COULD UN-SKILLED LABOR GO THE WAY THE HORSES WENT?

In July employers added 255,000 jobs, keeping the jobless rate steady at 4.9%. Whenever the Labor Department's Bureau of Labor Statistics publishes these numbers, politicians of all stripes grab onto them to either exploit positive trends or to question their veracity. While most of us may not focus on more than that calculation, arrived at by dividing the number of people out of work and actively seeking employment by all individuals currently in the labor force, this simplistic expression of a national trend is insufficient to help craft policy responses. When we search for ways to combat unemployment it is essential that we understand why people are out of work. Economists basically identify three types of unemployment: frictional, cyclical and structural, while some also add seasonal as a distinct category. "Frictional unemployment" occurs because of normal turnover in the labor market, and the time it takes for workers to find new jobs. "Cyclical unemployment" refers to the ups and downs experienced by the economy, and is essentially the relative result of a bad economy. It increases during periods of slow economic growth. "Seasonal" identifies employment fluctuations that occur when jobs are only available during certain times of the year - like in agriculture and construction. The most complicated, and most difficult to fix, type of unemployment is "structural." This results when there are mismatches between the skills employers want and the skills that workers have.

Between 2008 and 2010 the economy lost roughly 8.7 million jobs, unemployment rates exceeded 10%. While the economy is recovering, and while overall unemployment is down, many workers have left the labor force, and are no longer included in that computation. For them the  recession is not over. Between 2000 and 2010 structural unemployment in the manufacturing sector alone shed 5.67 million lower-income, blue-collar workers. Significantly, much of this happened before the onset of the recession in December 2007. Populist candidates on the left and the right have been quick to collar this receptive segment of a potential, angry and discouraged voter segment. Nobody disagrees that this is a legitimate target. However, their approach of largely blaming globalization and international trade agreements has been well off-base. In reality only 13% of overall job losses resulted from trade. (Douglas Irwin, The Truth About Trade, Foreign Affairs, July/August 2016). The main culprit is technology. "Automation and other technologies have enabled vast productivity and efficiency improvements, but they have also made many blue-collar jobs obsolete." Research at Ball State University found that improvement in productivity accounted for more than 85% of job losses between 2000 and 2010.

The International Monetary Fund estimates that 25% of current unemployment is structural. This equates to more than 3 million jobs. Structural unemployment is caused by fundamental shifts in the economy, exacerbated by factors such as technology, competition and government policy. A prime example of technology affecting the job market was what happened after the introduction of the internal combustion engine. For many decades, horse labor appeared impervious to technological change. Between 1840 and 1900 the equine population in this country increased to 21 million horses and mules. After the introduction of the automobile the trend quickly reversed. By 1960, the United States counted just 3 million horses, a decline of 88% in half a century. Many occupations linked to horse labor became obsolete.

While it took half a century to transition from an equine-based labor force, technological change today occurs much more rapidly, making it difficult for re-training programs to keep pace. Financial difficulties prompted many high schools to deemphasize vocational training, and community colleges are not always well connected to local job markets. Ultimately, however, we need to come to grips with the reality that simplistic cures based on attacking international trade agreements by political candidates affected by some form of Tourette's syndrome are unproductive. Structural unemployment can't easily be remedied by simple demand-side stimulus. Education is the key. Unemployment for college-educated workers is 2.4%. It is more than 7.4% for those without a high school diploma. This may be easier said than done. Our government may need to incent corporations to develop re-training programs for workers in endangered positions. But, as some have pointed out, it is unclear what kind of training will transform a 55 year old assembly-line worker into a computer programmers or a web designer. Another initiative, designed to bring blue-collar workers back into the labor force, is a massive campaign to rebuild our infrastructure. However, the proposals that are currently circulating appear grossly under-capitalized. The American Society of Civil Engineers estimates that it would take $3.6 trillion to adequately upgrade the country's infrastructure by 2020. To make this idea a reality we would need to change the political will in Washington. After all, much of this comes back to politics. Regrettably, politicians shun complicated solutions - they are more difficult to sell. Our de-activated workforce deserves better.