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Why Jobs Aren't Coming Back Quickly

By Dan Newman - Apr 1, 2013 at 1:05PM

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It's much more based on lack of demand, rather than lack of skills.

Anecdotally, at least according to hiring managers, it seems that we have a population of bumbling and unskilled nogoodniks who aren't worth employing in any job, and it's because of this lack of skills that the unemployment rate isn't dropping. The thing is, that's not really true.

Giventhe latest study posted on the Liberty Street Economics blog, job polarization -- the increased concentration of jobs requiring the highest- and lowest-skilled labor, with little in between -- does not appear to be a factor in the high unemployment rate and weak recovery.

The breakdown
The authors segment the job market into routine and non-routine occupations. Routine jobs include construction, mechanics, salespeople, and office assistants, while non-routine jobs include health care workers, engineers, management, and service jobs. While the overall trend is an obvious decline in routine occupations -- from about 60% of the job market 40 years ago to about 40% today -- the study finds that there hasn't been too much of a difference in unemployment trends between routine and non-routine workers since the recession.

For one, while routine workers suffered higher unemployment growth stemming from the recession, they've also experienced a faster decline in unemployment during the recovery:

Source: Liberty Street Economics, The New York Federal Reserve.

Second, routine and non-routine workers have experienced more or less the same duration of unemployment:

Source: Liberty Street Economics, The New York Federal Reserve.

Third, routine and non-routine workers have found jobs at about the same rate:

Source: Liberty Street Economics, The New York Federal Reserve.

The real cause
So if a great skills mismatch isn't keeping unemployment naggingly high, what is?

Let's look at incomes over the past 40 years:

The average income of the bottom 90% has actually fallen more than $1,000 since 1975, while the story for other income segments is much different. As David Cay Johnston wrote in a recent article, "The average increase in real income reported by the bottom 90 percent of earners in 2011, compared with 1966, if measured at one inch, would extend almost five miles for the top 1 percent of the top 1 percent." While the bottom 90% grew income by $59 since 1966, the top 10% grew income by more than $100,000, and the top 1% by more than $600,000.

Johnston continues: "That is bad for tax revenue and bad for social stability. The drop in incomes among the vast majority holds back economic growth, because there is just not enough aggregate demand to support creating enough new jobs to keep up with population growth."

To simplify the argument: Even though people in the top income bracket hold more of the wealth, they still only buy one iPhone apiece. There's only so much one person can consume. When defending the new increase in the federal minimum wage, Costco (COST 0.55%) CEO Craig Jelenik said, "At Costco, we know that paying employees good wages makes good sense for business." It might make good sense for a stable and prosperous society as well.

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