Underemployment

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

Published on by Brynne VanHettinga

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.

Why the Job Market is Worse than the Unemployment Rate

Published on by Brynne VanHettinga

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

“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.