From the Richmond Fed, on structural unemployment

These results are related to what I sometimes call Zero Marginal Product workers:

…a significant part of the increase in long-term unemployment is indeed due to the inflow into unemployment of workers with relatively low job finding rates. We conclude by arguing that given the increased contribution to overall unemployment of unemployed workers with inherently low job finding rates, monetary policymakers may want to exercise caution in the use of policy to respond to the level of unemployment.

The authors are Andreas Hornstein and Thomas A. Lubik.  The entire study — full of useful information — is here, and for the pointer I thank Alex in Jerusalem (we await a report).

Via Scott Sumner, while this is not my favorite structural explanation, I read of this from Siemens:

Siemens had been forced to use more than 30 recruiters and hire staff from other companies to find the workers it needed for its expansion plans, even amid an unemployment rate of 9.1 percent

…a recent survey from Manpower, the employment agency, found that 52 percent of leading US companies reported difficulties in recruiting essential staff, up from 14 percent in 2010.

In manufacturing in particular there is evidence of a mismatch between workforce skills and available jobs: while employment has fallen since January 2009, the number of available job openings has risen from 98,000 to 230,000.

Via Felix Salmon (he pulls out excellent pictures), from the IMF, using cross-country data:

For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.

Comments

More excuses to do nothing. The 10-year rate is at 3% and all we can do is wring our hands over inflation? Perhaps the overhang of personal debt is keeping people from moving and retraining, and hence we're now running into self-imposed structural unemployment? Making these simple, "oh it's all structural, so better watch out for inflation" arguments seems to be more convenient for an argument of do-nothingism and austerity than actually finding real solutions, especially when there is no problem of inflation.

I call

I call http://goo.gl/4IUhZ

Please go back to Labor Econ 101 --the marginal benefit is lower than the marginal cost of hiring a new employee. Why? Many reasons, some related to low marginal benefit, others related to high marginal cost. I'd like to read a detailed explanation of what has happened with both in the past 60 years; any good reference?

Forget Siemens. I talk to car dealers all the time who say they can't find qualified staff. This is deeper than a lack of technical skills.

Car dealers have trouble finding qualified staff because nobody wants to work for their archaic, dysfunctional business model.

If I couldn't find another job I'd work for a car dealer with an archaic, dysfunctional business model. I'd take whatever I could get.

If he'd hire me.

But if he says I don't have the skills and nobody has the skills so he won't hire anybody, then I guess I won't.

What else could it be but a lack of skills-- unless you are considering experience and education as distinct categories from skills? Why would an employer not hire someone who comes through the door with the right skills (experience and education)?

I've been turned down for jobs due to "lack of passion for the company" or "not having the right personality fit". This is the problem with the economic analysis - economists think that employers make hiring decisions based largely on actual skills when really that's only PART of their consideration.

For the tech industry, this is a puzzler since all competent software gurus are discoverable on the web. Nor do I see any software functions in demand that are not already matched by technologists I see on the web..
Three years ago I would have said transportation automation was missing, but we fixed that problem..

Today, if you asked me who is the missing technocrats, then it would be the technocrats who can produce algae fuels in mass quantity. .They do not exist.

Dunno, maybe its me, I should become a technical recruiter.

"Zero Marginal Product workers" aka economists

That's was my initial reaction.

The question i have is: are the people unemployed (specifically recieving unemployment benefits) actually looking for new jobs? In my state, MN, all one has to do to collect UI is just go to the website and click 'yes' 5 times.
Are these people ZMP workers or is it simply that their personal cost to look for (and find) a job greater than their liesure time happiness? I'm sure the unemployed are one or the other of these types, but what percentage of unemployed are actually ZMP workers?

My response is purely anecdotal so take it with a heavy grain of salt.

I'm not on unemployment insurance but I am a member of the long-term unemployed and know several people who are long-term unemployed. I graduated in 09 from a top twenty law school but due to the collapse in the legal economy my job offer fell through. I scrambled and put together a fellowship from 09-10 and have been unemployed since late fall 2010.

During my period of unemployment I have applied for easily hundreds of jobs both as an attorney and outside the law. No one is hiring right now and I don't know what to do. Everyone I know who is unemployed has been looking diligently for full-time work. Being long-term unemployed is miserable. Very few people would endure this willingly.

All of the data points to a cyclical collapse in the economy causing rampant joblessness rather than the ZMP hypothesis or the UI disincentive to work hypothesis.

Just remember that freshwater economists get paid to say that "all unemployment is voluntary".

Since we are talking about anecdotal evidence, here is my question for you: have you looked for other jobs? Are you unemployed because you can't find a job you think is appropriate or because you cannot find any job?

What I think is happening now is that people are just not willing to take *any* job. That in turn is depressing the economy even more, which causes the 'good jobs' to take even longer to come back.

Here is an anecdotal evidence from my neck of the woods: I work for a IT company who is sitting on a huge pile of money. This year we were told to cut 30% of our budget. Why? No one says it openly but it is basically because of the assumption that the economy will not improve.

I guess we are back at the malaise of the 70s and the reasons don't seem to be completely technical to me. It is a problem of culture and expectations.

As I said before, "During my period of unemployment I have applied for easily hundreds of jobs both as an attorney and outside the law." I have expanded my job search nation wide. Still, I can't find work despite having graduated from a selective graduate program, having strong grades as an undergraduate student, and strong professional references (2 federal attorneys, a judge, and an assistant general counsel).

Now, I'll admit I have focused my job search on positions that would apply the skills I have developed rather than look at positions that wouldn't apply those skills. If for that you want to damn me as having unrealistic expectations be my guess.

Still, the economy wouldn't improve even if I worked as a janitor and my ex-gf, an unemployed engineer, worked as a cashier. As Larry Summers recently wrote: measures to increase work incentives for those with high and low incomes may affect who gets the jobs, but in a demand-constrained economy will not affect the total number of jobs.”

Getting me and my ex to become janitors would just change the composition of the workforce rather than the percentage of the workforce that is employed. If the issue is workers aren't willing to work in certain positions we should be seeing increases in pay to attract individuals to those positions. Instead, wages are flat almost everywhere which supports the cyclical theory rather than structural. The economy won't improve until the lack of demand is addressed. Focusing on ZMP or structural employment just ensures that the joblessness will continue.

Just like I said in another response below, I don't want to force you to do anything. What I actually want is not to be forced to support you or other people who are unemployed and still have the option to sustain themselves. A fair request if you think about it.

Regarding what type of jobs you and other people should take, again, all I am saying is that if a job is available and you need a job you should apply common sense and take it. Summers quote is unrealistic because we are talking about jobs which are not being fulfilled here. So even if the job is very low paying, the fact that you would receive that money and spend it on the economy would by definition 'help'. Of course that would be a temporary situation given your education level, but as far as temporary solutions go, that is much better than take money away from other working people just to help you wait for a better job.

Good luck to you sir. I graduated in 07 and truly feel for the 08, 09, and 10 classes. It was far from peachy when I graduated, but my understanding is that it got rapidly worse. While I won't say that your plight is necessarily indicative or representative of the situation in general, I do think it emphasizes the difficulty in joining the labor force right now.

The labor market seems to be so bad that employers can (or feel they can) consider only candidates with the exact experience they are looking for. That is certainly an employer's right, but it presents a difficult situation for those just entering the labor force for the first time (as they by definition have no experience). Similarly, it presents a difficult situation for those who don't have a specific skill set that is a standard fit for many employers.

All of that being said, from a big picture standpoint, wiser men than I have concluded that structural factors simply are not primarily responsible for the exceedingly high unemployment. Getting bogged down on anecdotes regarding skill mismatch does nothing to address the larger problem: there is insufficient aggregate demand to reduce unemployment.

I want to clarify that I am of course using the economic "aggregate demand". In reality there would be plenty of demand for products and services if those with such demand had sufficient resources to purchase such products and services. An individual chooses to buy goods and services for all sorts of reasons. A for-profit entity only buys goods or services as a means to earn a profit. Similarly, a high net worth individual frequently has more resources than he needs to buy the goods and services he wishes. After purchasing what he desires, he primarily utilizes the remainder of his resources to try to earn more resources.

This seems simple enough. Someone smarter than I will have to puzzle out the implications.

Thanks for the kind remarks. I appreciate the encouragement as this has taken a brutal toll on my psyche.

I agree with your larger point. The issue is cyclical. Even this study, which is on the high end for the structural estimate, says 60% of the long-term unemployed are unemployed due to cyclical factors. That is the issue we should be focusing on. All else is misdirection.

My best,

Sp6r

Sp6r, I think I might see the problem here.

You would presumably make a great lawyer, but there are no lawyering jobs for you. Probably you could get a job that any college graduate could do -- perhaps collecting reports and re-organizing them into just the right kind of database or spreadsheet. But you are too proud to take that job.

Meanwhile, here's Betty, a history major who would dearly love to have the job you turn down, but she can't get it. There are no data-organizing jobs for her. They're waiting for you to take that job instead. And she's too proud to work at MacDonalds.

And there's Tyrone, a young black man who would be happy to get the MacDonald's job, but he can't have it because they're waiting for her to take it. And he's too proud to get caught in a burglary or armed robbery, so the prison cell that's waiting for him isn't full and they have to find some drug-user to go in his place.

It's like a game of musical chairs. If everybody would just take the job they're overqualified for, or go to prison as the case may be, then the unemployment rate would go down quickly and we'd get a measure of prosperity.

But instead all of you are out of work, and poor FYI has to pay for everything you buy, out of the burden of his tax increases. If the economy was doing better he wouldn't have had to pay those tax increases. If you'd all just get to work then poor old FYI wouldn't have such a burden and he could relax a little.

I blame Republicans. They were upset about the Supreme Court, and they got new Supreme Court judges who cut down on various kinds of class-action lawsuits etc. If they hadn't done that, there would be lawyer jobs for you, and Betty could organize reports for you, and you could both afford to eat at Denny's where Tyrone could get a job. But the Supreme Court cut back the jobs.

No, that's crazy. Even though the USA is a world leader in lawyering, that doesn't make it productive. And it isn't productive to create reports that nobody actually needs. And the only reason MacDonalds hasn't automated half their jobs is that labor is so cheap. None of these jobs actually produce anything that's worth having, so it doesn't really help the economy if people work at them.

And what does FYI do? Is he perhaps an arbitrageur, who finds a seller who will sell as low as $X and a buyer who will buy as high as $X+Y and before they work out their differences he buys at $X and sells at $X+Y and pockets $Y? That's productive. Maybe he does HR, deciding who not to hire. There are all sorts of profuctive jobs he might be doing. Right?

And yet, I suspect that if we eliminated every job that actually did not produce anything worth having, we'd have something like 80% unemployment....

Mr. Cowen, I do not understand how your insistence on the structural nature of the lagging recovery is compatible with your views on monetary policy. Correct me if I am mistaken, but I thought you were of the view that the central bank's job should be to stabilize nominal GDP. It seems to me that to accomplish that job in a situation where GDP fell below a trend growth path, the central bank would need to do more "monetary stimulus", regardless of the structural problems on the labor markets. If the central bank has indeed to do more monetary expansion, of what relevance is the discussion of the structural market problems to a recovery? I was somewhat puzzled, since I interpreted your blog posts regarding the matter as a position against more monetary stimulus.

However, lately I have tried to reconcile this cognitive dissonance of mine with the following interpretation: you still favor monetary expansion to get back on the old trend growth path. Your highlighting of the partly structural nature of the recession is a word of warning that as soon as the economy reaches its old growth path (and aggregate demand is no longer a problem), consumers will not be as well off as before the crash, because the old growth path of nomial GDP will be reached at higher prices and lower output (due to the persisting structural problems).

So... it's still cheaper to spend money on an increasingly futile search for the people you want, instead of taking the risk out of the equation and training the workers you need?

Honestly, if I could hire angels for peanuts, I'd have an efficient business with excellent profit margins. Guess I should keep looking for angels who will work for peanuts.

It seems more like the problem is that the people that got laid off have completely different skill sets from the people they want to hire. If you need to train the worker for two years in order to get a laid off construction worker to do some BS computer job, then you're going to either have to hire them for less than they want to work for, since they're basically a drag on the company until they learn what they need to learn, or you're going to have to overpay to headhunt someone who knows WTF they're doing.

Of course, this isn't all on structural changes in the economy as I'd bet many of these firms laid off or froze out hiring entry level people that they could have promoted and made the remaining workers do extra to make up for it. So they now lack enough people with the correct skills to help them bounce back.

Is it possible that we have a labor market that fails to clear, not because of a skills mismatch or sticky wages, but because of different required ROI?

In other words, we don't have a ZMP worker problem as much as a lower-than-hurdle-rate-MP worker problem? And in that case, couldn't the problem then be with the required hurdle rate, because it isn't properly adjusted against the negative real interest rate environment?

Of course firms inability to find qualified workers is why real compensation only rose about 0.2% last year. It must have really been a severe problem in 2009 when real compensation rose much more.

Not to mention that since firm profitability has enhanced at a greater rate... they might really want the free angels, but doing without is preferable to expansion.

I see a lot of talk about structural unemployment, but if there are worker shortages while there is exceedingly high unemployment, it should be easy to identify where the job losses are and where the job shortages are.
In 1982, for example, it was easy. The job losses came from U.S. auto factories that were laying off in the face of Japanese competition and increasing use of robotics. The gains came from oil jobs in Texas. Thousands moved to Texas from Michigan, so many that Texans began complaining about losing good jobs to 'black tag' residents (MI license plates were black).
It's kind of a shame today's structural unemployment is so hard to isolate. Otherwise we could create a program that would encourage restructuring - training people or maybe buying up the mortgages of people willing to travel cross-country to get a job.

I am a computer engineer who has actually worked for Siemens in Bavaria. We had beer and weisswurst for breakfast at our desks, beer, wine and hard liquor on sale for lunch, and schnapps in the desk drawer for libations every Friday afternoon. Not to mention reserved tables at Oktoberfest.

There are at least two reasons why Siemens isn't finding enough qualified workers her. First of all, they do drug screening. i actually showed up for work at Siemens here in Austin for a 6-month contract and left without starting when they brought up the drug screening. I don't screen my plumber, electrician or gardener and see no reason why I should submit to drug screening, especially when no beer, wine or schnapps are available in the cafeteria.

Second, they practice age discrimination, as do the vast majority of high-tech employers. I have no sympathy for Siemens.

I suspect this is not an immaterial reason for employer/employee mismatch, at least in the USA. I know a number of computer engineers who refuse to take a job -- at least so far -- that would require them to quit smoking dope.

Exactly.

Btw, it is unfortunate that we don't have more data on this type of mismatch. In my view there is a huge difference between people who are unemployed because they truly cannot find an employer who is willing to hire them and people who can't find an employer who they are willing to accept. We should spend no tax money on the second group.

people who can’t find an employer who they are willing to accept. We should spend no tax money on the second group.

I like this quote from Yglesias on that idea:

Raj Chetty’s various arguments including the key point that making people more desperate leads to worse job-matching and worse outcomes over the long-term. If you have a skilled engineer, you actually want him to stay unemployed and wait for an engineering position to open. Frightening him into taking a job at Subway two weeks sooner doesn’t help you in the long run.

What’s more, when you scare/bribe the engineer into taking the Subway job, you have to ask yourself what happens to the kind of person who might be working at Subway in a non full-employment economy. Pushing skilled workers into lower paid, lower quality jobs just pushes less skilled workers into unemployment or out of the labor force.

_________________

Providing no-assistance to people who could find a job somewhere would just leave to massive job mis-match which would harm the economy in the long run.

Totally disagree. This kind of theory assumes that an engineer that was making 80k would settle for a 30k job indefinitely. That is just a silly fantasy. That engineer would simply go back to a high payment engineering job as soon as those are available. Furthermore, the idea that we are 'scarying' or 'bribing' people into certain jobs is ridiculous. People are free to do whatever they choose. If the engineer saved money and want to wait until another great job comes up he is free to do so. All we are talking about here is that you and me should not pay for that engineer to be idle just because we think we are helping him to get a better job down the road.

"Siemens had been forced to use more than 30 recruiters and hire staff from other companies to find the workers it needed for its expansion plans, even amid an unemployment rate of 9.1 percent"

When the unemployment rate was about 6% back around 2003, a good friend who was a hiring supervisor/manager who had worked with a number of recruiters was looking for his third or fourth job in as many years after being cut lose from the startup he had gone to when its hoped for capital infusion from a NASDAQ IPO was killed (it was profitable, but with high investment resulting in negative cash flow - he had been hiring to build software capital).

The one recruiter he had used to find new hires who managed to stay recruiting told him that the most important resume item to find a job was
- doing the exact same job at a competitor

And at the time, the advise to companies was to fire the workers who worked on projects being cancelled so you can hire new employees for the new projects who are already experienced in the job.

If switching from the database DB2 to Oracle, fire the DB2 database specialists and hire experienced Oracle specialists. Oracle sales reps probably hinted at this approach by suggesting expensive training programs for existing hires, with the HR newsletters suggesting the fire/hire process, and then offering Oracle consultants on contract to get through the conversion and until the employer can staff up.

The advice to fire/hire came out of the West coast silicon valley to New England where employers hired based on record of motivation and ability to learn, then put on golden handcuffs and trained them extensively. IBM was the model all the "high tech" followed, with HP being a classic golden handcuffs on employees creating the HP Way.

But the startup-IPO cycle needed employees to work for the startups formed by people leaving golden handcuff employers like HP, Xerox. The early group of employees could be attracted by stock options, but not everyone can get enough stock options to justify the risk, So, the signing bonus plus contributions to a 401K to replace the pensions that were the main golden handcuff, provided the means to employees as the free agent.

MBAs and HR then advocated the employee as a machine than is bought as needed specifically for job, and then scrapped. With all the old line golden handcuff hire the best learners and train them as a capital asset which keeps its value by constant investment no longer the dominant firms, employees are now considered as purely expense items, with any time spent learning/training to be a waste, and worse, giving capital value to a free agent who will carry it to your competitor.

With employers no longer investing in employees, but now expecting employees to be high value capital assets, the employers are calling on government to supply them with high value capital assets. Government does this in various ways:
- to attract Honda, Toyota, or even GM, States have agreed to pay residents to be trained by the factory
- States have partnered with employers to create tech college training the students pay for with Federal student loans
- Federal job retraining which does both of the above
- importing workers on H1B visas

The H1B visas are a form of golden handcuff. The high cost of getting an employee on the H1B visa is offset by the fact the visa is tied to just one employer, so the employee leaving the employer requires leaving the US.

Another old method of training employees was the craft union, and that is still the best way to get training in many areas in welding, electrical, plumbing, etc. Almost all these apprentice programs require six years with 12,000 hours (no more than 2000 a year) with a year of classroom. Very few people can be competent in job with less than 10,000 hours of practice, based on research by Anders Ericsson popularized by Gladwell in Outliers. The craft union operated as the job shop supplying employers for construction projects. Even employers who have staff plumbers and welders rely traditionally on the unions to run the training and apprentice programs.

But today we have the economic policies of
- golden handcuffs are evil because they restrict corporate flexibility and lead to large liabilities
- unions are evil because the unions force the firm to pay for the capital formation in workers
- job training on the job is evil because that is inefficient and the worker gains capital he will take to your competitor
- government should solve the problem without taxing the firm to pay for it, but instead tax workers and keep labor cost low

That leaves the old pillage and plunder of the Vikings, go steal the employees you need from the competitor who has managed to accumulate the labor capital you need by saving/investing.

mulp-

You forgot to recommend raising taxes back to Clinton levels. Or maybe Carter levels? Aw, heck, let's go back to the 90%+ top rates in the 1950's. Those were the good old days, weren't they?

Rich, Was there a reason you are responding off topic? I thought Mulp made some good points on the topic.

If you are familiar with Mr. Mulp's worldview, not ot at all. He usually manages to work the value of higher taxes in there. I figured he just forgot.

When I read job descriptions saying stuff like this...

Required: 10 years experience in high level product X development familiar with X, Y, Z software and able to communicate and manage projects across A, B, C departments

I think to myself, well, you shouldn't have laid off the only guy on the planet with that resume.

But maybe you can hire him for peanuts!

BINGO! The reason there are no qualified workers? Companies have an absolutely INSANE standard for what "qualified" means. They want employees that just don't exist - super skilled, super experienced AND willing to work for mediocre pay and benefits.

'The H1B visas are a form of golden handcuff. The high cost of getting an employee on the H1B visa is offset by the fact the visa is tied to just one employer, so the employee leaving the employer requires leaving the US."

That is not true. You can apply to a new H1B and change jobs. Not the easiest thing in the world but it is done quite frequently.

I think there is a fairly cogent explanation for this which tends to be ignored: it has become increasingly easy to not work, while work has become increasingly challenging.

I think people have virtually forgotten what life was like in the 1950s, when eating meat every day was a luxury and the real average income was about where today's poverty line sites, most people's jobs were pretty menial, and entertainment was still minimal compared to today so work was less costly in terms of opportunity cost as well.

The shift toward more skilled jobs involves an under-appreciated increase in pain for workers, while increasing living standards and an ever more generous welfare state ensure the alternative is ever less egregious. I don't find it at all surprising that millions of Americans choose not to gain the skills employers are asking for.

Completely agree. We Americans are soft and want a white collar job while surfing the web for half the day and expect to get paid big bucks.

LOLZ, get off my lawn! I'll be you are in your 70s. How is dial up treating you?

…a recent survey from Manpower, the employment agency, found that 52 percent of leading US companies reported difficulties in recruiting essential staff, up from 14 percent in 2010.

I don't grok why this persists: shouldn't companies offer training programs—perhaps analogous to apprenticeships, or something similar—to attract and train workers if they can't find workers who are already trained?

Yeah they should do this but they won't. Companies have bought into this HR/Economist line that employees are like commodities and you can find the absolute perfect employee if you just keep looking.

I can certainly understand waiting to see if a better candidate emerges when looking for new employees, in the same way I can understand an employee not taking a fast food job just because it's there. But you'd think one side would flip at some point, no? At what point does the cost of waiting and the lost potential profits get to be too much?

Brian J

Employers aren't really losing profits due to the lack of demand in the economy. If there were opportunities to make money these positions would be filled.

The truth is a lot of these openings are "phony," that is employers are trying to take advantage of the high rates of cyclical unemployment by finding the perfect employee. They will hire if they find the perfect employee, and maybe even eat a loss. But they have no incentive to hire the B+ candidate that is hired during times closer to full employment.

At what point does the cost of waiting and the lost potential profits get to be too much?

What potential profits?

If it looked like there would be profits from new hires, they'd hire.

I like Matt Yglesias point which I'll quote:

If Gauti Eggertsson did a paper arguing that with an appropriate policy response unemployment would be 6.23 percent rather than 9.1 percent and thus that conservative efforts to foil demand-stimulating policies are forcing millions of Americans into needless suffering, would that attract headlines like “From the New York Fed, On Structural Unemployment” from libertarian blogs?

I'm amazed, and frankly disgusted, at the way libertarians and right-leaning individuals have used the increase in structural unemployment as a justification for not addressing the cyclical unemployment. Cyclical unemployment is still the largest reason for high unemployment in the US and yet people like Mr. Cowen want to do nothing. Structural unemployment cannot effectively be addressed during periods of high cyclical unemployment because companies have no incentive to train workers.

In 50 years, the advocates of structural unemployment being the biggest driver of unemployment during the great recession will be looked on with disgust. This hypothesis, which was unsupported by the majority of data, will create a lost generation of workers.

Tyler Cowen's ZMP hypothesis just goes to show that Tyler Cowen has never dealt with the job market outside of academia. He's just totally clueless on how employers actually hire.

For anyone who's actually had experience looking for a job and interviewing with employers the whole "structural unemployment/business can't find qualified workers" theory sounds pretty hollow.
A lot of what these businesses believe to be "qualifications" are totally unreasonable. We're not talking about technical skills here that are learned in schools or training programs. These companies are literally looking for the perfect candidate - not only the right candidate but tonnes of experience in a similar position, no time spent unemployed, and willing to work for little money. The fact is there are TONNES of recent graduates of science and engineering programs who are utterly unemployed and deemed "unqualified' by employers due to things such as lack of work experience, lack of understanding of the nuances and details of whatever business the company is in, lack of professional connections, etc.
None of these things can be learned through more schooling - if there is structural unemployment it is merely a by product of unemployment in general. Companies whining about how they can't find the right people who have 5-10 years work experience better look back and wonder what happened to the graduating classes 5-10 years ago.

Perhaps it was a bad idea to raise the minimum wage by 40% during the worst downturn in 70 years. Who could have known?

Because deflation worked as a quick and easy remedy for balance-sheet recessions in the past?

Yes, always and everywhere.

Painful as this may be to realize, condo's and dot.bombs (and the people employed in their production) are not worth what the balance sheets say they are.

These are the really salient quotes from the Siemens article for me: "He said Siemens was having to invest in education and training to meet its staffing needs, including apprenticeship programmes of the kind it uses in Germany" and "Jeff Joerres, chief executive of Manpower, said businesses were more selective while the recovery was still weak and uncertain: “Employers have a much more sophisticated definition of skill requirements. Workers need to be instantly productive, and that makes a higher bar."” So the problem is not that there is a skills mismatch, the problem is that employers are shifting the burden of training onto candidates. Many commenters are correct about the crazy job qualifications as well. I frequently see CNC machinists bandied about as the poster children for the skills mismatch problem, yet the local community college is cranking them out while every job ad says things like this "
Machine set up and dial-in
Operate various drills, mills, and lathes as needed
Read blueprints and part spec. sheets
Must have at least 3 years CNC set-up and operating experience
Programming
Experience with molds a must
Must have mechanical aptitude
Must have own tools
Must have experience with Mazak"

Yeah this is exactly the issue here. When business whine about there not being enough qualified applicants they don't usually mean not enough candidates with the right education. Not having the correct number of years experience is a big reason why many people can't get jobs EVEN AFTER training for the proper positions. The ONLY way to fix this problem is to make unemployed people so scarce that companies are forced to hire people with less experience and train them. No amount of educational reform, etc. is going to accomplish this

I work in a small technology company that is in a "hiring mode" at the moment. Small technology companies are always extremely careful about new hires, and we're no different: we often interview a couple dozen (or more) candidates before we hire, and if we don't find someone we want to hire, we'll leave the position unfilled until we do.

The problem is it is far worse to have a dud hire than it is to leave the position unfilled and possibly miss "diamonds in the rough". Bigger companies can hire duds and move them off to other departments or whatever where they eventually get laid off (or find something more appropriate to their true skill set to do), but small companies can't afford this sort of thing - dud hires impair the entire team's productivity, and are expensive to get rid of. So, much of the hiring specifications and interview processes are devoted to avoiding dud hires.

Yeah Tyler's ZMP theory pretty much stems from the fact that he's never had a real job outside of academia. Like most academic economists he's pretty clueless as to how hiring actually works. Frankly I question the entire concept of marginal productivity - what kind of employer hires people one by one and accurately measures the productivity each hire adds to the total?

I'd give him more credit than that, but a lot of people don't realize that many hires don't conform to the "piecework model" where you're trying to increase output of a factory floor or whatever. Many hires in more technical workplaces are for domain experts to fill a need for domain expertise in the organization. Naturally, you don't hire a domain expert unless, well, they are. Another issue in hiring is that because you don't have an existing domain expert in-house, you're extremely cautious in interviewing since the people doing the interviewing don't know the person's domain very well, and will have to trust their "BS detectors" to make sure the person knows their stuff.

(I've ran into this frequently in the past as I'm in a fairly obscure domain, but one that's in relatively high demand nowadays.)

The whole marginal productivity model is MAYBE applicable if you're analyzing hiring in a 19th century textile mill but the idea that it's applicable to the modern workplace is a huge joke. Any theory of unemployed based on marginal productivity is totally useless and unrealistic. What Tyler needs to realize is just because employers claim there are no qualified applicants is NOT evidence for there being no qualified applicants, employers say a lot of things doesn't mean it's true - it's simply evidence for that fact that employers can be ultra picky since there is a lack of demand in the economy meaning no pressure to expand and no real pressure to hire - "qualified applicant" doesn't necessarily refer to skillsets it's time for Tyler to realize that - it could be referring to not having the right personality or being the right "fit for the culture of the company" (this is common especially at larger companies), not having the right number of years of experience (also common), not having the right kind of references, all kinds of things not really related to skill sets. If there were more pressure to hire then all these problems of not finding the right applicants would vanish.

I honestly believe this is a permanent change that we forestalled. I liked the Salmon article, but his conclusion was idiotic and knee-jerk. Obama can't undo years of tax cuts and deregulation. The European countries have social safety nets, but they also have more government, period. Government agencies that regulate, organize, and incrementally contribute to protectionism. Plus, Europe doesn't have an incredibly inefficient health care system dragging on every business, small and large. That's why they'll be ok. Lastly, in the last decade, the gains from the internet was offset from the things the internet destroyed. While apple makes a hell of a lot of money from ipods, that's really only offsetting the money Americans used to make from music CDs. And now China, Europe, Russia, etc. are developing their own internet infrastructure and businesses, plus American businesses keep investing overseas, so perhaps there isn't a gain here.

I think the redistribution of income (higher taxes for the rich) is important to keep a nation economically stable. Without that, of course we're leaking money and jobs overseas.

given the increased contribution to overall unemployment of unemployed workers with inherently low job finding rates

Do they make any attempt at all to explain why these workers with "inherently low job finding rates" were all (or at least the ones responsible for the rise in unemployment) nonetheless employed pre-crash?

If you were looking at an economy that had a *steady* 20% unemployment rate, explanations like ZMP might make some sense, but it's completely useless as an explanation for a *rapid rise* in unemployment rate. Unless lots of workers all got lobotomies at the same time.

Rather, the marginal *profitability* of a worker declines rapidly when the demand for the product he makes drops, even when his *productivity* in terms of units of product per worker-hour remains constant. But this isn't a change in the worker, it's a change in the market. The worker may be "less productive" in dollar terms, but only because the conversion factor from products to dollars has changed.

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