By Mike Konczal, a Roosevelt Institute fellow who posts at New Deal 2.0
Arjun Jayadev and I have another working paper out of Roosevelt Institute, this time focusing on the labor market in the current recession. The paper is: The Stagnating Labor Market (pdf). I hope you check it out; I’m going to talk about the main things we found in two posts (see the other post here).
The Saga of the Underemployed
Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.
In order to examine this question we will now look at those who are underemployed. Specifically, we will take into account those who work part-time for economic reasons, whom the Bureau of Labor Statistics recorded as employed.
The following graphs the percentage of those employed who are working part-time for economic reasons as well as the percentage of those employed who are working part-time for economic reasons specifically because of “Slack Work or Business Conditions.” These are people who are considered employed though they work less than 35 hours a week, and the reasons they cite are not personal ones or seasonal ones but instead economic ones. We use this term interchangeably with underemployed workers or underemployment:
These values are at historical highs, especially for “Slack Work of Business Conditions” which has leveled off to a steady state not seen except for a blip in the late 1950s. The percentage of the labor force working part-time for economic reasons is among the highest values in over 50 years.
Unique Features of Underemployed Workers
We focus on studying unemployment by only looking at the employed for two reasons. The first is that this removes the “skill” story from the picture; these employees have the skills necessary to work the first hour of their job but there just isn’t enough demand to work the 35th hour of their job. It is a curious firm that can hire someone whose skills allow them to work the 10th, 20th or 30th hour of a job profitably but not the 35th hour.
The second is that it also removes any potential work disincentives created by unemployment insurance. The debate about the effects of unemployment insurance on the unemployed is a very controversial one. Some have claimed that the increase in unemployment is largely a result of extending unemployment insurance. Others have argued that the negative effects of unemployment insurance have been largely overstated and that unemployment benefits provide a very effective form of stimulus spending. This debate is not relevant to those working part-time for economic reasons.
BLS provides data that allows us to look deeper and break this down by industry for the period 2000- current. Could this be a result of a hangover in finance and construction? Here is a chart of underemployment in construction and finance:
The number has approximately doubled since the financial crisis and recession, and has plateaued into a new, higher, steady state. Could this be a skills story, as these workers can’t be retrained?
Now let’s look at how sectors that are not finance and construction did. The following is a graph that does the same calculation for a mix of all other sectors that are not finance or construction:
The pattern is almost identical.
The following is a chart that looks at the average underemployment between 2000 and 2007 and compares it to the average underemployment in 2010. In each of the 13 sectors we look at the ratio increases dramatically. Even more interesting is that none of them are less than they were before. This is a sign that underemployment is rising in every sector, not just those with hangovers from the bubble. (Click for larger image.)
There’s been a recent series of influential papers that argues that structural unemployment doesn’t happen at the sector level but instead at the occupational level.
Workers, after all, don’t work sectors; they work occupations. One can be a maintenance worker or an accountant for a manufacturing firm or for a high-tech start up. If the demand for skills moves between maintenance workers and accountants, you could see problems in all sectors, even though it’s still a change in the demand for occupational specific human capital.
Looking at this too we see the same exact pattern: every one of the nine occupations we obtained data on had a doubling, at least, of underemployment. Services employees are twice as likely to be working part-time for economic reasons as they were before the recession began, for instance.
Everywhere we look, across occupations and sectors, people with the skills to work their jobs are more likely to be working part-time for economic reasons in 2010 than they were before the recession. This is a story of aggregate demand, not a story of skills mismatch.
In light of the political climate and the impending elections, government officials may be loath to address this problem frontally. Such an approach, while politically expedient may be disastrous for the economy and for social welfare.
If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects. Officials need to act in a bold and imaginative manner to repair the labor markets dysfunctions-much as Roosevelt did-or risk entrenching the social misery that engulfs many Americans today.
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If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects. Officials need to act in a bold and imaginative manner to repair the labor markets dysfunctions-much as Roosevelt did-or risk entrenching the social misery that engulfs many Americans today.
This kind of anodyne talk is bound to be as far as anyone gets so long as we continue with this kind of mindset:
Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.
Actually there is another theory, the correct one, which states that whatever the textbook “explanation” (since it’s in a textbook, it’s meant to obscure rather than enlighten), the real cause is intentional criminal elite policy.
For example, we know that all “mismatches” in skills are the intentional result of planned obsolescence. In this case, globalization and technology are the two top-down drivers intended to relegate everyone outside the elite to the level of an unskilled and/or minimum-wage worker.
This piece says that the intentional destruction of skilled worker leverage isn’t the main factor in this incipient permanent mass unemployment, but rather declining demand for labor as such. That too is another stage of neoliberal policy. Peak Oil is going to contract the economy, as the elites know. So they’re withdrawing from what little productive investment they were still undertaking, and are simply out for one last plunder orgy.
That’s why there’s NOTHING, not a single peep, of actual job creation advocacy among the political class. They all agree that growth is dead, that this economy will never be “productive” in the old sense again, and that there’s nothing left to do but steal what little wealth they haven’t already stolen through increasingly brazen legalized theft like bailouts, “austerity”, and corporate welfare. None of these involve creating jobs; on the contrary the goal is to eventually destroy all non-minimum wage jobs.
So there’s the solution to this alleged mystery of why aggregate demand is down. Yet the textbook explanation would have us believe “lower aggregate demand” is a diagnosis rather than a symptom, a cause rather than an effect. The truth is the opposite.
That’s why to sincerely keep looking to these “officials” for anything “bold and imaginative” on behalf of the people is not only to look in vain, but to objectively abet the scam.
“That’s why there’s NOTHING, not a single peep, of actual job creation advocacy among the political class. They all agree that growth is dead, that this economy will never be “productive” in the old sense again, and that there’s nothing left to do but steal what little wealth they haven’t already stolen through increasingly brazen legalized theft like bailouts, “austerity”, and corporate welfare.”
What’s really sad is that real economic growth within the United States is more than possible. The problem is that multinational corporations and banks have created the expectation of perpetually growing profits for their shareholders, and the rate of available growth in the U.S. is insufficient to meet those expectations. This divergence between the interests of multinational corporations and the interests of American citizens should be a wake-up call to the political class that serving the corporations does not serve the country, but they’re too busy being treated like rockstars to see that they’re not doing their job (or they’re just corrupt).
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aggregate demand. The second theory is one of a mismatch
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Although there is a mixture of both problems, the important question is clearly, “What further up the pipe is causing both”. As mentioned by Tao, corruption may be under lots of rocks. Disregarding market manipulation for a moment, we can also spot the shift in investment to less completely developed parts of the World as water seeks its own level. There are many quantitative factors churning away at the ever changing picture.
One thing you got to admit — this process is cyclical less but more of a long term trend. It is the trend of underlying POP, Peak Oil Panic now ushering in WPO, World Peak Oil. *All of the mechanisms* both financial and organizational which are now undergoing power-down inside USA but simultaneously undergoing power-up within redeveloping cultures were once used to develop thriving economic activity here but are now being dismantled under your very nose, only to reincarnate globally. No one person can stop any of this towards-own-level-shifting. Anyone who tries to stop it will be crushed and trampled. Survival is for those who go with the flow. This country is about to degenerate into a waste-land of gigantic wealth-gap. The fortunate have made this a creditor nation for themselves, their brokers, the brokers’ quanta-s, shills, and tricks. Welcome to the Huxley-Orwell-Hell.
I would have to agree with your assessment, attempter: What Roosevelt did had little impact on the job availability front until he got into a war, destroyed the worlds factories (except for those in the US), killed 20M productive workers and trained those who remained alive in the US factories. It was on that heap of ashes that we were able to create a post war economy. Until then the New Deal was No Big Deal.
Thank you, Maestro attempter.
As we all know this type of pure and unadulterated crap is why nobody pays attention to any of these voodoo hoodoos who claim to have a textbook on economics.
The real prob, of course, is that the tax base has been dramatically and severely reduced by offshoring as many American jobs as possible over the previous 35 years, reaching critical mass this decade, beginning in July 1999.
The tax base has been further reduced by those American-based multinationals and corporations which have refused to pay their federal taxes (are you hearing me, douchebags at GE — and why in perdition does anyone but those whores in the PopCultureNonMedia pay any attention to their douchebag CEO since they don’t PAY ANY TAXES???) by doing that offshore finance center thingy of profit laundering, transfer pricing, debt hiding, capital hiding, etc., etc., etc., then the utilize taxpayer funds, via OPIC, USAID, etc., to build facilities overseas where they then offshore those jobs to.
Crime pays, until we begin making it a mortal offense.
Maybe the two theories are true : There is a lack of demand due to the fast withdrawal of credit in the economy, and the reason for this lack of credit is the fact that the activities for which people are skilled are not believed to be a sustainable business any more.
Proping up demand only works in the long term if public, publicly sponsored, investments increase productivity. Bridges to nowhere don’t qualify.
If the only viable investment require specific skills that are not available quickly in the market, one has to move down the chain and recognize that actually training the workforce to get the appropriate skill is the right first step to prop up demand. It is very difficult : you can’t turn directly a real estate agent into a rocket engineer, but rather use a chain of “skill upgrade” across different people (say the real estate agent becomes a welder, the welder becomes a specialized welder, the specialized welder becomes a production unit manager, the production unit manager becomes a production engineer, the production engineer becomes a rocket scientist…). When there is strong growth and a young and mobile workforce, it is relatively easy. In a deflationnary environment, it is hard. Note that this kind of skills upgrade is an often overlooked consequence of the population mobilization that occurred WW2, especially for the female workforce. It helped fuel the post WW2 growth.
Now if we could find a way to reach the same level of commitment to societal change without killing each other…
Very enlightening. A simple look, with other variables held constant, at slack demand. But I agree that the policy goal here is not full employment – and hasn’t been for a long time. I feel incredibly hopeless that meaningful measures will be implemented to address this problem – hysteresis, here we come. A new era of grinding poverty creeping up the class ranks has come.
Mike:
Why do you believe that “entrenching social misery” is a bug, and not a feature?
Indeed. Nonetheless, there’s plenty of unconscionable excess that can and arguably should be stripped away from the middle-class American way of life. Bug or feature?
Let’s see: real estate is comatose and manufacturing has been offshored. Customer service is handled beautifully in Singapore, Manilla and God only knows where else. Small business has been Walmartized and Home Depoted, and for those who can imagine providing any new product or service credit has collapsed. Why do otherwise intelligent people write about this in way which makes my eyes glaze over?
We can begin busting up financial and big business monopolies or we can all slowly starve. Nothing more than misery can be expected to trickle down. Globalization has always been a scam and those who have swallowed it have nothing to offer.
Good call, I had the exact same reaction. It made me wonder about this Roosevelt Institute and whether they have a policy on being pro-globalization but I can’t find anything explicit about it on their web site.
Those chubby and fatty execs I observe coming out of those JP Morgan Chase offices look mighty tasty to me…..
Twitmonkey Alan Greenspan and Bush’s US Labor Secretary Elaine Chao both chirped “health sciences” as the only jobs left in the US. Planned US job destruction via wage arbitrage. ‘nuf said.
There you go. Half the population can sell nurses insurance, and the other half can take care of the insurance sales men when they get sick. This can’t fail!
jake chase says: “Why do otherwise intelligent people write about this in way which makes my eyes glaze over?”
Because common sense can not be the foundation for anything anymore.
Studies must be done and the report must be done step by mind numbing step. The report seeks to present the information in a way that the reader believes that it is unassailable which is not always true.
In this case, common sense seems to confirm their conclusion that qualified underemployed can not find full time work.
The ‘mismatch in skills’ argument is a variant of earlier arguments about ‘retraining’ workers whose jobs were lost due to moving production overseas. Then the retrained worker could lose the next job because it was also outsourced overseas. Just 50 years ago companies hired intelligent people and trained them for the job, now if you don’t have experience doing the exact work you are not likely to be hired. Sometimes they want experience with the exact same equipment.
These arguments are nonsense. If we follow it to the logical conclusion we would be nation of unemployed people with Phd’s. Pay close attention to the source of these claims – he is a liar or a fool.
There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills. Mike Konczal
Obviously the problem is lack of aggregate demand else how did unemployment rise so quickly and across so many sectors? A huge coincidence? No. If 70% of the US economy is based on consumption, may I point out consuming requires no particularly skills? The truth is that the population was financially ruined by the government backed credit cartel which simultaneously cheats savers of honest interest rates and drives borrowers into debt that is unserviceable during the bust.
But what about the jobs that were outsourced to China? How was that financed? I suspect the corporations used cheap credit from the government backed counterfeiting cartel to accomplish that. Otherwise the corporations would have been forced to issue new common stock to finance their moves thus sharing the benefits of the moves rather than stealing them for a few via the counterfeiting cartel.
What if we had not had a government backed counterfeiting cartel? Ans: We would be enjoying many benefits but the chief one is that ALL Americans would have an interest in economically beneficial policies like free-trade since all would benefit from them. Instead we have the looters and the looted which is not conducive to peace and prosperity.
I would think that China’s government funded the outsourcing to China since they own a big stake of a lot of the factories, or if not them, then a big stake in the factories that supply stuff to those other factories. They probably just did what all of our city governments do when approached by companies that want to build sports stadiums or car plants or whatever.
then again i have no concrete evidence. it would be pretty cool to figure out exactly how, why, where, when and who decided to move the industrial base of the free world from democratic countries to repressive dictatorships like china.
I’m with jake chase on this one. Empirical evidence not withstanding, the core of the problem has a causal relationship with globalization and its collapsing effect on the US.
I’ve got an MS in Mgmt, a B.A. in Communications and nearly twenty years of experiencing managing large and small technical support groups for high end software products.
I am the service sector.
Come the end of the year, I will be under/unemployed for three years. I ran out of unemployment insurance so long ago, I’ve even forgotten what that feels like. I’m white, 51 years old and honestly believe that I’ll never, and I do mean never, get another full time job that remotely resembles the career I thought I’d be able to perform well into my late 60’s or beyond.
Color me the poster child of failure.
That paper makes me think of this:
Hedley Lamarr: My mind is a raging torrent, flooded with rivulets of thought cascading into a waterfall of creative alternatives.
Taggart: God darnit, Mr. Lamarr, you use your tongue prettier than a twenty dollar whore.
And this:
Taggart: Send a wire to the main office and tell them I said…
[Bart whacks him with a shovel]
Taggart: OW!
Lyle: [writing] Send wire, main office, tell them I said “ow”. Gotcha!
“It is a curious firm that can hire someone whose skills allow them to work the 10th, 20th or 30th hour of a job profitably but not the 35th hour.”
There is nothing curious about this at all. If you can keep workers on a part time basis you don’t have all the costs of benefits to deal with making your bottom line look better. In a low demand situation we have, not for lack of more credit but because of a 30 year binge drinking spree from the credit bottle, you have to get your profit somewhere, and getting labor without the extra costs of benefits is your best means to get next quarters report looking good enough so you can get your bonus.
Job creation disappeared from this country a long time ago. How far back I really do not know — 77 or 87. Since then jobs have been created by credit growth which is basically consumerism. Once credit growth stopped then consumerism fell apart. I have been watching opportunities narrow down for 30 plus years.
Any kind of job creation this decade was housing which was a blow off top of credit growth. The dot.com growth was fueled by fantasy. These were hobbies being sold as businesses. A business when it is small shows a profit because that is when it is the simplest and the least overhead. The dot.com companies could not even make a profit being ran out of someone’s garage how could they be profitable in expensive offices. A lot of this was sold as technology, I looked at it as toys combined with fantasy.
So, look back and determine what has been going on since at least the middle 70’s and you will see why the country is in such bad shape. It will take a lot of pain to fix it.
Ishmael is close, but not quite on the mark. There will be a lot of pain, but it will not be fixed. The last 30 years helped postpone the inevitable, but now we are at a dead end. Computers have expanded our productive capacity so much that there is no hope of full employment. Add globalization and the future becomes even more obvious.
At least American corporations are actually competitive these days. Back in the ’70s they weren’t, and there was a real danger of massive bankruptcies.
[Yves: I don’t know if you have any control over the flashing Vector Vest ad, but it is a huge distraction.]
as far as i can tell, the massive number of part time jobs exist in order to prevent overtime payments. they’d rather hire two people at 20 hours than one person who can do 50 hours, just because cost is all that matters in the equations they use. i should know because i am one of those people.
of course i half expect someone to come out and tell us that the formulas used in cost accounting and ‘productivity statistics’ are all bullshit, sort of like EConned (and others) did with black-scholes.
i mean two people at 25 hours. lol dont mean to make the one person 50 hour look inefficient. thats the whole point. efficiency doesnt matter because they way they measure it is bullshit. they are just looking at some charts 5 levels up the bureaucracy and ‘justifying’ things to whatever kool aid club they belong to.
The reason the politicians won’t talk about it is because there’s really only one thing the government can do, which is run more deficits. Given the mood on the right and the likely results of the elections, that option is off the table. Therefore, there’s really nothing for them to say.