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Home Publications Blogs Beat the Press The Problem of Structural Unemployment: Really Incompetent Managers

The Problem of Structural Unemployment: Really Incompetent Managers

Wednesday, 02 February 2011 05:27

The Washington Post had a major front page article highlighting the argument that the reason that the country has high unemployment is that workers don't have the skills needed for the jobs that are available. While it features comments from several employers, the only data that it presents to support this case is that the number of job openings reported by the Bureau of Labor Statistics is 900,000 higher than the low in the summer of 2009. The number of openings is still down by more than 1,000,000 from pre-recession levels. Furthermore, even if every last job opening were filled (an absurd situation, since there will always be some flux in the labor market), it would still leave almost 80 percent of the unemployed without jobs.

The anecdotal evidence from employers suggests that the problem is that people who run businesses don't understand basic economics. It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understood economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills. 

If the economy were actually suffering from a problem of structural unemployment, then we should be seeing substantial sectors of the economy, either by region or occupation, where wages are rising rapidly. We don't see this. There is no major industry or occupational grouping where there is evidence of large pay increases. We should also see big increases in average weekly hours, as firms try to work their existing workforce harder due to the unavailability of additional workers. We don't see this either.

In other words, the data provide essentially zero support for the claim that the economy's problem is that workers don't have the right skills for the available jobs. All the evidence supports the idea that the problem is simply we have not generated enough demand (i.e. the problem is with the people who design economic policy, not with the country's workers). 

Interestingly, in spite of the lack of evidence, we continue to see stories about how unemployment is structural. Rather than relying on evidence, these pieces invariably include anecdotes from employers who apparently don't understand that if you can't get the workers you need, then you must offer a higher wage. 

Comments (22)Add Comment
Cure Structural Unemployment With Immelt Competitiveness Policy, Low-rated comment [Show]
written by Dennis SGMM, February 02, 2011 8:34
It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour.

Of course none of these hardy entrepreneurs would ever lie about what kind of wages they were actually offering to the ungrateful serfs.
Around here
written by Floccina, February 02, 2011 8:38
It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understand economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills.

Not around here. It is plenty here in North Central Florida.
written by PeonInChief, February 02, 2011 9:13
In California housing costs are such that, even in Fresno, $15/hour is barely surviving. The California Budget Project estimates that a single-parent family there (in 2008) needs to make $55K a year to pay basic expenses. See http://www.cbp.org/pdfs/2010/1...s_Meet.pdf (page 29).
Low Wages = Higher Living Standards!
written by NewsFromAnnArbor, February 02, 2011 11:22

Lower wages = Higher Living Standards! This is a basic law of economics; high wages always damage an economy by giving undeserved money to the profligate serfs. You see, if you pay people more, they don't work as hard by choosing to focus more on irrational things like spending more time with family and friends and enjoying life. This is a disaster since the rate of return on investment is reduced!
written by Mich, February 02, 2011 12:08
Well, we know unemployed workers are overqualified to be CEOs!
basic economics
written by skyski, February 02, 2011 12:15
Everyone knows that good capitalism insists on paying a fixed wage (e.g. $15/hr) for labor and anyone wanting some kind of bargaining power is a union-supporting elitist commie. Everyone knows that right?
Bad management
written by Breukelen, February 02, 2011 6:43
Years ago the great management consultant W. Edwards Deming observed, "Plants don't close from poor workmanship, but from poor management." It appears that things have not changed.
written by dunkelblau, February 02, 2011 7:48
As for "where wages are rising rapidly", I think this past couple of years has been good to investment bankers. In terms of "region" that would be lower Manhattan for the most part. Don't know if these people are putting in longer hours but they're certainly pulling it in.
Economics of Crony Capitalism in the United States
written by Ron Alley, February 02, 2011 10:29

You seem to have missed the point.

The employer who is offering $15 per hour is merely taking the first step toward getting a visa for a highly trained foreign worker. The first step is to advertise for skilled workers (say chemists or engineers) and offer $15 per hour. When no workers with appropriate skills apply, the employer runs to his Senator and Congressional representative. They support the employer's application to get visas for foreign workers because of the demonstrated shortage of skilled workers. The employer probably gets the visas and gains an advantage over competitors who pay U.S. workers with the same skills an hourly wage of $25 or more.

When we see such behavior in other countries, we have no trouble calling it crony capitalism.
written by John Houston, February 02, 2011 11:21
Dr. Baker,

If employers began offering people more than the
$15 figure mentioned, for instance, we would fall
behind in the race to the bottom. Who wants that ?

I like the idea of tying wages to housing prices,
thereby providing a beginning towards an actual
living wage. Do you think this is a good idea ?

It seems as if the neocons will not be "happy" until
the US work force is as cheap as China's and the air
is as dirty as China's.
An appropriate nom de plume.
written by Jack, February 03, 2011 6:50
The comment, above, starting with,
"Nonsense. This is part of the new Obama Competitiveness-Productivity Program run by Jeffrey Immelt," seems to be signed "Stupid liberals." That seems fitting.
Total pay package
written by Steve Roberts, February 03, 2011 8:53
You point out that other articles are stating points and not providing facts to back it up and then write and article that incompetent managers are to blame and you don't provide any facts to back up this claim. Excellent job.

Skills . . . or rent seeking?
written by Jeff Z, February 03, 2011 1:18

A good point about lower Manhattan. But what are the productive skills here, aside from the ability to game the system for one's own benefit at enormous social cost?

This is rent seeking - benefiting directly from the position you happen to have, and not from any socially productive contribution you might make to the economy.

The Privileged Demand that the Less So Bear Costs
written by Hugh Sansom, February 03, 2011 1:34
The problem of employers being unwilling to offer higher wages is akin to landlords being unwilling to offer lower rents: "I can't find anyone to pay the rent on the apartment."

The general issue is that the privileged in the United States have completely internalized the notion that the less-well-off are obligated to sacrifice so that the privileged can be better off. This is the ethos behind the massive transfer of wealth from the middle class to Wall Street. Wall Street has a right to rich, we are obliged to pay for that. Likewise, employers have a right to exploit workers. If workers object, then there must be something wrong with them.
written by mnlp, February 03, 2011 4:41
I liked the manager who complained that machinists he finds make $20 an hour with a pension. So pay $22 with a pension!

I've heard lots of business people complain they can't find people who are willing to work hard. I do think there could be some combination of factors -- they pay little enough that they tend to get young, childless men, and a significant subset of those men drink too much and can't get to work at 7 a.m.?
written by Randy Krehbiel, February 03, 2011 6:16
I wonder how many business owners, especially small business owners, still think in terms of what the minimum wage was 20 or 30 years ago? When I started working in the 1970s, I think it was less than $2 an hour. And when I hear $15 an hour now, that sounds pretty good ... until I do the math.
It's not Structural Unemployment; It's Capitalism.
written by Benedict@Large, February 03, 2011 7:15
Structural unemployment is simply a way to blame workers for the lousy wages employers want to pay. And if the employer actually CAN'T pay a higher wage and still make a profit, all that means is that the employer has a failed business plan. Happens all the time. It's called capitalism.
Or other reasons
written by Fraud Guy, February 03, 2011 10:54
Or, as I found out today, that I would not be hired by my company if I had to apply for my job now because in the interim we have hired an HR "professional" who hold to the standard that poor credit due to repeated bouts with unemployment is obviously too big of incentive to steal from the company.

When if theoretical I or recent applicants already had a job, there would be no incentive.
Structural is the standard excuse
written by The Blog Fodder, February 04, 2011 12:38
The economist all rush out with the structural unemployment argument at any time of high unemployment. With no data, as mentioned above. That way they can avoid the real problems which are systemic not structural.
written by PeonInChief, February 04, 2011 1:41
Fraud Guy--

Some HR professionals prefer people who have a fair amount of debt. People with no debt have less incentive to put up with poor working conditions.
Is it a matter of applied economic theory failure?
written by beth in OR, February 06, 2011 6:15
I think that investigation of all major companies such as the Alyeska expose by truthout.org would show the systemic nature of bad management and its pernicious results The slashed budgets (over the 2001-2010)and personnel cutbacks beyond social sanity are in direct response to rampant dysfunctional, erroneous, and politicized management theory in the U.S.

Dispensing with such commerce dogma would benefit the world, but I still am left to wonder; Where has all the money gone, and why isn't it in play?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.