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How ‘skills gap’ keeps U.S. unemployment elevated

How ‘skills gap’ keeps U.S. unemployment elevated

“How ‘skills gap’ keeps U.S. unemployment elevated” from Market Watch, The Wall Street Journal

April 7, 2014, 12:58 PM ET

One of the unexplained puzzles since the end of the Great Recession is the persistence of high unemployment despite frequent complaints by businesses that they cannot find enough qualified workers. Does a so-called skills gap really exist?

Both liberal and conservative economists have been unable to find clear and convincing proof. Nor have studies from the Federal Reserve or private-sector research groups such as the Boston Consulting Group.

And yet, businesses continue to complain the pool of job applicants is unusually thin, even though the unemployment rate remains high at 6.7% and some 22 million out-of-work Americans say they want a full-time job but can’t find one.

Skeptics of the skills-gap theory such as Paul Krugman think it’s bunk – a “zombie doctrine,” as the New York Times columnist recently put it.

Martin Regalia, the longtime chief economist at the U.S. Chamber of Commerce, argues the skills gap is real but not well understood. He said companies may well be able to locate the necessary skills via a nationwide search, but it’s harder to find potential employees within a small radius.

“When a business tells you, ‘We can’t find labor,’ what they mean is they can’t find the skilled labor within a reasonable commuting distance,” he said. Executives at one company in Indiana, for example, told Regalia  they had trouble finding workers with tool-and-die skills and had to look outside the state.

Rahm Emanuel, the Democratic mayor of Chicago, made the same point in an interview with The New Republic.

“BP in Indiana is expanding a huge refinery,” Emanuel said. “They are bringing in people from Alabama and Kentucky because we don’t have enough pipefitters up here.”

Even if businesses can find workers elsewhere, Regalia said, many Americans are less willing these days to move long distances for a new job. One reason, he said, was the plunge in home values following the housing bust that triggered the 2007-2009 recession.

Until a recent spike in home prices, many owners around the country held mortgages that were larger than the value of their properties. Selling their homes would have forced the owners to take a loss.

“Put yourself in that same position,” Regalia said. “If you are an unemployed person and have a house that’s underwater, you really can’t sell it.”

To be sure, Regalia, a critic of the Obama administration’s policies, does not think the labor market is by any means healthy. Yet he thinks significantly more people would be working if Americans were as mobile as they used to be.

Between 2012 and 2013, for example, only 11.7% of Americans moved, according to U.S. Census data. That’s the second smallest percentage in history and just a tick above the record low set in 2010-2011.

What’s more, only 1.6% moved to another state, also the second lowest level on record and half the rate compared to Clinton era.

Put another way, roughly one in five Americans moved every year from the end of World War  Two until the mid-1980s. The rate has been dropping ever since and now just one in 10 Americans move every year.


– Jeffry Bartash
Follow Jeffry on Twitter @jbartash


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