Recession and Unemployment and Opinion and Economic Analysis and Economy and Government & Economic Development

HICKS: Recession may help close job-skills gap

December 12, 2009

Many of the effects of the recession are, ever so slowly, winding down. Unfortunately, one of the most important effects —lower employment — is likely to be stubbornly persistent.

The reasons are fairly complex, and even the good news about a slight decline in November’s unemployment rate masks an underlying phenomenon — our shrinking labor force. Here’s part of the story.

We often hear that 7 million Americans have lost their jobs in this recession. That’s not quite true. In reality, many, many more have lost jobs, sometimes several jobs, over the course of the recession. The 7 million mark is simply how many currently are unemployed (and looking for work). To put that in context, 305 million of us are milling about the country, and 150 million or so are in the labor force.

Among these folks who are unemployed, about half find a job in three to four months. A growing number are falling into the long-term or persistent unemployment category. It is worth noting that persistent unemployment is a personal choice. There are more than enough jobs to go around, but folks don’t choose them because they are in places they don’t want to live or offer wages that are unattractive.

Of course, from a public policy standpoint, we want workers to be selective, and match their skills with the right employer. We don’t want people taking the first job to come along. That is why we have unemployment insurance, which we extend during periods of high unemployment.

The recent increases in the minimum wage account for two-tenths or three-tenths of a percent of the higher unemployment rate as well. To no surprise, most of these job losses are clustered among the young and low-skilled.

There is another reason the labor market leaves so many unemployed — a tremendous skill gap. There’s probably never been a time in history when the education and skills employers want (and are ready to hire) are as disconnected from the education and skills of those supplying labor. But in this disconnect lies the one silver lining in this economy; there is a rush to get an education.

Throughout the country (and certainly in Indiana), the labor force has been shrinking for more than a year. Part of this is due to workers accepting early retirement. Part also consists of workers entering the gray economy (aka working under the table). But a significant share of the shrinking labor force — more than half — is composed of Americans going back to school. In the long run, this’ll be great news.

The reasons for this are easily explained by a little economic theory. Workers recognize that the skills they have that resulted in unemployment may not be sufficient to keep them working over a lifetime. Additional education will bring long-term benefits, but only if displaced workers use the education as a path to higher-skill work instead of a parking space to wait for callbacks to old jobs.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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