Reinventing the Labor Market

If I were to tell you we’re at full employment, save one very nasty problem, you’d probably laugh. It sounds ridiculous on the face of it – aren’t people still struggling out there looking for work? Aren’t wages still stagnant?

The answer, not the punchline, lies in the problem – a terrible “skills gap”, or lack of the right skills for the jobs which are out there.

I’ve been slow to come around to the idea of a skills gap, figuring that it was far from our worst problem. There is a free market, after all, and workers who want a job will find a way to beef up their resumes to show that they have the skills which pay the bills. Eventually it should all even out. But what happens if the job market utterly fails?  That appears to be the situation.

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Not Hiring, but not Firing

Where are the jobs? Job creation has been the hot economic topic since the big downturn in 2008. The sooner we have full employment the sooner demand for goods and services will turn around and there will be a net upward pressure on wages. But in 2015 the rate of increase in jobs has slowed somewhat, barely hitting 200k net every month from a solid run of 220k the year before. What happened?

The data is even more confounding when you look at the net good news on jobs – that initial claims for unemployment per week are at an all-time low as a percent of total jobs. We’re not creating jobs as fast as we should, but we also aren’t losing them. Along with a large backlog of unfilled job postings there is substantial evidence that something is wrong. Is it a skills gap? Or something else?

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Skills Gap?

Is there a “skills gap”? Many economists and policy wonks have debated whether or not persistent unemployment is related to a lack of workers with just the right training to fill today’s jobs. JP Morgan’s Jamie Dimon famously wrote an argument in favor of a lack of skills as the major problem, which Paul Krugman then proceeded to tear apart. The arguments continue back and forth with little resolution.

So is there such a problem? The short answer is “no”, but the long answer is “yes”. An excellent piece by James Besson in Harvard Business Review (HBR) un-asks the question neatly and shows that there is indeed a problem developing the right skills in a changing economy – but it’s not something we can fix simply by changing what kids learn in college. It’s much more endemic to a dynamic, open economy all around.

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