Job seekers wait in line to speak with job recruiters at a job fair for businesses in the medical field in New York.Spencer Platt
As the United States continues its battle with high unemployment, policy makers are confronting a troubling question: What if they've been taking the wrong approach to fixing the ailing job market?
The latest government survey showed on Friday that the jobless rate was 9.6 per cent in August, the 12th consecutive month that unemployment was at or above 9.5 per cent.
That's a poor return on the hundreds of billions the Obama administration, backed by Congress, has poured into the economy over the last couple of years, and on the Federal Reserve's decision to hold its benchmark interest rate near zero since December of 2008.
Policy makers around the world directed their recession-fighting efforts at propping up consumer demand that they assumed would return once the crisis had passed.
In some countries, including Canada, this approach worked. But not in the United States, humbling for a country that has long prided itself on a labour market that was considered the most resilient and flexible in the world.
And some prominent economists and policy makers are now suggesting the real problem isn't lack of consumer spending - it's that the unemployed don't have the right skills to fill the jobs that are open.
These people are now theorizing that the financial crisis has altered the structure of the U.S. labour market, perhaps permanently.
If they're right, the Obama administration and the Federal Reserve will need to change their approach to increasing employment because their current one, which is aimed at stoking spending, could end up exacerbating the conditions that led to the financial crisis.
Raghuram Rajan, a professor at the University of Chicago's Booth School of Business, argues the U.S.'s high unemployment rate is the result of structural changes rather than a cyclical downturn in demand. He reasons the U.S. housing bubble and the boom in world trade over the last couple of decades created millions of jobs that won't be coming back. That leaves millions of construction and factory workers without a decent paycheque, and lacking the experience for higher-skilled jobs.
A case in point is Charlotte, N.C.-based Carlisle Cos Inc., whose units make products such as tires, construction materials, and transmissions. The company's chief executive officer, David Roberts, created something of a stir in Internet chat rooms earlier this month after he told CNBC that he had $50,000-a-year engineering jobs that were going unfilled for lack of qualified applicants.
What is needed, Prof. Rajan argues, is education and retraining so workers can fulfill their dreams for houses and cars by winning higher-paying jobs. The continuation of rock-bottom interest rates only risks another credit and housing bubble.
This is more than the pet theory of an ivory tower economist trying to sell some books. In recent weeks, James Bullard, the president of the Federal Reserve Bank of St. Louis, and Narayana Kocherlakota, the head of the Minneapolis Fed, both have said that they believe much of the current unemployment problem is structural.
For decades, American workers displayed an uncommon willingness to chase jobs around the country. This is in part because the country's meagre unemployment benefits leave them little choice. But it also was because they could quickly sell their house, likely at a profit. That's no longer the case, since millions of Americans are stuck with homes that are worth less than the mortgage.
Over all, non-government employment increased by 67,000 last month, more than many economists on Wall Street were expecting, but far less than is needed to keep up with monthly additions to the work force. Some 139.3 million Americans had jobs in August, compared with 145.7 million on a seasonally adjusted basis in August, 2007.
"That's positive news," President Barack Obama said of the eight-consecutive monthly increase in private-sector employment. "But it's not nearly good enough. That's why we need to take further steps to create jobs and keep the economy growing."
Mr. Obama said he would elaborate on the policies he has in mind next week. The Wall Street Journal and Washington Post, citing unnamed officials, reported this week that the President is weighing a package of tax breaks, including a temporary reduction of payroll levies.
Measures of that kind suggest the White House continues to view the weakness in the labour market as a cyclical problem that can be fixed by continuing to prop up demand.
That might disappoint Prof. Rajan, but it would be fine by Gary Burtless, a senior fellow at the Washington-based Brookings Institution and a former economist at the U.S. Labour Department.
In an interview, Mr. Burtless called the argument that the U.S. is suffering from a skills mismatch "nonsensical" because employment in most industries has declined over the last couple of years, suggesting there is little work to be had - period. It's possible that some specific occupations are understaffed, but if there's a broad misalignment between available jobs and available workers, Mr. Burtless insists it doesn't show up in the labour statistics.
The problem, he says, is much simpler to understand, if no easier to solve: "What we are looking at is the mother of all business-cycle downturns."