The job market may be recovering but some jobs are not coming back

A recent article in The New York Times illustrates this point with the story of an unemployed administrative assistant in her 50s, who has not been able to find a job for over two years after being laid off. As the journalist explains, her difficulties are likely not the result of age discrimination, the weak economy in her town, or the quality of paper she printed her resume on (all things she brought up to make sense of her experience). The real culprit is technological change or more specifically, computers and voicemail, which have made most of her core skills redundant.

The article is part of a series running in the NY Times’ Business Section, aptly named the New Poor, which explores the distributional impacts of the recovery and asks who are the ones left behind as the US economy recovers from the Great Recession.

It got me thinking about recessions as times of more fundamental, structural change in the economy and the job market and not just periods of temporary slow-down after which things go right back to how they were before.

The economy and the job market are dynamic systems. Some industries decline while others grow in prominence. Certain skills become less useful while others are now sought in greater numbers. This process, known to economist as “creative destruction,” makes production more efficient and is undoubtedly beneficial for the economy as a whole, but it creates very clear winners and losers, leaving displaced workers with redundant skills almost entirely out of the benefits of economic growth.

Recessions speed up the process of creative destruction because lean times force firms to closely examine their business processes and lay off less efficient workers immediately while they may have waited for worker attrition to eliminate these jobs during a boom.

As a result, we end up with two different groups of unemployed workers: those who would be able to find a job using their skills relatively quickly, and those who will be unemployed for long time. The economists among the readers will recognize the terms cyclical and structural unemployment commonly used to describe the causes of joblessness in these two cases (the economic cycles with their temporary slow-down of production cause cyclical unemployment, while changes in industry structure and valued skill sets cause structural unemployment).

The pace of technological change and international trade over the last 30 years have likely sped up the “creative destruction” processes as well. This may be why the recoveries after the 1980s and the 1990s recession were jobless. In fact, Armine Yalnizyan’s CCPA report on the Canadian recessions since the Great Depression shows that the labour market took considerably longer to return to pre-recession levels of full-time employment after the 1990s recession than from the 1980s recession (seven years vs four years, respectively). This does not bode well for the current recovery.

Why does it matter what’s happening in the labour market if the economy is growing? Because jobs are the major source of household income for the vast majority and they only get to enjoy the benefits of economic growth if growth translates to higher wages and more jobs. An economic recovery with slow job growth and stagnant wages is an economic recovery whose benefits are concentrated in the hands of the few. It’s not surprising that we’ve seen income inequality grow considerably in both the US and Canada over the past 30 years.

Data from the US cited in the New York Times article confirms that the long-term unemployed ranks are growing faster than during previous recessions.

the unemployment numbers show a notable split in the labor pool, with most unemployed workers finding jobs after a relatively short period of time, but a sizable chunk of the labor force unable to find new work even after months or years of searching. This group — comprising generally older workers — has pulled up the average length of time that a current worker has been unemployed to a record high of 33 weeks as of April. The percentage of unemployed people who have been looking for jobs for more than six months is at 45.9 percent, the highest in at least six decades.

I haven’t been able to find comparable figures for Canada yet, but it seems likely to see a similar trend here. As Erin reported in an earlier post, there has been significant structural change in the labour market with manufacturing and other higher-paid industries shedding workers over the recession, while lower paid service industries accounting for the bulk of job gains.

If the purpose of economic growth is to improve quality of life for all people, then jobless recoveries call for an active policy response to deal with high levels of structural unemployment.

The problem is that our system of employment insurance is designed as a short-term income replacement for those who are expected to find new jobs relatively quickly and does not serve the needs of older, displaced workers very well. EI has some provisions for retraining, but these are not nearly comprehensive enough.

The need to green our economy provides a great opportunity for a large-scale training and re-skilling effort. We’ll need more workers to retrofit buildings to become energy-efficient, to build greener infrastructure, to design greener technologies. Why not take the opportunity to invest in training and education, creating opportunities for displaced workers in particular?

11 comments

  • Andrew Jackson

    Hi Iglika

    Is there an oversupply of unemployed workers with dated skills, or a lack of demand? I would argue thst intelligent industrial policy – including green jobs policies – could put lots of skilled industrial workers back to work (and re-employ idled industrial capacity.) Manufacturing skills sets are quite readily transferable – as shown in a micro way by the retooling of some former auto parts plants to produce green energy components (eg wind turbines by Linamar.)

    Data on long term unemployment are published monthly out of the LFS and the average duration is now over 20 weeks – up but still well under the US level. I suspect the real story on the ground is that many skilled relatively older workers are displacing youth and recent immigrant workers from lower level jobs such that long term unemployment is mainly encountered for those nearing retirement age and marginalized workers – not the victims of the recession per se.

  • Call me an apologist, but I do believe there is hope.

    And as Andrew makes the point, it takes an actively smart industrial policy, backed by strategic public and private investment to deliver on these solutions for recovery. It is one of the issues that I feel most upset about the stimulus policy by Harper. It was across the board tax cuts, and secondly hastily put together projects- hence the term shovel ready. A keen industrial strategy unfortunately for all the theory of the free marketeers, is not shovel ready and does take an active public policy to envelop and deliver the required outputs.

    Forestry is one of the key sectors in our country that could have made such transformations. There is an abundance of innovation and greening that could have taken place with stimulus money, but instead the government sat on its hands and allowed companies to idle mills and lay off workers. So much more could have been done, just look at the recent agreement between the Forestry products association and the environmental groups. Well not the exactly a panacea in terms of process and such, Avrim Lazar has shown some good sense and pushed the innovation tactic within the industrial culture that could see some interesting, although somewhat after the fact changes.

    I wish he would have brought in the unions a whole lot more into the process, and if he wants to achieve such goals in a much more complete methods, he will soon bring the various labour groups a whole lot deeper into the process of change.

    You can make clothing from trees these days! Why am I wearing oil based synthetics- I would much prefer wearing a carbon neutral tree.

    Just another example of how long term unemployed highly skilled workers within the forestry sector could be redeployed, and within a transformation space that many of the core skills are already present or at least more easily updated.

    Oddly enough many of the answers to some of your questions can be found in Jim’s post on what I believe is holding our flimsy economic partial non jobs recovery together- non-sustainable easier consumer credit/ and government stimulus spending versus flat wages and no business investment and sadly a mindset that hands off government policy is he solution.

    I really do wonder what is going on in Harper’s mind these days regarding the economy.

  • Armine Yalnizyan

    The industrial and occupational mix of the jobs that come back are, indeed, critically important to the strength of the recovery. Equally important is the nature of the employment contract in those new jobs. Given the stats, is the rapid rise in temporary jobs the new normal? That’s the topic of my latest post, which I called Temporary Recovery.

    As Iglika rightly points out, every recession leaves its fingerprints on the shape of the emerging labour market.

    The recession of 1981-82 hemorraghed Monday to Friday, 9-5 jobs, the losses most immediately stanched by the rapid growth of part-time jobs. It was the beginning of the just-in-time labour market, and the beginning of the shift of bargaining power from workers towards employers.

    The recession of 1990-91 was followed by years of downsizing of large private and public corporations. The major source of employment growth until 1997 was self-employment. By then outsourcing work inside and outside Canada had become business as usual practice, further shifting bargaining power away from workers regarding their pay and terms of work.

    This recession vapourized about half a million permanent jobs in the first six months. We’re still short about 300,000 permanent jobs, but jobs have indeed been created: temporary ones. Perhaps this is what normally happens in the immediately wake of a downturn. We can’t compare to previous recessions because Stat Can just started providing this data in 1997. However, we know the rate of growth in temporary jobs outpaced the rate of growth in permanent jobs before the recession hit. Just ask any new labour market entrant, whether younger worker or immigrant – the way “in” to many jobs is term, contract, casual/on-call or seasonal work; and many people are stuck in part-time/casual jobs for years without being able to break into full time permanent work.

    This, in part, is why credit has become so important. It tides people over, between pay cheques and between jobs.

    If reliance on private debt becomes the new normal, as Jim has posted today, we are in for some volatile times in the months and years to come. Temporary recovery indeed.

  • Great discussion, everyone.

    Armine, this article made me think of your work so it’s great to see you chiming into the conversation.

    Andrew, I agree that many industrial workers could probably be re-trained relatively quickly to work in greener industries but this won’t happen by itself (or by the invisible hand) – a coordinated policy effort will be necessary.

    However, I think your comment sidesteps the issue that many other workers will need much more substantial retraining to fit into the new economy.

    While we may not be shedding jobs at the same rate as the US in this recession, this remains a problem that needs dealing with.

    There are real tangible skills that people used to provide that are now handled by technology – this has happened before (during the industrial revolution, for example) and will continue to happen. When the displaced workers are older, this presents particular problems as retraining is lengthy and expensive, they don’t have many years left of their working lives to reap the benefits, and the wage losses they experience when they transition to Wal-mart work instead are huge.

    One of my profs at UBC, Graig Riddell, has been doing a lot of work documenting the income losses faced by displaced older worker and proposing policy responses. We may not agree with the particular recommendations he makes, I think we agree that this is an issue that presents unique challenges and requires active government intervention to address.

  • Not only do older, displaced workers not have much time to benefit from training I’m afraid that anyone inclined to take a cold, hard look at investing in training them (in fact, I’m included too, so us) would not be thrilled about the relatively poor ROI. On top of that, isn’t there a considerable level of prejudice against older workers, perhaps especially when we have newly qualified in some occupational area?

  • Over the long haul, presumably increases in productivity must in the end lead to less available work. In a society dominated by capital, that seems to imply an ever shrinking number of people getting by and an ever increasing number of unemployed.
    In the long term, surely the solution has to be reductions in the work week so as to spread the jobs around enough to get fairly full employment.
    I was flabbergasted a while ago to read that back a hundred years or more when radical trade unionists were agitating for shorter work weeks, one of their stated reasons already back then was to reduce unemployment and hence deprive capital of the leverage afforded by the reserve labour pool of unemployed workers willing to fill low wage positions.

    Plus ca change . . .

  • PLGuy

    The only problem I have wit that, is there is more work than ever to be done. With all the challenges that lay before developed and less developed countries, there is many, many goals that could be achieved that I am sure would keep people busy for the next 1000 years.

    Sure I am for a bit of a shorter work week, but it is not so that we can address unemployment, it is to make work a bit more tolerable. Call me a Utopian but fundementally here is where I see the global economy right now.

    We have more work than ever to be done, but a shrinking amount of paid for profit work. Things such as ensuring the global village is fed would be a good start. But becasue it is not profitable- it is not done. It is not due to a lack of work to feed people, it is a lack of vision to engage the forces of production to produce such quantities so all can have at least a living allowance of caloric intake.

    So if I were to add on, environmentally sustainable production transformation, healthcare, education and the whole host of other work that needs to be done globally, one can easily see that the demand for workers will more than compensate for the supply. Regardless of the myth that productivity enhancements are displacing workers because of a lack of demand, I believe it is a huge falsehood for progressives to fall into.

    It is pure fallacy! Contrary to Rifkins book- The End of Work, I would say my thesis would be we are but at the End of For Profit Work and the beginning of Work for Global Balance and equality. Even within that space of our current country, imagine if somehow people were allowed to all have cheap mortgages, and everybody was allowed to buy a house. Imagine the Real Estate bubble and the work that would be generated! Opps didn;t we just go through that!

    In many ways that is basically what was situated at the center of the crisis. People everywhere were buying a house, and many apparently when we finally woke up from that dream, could not afford them. At least that is what the bankers said- the American dream was not too big to fail.

    Seriously though, there is a fundamental problem with my thesis. What system could provide such forces for such anti-capitalist notions. We again get back to social democracy and the fundamentals of resource allocation and distribution of goods.

    Of course under the current for exclusively for profit waged society, your analysis does fit and Rifkin’s argument holds and the work week should be shortened to beat back the lack of demand for workers. However it is something I believe is flawed thinking on so many levels.

    and put in place a vision so that thos eiwthout So I guess the conundrum I call forth here

  • Well, I won’t disagree with that. But the issues you put forward are huge agenda items right now because for-profit production with huge reliance on externalities has been misallocating capital and labour for a long time.
    So, yes, right now there is a lot that needs doing, that it would be for the common good to do, which is not getting done because it doesn’t make a profit (or even because it doesn’t make *enough* profit). So there’s a lot the unemployed ought to be put to work doing. (At the same time there is a lot which is getting done which is useless or worse than useless, such as most advertising, much pesticide production etc, but probably not as much)
    But if we were to make the production shifts to start doing all the needed work, the huge increase in employment required would only last so long. After a while we’d get through the big overhang of neglected projects, and then productivity/technological improvements would take hold again and the amount of work required to meet our needs and wants would start dropping off again. This would be especially true if we could end up with a less consumerist society with fewer manufactured desires for almost-immediately-forgotten-and-replaced crap.
    At that point, a society with a good deal more leisure would become practical.

  • okay, I agree, that if we could get across the ocean on those big challenges, then we could somehow delve into the notion of leisure.

    However as stated, I do believe in a shorter work week right now, regardless of the amount of work that from a social democracy point that is determined and measured that ought to be done (waged or not, for profit or not). It is, as one might say, the quest of discovery to find out what exactly we are- when the workday is banished from history.

    I do realize I am being a bit over the top here in terms of avoiding our current necessary reality, but one can never lose sight of the dream.

    And specifically if we do look at the actuality of hours of work, since the onset of the industrial revolution one could argue there has been a slow up and down, movement towards less, work. (not so sure in terms of unpaid and paid labour, or I think in Marxian terms, socially necessary labour.)

    Of course we do have some depending on how you define class and such, of those that leisure does fill up more time than waged labour.

  • The job market are dynamic systems. Some industries decline while others grow in prominence. Certain skills become less useful while others are now sought in greater numbers. This process, known to economist as “creative destruction,” makes production more efficient and is undoubtedly beneficial for the economy as a whole, but it creates very clear winners and losers, leaving displaced workers with redundant skills almost entirely out of the benefits of economic growth.

  • its not as clear cut as that old theory might suggest. In this new age of production, there is no clearing of the terrain of skillsets that the old theory based on a mass production system that basically deskilled much of the production process. In the new high productivity work organizations, skills are preserved and transformed, as the outputs are a whole lot more flexible than older systems.

    Creative destruction, still exists, but to a much lesser extent than earlier times within modernity, so the analytical process becomes a whole lot more complicated.

    paul

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