So Many Jobs, So Few Workers

Two years ago, former President Bill Clinton caught my attention, saying this about the U.S. jobs market:

For the first time in my lifetime, literally in my lifetime, when coming out of a recession, posted job openings -- that means they'll hire you tomorrow morning if you can do the job -- ... are going up at twice the rate of job hires. ...

There are two reasons for this. One is more than 10% of us are living in houses where the mortgage is worth more than the home, so we can't move. And that's cutting down on labor mobility, which has always been a big strength of America. But that's way the smaller problem.

By far the bigger problem is the jobs that are open don't have applicants that are qualified to do them. There's this huge skills mismatch. [There was a] huge college dropout in the last decade because costs went up 75% after inflation, and because the economy went down people had to drop out to work, and they cut back on a lot of intensive skills training.

This is the idea that what's keeping unemployment high are structural problems (employers wanting to hire but being unable to) instead of cyclical problems (employers not wanting to hire).

Clinton's view isn't a popular one. The evidence is overwhelming that by far the biggest cause of today's unemployment is cyclical, not structural. Businesses aren't hiring because they don't have the demand to justify new workers. There are anecdotes of structural mismatches here and there -- the Boston Globe recently wrote that "many technology companies can't hire software engineers fast enough" -- but they're the exception to the rule of low demand.

Ed Lazear, President George W. Bush's economic advisor, recently wrote that "An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years." Christina Romer, a former Obama economic advisor, says evidence of structural unemployment "is very weak."

There's a simple way to look at the problem between labor demand and unemployed people: the number of unemployed persons per available job listing:

Source: Bureau of Labor Statistics; author's calculations.

When this line goes up, unemployment is rising faster than job openings. When it goes down, job openings are growing faster than unemployment. At its peak in July 2009 -- coincidentally, the month after the recession officially ended -- there were nearly seven unemployed persons per available job opening. Today, there are 3.5 unemployed persons per opening.

The ratio's decline backs up Clinton's point about job openings growing faster than hires. But that doesn't necessarily point to structural unemployment. It always takes time for employers to fill positions. And while it has dropped, the ratio of unemployed workers to job openings is still high.

Plus, not all job openings actually reflect a business wanting to hire an extra worker. Some companies have internal rules dictating that job positions be published, even though they intend to fill the position with an in-house candidate. Analyzing a study from Workforce Management, the blog Challenger Job Hunt wrote:

[While] more than 222,000 job openings were posted, employers ended up hiring around 94,000, less than half the number of original openings. This suggests that many companies post job openings that they have no intention of filling immediately, perhaps as a way to test the labor pool or replenish potential candidates for future hiring.

There's also a difference between "skill" and "experience." Skill can be taught in schools and training programs; experience can't. Time writer Peter Cappelli writes:

But the heart of the real story about employer difficulties in hiring can be seen in the Manpower data showing that only 15% of employers who say they see a skill shortage say that the issue is a lack of candidate knowledge, which is what we'd normally think of as skill. Instead, by far the most important shortfall they see in candidates is a lack of experience doing similar jobs. Employers are not looking to hire entry-level applicants right out of school. They want experienced candidates who can contribute immediately with no training or start-up time. That's certainly understandable, but the only people who can do that are those who have done virtually the same job before, and that often requires a skill set that, in a rapidly changing world, may die out soon after it is perfected.

Any way you spin it, it's not a good time to be unemployed.

Fool contributor Morgan Housel has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 15, 2012, at 12:28 PM, miteycasey wrote:

    Employers are looking for Purple Squirrels.

  • Report this Comment On October 16, 2012, at 10:00 AM, F10irsh27 wrote:
  • Report this Comment On October 16, 2012, at 10:00 AM, F10irsh27 wrote:

    ^Mike Rowe on the skills gap

  • Report this Comment On October 16, 2012, at 11:16 AM, mdk0611 wrote:

    Couldn't it be BOTH structural and cyclical? While it is a guess, I believe the skills mismatch probably adds an additional .5 - 1% to the unemployment rate. A better match doesn't solve the problem, but it wouldn't hurt.

  • Report this Comment On October 16, 2012, at 12:27 PM, cooncreekcrawler wrote:

    There is a lot of work out there, but you have to move and you have to be willing to work, not hold a "position." The Bakken shale rush in North Dakota is a good example. Lots of work---but few workers and even fewer qualified workers......the modern wild west adventure. You would have had to have been there to believe it.

    The problem is both structural and cyclical. I have a feeling it is more structural; but that is my experience, not a study.

  • Report this Comment On October 16, 2012, at 2:27 PM, vidar712 wrote:

    @F10irsh27 - Thanks. That was entertaining.

  • Report this Comment On October 16, 2012, at 4:04 PM, VieuxCarre wrote:

    If it is a mismatch between employers needs and what the unemployed have to offer (which I highly doubt as the main cause) then good news, the most recent Nobel Prize for Economics just went to two guys whose breakthrough work was in matching people up even when they didn't agree on the criteria for the match. Maybe they could design a jobs matching program. They did it for doctors looking for residency programs.

  • Report this Comment On October 16, 2012, at 6:06 PM, drfool21 wrote:

    So, in other words...employers want employees that come in with a "present value" that doesn't "depreciate"... OK--I can want my employer to pay me according to my "future value" at the time of employment all I want but it doesn't usually work out that way.

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