Structural Unemployment Revisited

By: Ian Campbell | Fri, Sep 2, 2011
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At 8:30 a.m. ET this morning the U.S. August jobs numbers were announced. One article headline reads 'Zero jobs number shocks markets' - reading time 1 minute. The article reports that in circumstances where U.S. economists were expecting 75,000 jobs to be added in August, none were added. Within minutes both the Dow and the S&P 500 stock futures had dropped significantly, and the price of both gold and silver had risen - at 9:00 a.m. ET (U.S.$) to $1,875.26 (up $49.96 on the day) and $43.00 (up $1.42 on the day) respectively.

I suggest you pay close attention to today's financial markets action, in what I continue to think are less and less 'investment markets', and more and more 'trading markets'. It seems to me that President Obama's planned speech next week on U.S. job creation looms ever more important.

On that score, a recent article asks the question 'Can job training help solve the (U.S.) jobs crisis?' - reading time 4 minutes. The article reports that in manufacturing, health care, and engineering industries "employers are struggling to fill jobs that are increasingly demanding higher skills". It strikes me that it is a virtually certainty that such a statement is far too broad, as it is unlikely to be applicable to all manufacturing, all health care, and all engineering businesses. It also strikes me that the U.S. is a large geography, and such job demand is unlikely to be evenly dispersed over the U.S. population 'where that population lives'.

The article also reports that a recent study (link provided in the article) concluded that in the southern U.S. 51% of job openings are 'middle skill', but only 43% of that region's workers were trained to 'middle skill' level. Once again, the article doesn't report on other U.S. regions, leaving one to wonder whether this is being held out as a consistent U.S. demographic, or whether other U.S. regions could report better or worse results from similar studies.

Finally, the article goes on at length to discuss possible job training initiatives that may be announced by President Obama next week, and programs that have been run in Georgia and Pennsylvania with some apparent, though difficult to measure from a long-term prospective, success.

I have discussed what I have perceived to be U.S. Structural Unemployment issues for some time. For example, see 'Structural Unemployment' (November 11, 2010). As stated in more than one of my commentaries, Structural Unemployment is defined as (per Wikipedia):

"a form of unemployment resulting from a mismatch between the sufficiently skilled workers seeking employment and demand in the labour market. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs - or may not live in the part of the country or world where the jobs are available".

It will be interesting to see whether President Obama discusses Structural Employment when he announces his job creation initiatives. I will be surprised if he does, because to mention it likely would be seen by many as akin to 'laughing while attending a state funeral'.

From my perspective America has a number of fundamental unemployment issues that will not be resolved for a very long time, if ever.These issues are:

  1. For the reasons I set out in my November 11 commentary, I believe the U.S. does suffer to some extent from Structural Unemployment.
  2. American suffers from a demographic problem - many of the unemployed are 'no longer young' and getting less so every day - and re-training is difficult.
  3. Many of the jobs that will come available require a level of technical knowledge and ability that is difficult to instill in people in middle life and beyond, or for that matter young uneducated people.
  4. America has a significant youth unemployment problem in circumstances where older, experienced, out-of-work older people and even retirees are taking jobs that +/- five years ago would have been filled by young people. Visit any American 'big box store' and note the ages of the comparatively few employees for confirmation of this.
  5. Technology is resulting in fewer people being needed to produce more. Visit any major capital intensive processing plant today, and compare what you see with pictures of that same plant 30 years ago. There invariably will be more - and often many more - people in the 30 year old picture.
  6. The house construction industry (and construction generally) is suffering, and will continue to suffer from what I will describe as 'sub-prime greed'. That can't be reversed in a short time period, if ever. The old saying that comes to mind is 'you can't have your cake and eat it too'.
  7. Lost U.S. manufacturing jobs are unlikely to return in any meaningful number.
  8. There have already been too many people out of work for too long in circumstances where every month America weakens economically when measured against its trading partners. You might want to read 'Long-Term Unemployment Casts Doubt on Fed's Ability to Help' which addresses this point and links to a paper from the Federal Reserve Bank of Richmond on the subject of the 'long-term employment problem - article reading time 2 minutes.

For me, the only thing that might make sense for President Obama to announce next week would be some form of subsidized infrastructure spending. This spending would be positioned to employ a great number of unskilled laborers who could be 'trained on the job in short order', and be paid indirectly by the Federal Government to be trained.

That said, if President Obama proposed such a thing, at this point the Republicans are likely as not to say that the only money the U.S. Federal Government can spend on such a program has to come out of 'yet to be determined' Federal Spending cuts. Apparently the Republicans are taking that same position with respect to any Federal Government subsidies in support of the damage caused last week by Hurricane Irene.

Yesterday The Globe and Mail, a Canadian national , reported on its front page the President Obama proposals will include

  1. Aid to businesses that hire the long-term unemployed,
  2. Payroll tax changes, and
  3. Possibly mortgage relief - all under the category of a 'jobs plan'.

It will be interesting to see what President Obama actually does propose, but none of those three things strike me as being 'big-time' short-term job creators.

In my opinion, America needs short-term job creation, and the U.S. Federal Government either doesn't 'get that', or simply can't figure out how to accomplish it. As I have noted in a number of commentaries, America's road, bridge, etc. etc. infrastructure is said to require trillions of dollars spent on it. I suggest American politicians have an opportunity to cut entitlements seriously and use the resultant funds to quickly employ unskilled labor in a major infrastructure refurbishment / rebuild program. This would put spending money in the hands of a large number of unemployed, give those people to some degree a 'new lease on life', and buy a few years of time to 'right the U.S. economic ship' to the extent such a thing is possible.

If you think my suggestion has merit, I suggest you don't hold your breath waiting for it to be announced.



Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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