Job Skill Mismatch and Government-Caused Uncertainty

In a recent Washington Post column, Robert Samuelson attempted to explain the jobless recovery as a mismatch between the skills of the unemployed and the needs of the business community. His suggestion:

There is no instant cure for today’s job mismatch, but it might ease if America’s largest companies were a little bolder. Surely many of them — enjoying strong profits — could make a small gamble that, by providing more training for workers, they might actually do themselves and the country some good.

This implies that if the profit-swollen capitalists would just give labor a chance, things would improve.

What we really should ask is why companies are not willing to hire workers and train them for the jobs that are open, or why training companies don’t come into existence to offer workers new job skills?  What makes this recovery so different that people remain unemployed for so long?  Forty-five percent of those currently unemployed have been unemployed for twenty-seven weeks or longer. 

It is certainly plausible that the reason that unemployment has remained so high is that the federal government has created massive uncertainty about property rights and what the rules of game are.  Suppose that you owned  Al’s Hardware, with four stores, and were thinking of expanding by adding a new store and hiring six new workers. 

First, you will have no idea what your labor costs will be if you hire these workers.  The massive government involvement in the health insurance industry, the Affordable Care Act, gives the Secretary of Health and Human Services the power to decide which health care benefits are required to avoid paying a fine for each worker you hire.  More than a thousand firms have waivers from some of the requirements for the first few years.  It turns out that when then-Speaker Nancy Pelosi famously said, “We have to pass the bill so you can find out what’s in it,” she was wrong.  Even after passing the bill you don’t know what is in it.

Second, you don’t know what your electricity and other energy costs are going to be.  There was the threat of Cap and Trade legislation, and then when that failed the EPA announced it would regulate carbon dioxide emissions.   It currently is threatening rules that will significantly increase the costs of coal-fired power plants.   

Third, it is not clear whether you will be able to get financing for an expansion.  The massive Dodd-Frank bill to regulate the financial industry contains more than 90 provisions that require SEC regulation alone, according to the SEC web site, and “dozens of other provisions that give the SEC discretionary rule-making authority.”  It requires 87 studies and gives massive new authority to the Federal Reserve to regulate the industry.  How can the compliance officer at your small regional bank have confidence enough in what the rules will be to offer you a loan?

There is great uncertainty over what your taxes will be.  First, the Bush tax cuts were to expire, giving you a large tax increase if you are a moderately successful LLC.  Then Congress came up with a two year agreement, so you don’t know what will be happening to your taxes once your new building is constructed and your new store opens.

These are but some of the major uncertainties that the federal government has put in front of those entrepreneurs who will have thought about expanding employment.  Rather than calling on businesses to risk their operations by expanding hiring, we should reestablish constitutionally limited government and reestablish what Hayek called rule of law.  The market process would then create a match between those looking for work and the businesses providing new jobs.

  1. Roberto

     You raise some very important points regarding the ever growing barriers to doing business in this country but I think you ere in giving so little weight to the current job skill mismatch in the labor market. From the Department of Education:

    Of the 1,563,000 bachelor’s degrees conferred in 2007–08, the greatest numbers of degrees were conferred in the fields of business (335,000); social sciences and history (167,000); health sciences (111,000); and education (103,000). At the master’s degree level, the greatest numbers of degrees were conferred in the fields of education (176,000) and business (156,000).

    Look at those degree choices. Whatever the merit of these individual fields these are very much not the skills most business are looking for. Certainly not in those numbers. For whatever reason a large number of citizens at great expense are obtaining skills wildly at odds with those that are likely to give them employment.

  2. BlueAnt

    The real government-created uncertainty is in which segments of the economy will experience the next boom.

    Al’s Hardware thrived when the regulatory environment fueled a housing boom, but even if all the cost-of-inputs uncertainty was resolved, the biggest question facing entrepreneurs remains:  predicting future demand.  Will Congress force a rebound of the housing market via Fannie and Freddie?  Will they continue protecting the mortgage industry once all the toxic assets still clogging bank books are marked down?  How long will it take to work through the excess inventory, now that regulators are charging in to commandeer the foreclosure process?

    That brilliant headline from The Onion applies here, “Recession-Plagued Nation Demands New Bubble To Invest In“.  If you want to rapidly soak up unemployed workers after a sharp downturn, you need a rapidly rising sector to do it, and training availability will take care of itself.  Otherwise, you have to wait for the economy to do it at the natural rate.

  3. David Williamson

    Mr Obama, with his vast business experience, thinks that business exists in order to employ people and pay taxes to support his lavish lifestyle.

    The reality is that business exists in order to make a profit. If they can find skilled people they will employ them. If they can’t, they will train them.

    The best thing Mr Obama can do, short of resigning, is go and play golf.

  4. r r

    What kind of skills are they looking for?…

  5. david foster

    Why are companies not more willing to hire people and then train them as needed? It depends what kind of training needs to be done. Some manufacturers, for example, have expressed frustration about not being able to find people who can understand fractions and read a ruler. I think that given someone who has a basic understanding of arithmetic, including fractions, it’s reasonable for an employer to train them to read a ruler, or even a micrometer. But it’s probably not reasonable to expect an employer to teach fractions to someone who has failed to learn them during 12 years of school.

  6. Roberto
    Samwise Gamgee: What kind of skills are they looking for?… · Jun 20 at 3:12pm

    Consider the CareerBuilder’s 2011 Job Forecast and look at these top 5 areas for future hiring:

    1) Sales – 27 percent 2) Information Technology – 26 percent 3) Customer Service – 25 percent 4) Engineering – 21 percent 5) Technology – 19 percent

     

  7. KarlUB
    Samwise Gamgee: What kind of skills are they looking for?… · Jun 20 at 3:12pm

    Precisely. What jobs are available?

    Also, let’s not underestimate the guild protection going on. Half of the people saying they can’t find employees just mean that the HR department won’t LET them hire someone and train them because they don’t check all the right boxes on the recruiting screen. Why? Because to do so would undermine the certifications the people doing the hiring spent $100k getting.

  8. wilber forge

    Not that anyone notices, the hiring process is in the hands of H.R departments for larger firms. They hold the purse strings and will look for the applicant that fits the Plug and Play model for the least dollar.

    The learning curve for a manufacturing applicant may be up to two years before trusted independent abilities prove out. 

    Employers simply want to reduce that buffer. The reality is, with a new hire, the edges need to be rounded off for the right fit.

    This has always been the case… Blaming the pool of applicants is a failed argument.

  9. Robert Pettengill

    The imagining exercise I like to pose re entrepreneurship and business in general is: imagine someone comes along and says you will now be unionized.  Would you think this is a good thing or bad thing?  Can anyone think his or her business would benefit from union representation where before it was not unionized?  Is this not just one more impediment to those who create jobs through their business ventures and risk taking?  Let’s hear it for “right to work”.

  10. david foster

    BlueAnt, I wasn’t *asking* why companies are not more willing to hire the untrained, but repeating and responding to the question in the original post. I’ve hired a lot of people, and also fired some, and I’m very familiar with the factors that influence hiring and investment decisions.

  11. Larry3435

    Gary’s analysis is a tiny bit unfair.  Every recovery is a jobless recovery at first.  Rising employment is always a trailing indicator.  But Gary is certainly right that uncertainty about the political climate slows the recovery.  Anything that increases the risk of a given investment without increasing the potential return is going to drive away capital.  The lefties don’t get the idea of capital investment.  When you read the lefty sites, like Huffington Post, they sincerely believe that all that is necessary to fix the economy is to give people money to buy things and that the increased demand will automatically stimulate sales and create jobs.  They have no idea that the sales have to be profitable.  They actually believe the old joke that you can lose money on every sale, but make it up in volume.

  12. david foster

     My previous comment notwithstanding, it is true that too many companies establish excessively long and detailed checklists of requirements for specific jobs, much to their own detriment. I explored this issue in my post about the hunt for the five-pound butterfly.

    This problem cannot be blamed exclusively on HR departments. It is very unlikely that the requirement for a experience with a specific version of a specific CAD system, for an engineering hire, or for a experience with a specific CRM system, for a sales hire, came from HR. Too many hiring managers–using the term to refer to the person who actually has the need and to whom the new employee will report–are doing a poor job of thinking out the real requirements.

  13. BlueAnt
    david foster: Why are companies not more willing to hire people and then train them as needed? It depends what kind of training needs to be done.

    If you’re asking about the current environment:  Businesses hire when they need to expand, not when un-trained people show up with applications.

  14. Duane Oyen

    Actually, Dr. Wolfram has done an excellent, in fact, outstanding, job of explaining why businesses are not hiring people, period.  Unfortunately, that is not the issue that Mr. Samuelson was attempting to address. 

    Samuelson already knows why people are not getting hired at all- he is referring to unfilled positions- companies already decided to hire.  And he has a point.

    I will offer two points. 

    1) It wasn’t always this way- in the 1970′s, John Deere was not able to get enough engineers, so they hired smart, middle-aged people who lacked the knowledge to be agricultural-mechanical engineers and created their own- through a two year apprenticeship and classroom training program, with contractual paybacks required if they quit after obtaining the education.  No one does that these days. 

    2) H1B visa programs.  IT people are being laid off all over the country as firms contract out, and many older people simply cannot find new positions in their related field at any salary- meanwhile, there is a heavy lobbying effort in Washington to open up the H1B numbers so that the big companies can import cheap young software engineers from India and China.  Guys, hire unemployed here first.