The Skills Shortage Argument Continues…to Find Not Much Real Evidence

Published on by Brynne VanHettinga Category: Information, Job Market, Underemployment

Here we are, nearly seven years after the so-called Great Recession was declared to be officially over, yet the job market seems unable to catch up with the rest of the economy. Most mainstream economists are scratching their heads over this, with some of them proposing that the Great Recession has somehow shifted everything into a “new normal” of anemic job growth and stagnating wages.

As someone who has literally written a dissertation on underemployment, along with the review of the academic literature on this subject over the past four decades, my response is that there are major structural deficiencies in the U.S. labor market that create excess capacity (underutilized skills, or human capital), and that many forms of underemployment are not captured in Bureau of Labor Statistics (BLS) data. For example, consider someone who was laid off from a corporate management job or a new graduate with a master’s degree who has to take a retail job just to survive because they can’t find anything more suitable.  So long as the job is not officially considered part-time, these individuals are considered fully employed according to BLS.

However, some economic think tanks have attempted to understand the post-Great Recession economy.  In 2011, the Brookings Institute asked the question whether continued high unemployment was due to lack of education (on the part of workers) or lack of demand (on the part of employers).  The study found that lack of demand was a greater contributor to unemployment in the early phase of the recession, but “the relative importance of industry demand and the education gap converged” after 2009.  The Brookings study came to the conclusion that both contribute roughly half of the unemployment rates, and recommend that metro regions with large “education gaps” develop policies to increase educational attainment.

Before I delve into a critique of the study (or parts of it), I want to point out some of its more interesting findings that tend to get buried in the fine print. First, states with policies that permitted banking deregulation—opening banks to mergers and acquisitions that led to the bubble and bust of the housing market— had significantly higher rates of unemployment.  Conversely, there was no corresponding higher unemployment rate in states that had a higher overall state tax burden or higher rates of unionization (i.e., were not “right-to-work” states). However, we are unlikely to ever hear this news in the mainstream media.  So thank you, Brookings Institute, for letting us know about this.

Now, the dominant worldview of the labor market in the U.S. is almost exclusively defined by the needs of employers. Politicians are bombarded almost daily by employer-funded think tanks and Chamber of Commerce types who demand that we (the taxpayers) do more to “fix” the workforce.  Yet, workers who are unable to find work commensurate with their skills, education and abilities are not only just ignored, they are not even counted.  The Brookings Institute can thus be forgiven because, as a respected, establishment think tank they are subject to the same unchallenged worldview, and their study data came from Census Bureau surveys and BLS-defined unemployment rates.

The Brookings study derived a measure they term the “education gap” and compared it with the unemployment rate in the 100 largest U.S. metropolitan areas. This “education gap” was derived by dividing the years of education demanded by the average job by the average years of education in the working adult population.  Nationwide, the average U.S. job required 13.54 years of education, while the average working age adult had just 13.48 years of education, a number that hardly seems to be hugely significant.  The authors of the study admit that their methodology tends to discount skills that were learned on the job or in non-academic settings (i.e., experience).  They also do not acknowledge the possibility of credentialism, or the upgrade of requirements for essentially the same job.  Credentialism serves employers both as a form of status-sorting and as an efficient screening mechanism when there are hundreds of minimally qualified applicants for every job announcement.

In the Brookings study, an education gap number over 1 was interpreted to mean that there was an insufficient supply of appropriately educated workers in that region. An education gap number below 1 was interpreted to mean that “the average typical worker has enough formal education to do the average job.”  Please take note that there is no mention (or even consideration of the possibility) that workers might actually be overeducated for the job.  Out of the 100 largest U.S. metropolitan regions, 55 regions had education gaps below 1 (i.e. the “average” worker was minimally suitable for the “average” job).  The average total education gap for these 100 largest metro areas was 0.999, which again suggests that a worker skills deficit is only a problem in certain regions, and certainly not the majority of them.

So, what’s wrong with this study? Technically, nothing. The problem is not with the study itself or even its methodology (based as it is on data that does not capture the full measurement of underemployment and unused worker skills).  It is rather that the way its findings are reported is so couched in the tone, language, and voice of the dominant ideology such that one can easily miss the bigger story.

The linguist Edward Sapir suggests that the power of language affects how we describe, interpret, and experience the objective world.  When this descriptive linguistics is totally captured by dominant elites, everyone else tends to believe that what is good for these elites is equally good for everyone else.  This thus explains the What’s the Matter With Kansas  phenomenon, where the regular workaday masses support policies that actually work against them.  The problem therefore is not so much that anything is amiss with the Brookings study, but rather where were the headlines shouting, “Study finds lack of jobs contributes to unemployment as much as lack of worker education:  Suggests shift in labor force policy”?  The answer is that it is much more convenient (for those in power) to perpetuate the theory that one’s inability to get a decent job—or any job—is solely due to one’s own shortcomings rather than any failure on the part of the job market.  Because to do otherwise would simply be too dangerous.

A Shameful Secret Sees the Light

Published on by Brynne VanHettinga Category: Information, Job Market

“Whenever the legislature attempts to regulate the differences between masters and their workmen, its counselors are always the masters. When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters….

 

“The masters, being fewer in number, can combine much more easily…and in all disputes…can hold out much longer. Masters are always and everywhere in a sort of tacit but constant and uniform combination not to raise wages above their actual [natural] rate…[and upon occasion] even below this rate…

 

“We seldom, indeed, hear of this combination because it is the usual…natural state of things… These are always conducted with the utmost silence and secrecy till the moment of execution, and when the workmen yield, as they sometimes do, without resistance…They [employer efforts to reduce wages] are never heard of by the people…

 

“Such combinations, however, are frequently resisted by a contrary combination of workmen…But whether [the workers’] combination be offensive or defensive, they are always abundantly heard of…”

 

                                                             Adam Smith, The Wealth of Nations, 1776

As early as 1776, Adam Smith described how an imbalance of power between employers and employees affected whether legislation was “just and equitable.”  In addition to control over the legislative process by employer interests, this same dynamic occurs with the dissemination of information.  What Adam Smith suggests (and more modern day research supports) is that people can be persuaded to make decisions contrary to their best interests because information that would reveal the true order of things is being suppressed.

A recent NY Times article exposed a widespread employer practice that requires employees who lose their jobs to foreigners on temporary visas to sign “gag orders” or lose their severance pay. One departing employee who voluntarily forfeited $10,000 in order to speak the truth said he felt obligated to come forward because he was single and childless, and therefore “the only one with the ability to put my foot down.”  Like many of his  outsourced and laid-off fellow former employees, another heroic outspoken employee spent two years in the search for subsequent employment–at a job that paid him $45,000 less than the one he was laid off from.

While corporate lobbyists are in the halls of Congress almost daily with laments about so-called “skills shortages” and the need to liberalize the H-1B visa program, members of Congress do not hear from the thousands of workers who were required to train their (cheaper) replacements before being laid off.  The granting of H-1Bs is purportedly conditioned on the requirement that they not reduce wages or “adversely affect the working conditions” of American workers, but many employers have been able to circumvent these requirements by exploiting  loopholes in the law.  Some of these former employees can no longer remain silent and are now coming out to the news media in spite of signing “non-disparagement” agreements.   Many of them are fearful that they could be subject to retaliation and the ruin of what little might be left of their careers.

When a story like this appears in the news, it is almost certain that it represents only the tip of an ugly iceberg of coercion and secrecy.  While we seldom hear of the details, we can see some of the effects of these practices in evidence of stagnating wages, a disappearing middle class, and the precariatization of American workers.  Our entire workplace protection regulatory infrastructure has become toothless as a result of intense employer lobbying and fiscal underfunding.  The former employees who were brave enough to bring this matter to the media and Congress have already paid a high price.  Now that this nefarious cat is out of the bag, it remains to be seen whether Congress will do something to fix it or attempt to stuff it back in and ignore it.

 

It’s Official! America is an Oligarchy

Published on by Brynne VanHettinga Category: Inequality, Oligarchy, Public Policy

OK, the findings in one study do not necessarily make anything official. But this is a joint study by political science professors from Princeton University and Northwestern University with numerous publications to their credit.  Moreover, it more or less corroborates what many of us have suspected for years—our government no longer represents “we the people.”  This is not just a problem with elected officials, but extends to broader social structures that operate to keep the voice and concerns of regular working people unheard on policy agendas.  More people are becoming aware of this, and frustration on both the left and the right has resulted in the anti-establishment movements known as the Tea Party and Occupy Wall Street.

Political scientists describe the process of how policy is formulated, developed, and eventually adopted through three broad basic models. The first model is majoritarian pluralism. This is the “majority rules” model that most of us learn in school.  Indeed, the founding fathers were rightly concerned about the possibility of mob rule, political chaos and “tyranny of the majority,” and so they designed a system of government based on separation of power, checks and balances. This created a conservative bias, which means that all else being equal, it is harder to institute change than to maintain the status quo. The second model, interest-group pluralism, proposes that policy influence is brought about by competition between organized interest groups.  Because these groups have organization and resources, they are better able to develop expertise on a particular issue as well as create an infrastructure where their voices are heard by policymakers.  Both the majoritarian pluralism and the interest-group pluralism model predict that political candidates will tailor their policy platforms to accommodate as many of the competing viewpoints as they are able, thus policy results tend to represent some reasonable manifestation of the preferences of the “average” citizen.

Thomas Dye is a modern advocate of what has come to be known as elite theory. Dye is the author of The Irony of Democracy,  Top-Down Policymaking, Politics in America, and Who’s Running America among other publications on the same issue. In a nutshell, elite theory proposes that: (1) society is divided into the few who have power and the many who do not, (2) the few who govern are not typical of the masses who are governed, (3) elites share consensus on the basic values of the social system and the preservation thereof, (4) public policy is set by, and reflects the demands of, prevailing elites and is imposed downward on the masses and (5) the masses are relatively apathetic and exert little direct influence on elites and their policies.  A corollary of elite theory which combines it with interest group pluralism is biased pluralism. Biased pluralism predicts that it is elite groups—corporations, professional associations, think tanks, chambers of commerce—rather than elite individuals who have the greatest influence on policy.

In the Princeton study, the professors developed an updated analytical model to test the predictive validity of these four political models. First, they identified 1,779 distinct “policy cases” that represented an identifiable policy change and a clearly defined dichotomous “pro/con” response.  They also collected surveys of policy preferences based on respondents’ income level (at the tenth, fiftieth, and ninetieth percentiles).  Prior studies had suggested that each of the aforementioned models had some degree of predictive validity. In this study, the professors used more complex analytics to better parse out some of the confounding variables in the prior studies.  For example, there are cases in which the preferences of average citizens and the preferences of elites are highly correlated.  In such cases, ordinary citizens might appear to “win” on a policy issue, when they have simply been coincidental beneficiaries of elite lobbying.  Alternatively, the general public tends to be more divided on particular “hot button” issues such as abortion and gun control, while elites tend to be more united.  Consequently, in this study, the authors paid particular attention to policy issues on which elites and ordinary citizens disagreed.  The findings are summarized below:

1. When the preferences of elites (wealthy individuals) and net interest-group alignments is held constant, the preferences of the general public have virtually no effect on policy. The authors conclude that “empirical support for Majoritarian Pluralism looks very shaky, indeed.” What this means is that the democratic principles upon which our country was founded no longer apply.

2. Organized interest groups as a whole have a “very substantial and independent impact” on policy. However, when the authors computed separate net-interest-group alignment for business-oriented and mass-based groups, the influence coefficients for the business groups was nearly twice as large as that for the mass groups.  This is due to both the numerical advantage of business interest groups as well as the fact that (unlike the general public) they are rarely on opposite sides of an issue, particularly economic issues.  In essence, the model generally supports interest group pluralism, with the caveat that in the U.S., interest groups are “heavily tilted toward corporations, businesses, and professional associations.”   Moreover, the alignments of these groups are negatively correlated with the preferences of average citizens.

3. The elite theory model also performed well, and the authors suggest that it probably understates the political influence of elites.  For one thing, their data captured preferences in the top 10 percent, but they could not state with specificity how much of this was due to the top 1%, the top one-tenth of 1%, or the more numerous individuals around the 90th percentile. Also, economic elites tend to occupy positions of influence (high social standing and high-level positions in institutions), from which they can work to shape and shift the preferences of others lower in the hierarchy.

4. Finally, the authors examined the effects of policy preferences on the status quo, with the assumption that it would be more difficult when the proposed policy requires the government to act or change something (the status quo bias). In these cases, even when an overwhelming majority (80%) of the public favors change, it is only successful about 43% of the time.  These results suggest a cumulative effect of policy that favors elites, as elite-favored policy tends to become more of the status quo with each passing year.  This phenomenon could also explain the compounding effects of income and wealth inequality, which has also been documented.

The authors conclude by stating, “When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy.”  To which I respond, “Why are we not surprised?”

So what does all this mean for most of the rest of us?  There is some suggestion that if “we the people” could form a sufficient number of groups (with a sufficient number of members and resources) we might have a better chance. In essence, organization and mobilization is the key to being heard and impacting policy. But this takes effort, energy and organization, which many of us may not have because we are too busy simply surviving. Another practical problem is how to coordinate the efforts of already existing social change groups who are working on a multiplicity of unrelated or only tangentially related issues. In the non-profit world, the emphasis is on capacity-building and resilience  because—just like working people—many non-profits have to spend time, effort and resources just to manage their funding sources and cash flow, which makes less of this available to the servicing of their mission.  Moreover, non-profits who are dependent on mainstream foundation money may find themselves cut off if they advocate policy positions that are not acceptable to their wealthy funders.

Thus there appears to be a sort of catch-22: it takes organization to affect policy and it requires resources (time, energy, money) to get organized. So if organization presents too many logistical problems for ordinary citizens to effect significant change in policy, what are the alternatives?  Chris Hedges in his 2015 The Wages of Rebellion depicts a downward spiral of more vigorous public protests followed by increasingly forceful counter-resistance efforts and corresponding growth of the police and surveillance state, which will eventually lead to totalitarianism. Hedges argues that when the people have no voice or power in such an oppressive state, there is tantamount to a moral imperative for revolution. The American Declaration of Independence itself proclaims both the right and the duty of the People to alter or abolish any government (including the very one being created) when it becomes destructive of the life, liberty and happiness of its citizens.

So, if “we the people” are not being heard, we might just have to make a lot more noise.