Don’s inferences about the changes to come in the distribution industry could very well affect our provision of parts to our customers. His inferences about the employment situation are certainly in agreement with what we are seeing in our shops. 1 minute takeaway:Cultural unemployment occurs when the jobs available are not desired by unemployed workers due to cultural patterns. Factory and truck driving jobs were desirable jobs a generation ago, but the culture has changed and now a large portion of the available labor pool is avoiding these careers.
Guest Post by Don Ake. FTR (Freight Transportation Research) “In December I attended the Chicago FED Economic Outlook Symposium. During a presentation on the steel industry, the speaker noted that companies are having problems hiring enough production workers. Then, during a presentation on the housing industry, the speaker noted that builders can’t find enough skilled tradesmen for the jobs available. Finally, an auto industry analyst stated that there are unmet employment needs there as well.
“This certainly isn’t good news for the trucking industry. My company, FTR (Freight Transportation Research), is estimating the current driver shortage at 200,000 and, based on the presentations in Chicago, trucking fleets will not only be competing for workers inside the industry, they will be competing with many other industries. And this situation will only get worse, considering the potential of stronger economic growth and that we are only at the start of the baby-boomer retirement wave.
“I recently found a newspaper article from 2007 that predicted a huge worker shortage (in general) beginning in 2010. While initially I found the headline humorous, the Great Recession did not eliminate this worker shortage, it only delayed it. It would seem the worker shortage predicted in the article began in 2013.
“But how can there be a widespread labor shortage with unemployment still near 7% (and “real unemployment much higher)? One factor is “structural unemployment.” Structural unemployment occurs when unemployed workers lack the skills needed for the jobs available or do not live in the part of the country where job openings exist.
“The Great Recession created significant structural unemployment. Many workers lost jobs they had worked in for 10, 20, or even 30 years. Their jobs skills are either not transferable to other industries or not adequate in a changing, high-tech oriented economy. In addition, the housing bust made workers less mobile. It is difficult, in some cases impossible, to sell your house if you are “underwater” or if you live where housing prices are depressed. (I identified the structural unemployment problem created by the recession in October 2009, one of the first people to do so).
“But structural unemployment cannot fully explain the labor shortage. I believe there is a new factor which I will call “cultural unemployment.” Cultural unemployment occurs when the jobs available are not desired by unemployed workers due to cultural patterns. You could also call it “Ugly Job Syndrome.” Factory and truck driving jobs now fit is this category. These were desirable jobs a generation ago, but the culture has changed and now a percentage of the available labor pool is avoiding these professions.
“Also, government policies have contributed to this cultural unemployment. Cheap college loan money led to an over-supply of college graduates (and an under-supply of blue collar workers), and an increase in the social “safety-net” allows more people to eschew physical and more demanding labor. And the recent report by the Congressional Budget Office predicts that the Affordable Care Act will motivate people not to work full-time, if at all.
“So as bad as you think the driver shortage is, it probably is even worse given the overall labor market. And due to regulation, demographics, and economic cycles, it will continue to exacerbate. This is going to cause significant changes in the trucking industry as companies respond to the changing labor economics. There is no single solution to this problem. Yes you will see higher wages and shorter routes, but you will also see changes in the distribution system (more warehouses, perhaps) and more and different types of intermodal. It will also force carriers and shippers to develop creative solutions that maximize the number of drivers and maximize the efficiency of these drivers. This will take some hard thinking and analysis. Time to start thinking now.”
Don’s focus is on the Transportation industry, but his insights validate what we are seeing in the precision machining advanced manufacturing industry.
I think Don makes a great point about the issue being more than just structural unemployment, what he identifies as “cultural unemployment.”
While there is no real recovery in Workforce Participation Rate at the national level, individuals can create their own personal economic recovery plan through training for a career in precision machining.
In the precision machining industry, we are convinced that the unemployment issue is structural- we have job openings but no qualified applicants.
Here is a graph showing US Labor Participation Rate 2007- 2013.
Meanwhile, the folks who think that it isn’t structural continue to pump trillions into the economy- to no avail.
Advice to job seekers:
If you are comfortable doing high school math, and would like a career where you positively impact someone’s life everyday by making things like human safety critical anti-lock brake or airbag components, medical device components, aerospace, fluid power control, and parts used in other critical technologies, consider a job in precision machining.
Our shops continue to look for talented people to bring their skills to our shops.
A couple of introductory courses to our trade are all that is needed to get the skills needed for an initial hire.
You can find information needed to find a training program at PMPA’s Comprehensive Career Database here.
Want to explore the idea of a career in precision machining? Go to our Careers Page here.
The folks in Washington D.C. continue to shovel money to the markets in hopes of creating recovery. We’ re not optimistic. Hasn’t worked yet, see the graphs above.
But we ARE optimistic that anyone that can do the math can make a strategic decision to get some training and create their own personal recovery with training leading to a job leading to a career in Precision Machining.
Our member companies are looking for people with skills. The want ads around the country show plenty of machinist wanted, CNC machinist wanted, CNC setup operator wanted advertisements.
The Labor Department announced the economy only created 88,000 jobs in March as many more adults quit looking for work than found jobs-for many Americans, good job remain tough to find.
The headline unemployment rate is 7.6 percent, but adding in adults who are discouraged and quit looking for work and part-timers, preferring full-time positions, the jobless rate becomes 13.8 percent. And, for many years, inflation-adjusted wages have been falling and income inequality rising.
Sluggish growth is one culprit-the Bush expansion delivered only 2.1 percent annual GDP growth-that’s about the same as the Obama recovery after 42 months. However, globalization and technological progress have wrought fundamental changes that rapid growth alone can’t fix.
Cheaper natural gas and rising wages in China make the United States more attractive for manufacturing. However, new factories require very few workers-engineers have applied the wizardry of handheld devices to factory automation with amazing results.
Similar progress has reduced many business support positions ranging from secretaries to travel agents. All, slicing demand for workers with a general high-school education.
Over the last decade, the same thing has happened to college graduates occupying middle management and similar professional positions. Consequently, college graduates have been taking jobs once predominantly filled by high school graduates-insurance agents and adjusters, retail managers, to name a few-and the earnings advantage of college graduates over less educated workers has narrowed.
Well paying jobs abound for college graduates in technical areas-accounting, engineering, nursing and the like-but not for those with degrees in liberal arts and general business. Similarly, high school graduates with some additional training, often through a community college, can find good jobs, for example, in the energy, medical, and hospitality sectors.
All this gives rise to widening income inequality between those who have specialized skills and those who don’t, and it imposes particular burdens on the two bookends of the labor force-recent grads and workers above 50.
Recent liberal arts graduates face particular difficulty getting that first decent job-such as in finance or the media-where employer training and entry-level experience combine to impart job-specific skills that permit them to climb the ladder.
Displaced older workers face much longer periods of unemployment, and many never secure positions that pay as well as the jobs lost. Many are digging into retirement savings well before they are 65, creating an army of near-indigent elderly a decade or two from now.
To combat unemployment, the Federal Reserve has kept mortgage interest rates low, but this penalizes the elderly who rely on CDs and fixed-income investments. They are returning to work, often taking jobs and displacing younger workers.
Stronger growth would help and is possible. Forty-two months into the Reagan recovery, GDP was advancing at a 5.2 percent annual pace-that would bring unemployment down to five percent pretty quickly.
More rapid growth requires importing less and exporting more-dealing with the $500 billion trade deficit on oil, by drilling more offshore and in Alaska, and with China, by addressing its undervalued currency and protectionism.
Faster growth also requires right sizing business regulations to make investing in new jobs less expensive and time consuming. Regulatory enforcement is needed to protect the environment, consumers and financial stability but must be delivered cost effectively and quickly to add genuine value.
However, unless America wants to sell what it makes cheaply, like so many Asian economies, it must have a smarter, savvier, and better trained workforce.
Parents don’t want their offspring on the vocational track. Hence, high schools have become, overwhelmingly, college preparatory institutions, when it is possible to prepare many graduates to directly enter the labor force in technical areas.
College students don’t want the hard slog through nursing or engineering. Art history and economics are easier and less intruding on the social aspect of college. And universities are too much run by professors who prefer to contemplate the shortcomings of their civilization than train young people to build it.
In a nutshell, more and better jobs require pro-growth trade, energy and regulatory policies, and more realistic expectations among parents, students and the high schools and universities that train workers.
Peter Morici is an economist and professor at the Smith School of Business,, University of Maryland, and widely published columnist.
“With more than 3 million open and available jobs on the career website CareerBliss.com alone, why do we keep seeing the labor participation rate dropping?
The answer is that employers can’t find the right workers. Too many unemployed American workers lack the relevant skills needed to fill the millions of jobs available.” -Heidi Golledge
That sure doesn’t sound like ‘cyclical unemployment’ to me.
Here’s more from HuffPost: “If you look at the current employment numbers there is a quality job out there for just about every graduate — if only they would have been guided toward courses of study that would give them the skills most in demand. We can start to bridge the skills gap now by guiding future workers toward growing and emerging industries.”
Sounds like the definition of structural unemployment to me: “Structural unemployment is a form of unemployment which occurs when the number of vacancies is equal to, or greater than, the number of the unemployed. The unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available.“
We have been talking about this issue for some time- here, here, here, here are some of our most recent ones.
The reason everyone wants to describe our current unemployment situation as cyclical just might be because ‘cyclical unemployment’ is cause agnostic. Cyclical unemployment is defined as just “the deviation of unemployment from its natural rate.“ Link
Since it is just a variation, we need not look too hard for causes, it will go away.
Sandra Pianalta, Chairman of the Cleveland Fed, and a member of the FOMC, is on record as saying that unemployment is cyclical:
Pianalto: I still believe that our current high unemployment is a cyclical problem and not a structural one. There’s been a longstanding relationship between the amount of growth in the economy and the improvement that it translates into in terms of job creation. We’ve had a very weak recovery that hasn’t created a lot of jobs. So the slow pace of this recovery is causing that unemployment rate to move down more slowly than we’d like.
I’m reassured that this issue is cyclical and not structural when I look at job openings. Prior to the recession, there were two individuals looking for every job that was open, so it was a 2-for-1 ratio. During this recession, that number has jumped to four people looking for every one job opening. So we just have a very slow pace of job openings, which, again, is cyclical, in my thinking. Link
Structural unemployment is defined as a mismatch between skills demanded and labour available
“Unemployment caused by a mismatch between workers’ skills and the skills needed for available jobs. Structural unemployment essentially occurs because resources, especially labor, are configured (trained) for a given technology but the economy demands goods and services using another technology. Employers seek workers who have one type of skill and workers seeking employment have a different type of skill. This mismatch in skills, largely the result of technological progress, creates unemployment of the structural variety.” Link.
Those of us trying to hire people with skills to operate our CNC equipment, people who can do math- trig, offsets, enter programs into controls, read vernier calipers- we know its a structural problem. We see and hear it in each interview.
Those college grads with all those student loans needing to be repaid can’t do these things.
Sure looks like “Employers seek workers who have one type of skill and workers seeking employment have a different type of skill” to me.
But I have a very smart (and modest) friend who suggested that I might be mistaken.
“Perhaps it is cyclical, ” he explained, “ifthe ‘cycle’ you’re referring to is 40 years of failure in public education, undermining the family as a social building block, the complete decoupling of executive compensation from everybody else, an eroding sense of the “public good”, the reckless expansion of easy credit, extremist positions on the social safety net, even more extreme positions on law, order, and incarceration (including drug policy) and, in some pockets, the fostering of contempt for empericism, all while the rest of the world gets leaner, smarter, and richer.”
Maybe he’s right. I’ll admit that our unemployment today is cyclical, if cyclical means 40 years of failure in public education, undermining the family as a social building block, and extremist positions on the social safety net that keep job seekers at homeinstead of job seeking and the host of other factors he mentioned. These are the reasons our precision machine shops and advanced manufacturing companies can’t seem to find the skilled labor for which we have openings.
So what’ll it be? Structural or Cyclical?
Today’s unemployment problem is structural, unless you want to accept a 40 year cycle of failure in public education and culture.