May 18, 2010

The job market may be recovering but some jobs are not coming back


A recent article in The New York Times illustrates this point with the story of an unemployed administrative assistant in her 50s, who has not been able to find a job for over two years after being laid off. As the journalist explains, her difficulties are likely not the result of age discrimination, the weak economy in her town, or the quality of paper she printed her resume on (all things she brought up to make sense of her experience). The real culprit is technological change or more specifically, computers and voicemail, which have made most of her core skills redundant.

The article is part of a series running in the NY Times’ Business Section, aptly named the New Poor, which explores the distributional impacts of the recovery and asks who are the ones left behind as the US economy recovers from the Great Recession.

It got me thinking about recessions as times of more fundamental, structural change in the economy and the job market and not just periods of temporary slow-down after which things go right back to how they were before.

The economy and the job market are dynamic systems. Some industries decline while others grow in prominence. Certain skills become less useful while others are now sought in greater numbers. This process, known to economist as “creative destruction,” makes production more efficient and is undoubtedly beneficial for the economy as a whole, but it creates very clear winners and losers, leaving displaced workers with redundant skills almost entirely out of the benefits of economic growth.

Recessions speed up the process of creative destruction because lean times force firms to closely examine their business processes and lay off less efficient workers immediately while they may have waited for worker attrition to eliminate these jobs during a boom.

As a result, we end up with two different groups of unemployed workers: those who would be able to find a job using their skills relatively quickly, and those who will be unemployed for long time. Economists use the terms cyclical and structural unemployment to describe the causes of joblessness in these two cases – the economic cycles with their temporary slow-down of production cause cyclical unemployment, while changes in industry structure and valued skill sets cause structural unemployment.

The pace of technological change and international trade over the last 30 years have likely sped up the “creative destruction” processes as well. This may be why the recoveries after the 1980s and the 1990s recession were jobless. In fact, Armine Yalnizyan’s CCPA report on the Canadian recessions since the Great Depression shows that the labour market took considerably longer to return to pre-recession levels of full-time employment after the 1990s recession than from the 1980s recession (seven years vs four years, respectively). This does not bode well for the current recovery.

Why does it matter what’s happening in the labour market if the economy is growing? Because jobs are the major source of household income for the vast majority and they only get to enjoy the benefits of economic growth if growth translates to higher wages and more jobs. An economic recovery with slow job growth and stagnant wages is an economic recovery whose benefits are concentrated in the hands of the few. It’s not surprising that we’ve seen income inequality grow considerably in both the US and Canada over the past 30 years.

Data from the US cited in the New York Times article confirms that the long-term unemployed ranks are growing faster than during previous recessions.

the unemployment numbers show a notable split in the labor pool, with most unemployed workers finding jobs after a relatively short period of time, but a sizable chunk of the labor force unable to find new work even after months or years of searching. This group — comprising generally older workers — has pulled up the average length of time that a current worker has been unemployed to a record high of 33 weeks as of April. The percentage of unemployed people who have been looking for jobs for more than six months is at 45.9 percent, the highest in at least six decades.

I haven’t been able to find comparable figures for Canada yet, but it seems likely to see a similar trend here. As Erin Weir reports on the Progressive Economics Blog, there has been significant structural change in the labour market with manufacturing and other higher-paid industries shedding workers over the recession, while lower paid service industries accounting for the bulk of job gains.

If the purpose of economic growth is to improve quality of life for all people, then jobless recoveries call for an active policy response to deal with high levels of structural unemployment.

The problem is that our system of employment insurance is designed as a short-term income replacement for those who are expected to find new jobs relatively quickly and does not serve the needs of older, displaced workers very well. EI has some provisions for retraining, but these are not nearly comprehensive enough.

The need to green our economy provides a great opportunity for a large-scale training and re-skilling effort. We’ll need more workers to retrofit buildings to become energy-efficient, to build greener infrastructure, to design greener technologies. Why not take the opportunity to invest in training and education, creating opportunities for displaced workers in particular?

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