U.S. Joblessness and Retraining
July 6, 2009
A front-page article in the Monday New York Times by Michael Luo cites recent studies and presents anecdotal evidence that cast doubt on the effectiveness of job retraining courses as a strategy for reducing unemployment. I’m not surprised. Similar findings surfaced periodically during the second half of the 20th century. The process of creative destruction, a simultaneous disappearance of some activities and birth of others, has occurred especially rapidly during the last generation, so it’s a huge problem if retraining doesn’t make workers competitive in their new careers.
Dying industries and job careers are a particular problem for baby boomers. A shade over 29% of the civilian labor force has an age of at least 50, but the percentage drops to only 4% for those older than 64. The massive destruction of lifetime savings during the current financial crisis will be a strong incentive for people to want to keep working past the age of 64. Retrained boomers have three disadvantages competing with younger workers. Age discrimination is the first. Secondly, more skills need to be learned after a rapid introduction of new technologies and applications than what one encountered at most times in history. Finally, the attraction of the boomer’s long years of experience disappears considerably or entirely when the person seeks employment in a whole new profession.
In a June 23rd posting on this blog, I argued that unemployment will likely peak not only above 10% but probably at a new post-war peak of more than 10.8%. That article did not address the issue of ineffective job retraining or the broader question of a bulging layer of the population caught being at the wrong age in the wrong time. The U.S. unemployment rate during the past 35 years has swung in wide cycles from 4.6% in October 1973 to 9.0% in May 1975, 5.6% in May 1979, 10.8% in December 1982, 5.0% in March 1989, 7.8% in June 1992, 3.8% in April 2000, 6.3% in June 2003, 4.4% in March 2007, and 9.5% so far in the present recession. While the 1980’s and 1990’s saw lower lows and lower highs in the unemployment rate, 4.4% in March 2007 represented a higher low, and the rate has already zoomed more than three percentage points past the prior cyclical high.
This structural setback in the U.S. jobless rate takes on a still more ominous tone when one examines the shifting behavior of Japanese unemployment from before the rupture in that economy’s financial system to the period that has followed. Japan’s jobless rate fluctuated very narrowly between 2.0% and 2.2% from November 1989 to October 1992. It rose by two and a half times to 5.5% in December 2001 and touched that level again in January 2003. The rate was still 4-something percent in 1Q07, twice the pre-financial crisis norm and hit a cyclical low of 3.6% in July 2007, still 70% more than in 11/89-10/92. The latest reading for Japanese unemployment was 5.2%, and it’s only a short matter of time before the 5.5% high gets taken out.
After Japan’s financial crisis, which began nearly twenty years ago, economic growth never approached its former long-term trend rate. Price deflation never left completely, and one sees above that the labor market’s quantum deterioration never reversed itself. Damage has endured in all three respects. What worries me most about the U.S. economy is not the sharp loss of demand and output during late 2008 and this year but the possibility that trend growth for the next five, ten, or even twenty years will be substantially weaker than the 3.3% pace in the final quarter of the twentieth century. Over a long span of time, a trend pace of 2% or less would produce a huge deficiency in the size of the economy from its theoretical size at the old potential trend and would impede the U.S. economy’s ability to absorb labor market entrants and people wishing to work to an older age.
Copyright Larry Greenberg 2009. All rights reserved. No secondary distribution without express permission.
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