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December 21, 2009

Recession Helps Close the Skills Gap

Many of the effects of this past recession are, ever so slowly, winding down. Unfortunately, one of the most important effects –lower employment – is likely to be stubbornly persistent. The reasons are fairly complex, and even the recent good news of a declining unemployment rate masks an underlying phenomenon, our shrinking labor force. Here’s part of the story.

We often hear that about 7 million Americans have lost their jobs in this recession. That’s not quite true. In reality many, many more have lost jobs, sometimes several jobs over the course of the recession. The 7 million mark is simply how many currently are unemployed (and looking for work). To put that in context, there are about 305 million of us milling about the country, 150 million or so are in the labor force.

Among these folks who are unemployed, about half find a job in three to four months. A growing number are falling into the long term or persistent unemployment category. It is worth noting that persistent unemployment is a personal choice. There are more than enough jobs to go around, but folks don’t choose them because they are in places they don’t want to live or offer wages that are unattractive. Of course, from a public policy standpoint, we want workers to be selective, and match their skills with the right employer. We don’t want people taking the first job to come along. That is why we have unemployment insurance, which we extend during periods of high unemployment.

The recent increases in the minimum wage account for two or three tenths of a percent of the higher unemployment rate as well. Unsurprisingly, most of these job losses are clustered among the young and low skilled.

There is another reason why the labor market leaves so many unemployed – a tremendous skill gap. There’s probably never been a time in history when the education and skills employers want (and are ready to hire) is as disconnected from the education and skills of those supplying labor. But in this disconnect lies the one silver lining in this economy; there is a rush to get an education.

Throughout the country (and certainly in Indiana) the labor force has been shrinking for over a year. Part of this is due to workers accepting early retirement. Part also consists of workers entering the grey economy (aka working under the table). But a significant share of the shrinking labor force – more than half – are comprised of Americans going back to school. In the long run, this is great news.

The reasons for this are easily explained by a little economic theory. Workers recognize that the skills they have which resulted in unemployment may not be sufficient to keep them working over a lifetime. Additional education will bring long term benefits but only if displaced workers use the education as a path to higher skill work instead of a parking space to wait for call backs to old jobs.

Link to this commentary: https://commentaries.cberdata.org/34/recession-helps-close-the-skills-gap

Tags: recession


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.

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