Long Time (ever?) retiring Real Soon Now, whether they want to or not.

    2) automation, in areas well beyond manufacturing, and effecting all manner of skilled jobs.

    3) economic inequality, with the wealthiest sucking up all of the oxygen in our economy, and being totally unwilling to give an inch. Because they own the government, they really don’t have to change.

    As to the relative importance of each of these, I believe that there exists adequate data to (roughly) quantify each of them, in dollar terms. Some academics with time and grant money should do so.

    I see this as an ultimately unstable situation, that can only be resolved by one of two ways — either something akin to the French Revolution (which, given the surveillance and power of the federal government, seems effectively impossible), or an economic collapse (not just a stock market crash) of the developed nations, prolly with the banksters leading with their chins against a sea of unaudited, poorly-hedged default swaps many times the size of the global GDP.

    Just my view from the peanut gallery …

  17. Old Rob says:

    One more time! We exported our high paying jobs, we no longer have an adiabatic economy, we compensate people not in the labor market via welfare, SSI, SSDI, etc.Can anyone have discussion regarding Smoot-Hawley without the knee-jerk well worn commentary passing for real argument against?

    If we don’t export ~ 70% of the worlds products as in the Great Depression, maybe we can get those jobs and taxpayers back.

  18. digistar says:

    I agree with constantnormal’s three points – and his endgame alternatives. Well put.

    If we had a rational, democratic political class/process (instead of a kleptocracy) we would be looking for ways to pay people to do socially useful/beneficial/invigorating things. People need meaningful work and income to live. Our deranged form of ‘capitalism’ will not see the benefit of that until it is too late – for all of us – including the ‘capitalists’.

  19. theexpertisin says:

    Based upon the tone of the response of many, could it be that BR has offended those who are poster children for his observation?

  20. wally says:

    rj chicago:
    I don’t think it is the ‘indolent of society’ who wanted the current policies of Washington to continue. It is the upper end. They are the ones who have been strongly favored by the way our government now works. Those on the bottom pretty much get dumped on no matter which party runs things.

    • rj chicago says:

      Agree with this as well. The entire country is being sold out by elites – whether they be money folk or politicians – just scary to see what has occured. I suspect this has been festering for many years. Just that the dam broke in the last 10 years.

      Also – Jared Diamond’s 2003 TED presentation toward the end discusses what happens when the elites begin to partition themselves from the remainder of society. When this happens society collapses.

  21. carleric says:

    I see it as a variety of problems….one is the shrinking demand for the uneducated as manufacturing becomes evermore technologically driven, . one is paying people not to work and then wondering why they aren’t job hunting, another is the hard cold fact that most of the “educated” unemployed work force doesn’t have usable or marketable skills (dear God how many counselors, sociology graduates or psychologists do we need?….not to mention lawyers). So we have a populace who feels they deserve more without any basis for that dearly held belief.

  22. Joe Friday says:

    Yes, Krugman, DeLong, and others have repeatedly demonstrated that this “structural unemployment” charge is a bunch of hooey.

    We are a DEMAND economy, and there just ain’t the demand.

    Throwin’ money at the Rich & Corporate doesn’t work because they are not the drivers of the national economy and they don’t spend their discretionary income the way the Middle-class and Working Poor do.

  23. Angryman1 says:

    I really don’t see the big labor problem frankly, that hasn’t been there for decades.

    I don’t see much a difference between the 2005 economy and the 2013 economy. They are one and the same. 2005 had a shrunken output gap and more employment, but not a bunch more in terms of max potential. Considering U-3 is basically the measure of full time employment, that has made sig. advances the last 2 years. That will boost income and steady spending.

    It is just the beast we live in. We are low wage, part time, varied hours economy. But the jobs are there if you want them.

  24. MikeNY says:

    I agree with Theravadin, and I suspect Krugman is wrong on this point. The bubble economy was credit-fueled and unsustainable; the aggregate demand it created was unsustainable. If the massive decrease in demand that occurred once the bubble popped has had collateral damage in “unrelated” industries such as software design, it is merely that: collateral damage.

    Economics may not be a morality play, but there are also not as many free lunches as Krugman appears to believe.

    • Joe Friday says:

      Funny, I haven’t noticed Krugman espousing any “free lunches”.

      It’s been well illustrated by many that there is simply no evidence to support the theory of “structural unemployment” being a current issue.

  25. Frilton Miedman says:

    Someone briefly mentioned Smoot-Hawley.

    Republicans cite Smoot-Hawley as rationale to not tax trade at all, it’s bullshit, because Smoot-Hawley raised import tariffs from 13% to 60% overnight.

    That’s like sitting 12 inches away from a campfire and permanently concluding all campfires are too hot, period.

    Meanwhile, we tax Chinese imports at 2.5%, China taxes us at 25%.

    • S Brennan says:

      Frilton Miedman, I agree with you…as you know on China/USA tariffs and add to your point that when you look at the the trade numbers Smoot-Hawley is accountable for AT MOST 6-8% decline in trade. Most of the trade has already ceased do to lack of demand…economists having been lying about this for years to their ignorant students.

      • Frilton Miedman says:

        I omitted mention that 60% of those Chinese imports taxed at 2.5% are U.S. multinationals reaping cheap chinese labor as is.

  26. mlnberger says:

    The data all seems to put the onus for finding work on the unemployed worker. What if we flip it around, and look at these jobs from the perspective of the employer? If there is such a demand for these skilled workers, would these employers not be working aggressively to fill these positions? i am of an age where i have not had to deal with this problem for a while, so i no longer know how prospective employers seek out prospective employees. i come from an age where the signs would be something like college recruiters busy working a given class of seniors looking for new hires. Today? I don’t know — but my impression that the classic, universal, eternal way of enticing people to work, offering higher wages, is not in much evidence. Indeed, stories I read along these lines is how wages are falling, even for the financial industry. For that reason, I disagree with those who say our unemployment problem is structural.