Tags: Job | Vacancies | barry | elias | employment

Job Vacancies, but Without the Jobs

By    |   Friday, 27 May 2011 08:07 AM

The United States is making history.

That statement is based on a recent essay published by the St. Louis Federal Reserve Bank (STLFRB).

In 1942, William Beveridge postulated the following: the unemployment rate decreases as the number of job vacancies increase.

The rational: the market for employees and employers contains friction, whereby each assesses the other before arriving at a conclusion. As a result, an employer typically needs a large vacancy inventory to absorb the hires effectively and efficiently.

An analogy would be the retail store. Optimal sales and profit generation occur when shelf inventory display strongly exceeds sales.

The excess inventory provides the customer with a diverse selection with available quantities. While you may require only one shirt, the probability of your purchase would be close to zero if the store contained only one shirt in its entire inventory.

More vacancies generate more employment and less unemployment.

The reverse applies as well: fewer openings result in less hires and more unemployment.

For 70 years, the empirical evidence has been well aligned with this theory.

That is, until now.

While job vacancies are increasing, unemployment is increasing (anathema to the Beveridge Curve projection).

According to the STLFRB, the vacancy rate growth from July 2009 (end of the recession) through December 2010 has increased from 1.5 percent to 2.5 percent. Normally, this would correspond to a 3 percentage point decrease in unemployment from 10 percent to 7 percent. Currently, the unemployment rate is near 9 percent.

Why is this occurring?

The reason: a massive debt induced deleveraging recession, which has decimated the underlying socioeconomic framework.

The magnitude of this disaster has created severe uncertainties in the employment outlook. The result has been an unprecedented increase in labor productivity by employees who are concerned with real performance to maintain their positions.

Since the start of the recession in December 2007, the U.S. labor force declined by 6 percent while productivity rose by 6 percent, returning annual GDP to pre-recession levels.

The remaining G-7 nations suffered employment losses of 1 percent to 2 percent with relatively no productivity growth. Initially, productivity decreased in these countries, which is typical, since less output is generated by unchanged worker hours. As unemployment increases, labor productivity increases (the same output is produced using less worker hours).

The U.S. workers that remain in the labor pool tend to be more skilled and productive. While business is advertising more vacancies, they view the remaining supply of candidates as inferior relative to their current labor supply.

The labor supply is severely under-qualified.

This symptom is a manifestation of our education system, which has deteriorated over the past three decades.

Several years ago, my son, a middle-school student in New York City, commented that schools aren’t teaching students how to think. This observation was quite prescient given his years.

Our education system devalues curiosity, knowledge, and wisdom. Instead, it focuses on money and materialism.

The model: obtain good grades, attend Harvard, work for Goldman, become a millionaire or a billionaire.

The fulcrum of that model: the grades.

The grades are paramount, what is actually learned. Therefore, tests were created to ensure the appropriate statistics. These data enabled admissions to fine universities and a continued flow of school funding.

During a recently televised CNN special on education, a former state governor proclaimed that he lied to parents about the progress of their children. He claimed more than 80 percent of the students performed at grade level. In reality, less than 30 percent did. Anecdotal evidence suggests this methodology was generally employed nationally.

My wife and I didn’t solely rely on schools to educate our son.

During the critical 0-5 year period, we were deeply engaged in his cognitive and non-cognitive development. We encouraged exploration, perseverance, and critical/strategic thinking. His studies were constantly supplemented with practical worldly applications, and we remained available to advise and guide as he became more independent in his learning style.

During middle school, he admired the quote from Mark Twain (paraphrase): “I do not want school get in the way of my education.”

As a high-school student, his hourly rate for computer science-consultations exceeds that for the median family household.

Focus first on learning, knowledge, wisdom, and purpose. What follows are the money and material items you require. Our value system was in reverse for many decades. It may take several more to fully right our societal ship.

At that time, the empirical evidence may lie on the Beveridge Curve once again.

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The United States is making history. That statement is based on a recent essay published by the St. Louis Federal Reserve Bank (STLFRB). In 1942, William Beveridge postulated the following:the unemployment rate decreases as the number of job vacancies increase. The...
Job,Vacancies,barry,elias,employment,
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2011-07-27
Friday, 27 May 2011 08:07 AM
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