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HICKS: Recession took its toll on under-educated

June 4, 2011

This June marks the two-year anniversary of the end of the recession. The occasion offers some valuable insights into the future of our economy.

The recovery has been modest, but within 15 months of the end of the recession—in the fourth quarter of 2010—the U.S. economy returned to its pre-recession level of production of goods and services. But we did so with 7 million fewer men and women working.

Herein resides a great but not unexpected difficulty for the nation—long-term unemployment.

In the winter of 2008-2009, the productivity of American workers skyrocketed. More plainly, the value of goods or services produced by each worker over a given time rose at an annual rate of more than 6 percent. This productivity is ultimately the sole source of economic growth. It most often occurs as businesses add more machinery for each worker and refine their production processes. On the flip side, productivity in the overall economy also increases as unsuccessful firms close, and their workers and capital flow to more productive places.

The most recent recession, like others before it, accelerated this process. The economist Joseph Schumpeter called this “creative destruction.” My description is a bit more pedestrian: In good times, bad firms can do well, but in bad times, only good firms survive. It ain’t as elegant as “creative destruction,” but it is easier to see while driving down Main Street.

The labor market corollary to this observation is that the unemployed of a recession are dominated by workers from bad companies along with workers good companies do not want. This makes their re-entry into jobs especially difficult. Human resources departments across the country recognize this, and it is common for job advertisements to now carry the warning that currently unemployed workers need not apply. Of course, there are great workers among the ranks of the unemployed, but it is costly for businesses to sort the good from bad.

The hard truth is that all the jobs lost in the economy that will return already have. So what will become of those who lost jobs to the recession for which none await them now? The prognosis is none too optimistic.

A few very brave souls have gone back to school for a period of self-reinvention. They will almost all recover well. Some will find themselves able to retire early (something that will be unknown to their grandchildren). Some will drift into the gray economy, doing construction or lawn work under the table. Others will do less well. It is an avoidable pity, but a pity nonetheless.

Almost all of those who will suffer most deeply come from the lowest levels of educational attainment. Among the unemployed, high school dropouts along with high school graduates without further schooling have dim prospects.

I note that the unemployment rate among college graduates is 4.1 percent. Among high school dropouts it is officially 14.5 percent, a full 5 percent higher than even high school graduates. Advanced schooling isn’t for everyone—just those who want to hold a job.•

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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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