GORDON REPORT
"How
Much Slack Is in the U.S. Labor Market?"
December 2014
OVERVIEW
With last month's U.S. unemployment rate at 5.8 percent,
some argue that the number of workers available for hire might get tighter.
However, many economists offer the counterargument that plenty of labor slack
still exists since employers remain unwilling to raise wages.
It has long been apparent to many analysts that the U.S.
Bureau of Labor Statistics' U-6 unemployment calculation proves a more accurate
measure of unemployment. This figure combines the number of people unemployed
with the part-time workers seeking full-time work with benefits, and people who
have become too discouraged to keep looking. The U-6 rate was 11.5 percent in
October 2014. Median hourly U.S. wages when averaged across all occupations has
fallen 3.4 percent since the beginning of the 2007 recession, after adjusting
for inflation. However, there has been some wage growth for critical skilled
tech jobs in parts of the United States.
Another viewpoint is that much of the drop in the
unemployment rate is due to a shrinking labor force driven mainly by
baby-boomer retirements. However, by conservative estimates the unemployment rate
would be 7.2 percent if we counted all the jobless working-age adults who
should be seeking employment (New York Times, November 14, 2014). Obviously
there are many Americans available to fill low-skill jobs. Since 2010 most of
the gains in employment have been in low-skill sectors such as leisure and
hospitality, temporary help services, and retail jobs.
MOUNTING EVIDENCE OF SKILLED WORKER SHORTAGES
But the picture is very different for many employment
sectors with high-skill jobs. An Associated General Contractors survey of
October 2014 found that 20 percent of its members had turned away business due
to a lack of skilled craft people. This is in an industry that is just
beginning to recover! A recent Wall Street Journal survey reported
that 43 percent of small business owners indicated that "unfilled jobs
were impeding their businesses from growth or expansion." In a November
2014 Deloitte Business Confidence Report, 32 percent of chief executive
officers stated that they viewed the shortage of skilled workers as an obstacle
to future growth. These are only the most recent surveys reporting that
skilled-worker shortages are a major business worry.
With 10,000 U.S. baby boomers retiring each day, this
skills-job imbalance will only continue to escalate. The global nature of this
huge demographic shift means that every industrial nation is chasing an
inadequate supply of younger well-educated and appropriately skilled workers to
fill jobs in their tech-driven economies. We tend to forget that each generation's
tlaent is not automatically re-engineered to the requirements of the current
labor economy.
The U.S. Department of Labor reported that at the end of
September 2014 there were 4.7 million open jobs, putting the jobs-openings rate
at pre-recession levels (2007). Yet the unemployment rate then hovered
around 4.4 percent. With the 5.8 percent October 2014 unemployment rate, you
might ask what has happened to change the U.S. labor market? Is this the result
of too many unemployed workers lacking the skills needed for available jobs
triggering the fall of U.S. productivity from 2.6 percent (1995-2010) to
the miserable rate of 0.7 percent?
A strong indication that this is the case can be found in
the November 2014 J.P. Morgan study, "New Skills at Work." It found
that about 2.6 million or 46 percent of working-age New York City residents
lack the post-secondary credentials that most companies now require to fill
middle-skill jobs. J.P. Morgan has also issued a report on Houston and intends
to publish similar reports on seven other U.S. metropolitan areas to spur
meaningful reforms for closing this skills-job disconnect. "We've got to
invest in this data," stated Chauncy Lennon, the J.P. Morgan study's
director, "so that we can get better alignment between what employers are
looking for and what trainers are providing."
Until now U.S. business executives have been largely
unwilling to commit financial resources to funding realistic solutions for
skilled worker shortages. A 2014 Oxford Economics study, "Workforce 2020:
The Looming Talent Crisis," reported on the paradox that in the United
States though 41 percent of the companies surveyed reported difficulty
recruiting employees with base-level skills and 50 percent had difficulty
recruiting specialized employees, only 39 percent of American employees receive
ample training on workplace technology.
U.S. executives seem to hope that somehow from the large
pool of unemployed or underemployed workers, those with the required skills
will magically appear. They also continue to grasp at the fantasy that more
H-1B visas will satisfy their labor shortfalls, ignoring the fact that a global
hunt for these skilled workers has turned into a "skill wars" that no
one can win. "Workforce 2020" surveyed executives and employees in 27
nations, and almost half of all executives reported difficulty in finding
workers with base-level skills.
BUSINESS ENGAGEMENT THROUGH RETAINS
Progress in overcoming the current U.S. bifurcated labor
market depends largely on increasing business commitment to a variety of both
short-term and long-term training and education programs. A hopeful sign comes
from the 2014 Training Industry Report in the magazine Training that
found total U.S. training expenditures jumped 11.7 percent to $61.8 billion. An
important short-term strategy for filling today's growing number of vacant jobs
is business participation in regional public-private partnerships, which I call
RETAINs (Regional Talent Innovation Networks), that are increasing both
effective job-training programs and incumbent worker training and education. To
prepare the workforce of the future, RETAINs are also helping businesses play a
much more active role by supporting internships, apprenticeships, career
academy high schools, and career information and education at both the
elementary and secondary levels.
Many businesses across America already are helping to foster
these methods of developing future talent through their participation in
RETAINs. To overcome this skills crisis, particularly small businesses need to
become engaged in supporting such partnerships. Rather than facing closure for
the lack of key workers, businesses need to take action today to avoid being
listed in a future "obit column" of the Wall Street Journal.
Edward
E. Gordon is the president of Imperial Consulting Corporation (www.imperialcorp.com). His latest book
is Future
Jobs: Solving the Employment and Skills Crisis (Praeger, 2013).
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