Why the Job Market is Worse than the Unemployment Rate

Published on by Brynne VanHettinga Category: Job Market, Underemployment

We all know that the unemployment rate is a political football.  The political party who is in power praises itself when this number goes down, and the political party who is out of power condemns the current administration when it goes up.  Both parties have at various times accused the other of manipulating the unemployment rate to make it appear better than it actually is.  Many of us out here in the real world of work and jobs may wonder if this is true, and may even subscribe to so-called “conspiracy theories” about manipulation of the unemployment rate.  The real problem is that the way our national employment data is measured and reported does not provide sufficient information about job market deficiencies.  Whether this is by deliberate intention or by simple neglect is another question.

In the United States, national labor data are primarily maintained by the U.S. Bureau of Labor Statistics (BLS).  BLS derives its measure of employment and unemployment using the Current Population Survey (CPS) and the Current Employment Status (Payroll) Survey that are conducted monthly by the United States Census Bureau.  The CPS covers a rotating sampling of 60,000 households (approximately 110,000 individuals) and measures unemployment based on the United Nations International Labor Organization (ILO) definition.  The Payroll Survey covers a sampling of 160,000 businesses and government agencies that represent 400,000 individual employers.  Theses two sources have different classification criteria, and usually produce differing results, which must be reconciled before the “official” unemployment rate is determined.

In earlier days of national workforce data collection, the measurements were somewhat bare and simplistic.  Citizens were merely asked whether they had a  “gainful occupation,” which was defined as any usual profession, occupation, or trade that produced income.  That is, if someone had painting skills and was occasionally able to earn income from this, he was considered to be gainfully employed whether or not he was engaged in painting work at the time of the survey.

When the Great Depression created a demand for “work relief” programs, U.S. Census surveys were revised in 1937.  The purpose of these revisions was to determine whether a worker qualified for taxpayer-funded relief.  The new survey asked workers whether they currently had a job or were actively looking for work, and these questions continue to form the basis of unemployment measures today.  In calculating the unemployment rate (expressed as a percentage of the total civilian labor force), the U.S. Bureau of Labor Statistics (BLS) uses the following definitions:  Anyone who has a job (any job) is “employed.”  Anyone who does not have a job but is willing and available to work is unemployed.  People who are neither employed nor unemployed are not counted in the total labor force.  Persons who work only a few hours per week, or work without pay for 15 or more hours per week in a family-owned business are counted as “employed.”

In the early 1990s, some studies found that a sizeable number of workers who wanted full-time jobs were employed in part-time jobs, and these “involuntary part-timers” virtually tripled between 1970 and 1990.  In 1994, the U.S. Census Bureau updated the CPS because of concerns that current measures were unreliable and likely underestimating the extent of labor underutilization.  BLS now has developed a six-level measure of labor underutilization, which is expressed as a percentage of the civilian labor force.

U-1 is the number of persons unemployed 15 weeks or longer.  U-2 consists of persons who have just lost jobs as well as persons who have completed temporary assignments.  U-3 is a combination of U-1 and U-2 (there is some overlap), and represents the “total unemployed,” or the federal official unemployment rate.  U-4 is the total unemployed (U-3) plus “discouraged workers,” which BLS defines as “having a job market related reason [as opposed to a personal reason such as illness or caring for a family member] for not currently looking for work.”  U-5 is comprised of the unemployed (U-3), plus discouraged workers (U-4), plus the “marginally attached,” which BLS defines as “neither working nor looking for work but indicate they want and are available for a job and have looked for work sometime in the past 12 months.”  U-6 includes all persons included in U-5 plus all persons employed part-time for economic reasons (the involuntary part-timers).

In spite of these enhanced measures, the “official” unemployment rate is still reported at the U-3 level, which can underreport labor underutilization according to the U-6 measure by as much as 200%.  Moreover, these new measures do not take into account other forms of labor disutility that is recognized in the academic literature.  One example of this is when persons are employed in a position that does not require their highest level of education, training, and experience.  An example of this would be a college graduate working as a restaurant wait-staff, or a laid-off department manager with decades of experience working in a convenience store.  A recent report that was quietly released by the Federal Reserve Bank of New York found that this type of (unmeasured) skill and credential underemployment has remained at a fairly uniform rate of 33% over the past two decades. Then there is the issue of wage underemployment, or full time work that does not pay enough to keep a person or family out of poverty.  Although the number of minimum wage jobs is documented, it is not correlated with measures of un- and underemployment.

In summary, the official unemployment measures do not tell us the whole story about the deficiencies of the U.S. job market.  But this is not because anyone is manipulating them.  They are designed this way.

A Shameful Secret Sees the Light

Published on by Brynne VanHettinga Category: Job Market, Underemployment

“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.  Now 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.

 

 

Why More Workforce Training Will Not Solve the Jobs Problem

Published on by Brynne VanHettinga Category: Job Market, Labor Degradation, Underemployment

Today’s Austin-American Statesman touts the benefits of new rounds of U.S. Department of Labor (DOL) workforce development grants.  Six states have been awarded nearly $15 million to increase employment opportunities for people with disabilities by connecting them with job training programs.  In Texas, $48.5 million has been made available over the next two years for the Skills Development Fund and job training programs.  According to the Texas Workforce Commission Chairman, this grant funding will “allow Texas workers to obtain customized job training that meets the needs of employers.”

Money to help workers on the lowest end of the job market is certainly good news.   The DOL and state workforce development agencies consistently frame the unemployment problem as one of a skills deficit, and so solutions are focused on skills remediation.  Moreover, the workers who are most likely to benefit from these programs are also most likely to receive services from the state in the form of income maintenance.  Because these workers are costing the state money, they are given priority by state unemployment programs.  However, workforce development agencies would do well to broaden their perspective on the population that constitutes un- and under-employed workers, as well as a way to monitor job quality.

The objective of workforce development agencies is to get people into jobs, and their performance metrics are focused on job placement success rates.  Thus, at least on the surface, the objectives of workforce development agencies and job seekers are aligned.  However, merely getting someone into a job does not necessarily guarantee either short-term subsistence or long-term economic security.  What is lost in the equation is any examination of job quality, either in terms of suitability for the worker or even the needs of society as a whole.

The problem is that the agenda driving workforce development policy is driven almost entirely by the demands of employers.  While this may be the fastest way to get people into a narrowly defined “job”, it may be neglecting other, more long-term and complex policy and social implications.  For example, this practice permits businesses to externalize the cost of training onto the taxpayer, while at the same time reap the benefits of increased profits from a trained workforce.  Additionally, the jobs themselves may pay so little that the worker needs continuing subsidization from the state for subsistence, e.g., food stamps, housing, day care and health care subsidies.  In essence, taxpayers (all of us) are subsidizing the gains of a few on both the front and back ends.

In addition to issues of economic fairness (that is, who pays the cost versus who reaps the benefits), there is the issue of the jobs themselves.  Are they designed for the worker to learn and grow, or are they discrete fungible positions constructed to support a rationalized process designed solely to maximize profits?  This is indeed the foundation of labor process theory, or what Harry Braverman termed the degradation of work. In essence, a job is deliberately designed to consist of a narrow range of discrete technical functions so that the jobholder is easily controlled and easily replaced.  While there are counter-arguments to Braverman’s theory that point out increases in the average technical content of jobs, the foundation of Braverman’s theory proposes that modern job processes have destroyed most avenues to upward mobility and personal fulfillment.  Moreover, in a rapidly changing economy, the workers’ narrow, technical skills may become obsolete quickly, at which point they will be laid off until they can be retrained again (at taxpayer expense), or replaced by more recently trained workers.

While the foregoing discussion has revolved around jobs on the lower end of the occupational hierarchy, what the so-called “skills shortage” and job training proponents miss is the army of un- and under-employed older workers, most who have been subject to some form of layoff or downsizing.  Unlike the lower skilled and less educated workers at the bottom of the hierarchy, these workers have skills, work experience (sometimes decades of it), and often have college or post-graduate degrees.  However, because they have some resources (either from a working spouse or savings from prior employment), they often do not receive public assistance, and so are not “priority” placements for workforce development agencies.

So, although providing state-supported training for workers lower in the hierarchy has the potential to benefit these workers by giving them a toehold in the labor market, it will not ipso facto solve the problem of un- and under-employment.  Academic researchers who study the labor market (whose findings are almost never quoted in the mainstream media unless they support corporate objectives) suggest that “the skills…for which [workers] are rewarded are partly a function of the jobs employers offer, rather than the intrinsic capacities of individuals acting as a kind of hard constraint,” and that policymakers should spend less time concerning themselves over purported skills deficiencies in the workforce because “the lack of decent jobs is the obvious basic problem.”