At the end of 2004 the ratio of job openings to workers was about the same as today, but the unemployment rate has moved from a tame 5.4% back then to a painful 7.4% today. So why aren't job hunters snagging those positions and driving down the unemployment rate, as they did in the past?
As the economy struggles to gain altitude, this has become a vexing question. When the August employment report comes out on Friday, economists expect it to show employers created about 170,000 jobs in August. That’s not a bad number, but it’s below the 200,000 jobs or more needed to reduce the unemployment rate and snap the economy out of a four-year trance. And since the recession officially ended in 2009, weak job growth has been the single biggest impediment to a more robust recovery.
For that reason, researchers are putting more effort into figuring out why unemployment remains so high even though jobs are apparently available. One possibility is that millions of laid-off workers who receive unemployment benefits prefer to exhaust their payments before taking another job. Yet unemployment benefits generally amount to less than workers earned before they got laid off, which is one reason to keep looking for work. And recent research from the Federal Reserve Bank of Boston suggests jobless benefits don’t explain why unemployment remains so high.
Many of those looking for jobs, for instance, don’t qualify for unemployment benefits, because they left a previous job voluntarily, are entering the workforce for the first time or are returning to the job market after several years on the sidelines. Those types of people are having trouble finding work, too, even though they’re not receiving any unemployment subsidies.
The "skills gap"
It seems increasingly likely that many people simply don’t qualify for jobs that are open, which highlights the “skills gap” that seems to be developing as laid-off blue-collar workers compete for jobs in a digital-information economy. Manufacturing has lost nearly 2 million jobs since 2006, for example, and while there’s been a modest recovery during the past two years, the odds of reaching the earlier employment peak seem remote. In construction, the real-estate recovery has brought back some jobs, but there’s still another 2-million-job deficit compared with prerecession levels.
Overall, there are about 4.4. million job openings, according to Labor Dept. data. That works out to 2.8% of the labor force, the same as it was at the end of 2004. With 11.5 million Americans looking for work, you'd think they would quickly grab all the jobs that are open.
The problem, however, is that new jobs that pay well are increasingly different from old jobs, and they tend to require skills the unemployed don't have. They often involve technology, healthcare or skilled tradework that can’t be outsourced, such as plumbing and welding. Retraining programs can help some displaced workers make the leap, but good jobs these days tend to be centered near tech hubs and Sun Belt cities with a growing population. The worst pockets of unemployment, however, are often in shrinking metropolises such as Detroit and other 20th-century industrial zones. Migrating from one to the other can be costly and disruptive.
The idea of a skills gap is nothing new, but economists increasingly think it may be deeper and more consequential than once believed. “We can now have both high unemployment and a high job vacancy rate, which would be symptomatic of a dysfunctional labor market,” Bernard Beaumohl of the Economic Outlook Group wrote in a recent note to clients.
If so, the outlook for the economy could change in two important ways. First, a growing economy won’t necessarily generate many new jobs, perhaps because companies will find fresh and unexpected ways to substitute technology for labor. Economists have struggled during the past few years to reconcile upbeat data on some things — especially high corporate profits and a long uptrend in stocks — with glacial improvement in the job market. For better or worse, such trends may actually complement each other rather than conflicting.
Second, the economy can only grow so fast with a dysfunctional labor market characterized by weak income growth and fewer workers with disposable income. In fact, many forecasting firms have been downgrading their estimates for economic growth in the second half of 2013 and in 2014. And the consensus forecast for the next jobs report is a small rise in the unemployment rate, to 7.5%.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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