U. S. Unemployment

This is a preliminary abstract from the study as of 2016. It will be updated as the study progresses and the full study will be published on-line when it is complete. Comments are solicited.

1.  OBJECTIVE

The objective of this study is to gain a better understanding of the factors that drive the employment process, the process itself and the outputs or factors that result from that process particularly unemployment and the distribution of earned income.

2. SCOPE

The study is limited to employment as it is practiced within the US although any external factors that might significantly affect that process such as industrial policy and free trade agreements will also be considered. The study should include both economic and social effects of the process.

3. BACKGROUND

For the past hundred years the US has been working itself out of a job. First agriculture was mechanized to the point where agricultural labor was no longer the major source of employment. The work force moved on to industrial work. Industry has also been increasing productivity to the point that there are now  few jobs left that require manual labor. Many of the blue collar manufacturing jobs have been mechanized, automated, computerized and “roboticized” others have been exported. Only the blue collar jobs in the service industry seem to be safe from automation and/or exporting. The white collar jobs that were supposed to replace the blue collar jobs have proven to be rather ephemeral. They too are subject to computerization and offshoring. The offshoring was particularly hastened by technological advances in communication, and transportation, the growth of multi-national corporations and the lowering of trade barriers through various trade agreements.  The effects of these types of “advances” are seldom realized as they occur. You will seldom see mass lay offs immediately following the implementation of new technology or new trade policy. It is handled through “attrition” until the next major economic crisis or recession. The last economic crisis occurred in 2008 and although employment had recovered by early 2015, it took 7 or 8 years. There is some discontent currently about the “quality” of some of the jobs that have been created during the recovery but I attribute that more to an imbalance between the jobs that are available and the skill level of those seeking employment or “promotion”.

4. PROCESS ANALYSIS

I look at employment/unemployment as a sub process of the production process. However, it isn’t just the equivalent of the Personnel Dept. function. You have to look at the entire production process to bring all of the important causes and effects into consideration. The process is diagramed below.Chain Diagram - Employment

 

4.1 CAUSE AND EFFECT

4.1.1 Causal Factors

4.1.1.1 Labor Supply.

During the past thirty year or so, there have been many socio/political changes that have affected the labor supply. For one thing the labor supply has been significantly increased by the relatively rapid expansion of the number and percentage of women in the work force. The supply has also been significantly increased by the increase in population, including the increase in older workers in the active work force due to increasing longevity and relaxation of retirement requirements. Immigration has also increased the supply.  http://www.bls.gov/mlr/1999/12/art1full.pdf

The composition of the labor force tends to vary by age group and socio/economic group and the way these groups are defined. Currently the group of young unemployed college educated workers is larger than it has been historically (due to a mismatch between type of degree and jobs available) and the group of older employed and well-paid experienced workers is larger than it has been historically (due to the aging of the boomer generation). This imbalance is causing problems. Companies are trying to reduce the latter portion of their employees so they can hire the former. (for various reasons including economy, changing technology, changing markets, changing skill requirements …) Paradoxically, at the same time, they are increasing starting salaries in the techno/scientific degree fields.

4.1.1.2 Labor Demand:

The demand for labor is a function of the demand for goods and services produced in the US (GDP) but there is not a direct correlation. To the extent that those goods and services are produced by machines rather than humans, the demand for labor is reduced. To put it another way, increases in production can be achieved by an increase in capital investment rather than an increase in labor and that is what has happened.

4.1.1.3 Capital Supply:

Capital available for investment purposes is not a published statistic. Capital expenditures actually made are published. However, historical data on this class of capital is only consistent from 1994 through 2011. https://www.census.gov/econ/aces/historic_releases_ace.html

As wealth accumulates, some portion of that wealth will be invested. It is a function of opportunity cost (interest rates vs. earnings)  NOTE:  Low interest rates makes it easier to reach an adequate ROI on a competing capital investment in automation, perhaps thereby increasing unemployment.

4.4.1.4 Capital Demand:

As the demand for goods and services increases, so does the demand for labor and capital. Traditionally that meant more jobs. Today, with the increasing capabilities of machines, increasing the demand for goods increases the demand for capital more than it increases the demand for labor.

2.1 STATEMENT OR RE-STATEMENT OF THE PRIMARY PROBLEM

The United States performs very well in many measures of well-being, as shown by the fact that it ranks among the top countries in a large number of topics in the Better Life Index. In terms of employment, 67% of people aged 15 to 64 in the United States have a paid job, slightly above the OECD employment average of 65%. Some 72% of men are in paid work, compared with 62% of women. People in the United States work 1790 hours a year, more than the OECD average of 1765 hours. Around 11% of employees work very long hours, higher than the OECD average of 9%, with 16% of men working very long hours compared with 7% for women. So overall, in comparison to world averages, we do not have a serious problem.

Over the period 1940 – 2014  the US labor force (population over 16 not institutionalized) participation rate has grown from about 59% to  67% and the percent of that population unemployed has varied from a low of 1.2% in 1944 to a high of 9.7% in 1982. Normally it fluctuates between 5%  and 7%. In the 15 years prior to the 2008 collapse, it averaged 5.69%

Currently (May 2016) the Unemployment rate is at 4.7% which is down from 9.6% in 2010. As a nation we do not have a major problem in unemployment. However, analysis does indicate that there is an existing demand for more skilled workers that is not being met by our system of education/training.  See the blog page on Elementary and Secondary education.

CONCLUSION

The steps proposed and being taken by the administration are achieving the desired results. Long range we need to do a better job of relating job training to the job market and vice versa.

SUMMARY

To overcome the problem of unqualified high school graduates:

Accept the fact that not all high school graduates will go on to college and prepare some of them for skilled jobs through apprentice type programs which are coordinated with local unions, employers and community colleges.

Place greater emphasis on math and science (STEM) in Elementary and Secondary Schools.

Develop an “Industrial Policy” based upon a thorough analysis of the impact of technology and trade policies upon employment/unemployment in the U.S.

Include the cost of re-training workers in the justification of capital expenditures that involves “labor savings”. The government should lead the way but a change in “best practice accounting rules” might be all that is necessary. This will slow the rate of conversion to automation but it will not stop it.

 

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