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As a headline in today's NY Times reminds us, the Great Recession has created a long-term unemployment and underemployment problem unlike anything this country's witnessed since the Great Depression; and, it's hurting those over 50 much moreso than many other age groups. (See: "For the Unemployed Over 50, Fears of Never Working Again.")

While many economists and so-called experts have speculated as to why so many have remained unemployed and underemployed for so long, a general consensus has taken hold amongst the pundit class that tells us (while there are job openings that have gone unfilled) the greatest reason for this long-term unemployment and underemployment problem is due to a skills mismatch between the types of employees that employers are seeking versus the training of the U.S. labor pool, today.

Tonight, highly respected economist Mike Konczal has just published a paper that's telling us this simply isn't so.

For the Unemployed Over 50, Fears of Never Working Again
New York Times
September 20, 2010


...a growing number of people in their 50s and 60s who desperately want or need to work to pay for retirement and who are starting to worry that they may be discarded from the work force -- forever.

Since the economic collapse, there are not enough jobs being created for the population as a whole, much less for those in the twilight of their careers.

Of the 14.9 million unemployed, more than 2.2 million are 55 or older. Nearly half of them have been unemployed six months or longer, according to the Labor Department. The unemployment rate in the group -- 7.3 percent -- is at a record, more than double what it was at the beginning of the latest recession.

After other recent downturns, older people who lost jobs fretted about how long it would take to return to the work force and worried that they might never recover their former incomes. But today, because it will take years to absorb the giant pool of unemployed at the economy's recent pace, many of these older people may simply age out of the labor force before their luck changes.

Meanwhile, this past evening, economist Mike Konczal and his colleagues over at Web 2.0 are now telling us that their most recent analysis of this nightmare debunks this skills mismatch myth; and, their statistical study of the issue points to a very basic reality within our economy as being the underlying cause for this ongoing nightmare: lack of demand.

First, from March 31st, 2010, here's Atlanta Fed President Dennis Lockhart, via Calculated Risk, one of many furthering the skills mistmatch meme as being a primary cause for our country's unemployment crisis now:

Fed's Lockhart on Employment
Calculated Risk
by CalculatedRisk on 3/31/2010 01:06:00 PM

I'd like to highlight a few key points from Atlanta Fed President Dennis Lockhart's speech today: Prospects for Sustained Recovery and Employment Gains:

The normal state of affairs in the country's labor market is a dynamic mix of separations from employment and new job creation. There are two causes of separations--layoffs and voluntarily quitting a job, or so-called quits. The BLS began collecting data on these factors in 2000.

In 2008 and 2009, layoffs surged. Fortunately, the number of layoffs per month has recently returned to prerecession levels.

In addition, quits are at a decade-low level likely in part because of the uncertainty of job availability.

Today's slow pace of employment gains is due more to the slow pace of job creation, not the high rate of layoffs. Job gains, as conventionally understood, require two things: a vacancy and a worker able to fill that vacancy. For most of 2009, vacancies were relatively flat while unemployment continued to rise. This condition suggests the existence of what labor economists call "match inefficiencies."

There are two key types of match inefficiency. One is geographic mismatch. In 2008, the percentage of individuals living in a county or state different than the previous year was the lowest recorded in more than 50 years of data. People may be reluctant to relocate for a new job if the value of their house has declined. In addition, many who would like to move are under water in their mortgage or can't sell their homes.

The second inefficiency is skills mismatch. In simple terms, the skills people have don't match the jobs available. Coming out of this recession there may be a more or less permanent change in the composition of jobs. Skill mismatches require new training, and there is evidence that adult education institutions have responded to this need. For instance, officials at Miami-Dade College in Florida, which is the largest college in the country and a grantor of associate and vocational degrees, told us they have recently seen a strong increase in enrollment, especially of men in their 20s.

This evidence of retooling is encouraging, but, to be realistic, structural adjustment takes time.

Lockhart discusses two key mismatches, and the housing bubble was a direct cause of both. The first - lower geographical mobility because of the inability to sell a home - is like atherosclerosis for the economy. Usually people can move freely in the U.S. to pursue employment, but many people are tied to an anchor (an underwater mortgage) and solutions like a mortgage modification that requires them to stay in the home for 5 years doesn't help with worker mobility.

The second - skills mismatch - is partly because so many people went into the construction industry because it was the highest paying job. These workers may be highly skilled in their trade, but their skills are probably not transferable to the new jobs being created. I wouldn't be surprised to read of job shortages in some fields, while the unemployment rate remains very high because of the skills mismatch.

Now, all one has to do is read today's NY Times article, linked near the top of this diary, to confirm that there are some unemployed folks that could certainly use enhanced skills training to give them a badly-needed edge in their long, drawn out, current efforts to regain meaningful employment.

Tonight, however, what Mike Konczal's noting (along with Roosevelt Institute colleague Arjun Jayadev) in his latest published paper is that the skills mismatch problem is little more than a weak "fact"--without coming out and saying it, he's telling us it's really a story about underemployment as opposed to unemployment--and/or a myth being put forth by the corporatocracy to obfuscate the greater reality that there's simply not enough demand in the marketplace to get more people back to work, full-time on Main Street: "Mike Konczal: The Stagnating Labor Market - What Can the Employed Tell Us About the Unemployed?"

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(Diarist's Note: Naked Capitalism Publisher Yves Smith has authorized diarist to reprint her blog's diaries in their entirety for the benefit of the DKos community.)

Mike Konczal: The Stagnating Labor Market - What Can the Employed Tell Us About the Unemployed?
Naked Capitalism (Guest Post)
By Mike Konczal, a Roosevelt Institute fellow who posts at New Deal 2.0
September 20, 2010  3:17AM

Arjun Jayadev and I have another working paper out of Roosevelt Institute, this time focusing on the labor market in the current recession. The paper is: The Stagnating Labor Market (pdf). I hope you check it out; I'm going to talk about the main things we found in two posts (see the other post here).

The Saga of the Underemployed

Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.

In order to examine this question we will now look at those who are underemployed. Specifically, we will take into account those who work part-time for economic reasons, whom the Bureau of Labor Statistics recorded as employed.

The following graphs the percentage of those employed who are working part-time for economic reasons as well as the percentage of those employed who are working part-time for economic reasons specifically because of "Slack Work or Business Conditions." These are people who are considered employed though they work less than 35 hours a week, and the reasons they cite are not personal ones or seasonal ones but instead economic ones. We use this term interchangeably with underemployed workers or underemployment:

CHART: Percentage of Employed Working Part-Time for Economic Reasons

These values are at historical highs, especially for "Slack Work of Business Conditions" which has leveled off to a steady state not seen except for a blip in the late 1950s. The percentage of the labor force working part-time for economic reasons is among the highest values in over 50 years.

Unique Features of Underemployed Workers

We focus on studying unemployment by only looking at the employed for two reasons. The first is that this removes the "skill" story from the picture; these employees have the skills necessary to work the first hour of their job but there just isn't enough demand to work the 35th hour of their job. It is a curious firm that can hire someone whose skills allow them to work the 10th, 20th or 30th hour of a job profitably but not the 35th hour.

The second is that it also removes any potential work disincentives created by unemployment insurance. The debate about the effects of unemployment insurance on the unemployed is a very controversial one. Some have claimed that the increase in unemployment is largely a result of extending unemployment insurance. Others have argued that the negative effects of unemployment insurance have been largely overstated and that unemployment benefits provide a very effective form of stimulus spending. This debate is not relevant to those working part-time for economic reasons.

BLS provides data that allows us to look deeper and break this down by industry for the period 2000- current. Could this be a result of a hangover in finance and construction? Here is a chart of underemployment in construction and finance:

CHART: Underemployment In Finance and Construction Sectors

The number has approximately doubled since the financial crisis and recession, and has plateaued into a new, higher, steady state. Could this be a skills story, as these workers can't be retrained?

Now let's look at how sectors that are not finance and construction did. The following is a graph that does the same calculation for a mix of all other sectors that are not finance or construction:

CHART: Underemployment In 11 Non Finance and Construction Sectors

The pattern is almost identical.

The following is a chart that looks at the average underemployment between 2000 and 2007 and compares it to the average underemployment in 2010. In each of the 13 sectors we look at the ratio increases dramatically. Even more interesting is that none of them are less than they were before. This is a sign that underemployment is rising in every sector, not just those with hangovers from the bubble. (Click for larger image.)

CHART: Avg. Underemployment 2000-2007 Versus 2010

There's been a recent series of influential papers that argues that structural unemployment doesn't happen at the sector level but instead at the occupational level.

Workers, after all, don't work sectors; they work occupations. One can be a maintenance worker or an accountant for a manufacturing firm or for a high-tech start up. If the demand for skills moves between maintenance workers and accountants, you could see problems in all sectors, even though it's still a change in the demand for occupational specific human capital.

Looking at this too we see the same exact pattern: every one of the nine occupations we obtained data on had a doubling, at least, of underemployment. Services employees are twice as likely to be working part-time for economic reasons as they were before the recession began, for instance.

Everywhere we look, across occupations and sectors, people with the skills to work their jobs are more likely to be working part-time for economic reasons in 2010 than they were before the recession. This is a story of aggregate demand, not a story of skills mismatch.

In light of the political climate and the impending elections, government officials may be loath to address this problem frontally. Such an approach, while politically expedient may be disastrous for the economy and for social welfare.

If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects. Officials need to act in a bold and imaginative manner to repair the labor markets dysfunctions-much as Roosevelt did-or risk entrenching the social misery that engulfs many Americans today.

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Originally posted to on Mon Sep 20, 2010 at 02:36 AM PDT.

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