Retraining the American Workforce

With traditional unemployment across the nation running at an average that has been pushing 10 percent and the broader U6 metric around 17 percent, we can hear loud rumblings from Washington as policy makers contemplate their next move.  To be quite candid, they are not a very imaginative bunch.  They seem to return to the same tired tactics in every situation. 

Ben Bernanke, head of the Federal Reserve, said it might have to step in and ease credit even more.  With interest rates at nearly zero already, and with the lower interest rates having done little to ease unemployment, there appears to be something wrong with this picture.

A little digging shows a major disconnect between 15 to 25 million unemployed people complaining that there are no jobs and a surfeit of job listings seeking to employ people.

In August of 2010, the President of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, gave his President's Speech in Marquette, Michigan.¹  In it he pointed out that the Bureau of Labor Statistics had tracked the rate of job openings since December of 2000.  They took the number of open jobs and divided it by the number of unemployed people.  It seems obvious that when there are more jobs open, more people can take those jobs, and the rate of unemployment should go down.  That was true during the recession of 2000 and 2001, during the recovery from that recession, and even in the early part of the present recession.

That started to change in the summer of 2008.  Unemployment went up much more steeply than the number of open jobs would have predicted. The relationship broke down completely after that.  In fact, the number of open jobs rose 20 percent between the summers of 2009 and 2010.  But during that same period, unemployment went up as well.

As Kocherlakota put it in that speech, "Firms have jobs, but can't find appropriate workers.  The workers want to work, but can't find appropriate jobs."  He called it a mismatch.  He went on to say that while monetary stimulus may be encouraging factories to hire new workers, Fed policy can't turn a construction worker into a factory worker.  In fact, some manufacturers are reporting that they could increase their sales if only they could find the qualified workers to hire.

According to his calculations, if the same relationship between open jobs and unemployment were true today as it was in 2000, the unemployment rate would have fallen to 6.5 percent already, given the 2.2 percent rate of job listings.

Bill Clinton — who was President during the biggest economic expansion in American history, ... To read the full article, you must be a Trends Magazine Subscriber. To learn more, click here