What's Wrong With the U.S. Job Market?

Despite the positivity about the April jobs report, the U.S. jobs market remains dismal. Even thought the jobless rate has fallen, millions of people aren't counted as unemployed because they've stopped looking for work, or never started. Only about 58 percent of American civilians aged 16 and up had jobs in April.

By Peter Coy
May 09, 2013
BusinessWeek

Joey Griffiths grew up in the western New York town of Dunkirk and left home at 17. Now he’s 30 and working as a bill collector in Jackson Heights, Queens. He has bills of his own to pay. Says Griffiths: “I’m good at collections because I understand what they’re going through. Just surviving.”

You hear a lot of just-surviving talk on the sidewalks of Jackson Heights, a polyglot neighborhood just south of LaGuardia Airport. Rajesh, a limo driver who declined to give his last name, says he’s barely scraping by in spite of driving or waiting for fares at least 12 hours a day, seven days a week. “One day ends, the next day is coming,” he says. Klaus Bauer, a 24-year-old immigrant from Cape Town, South Africa, is trying with little success to make it in computer science. He’s homeless. “Right now I might be moving somewhere,” says Bauer. “Another city. Another state. Trying to find some seasonal work, off the books. Get my own IT business together.”

For all the positivity about the April jobs report—lowest unemployment rate in four years!—the U.S. job market remains dismal. One statistic makes the point: Just 58.6 percent of American civilians aged 16 and up had jobs in April, according to the Bureau of Labor Statistics. That’s a lower employment-to-population ratio than during the worst of the 2007-09 recession. Even though the jobless rate has fallen, millions of people aren’t counted as unemployed because they’ve stopped looking for work, or never started.

It’s time to stop and figure out what’s wrong. Politicians and economists have been talking about high unemployment for better than five years, to little effect. Some of the explanations offered seem to border on rationalizations for why nothing can be done. That’s not good enough. Extended unemployment is not only a human tragedy for the jobless and their families. It’s also a waste of human capital in a nation that can ill afford to discard valuable resources.

The breakdown of the labor market can be blamed on either supply or demand. Those who argue that the supply of labor is the main problem say that many Americans simply aren’t qualified for the jobs available. On May 7, the BLS reported that there were more than 3.8 million job openings in the U.S. at the end of March—at a time when more than 11 million people were looking for work.

One obvious fix is more education to cure the mismatch between job seekers’ skills and employers’ needs. Schooling clearly helps: The unemployment rate for college graduates in April was just 3.9 percent, vs. 11.6 percent for people with less than a high school education. The U.S. economy thrived in the 20th century when it had the world’s highest high school graduation rates and has stagnated as other countries have caught up, Harvard University economists Claudia Goldin and Lawrence Katz argue in The Race Between Education and Technology.

There’s little debate that education improves social mobility. Jon Miller, a University of Michigan political scientist, says his father worked on the railroad and his mother in a shoe factory. He made sure his own kids got more education than his parents had. His son is a tenured astrophysicist, his daughter a neurobiologist with a law degree. “Educated people are getting a hefty return on their investment,” says Miller.

The “supply” case hinges on the notion that the working world is getting more complicated and demanding. “Complexity has opened a great divide between those who have mastered its requirements and those who haven’t,” Brink Lindsey, a senior fellow at the Cato Institute and the Kauffman Foundation, argues in a new book, Human Capitalism. The economists’ term of art for this is “skill-based technical change.”

But an emphasis on workers’ deficiencies can morph into a blame-the-victim mentality. And it’s not the whole story—far from it. A new study by three Canadian economists says that today’s jobs don’t require more smarts than jobs of the recent past. As shown in the adjoining chart, the researchers found that the average “cognitive content” of tasks performed by employed college graduates of all ages peaked in 2000 and has dropped fairly steadily since. The study is by Paul Beaudry and David Green of the University of British Columbia and Benjamin Sand of York University in Toronto. In the same vein, the Conference Board, a company-supported research organization, recently found that since 2000 the importance of math and science skills in jobs declined, while social skills became more important.

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