Tag: UnemploymentUnemployment

Disappointing News on the Job Front

Posted on September 10, 2012

According to statistics released Friday by The Bureau of Labor Statistics (BLS), 96,000 jobs were added to the U.S. economy in August – a “worse than expected” showing, especially in manufacturing, notes Wharton management professor Peter Cappelli. The jobless rate dropped slightly from the previous month, from 8.3% in July to 8.1% in August.

“The unemployment rate fell because more job seekers have given up and withdrawn from the labor market,” Cappelli states. The labor force participation rate declined in August to 63.5% from 63.7% in July. “Manufacturing was surprisingly weak, and it could be that the recent fall of the euro against the dollar had some effect on that,” he adds. “The only good news out of these numbers is that public sector job losses have slowed.” In addition, August employment rose in food services and drinking places, professional and technical services, and health care.

The ADP National Employment Report – a measure of employment based on a subset of U.S. business clients – was published the day before and had offered more optimistic news – which only added to the disappointment regarding the BLS report, according to Cappelli. “Many people expected the numbers to be much better than they were, given that the jobs report from ADP, which is the second most important labor market estimate, showed that we had added 201,000 new jobs in August. The ADP numbers are based on 400,000 employers, so they are pretty good.”

Cappelli recently spoke with Knowledge@Wharton about the challenges for jobs seekers and employers, which he also addresses in his new book, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It. Wharton Digital Press and Cappelli are offering the ebook free for one week, from September 10-17, 2012, to stimulate discussion about the jobs crisis during the presidential election season.

At the recent Republican and Democratic conventions, job creation, unemployment and the economy featured prominently as key election issues. Indeed, a recent USA Today/Gallup poll reported that 90% of U.S. registered voters count the economy as extremely or very important to their vote in the presidential election. Unemployment, the federal budget deficit, and health care follow near the top of the list.

In the wake of what just about everyone describes as a lackluster BLS report, observers speculate that the numbers might encourage the Federal Reserve at its policy meeting this week to take action that will help stimulate job growth, including a new bond-buying program, according to an article Friday in The Wall Street Journal. “That is one reason investors, many eager for Fed action, appeared to take the jobs tally — which fell short of the roughly 125,000 many had expected — in stride,” the article stated. The Dow Jones Industrial Average on Friday closed at 13,306.64, up 14.64.

The Journal also noted that at a recent meeting of economists and central bankers in Jackson Hole, Wyo., Fed chairman Ben Bernanke “described the weak labor market as a grave problem — a strong suggestion that he wanted to take new measures to strengthen economic growth.”

Cappelli has some advice for jobseekers: “First,it’s not your fault if you didn’t find a job in August. It looks like there wasn’t much hiring. Second, given that business performance is still pretty good, there might be some pent-up hiring during the next month.”

During the interview with Knowledge@Wharton, Cappelli also noted that in this era of automated hiring systems, it is important to connect with “a real person” so that job applicants can explain to him or her what their relevant skills are, “in ways that may not be completely obvious from your resume. It always helps to put yourself in the shoes of hiring managers who understandably want to minimize their risk – and find somebody who is really motivated to do the job. See if you can make that case to them.”

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Is the Unplanned Career Best?

Posted on July 19, 2012

College students, and parents concerned about their kids’ careers, often try to divine which jobs or skills will be in demand when it’s time to enter the workforce. With today’s quickly shifting economies and technologies, it can be tough to hit that moving target.

Some resort to choosing broad categories. In the U.S., for instance, there has been a steady media drumbeat about the deficit in science education. For those who are science oriented, that might seem to make planning research careers in, say, chemistry, genetics or neuroscience a safe bet. But it’s not. Despite today’s high-tech, health care-oriented world, many PhDs in these areas are unemployed or floundering in lower level jobs, according to this article in the Washington Post. The jobs just are not there.

Here’s another straw in the wind: Only 38% of those with a new PhD in chemistry had jobs last year, according to a survey by the American Chemical Society, the Post notes.

This is unsettling, not only for well-educated scientists who can’t find appropriate positions – or are being laid off – but also for those trying to plan for future jobs requiring a long lead time to accumulate skills that are not easily transferrable. As the article notes, we all tend to think that more education is always a good thing, especially in a growing, technical field like health care. Yet it’s not true, given the quickly changing supply/demand curve for positions requiring such technical expertise. For example, while the number of PhDs churned out between 2003 and 2007 in the medical and life sciences nearly doubled, the job pool did not keep up and lately has shrunk in the U.S., the Post notes.

One woman, who studied to be a brain scientist, gave up looking for a permanent job in her field and accepted a lessor position three years after receiving a doctorate in neuroscience, the Post reports. “I’ve listened to this stuff on the news about how we need more scientists and engineers,” she said. “I’m thinking, ‘What are you talking about?’ We’re here.”

So, how can you know these things in advance? You can’t.

“The jobs haven’t been there for quite some time,” says Peter Cappelli, head of Wharton’s Center for Human Resources. “Despite the rhetoric about the need for more scientists, the reports that look carefully into the labor market for scientists have found that supply has long outstripped demand. That is why there are so many post-doc programs for PhD scientists, because there aren’t enough good real and permanent jobs for those who graduate.”

What’s more, “the other problem with most technical careers now is that they don’t last long,” Cappelli adds. “There isn’t much retraining available, and skills become obsolete quickly. When they do, the old workers are pushed out.”

In the Post article, another woman in her early 50s who had spent 20 years designing new drugs for large pharmaceutical companies and who was laid off not long ago, said she was planning to “get out of science.” But she also had advice for her daughter, who “loves chemistry and math. I tell her, ‘Don’t go into science.’ I’ve made that very clear to her.” In her industry, “it’s been a bloodbath…. Very good chemists with PhDs from Stanford can’t find jobs.”

So, is there any advice Cappelli can offer students, especially those in science, on how they can plan a career path? “Frankly, no,” he says. “It’s better to be adaptable than to try to plan your way to success.”

 

 

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Obama’s Jobs Package: A Way to Tip the Scales Toward Hiring?

Posted on September 9, 2011

The $447 billion jobs package announced by President Obama last night calls for extended unemployment benefits, infrastructure spending and tax incentives he said would put more money in workers’ pockets while spurring businesses to begin hiring again.

Fueled by this summer’s debt ceiling fight and a zero job growth report for August, worries about a double-dip recession are intensifying. Approval ratings for Obama and Congress have dropped, and both parties are trying to revive the economy and shore up political goodwill before the 2012 campaign begins in earnest.

Specifically, the plan calls for cutting the payroll tax for workers from 6.2% to 3.1% in 2012, up from a 2% reduction this year; doing the same for employers and eliminating the tax altogether for businesses that add workers or increase wages. If enacted, the proposal would also extend unemployment insurance, give tax credits to businesses that hire unemployed workers and allow states to use unemployment insurance funds for workers whose employers opt for job sharing over layoffs. Also the plan would allow workers continue to collect benefits while they “audition” for a job at no cost to the employer. In addition, there are provisions for infrastructure investments, such as modernizing schools, and funding for states to rehire teachers and emergency personnel.

Although Republicans applauded some aspects of the plan, they also criticized its size and rejected Obama’s statements that many of his proposals had the support of both parties. A number of analysts noted that it was extremely unlikely that many aspects of the plan would make it through Congress.

According to the Wall Street Journal, Mark Zandi, chief economist for Moody’s, estimated that the plan would add 2 percentage points to real GDP growth and create 1.9 million payroll jobs, reducing the unemployment rate by a percentage point.

Betsey Stevenson, former chief economist for the Department of Labor and a professor of business and public policy at Wharton, worked with Obama’s economic team on parts of the plan. She notes that the payroll tax cut for firms that add workers or increase wages plays on economic theory that “if you want to incentivize behavior at the margins, you need to put incentives at the margins.”

“We know there are a lot of firms out there sitting on a lot of cash that are hesitant to hire because they feel like there’s a lot of political uncertainty,” she says. “Firms are telling us that they have enough demand to justify hiring and they have the money to justify hiring, but are fearful of doing so. We’re giving them a little bit of a kick and a little bit of a nudge in the right direction because they’re really sitting on the fence.”

According to Wharton business and public policy professor Justin Wolfers, much of the decline in consumer confidence connects directly to the protracted debate over raising the debt ceiling. “This is the President giving Congress a chance at a do-over.”

He says the proposal is “deeply informed” by standard economic principles — “That’s a playbook that’s gone missing for far too long.” But, he adds, the road to a more robust recovery is still a long one. “Part of it’s going to be time. We really are in a big hole. We’re used to business cycles that can be solved in a year or two; that’s typically not the case when we’re in a hole this big.”

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Labor Day 2011: Not Everyone Will Be Celebrating

Posted on September 2, 2011

If you look up the words “Labor Day” on the web site of the U.S. Department of Labor (DOL), you will learn that this holiday — first celebrated on September 5, 1882, in New York City — “is dedicated to the social and economic achievements of American workers.” The labor force, the site notes, “has added materially to the highest standard of living and the greatest production the world has ever known…. It is appropriate, therefore, that the nation pay tribute on Labor Day to the creator of so much of the nation’s strength, freedom, and leadership — the American worker.”

Unfortunately, for 9.1% of these lauded American workers, Labor Day 2011 finds them without a job and, in some cases, with little hope of finding one soon. The economy continues to limp along two years after the financial crisis, and most economists don’t expect the employment situation to improve until the end of 2012, at the earliest. Department of Labor figures released on September 2 piled on more bad news: Not only did the  unemployment rate remain unchanged for the month of August, but no new jobs were added to the economy despite expectations that the figures would show some improvement.

Acknowledging the importance of jumpstarting the economy and getting people back to work, President Obama plans to lay out a jobs agenda in a speech to Congress on Thursday.

KnowledgeToday asked several Wharton professors to each propose one idea for getting people back to work.

Peter Cappelli, director of Wharton’s Center for Human Resources and professor of management: “The most successful government policy for encouraging jobs is hiring subsidies — programs where the government gives employers some kind of subsidy for each new hire they make, usually in the form of a tax break of some kind. There has been extensive research on these programs, especially in Europe where they have been popular, and they work better than anything else at promoting new jobs. They have been tried in various forms in the U.S., mainly to help disadvantaged workers get into the labor market, but they were also used after the 1991 recession to promote hiring. While the results have not been spectacular, they are better than any other option under consideration.”

Mauro Guillén, director of the Joseph H. Lauder Institute and professor of management: “There are two types of unemployment — long-term and short-term. It is impossible to design effective policies that do not distinguish between the two. Long-term unemployment includes people whose jobs (or even industries) have disappeared. These people need re-training, and they need to be reminded that there is a place for them in the global economy, because otherwise they will feel discouraged and drop from the labor force. Therefore, education and training policies are needed.

“Short-term unemployment is a different story. It affects workers who have the skills to play a role in the global economy, but are jobless because of the economic downturn. The policies needed to tackle this type of unemployment all have to do with accelerating GDP growth. The debate among politicians, policymakers and academic economists is about the best way to stimulate the economy so that it creates jobs. Some argue that lower taxes, less regulation and a balanced budget is the way to go. Others maintain that the economy needs a boost in order to start growing in a sustainable way, so cutting government programs is not appropriate because aggregate demand will suffer. It is also important to keep in mind that the lingering doubts about the banking sector and the continued lack of confidence and trust in financial markets is adding to the problem because credit is not flowing to businesses as it should.

“As an aside, I think long-term unemployment among the young is the most disturbing aspect of the present economic situation. This problem is not as severe in the U.S. as it is in Europe and in the Middle East (hence the Arab Spring and the protests in the U.K., Spain, and elsewhere). Still, youth unemployment poses its own set of policy issues. A mix of education, training and economic growth is needed.”

Peter Linneman, emeritus professor of real estate: “The answer is reduce political risk. The government has been awash in new and unformed regulations and interventions for three years. There are no predictable ‘rules of the game.’ To that end, announce that taxes will not be changed in any way for five years, and there will be no new regulations introduced for three years. Give predictability a chance.”

Kent Smetters, professor of business and public policy: “I would focus on removing the distortions that companies currently face when making business investments.

“Under current law, the cost of a business investment can be used to reduce reported taxable income according to (usually) a straight-line depreciation schedule (with some modifications). For example, if I bought a machine for $100,000 that is projected to last for five years, I could report $20,000 in expenses against my business income over each of the next five years. Instead, I would move immediately to a tax system that allows for ‘full expensing’ of all business investments. In other words, all $100,000 would be immediately deductible against current income, regardless of the life of the asset. This idea dates back to the late, great Princeton economist David Bradford, during his time at Treasury under Ronald Reagan, and it has been supported by some prominent Democrats in the past as well, including [former senator] Tom Daschle. Full expensing would encourage the private sector to stimulate investment without the government trying to pick winners and losers. To be sure, full expensing is costly; it would likely cost the Treasury up to $1.5 trillion over the next 10 years. But it could be cheaper than all of the other stimulants and command-and-control methods currently being used by the Administration.”

Susan Wachter, professor of real estate: “Bring stability to the housing market. Consumer confidence is at all time lows. Construction and construction jobs are at record lows. Buyers are sidelined in what is the most affordable market in history. Ironically, this requires long-term thinking. Buying and putting equity at risk is not in order when buyers are worried about what the future holds. We need to build consensus on the provision of housing finance going forward. This is a large segment and the most underperforming segment of our economy. We need certainty to replace the fears of what is to come.”

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No Help for the Unemployed

Posted on August 5, 2011

According to a recent article in The New York Times, unemployed people looking to get back into the workforce may find that companies are much more interested in candidates who already hold jobs. It’s not an “Unemployed Need Not Apply” situation, but nor is it a welcome mat for those hardest hit by the sputtering economy.

“Given that the average duration of unemployment is nine months — a record high — limiting a search to the ‘recently employed’,’ much less the currently employed, disqualifies millions,” noted the Times, which reviewed recent online job vacancy postings as part of its research.

For many unemployed, it is a vicious cycle: They can’t get hired because they may have fallen slightly behind on their job skills, but they can’t get up to speed on these skills unless they land a job. A recent Knowledge@Wharton article acknowledged the dilemma: “As a growing number of workers languish on the unemployment rolls for months or years, the danger is that they will become permanently jobless because they lack the skills to get hired once the jobs return.”

In addition, experts interviewed by the Times doubted whether such bias on the part of employers is considered discriminatory, although New Jersey passed a law “outlawing job ads that bar unemployed workers from applying,” and similar action is being considered by other states as well as the U.S. Congress.

Job figures released today by the U.S. Labor Department showed employers added 117,000 new jobs during the month of July, enough to bring the unemployment rate down from 9.2% to 9.1%, but not enough to signal a major shift in the economy.

Knowledge/Today asked Wharton management professor Matthew Bidwell for his thoughts on the unemployment situation.

Knowledge/Today: Do you feel there is some justification for an employer’s decision to favor the employed? Is it a form of discrimination or just a smart business decision?

Bidwell: Both. It is a form of discrimination, but one that makes some sense. There are lots of reasons that people end up unemployed, including their position being eliminated, their department being closed down or their whole company going bankrupt. When companies choose to downsize some of their workers though, they will usually seek to retain their higher performers (of course, how they define their higher performers can also be a highly political process). Nonetheless, potential employers are aware that the people who are let go first may be those who were not performing well in their prior job. Moreover, the fact that they could not instantly find a job suggests that they did not have a strong enough reputation [to be quickly] snapped up by another employer.

I should emphasize that being unemployed is a very noisy signal of quality. There are many reasons why workers might be unemployed despite being stellar performers. But most of the signals that employers rely on in hiring are pretty noisy, since they don’t have direct experience with the worker. It therefore makes sense for the employer to be discriminating against the unemployed, even though many of the unemployed would make excellent hires.

Knowledge/Today: Are employers actually the ones who may lose out in the long run because they are bypassing people in the workforce who might be willing to work longer hours for less pay?

Bidwell: That’s possible. Given the state of the job market though, employers already have a huge amount of bargaining power and are able to fill jobs easily. So the sad truth is that employers probably aren’t missing out all that much.

Knowledge/Today: How would you advise an unemployed person to present themselves in this job market, knowing there might be reluctance on the part of employers to hire them?

Bidwell: A lot of people try to mask their unemployment in various ways. Among executives, a lot of people will set up as independent consultants. Regardless of how much business they get, it allows them to appear employed while they search for work. Returning to school is another strategy, although obviously that is expensive.

Knowledge/Today: Is there a “solution” to this dilemma for those seeking jobs, or is it one of many intractable problems facing our workforce today?

Bidwell: A better job market. Some people describe applying for jobs as a process of queueing, where the most attractive applicants go to the front of the queue and the least attractive go to the back. As people spend time in unemployment, they get shuffled towards the back of the queue. The problem at the moment is that employers only need to look near the front of the queue to meet their demands. Until hiring picks up and employers are forced to consider a wider range of people for their jobs, I think it will continue to be hard for unemployed workers.

 

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