The real employment problem
The unemployment statistics in November 2014 continue to improve or so it seems. But just below the surface of those improving statistics are troubling trends.
Numerous articles have been written about the confusing and often conflicted data relative to the real employment picture, labor force participation, part-time workers, and efforts to raise the minimum wage.
In reality though, a major trend has been overlooked in the past ten years which is the growing disparity of backgrounds of potential workers such that structural unemployment rates may now be so high as to mask true employment trends in the United States.
In the unemployment report from the Bureau of Labor Statistics the report indicates:
• Long term unemployed at 2.8 million workers (27 or more weeks)
• Part time employment of 6.9 million workers
• Marginally attached to the workforce of 2.1 million workers
• Labor force participation rate of 62.8 percent
Structural unemployment is when workers are just not qualified or capable of holding a job or the types of jobs available in our society due to changes in technology or major dislocations in employment markets rather than supply and demand for workers. Such workers have become technologically or educationally out of date.
The causes of structural unemployment are numerous and include such things as worker capabilities, education, training, work ethic, worker mobility or lack of mobility, and social skills necessary to function effectively in a modern workforce.
There is a unique situation now in which employment and unemployment data are sending very mixed signals which is confusing employers, employees, and government in how to address the situation.
For one, pay rates have not escalated as would be expected with an unemployment rate hovering at 5.8%. Normally, one could expect structural unemployment to hover at about 2.5% of the workforce with another 2% – 4% of workers "in transition" and therefore only temporarily unemployed. With those two trends considered it would seem to indicate that we are approaching full employment at the current time. The lack of major pay movement of any consequence suggests otherwise.
Additionally, there are many occupations such as plumbers, electricians, CDL truck drivers, welders and manufacturing where opportunities are present but skilled workers are not. Critical shortages of such workers are present throughout the economy and yet pay is not budging to any great degree despite these shortages.
Even in professional circles, employers lament that "quality" workers are remarkably hard to find and there to pay is not escalating as would be expected.
The question then is "why is pay not rising more rapidly when such labor shortages exist?"
Such a disparity exists because structural unemployment and public policy are much more problematic than politicians and policy makers wish to admit.
First, customers, due to worldwide pricing pressures and with some price deflation in Europe and potentially Japan and China, are not willing to pay the higher labor costs of United States labor.
Second, the labor force within the United States is segmented more than it has ever been with those workers who are extremely qualified and capable at one extreme and a substantial increase in the number of persons not capable or qualified to become employable. The people not capable or qualified are becoming the structurally unemployed and will remain so for decades unless a concerted effort is made to reverse the problem.
With over 70% of children in the United States not graduating from college and with limited trade school opportunities the structural employment problems will become more severe in the future.
To reverse this decline and to improve the ability of our citizens to gain meaningful employment we must immediately:
• Improve our education system and demand teacher and parent accountability and involvement in their child’s education
• Strengthen vocational education problems at the high school level immediately and begin to provide for meaningful education in the trades for our children.
• Make college enrollment more stringent and directed more for those with an educational goal in mind
• Employers receive tax incentives to provide for post high school and post college educational opportunities and internships
• Require attendance at training and educational programs as a precondition for receiving unemployment and public assistance.
• Limit the length of time that someone can remain on assistance unless there is a compelling disability preventing education, training, or employment.
Our nation has fallen behind in quality and productivity compared to the rest of the world in such a short period. Failing to reverse this trend will result in a massive labor shortage in the very near future as baby boomers retire. Already many industries are experiencing such shortfalls.
Col. Frank Ryan, CPA, USMCR (Ret) and served in Iraq and briefly in Afghanistan and specializes in corporate restructuring and lectures on ethics for the state CPA societies. He has served on numerous boards of publicly traded and non-profit organizations. He can be reached at [email protected] and twitter at @fryan1951.