YOU DECIDE: Why aren’t the jobs coming back?

Date posted: February 18, 2011

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

Many people are confused about the economy. They hear reports of the economy improving. Factory output is up, retail sales have gained and the stock market has been roaring. Recently, it was even announced that the broadest measure of the economy – gross domestic product – had returned to its pre-recessionary level.

Yet most folks don’t see the improvement in the area that perhaps matters most: jobs. Unemployment in both the nation and in North Carolina is in the 9 percent range. The rate is even higher — near 16 percent — if unemployed persons who have stopped looking for work and people working part-time only because they can’t find full-time work are added.

And while jobs have been created in the past year, the gains have only made a small dent in the total number of jobs lost during the recession. There are still 6 million more people nationwide and 200,000 more in North Carolina who are unemployed today compared to before the recession.

So with all the supposed good economic news, why aren’t jobs coming back faster? Economists think there are three reasons.

First, businesses want to be absolutely sure the economy is back on a growth path before they will hire new workers. Hiring workers is, for many businesses, the most important thing they do. It can be expensive and time-consuming to find the right employees. Most businesses don’t want to go through this effort unless they think the hiring is for the long haul.

The fact that there has been so much uncertainty about the direction of the economy in recent years, especially about whether the economy might slip back into a recession, makes it easier to understand why many businesses have been reluctant to hire. But on this point there is some good news. Optimism about the economy has been on the upswing. As more businesses conclude the economic recovery is here to stay, hiring should pick up.

The second factor behind slow hiring is one of those two-edged swords. It has both a good side and a bad side. This factor is improved labor productivity. During recessions, most businesses have to cut costs in order to stay afloat. For many, this means cutting labor expenses and eliminating jobs.

Business managers then work hard to discover ways to do the same with less, to produce the same amount of output with fewer workers. They do this in a variety of ways, by rearranging tasks, eliminating wasteful activities and increasing the use of technology. In short, businesses learn how to work smarter and leaner!

Over time, this is good for the economy because it means using workers more efficiently. Therefore, over time, the economy can produce more with the same number of workers, which makes us more prosperous. But in the short term increased worker productivity may mean fewer jobs.

Indeed, as the economy comes out of the recession, business managers keep all those labor-saving techniques. This means businesses can return to their pre-recessionary production levels (as they already have) using far fewer workers. Eventually this “release” of workers can spawn new industries, as the movement of workers from agriculture to manufacturing and from manufacturing to services has illustrated. But the transition can take decades and can require tremendous worker retraining.

The importance of training and skills leads to the third factor behind today’s slow job market. To be hired, workers have to be where the jobs are and have the skills needed by employers. For many workers and many jobs, this isn’t the case. Due to continuing problems in the housing market and the inability to sell homes, many workers can’t move to where the jobs are. Also, with rapid changes in the workplace in recent decades that have enhanced the importance of post-secondary school training, many workers simply don’t have the skills necessary to land a good-paying available job.

The result is that maybe as many as 5 million unemployed workers in the country today don’t face a good prospect of being employed. They are either geographically mismatched or skill mismatched. Moving these folks to the employed category may be one of the toughest tasks ahead for the country.

The job market looks better today than it did a year ago and much better than two years ago. But it is still not great. Improved economic optimism, the development of new and innovative industries and improved skill acquisition and geographic mobility among the unemployed are the keys to lowering today’s still high unemployment rate. For the benefit of those without work, together we’ll have to decide how to speed these changes.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.ncsu.edu/waldenradio/

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