America's High Unemployment Rate: A Lack of Skills or a Lack of Jobs?These may be the two most important economic policy questions of our time: What's causing America's high unemployment rate, and what can be done to lower it?

One camp, which includes many supporters of supply-side economics, argues that the problem is largely "structural": Too many Americans don't have the right skills or training, or are living in regions of the country that aren't creating enough jobs.

From this perspective, the solution to lowering the nation's unemployment rate -- now 9% with the January report just out -- is fairly straightforward: Americans should retrain, or where additional training isn't required, simply change careers to fields that need workers. And unemployed Americans in job-poor areas should consider moving to where employers are hiring.

It seems like a plausible analysis, with a rational solution. Unfortunately, the evidence doesn't support it.

Is There a Skills Mismatch?

What the evidence does show is that America's high unemployment rate isn't structural but due to a lack of demand.

To be sure, some sectors now have a surplus of skilled workers, many of whom probably won't be employed again in their old fields. For example, many unemployed construction workers -- hit hard by the busted housing bubble -- will probably have to change careers. Two other categories that are likely to need fewer employees in the future: real estate agents and mortgage loan officers.

But that doesn't make America's unemployment problem structural. If it were, we would see high unemployment in only a few sectors, and the problem could be solved by the jobless changing tracks and finding work in other fields.

The reality is, however, that there's a job shortage in almost every sector. And while the labor market is slowly healing and should continue doing so as long as the recovery remains intact, job growth is still too tepid -- especially for the millions of Americans trying so hard to find work.

The Economic Policy Institute (EPI), a liberal Washington, D.C., think tank, has analyzed Bureau of Labor Statistics data and found that job cutting was "pervasive" during the Great Recession: Almost every sector did it. The institute also found that:

  • During the first 12 months of the current recovery, there were 32 million job openings, more than 10 million fewer than the first 12 months of the 2001-2002 recovery -- itself deemed a "jobless" recovery.
  • As of September 2010, there were between five and six unemployed workers for every job opening since mid-2009, "clearly suggesting a shortage of jobs," the EPI said. The job-seeker ratio is roughly double what it was following the last recession.
  • Since the recovery began, hiring has exceeded openings in the private sector by a larger ratio than it did during the 2007-2009 recession or during the last recession, which refutes the notion that companies are having more difficulty filling jobs, the EPI said.
"There has been little evidence to support the claim of extensive structural unemployment and. . .the pattern of employer behavior regarding job openings, layoffs and hires does not support such a claim," the EPI wrote.

A $1 Trillion Output Gap

So if the problem of high unemployment isn't a lack of skilled workers in the right sectors, what's causing it?

If you guessed a lack a jobs overall, you're correct. The recession's 8 million-plus layoffs mean not enough jobs are available for all Americans who want full-time work. And all that job-cutting has contributed to a significant output gap -- the difference between actual U.S. GDP and its potential growth rate if the nation were running at what economists consider "full employment."

As the EPI report explained: "The economy is operating far below its potential output because of a shortfall in demand caused by an extreme loss of financial and housing wealth, and the reduced consumption that resulted."

A chart in MarketWatch columnist Rex Nutting's latest article shows the huge extent of the output gap: The U.S. economy, as measured by GDP, is more than $1 trillion below its potential. The size of the U.S. economic pie has shrunk -- substantially reducing the number of jobs available.

American Business Is Already Competitive

Figuring out the true cause of today's high unemployment isn't just an academic exercise: Finding the answer will (one hopes) help guide public policy and private sector decisions.

Critics of the reasoning above will counter that what's needed are public policies designed to increase the competitiveness of U.S. businesses. Again, though, the evidence suggests otherwise: Overall, U.S. corporations are already very competitive and very lean.

Critics also argue that the country needs a lower corporate tax rate or tax code changes that increase investment and help businesses attract needed capital. The evidence to the contrary is overwhelming: U.S. corporations aren't short of capital -- they're sitting on $2 trillion in cash.

Policies Need to Spark Demand

Supply-siders further suggest that what's needed is a large cut in federal spending to reduce the government's role in the economy and make it more dynamic. Indeed, deficit reduction is necessary, in the long term. But cutting federal spending now will simply decrease demand further, pushing unemployment higher in what could become a vicious circle.

What's needed now is just the opposite: Increases in both public and private spending designed to increase demand. Because, as the EPI's analysis makes abundantly clear, America's high unemployment rate isn't due to a lack of skilled workers, but to a lack of jobs caused by a shortfall in demand.

The sooner policymakers and business leaders of all stripes accept that reality and implement policies that increase demand, the faster more jobs will be created, and the sooner America will return to healthy full-employment economy.

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sweepsplay1

WHERE HAS THE AMERICAN ENTREPRENEURIAL SPIRIT GONE TO???? IT SEEMS THAT THE ONLY REASON SOME PEOPLE POST ON HERE IS TO COMPLAIN. DON'T YOU KNOW THAT YOU HOLD YOUR FUTURE IN YOUR HANDS? NO ONE OTHER THAN YOU CONTROLS WHAT YOU WILL DO WITH YOUR LIFE OR WHAT YOU WILL BECOME!

My wife was fired from her job mid 2008. I was fired from my job Jan 3, 2009. Of course the first few weeks were a shock and I was on the verge of falling into depression. I pulled myself out of bed one morning with the realization that I really have the opportunity of a lifetime! I have the time to do what I really wanted and enough money coming in to stay afloat while I chased my dreams.

1st I wanted to get into shape. I went for a run and was able to go almost 1/2 mile straight. I kept running and got up to about 3 miles but realized I would never accomplish "getting into shape" unless I set a goal and did whatever it took to achieve it. I decided to set the high goal of running a full 26.2 mile marathon, even though I haven't ever ran a race longer than a 1/2 mile track meet in high school almost 20 years ago. I completed my 1st marathon on Oct. 24th, 2009.

2nd I wanted to start my own business. I had a construction background and little investment money. I decided to go with a sweepstakes directory. I entered some before with some success and thought with as bad as the economy is, I bet a lot of people are looking for a way to get some extra money themselves. A few thousands bucks later my website SweepsPlay went live. I had to go back to work because it doesn't make enough to support us yet, but it is growing. Hopefully in the next year or so my wife and I can be home together again and spend time doing what we love without the stresses of money on our shoulders.

My point is that if you have lost your job, it is tough. I know, I have been there. Just keep your head up. It could be the best thing that ever happened if you take advantage of the opportunity. If you still have your job, prepare for the time you may not have it anymore. Good luck..

February 08 2011 at 1:44 AM Report abuse +1 rate up rate down Reply
dghrtymrd02

I think the way corporations have used technolgy play a roll in the economy going south. instead of a corp. spending R&D money on making the final product better, corps spend money on making the product more profitable. CHEAP! if you will; How many times over the years have we all purchased a item that just didn't work or broke before you could use it for the first time, you know the story. it was easier to throw it away than going threw the trouble of return or replacement. I find what works and stay with it, i don't care how old it is. the old timers will tell of when things were made with pride and meant to last, you got your monies worth. Now days its meant to look like it will work because the corps want to sell you another product and another,another. The all about profit business plan has caught up, people are finished throwing good money away on Junk. Junk and growth only works for the junkman!

February 07 2011 at 10:27 AM Report abuse +2 rate up rate down Reply
donstheone

To compete in the marketplace, American corporations have had to export many manufacturing and other jobs. See "Outsourced" on TV for an example. Also go to your localo WalMart and try to find an American-made product; there aren't many. If the government really wants its citizens to have jobs, then there should be increased import duties on these, and all other imported products, sufficient to make the American worker and their products more competitive. The combined value of the taxes and the additional income taxes from working Americans would help the balance of payments.

February 07 2011 at 9:26 AM Report abuse +1 rate up rate down Reply
john

California is a mess.We have levy repairs,water and treatment plants, roads and money that was to go to teachers we used to ballance the budget,still upside down.It seem just some very bad management and someone sleeping at the economic switch.Can the usa recover with out california?We shall see, it ain't happening.

February 06 2011 at 10:01 PM Report abuse +1 rate up rate down Reply
martinsportraits

This so called great Recovery is a myth perpetrated by journalists on the Wall St. payroll with the intention of instilling confidence in the small investor to gamble away what is left of their nest egg so they can be robbed once again ....If you have the IQ of a squirrel , you can see the actual figures do not by any stretch of the imagination support a healthy American economy!

February 06 2011 at 6:33 PM Report abuse +2 rate up rate down Reply
martinsportraits

The real unemployment numbers are much more dismal than the absolutey fraudulent figures you are hearing , Part time , seasonal temp work , people that have simply given up looking for work and have entered the welfare system are all factors that aren't even being considered in these equations , The US economy is on the skids and everyone knows it. American Industry , once the envy of the world , is now boarded up factories and tumble weeds , No amount of feel good articles penned by Journalists on the Wall Street payroll are going to fool the American people! The reality is that there has been no recovery whatsoever!

February 06 2011 at 5:26 PM Report abuse +4 rate up rate down Reply
metter's world

If I had a million dollars to invest I'd store it in a bank or in a mattress-You cannot insult people with money, nor tell people how to spend, nor keep rambling on about how much of their money you would like to steal from them to pay for your own failures. No jobs will be created until Obama and compnay actually get their acts together. China doesn't make us borrow money for stuff we can't afford-thats all us!!! In politics spending other peoples money on failure to make yourself feel better is wrong

February 06 2011 at 2:12 PM Report abuse +2 rate up rate down Reply
MARTY

government is buying imported products rather than " buy American ". They send our money to China for imported goods then China loans our own money back to us and charges us interest on our own money !

February 06 2011 at 12:14 PM Report abuse +4 rate up rate down Reply
metter's world

Obama is to blame. Look at the record. He taxes business through his healthcare plan-he spends money on rich bankers and to further stimulate the economy he goes on date night with his wife to New York City. That is his whole economic plan. FAILURE!!!!

February 06 2011 at 12:14 PM Report abuse rate up rate down Reply
metter's world

obama

February 06 2011 at 12:12 PM Report abuse +1 rate up rate down Reply