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Recession's Impact on the Workforce

March 2012

Tom Heintjes: Welcome to the Federal Reserve Bank of Atlanta's EconSouth Now podcast. Today, we're joined by Nicole Smith. Nicole is a senior economist at the Georgetown University's Center on Education and the Workforce, where she leads the center's econometric and methodological work. Nicole has developed a framework for restructuring long-term occupational and educational projections. This framework forms the underlying methodology for "Help Wanted," a report that projects education demand for occupations in the U.S. economy through 2020. She is part of a team of economists working on a project to map, forecast, and monitor human capital development and career pathways. She'll be speaking with us today about the effects of recession on the workforce. Thank you for joining us today, Nicole.

Photo of Nicole SmithNicole Smith: Thank you for having me.

Heintjes: Nicole, I'd like to start by asking you about your work. Much of your work focuses on the linkages between education and labor market outcomes. Can you tell us a little bit about this relationship?

Smith: Well, traditionally education and the labor market have existed in two distinct silos. Educators often concern themselves with the goal of creating well-rounded citizens, well-rounded citizens with the ability to learn and to absorb learning and to teach themselves. So, it's all about creating this person for the greater good—a social benefit. And when you think of the labor market, the labor market then concerns itself with production, productivity, output growth, creating goods and services for the nation. So, these are the traditional roles, and we understand that the labor market will use the fruits of the education system, but there is often little effort made on the part of educators to fulfill the demand by employers. Any attempt to do so is often judged negatively by educators if you tell them, "Well, how are you preparing students for the workforce?" You hear terms such as "the commodification of education." It's frequently frowned upon, as if surely education has more noble goals than creating foot soldiers of capitalism.

So what has happened is that we have education existing solely, independently for the creation of this citizen, this good citizen, a well-rounded individual. We have the labor market existing to produce goods and services using the pipeline from education, but they are in two distinct silos. Employers have often, on the other hand, lamented the inadequacies of the employees handed down to them. You hear lots of stories about knowledge, skills, and abilities that for all intents and purposes should have been learned in the education system [but] remain wanting. You even hear stories about soft skills, such as communication skills and networking and general people skills that have grown in importance in this 21st century requirement, but they still remain insufficient.

What's happened is that we spend all our time, at least in the Center on Education and the Workforce, trying to get rid of these really distinct silos and to foster greater communication between both groups and to bridge the gap. Getting rid of the silos is challenging, mainly because it goes against rigid tradition. But particularly, if you think of the aftermath of this "Great Recession" of 2007, if you can't use the education you've obtained to get a job, then what good is it? Gainful-employment legislation most recently—which was targeted at for-profit institutions—really gets to the core of this rationale. You talk about "gainful employment," saying, "In order for for-profits to use government funds, they ought to at least demonstrate that once you have completed this particular education requirement, you can obtain a job that will allow you to pay it back." So while we don't want to diminish all the other important goals of education, it is important that once you get an education that you are competent to perform the job or create your own. Those two things should be at the top of the list. So there really needs to be closer connectivity between what educators are teaching students or what they teach students to teach themselves, and what demands of the job markets are so that people who leave—once you leave your educational institution and you walk into that job—are much more competent to perform adequately.

Heintjes: Right. Thanks for clarifying that. Nicole, this economic downturn was marked by a surge in the ranks of the long-term unemployed. I want to ask you, to what extent does the level of educational attainment factor into the size of the long-term unemployed cohort, and further, how was educational attainment related to long-term unemployment in the most recent recession versus earlier ones?

Smith: Well, first let's gather some statistics. Right now, 5.6 million people in the U.S. have been unemployed for six months or more. That's 43 percent of all unemployed and just about 4 percent of the entire labor force. When you look at the composition of the long-term unemployed, the labor market has shown that they are disproportionately African-American, they are disproportionately a minority, and slightly more likely to be male, and—as you pointed out—significantly more likely to have a high school diploma as their highest level of education attained. So the long-term unemployed, as a whole, face far greater obstacles than anyone else, and these obstacles are real as well as psychological. Surely, we are talking about temporary lack of demand for goods all around. We know that there have been 8.2 million jobs lost since the recession began. We know that the industries hardest hit have been industries that are traditionally minority-based, such as construction and manufacturing. So employers begin to be concerned regarding whether the long-term unemployed are indeed employable and [whether] you have a reinforced outcome as a result. So if you put down on your resume the length of time since your last employment, that in and of itself becomes a disadvantage to you.

Heintjes: Right. And I just wanted to get a context in the current situation with the long-term unemployed versus earlier recessions and earlier downturns. Has it always been the case that this is the way it is?

Smith: Well, we've always had long-term unemployed but never to this extent—first to the size of the long-term unemployed that we see now, as well as the length of time. The length of time that people remain unemployed long term is much longer now than it was in previous recessions.

Heintjes: Right.

Smith: So, that's something that has really, really grown over time.

Heintjes: Nicole, we know that women today are more likely than men to get a college degree. Did these differences in educational attainment between men and women factor into the unemployment gap we saw during the recession, where men suffered significantly higher job losses than women?

Smith: Well, part of that is true. It's true that women disproportionately were less unemployed than men were, but the reasons are far more complicated than simply "women have more education." Women are very peculiar. And if you think of the types of jobs that are traditionally dominated by women, you can think of things such as nursing, teachers, health-care workers—all which have this sort of underlying caregiver component to them. So now when you look at the industrial composition of jobs—where the job losses are and where the job growth was—you find that the biggest losses were in manufacturing, the biggest losses were in construction, and those are very, very male-dominated industries.

Heintjes: Yes.

Smith: And those are the ones that hemorrhaged the most jobs. During the recession, the only two sectors that continued to add jobs were health care and education. You know, when you have so many more women in health care, it makes them better off.

But another interesting thing is that women are often able to take on, or have traditionally taken on, jobs that pay lower wages than men. Or outside of the recession, a lot more women came into the workforce. The participation rate for women—especially in two-parent homes when the men lost a job—the women came into the market and started working, even if it was for less money. So that's a concern for us as well. People talk about the fact that it's a "mancession" and more women are working, but they're working at lower wages.

Heintjes: That actually leads me into my next question for you, which is, was this actually a "mancession" relative to other recessions or is that a little misleading?

Smith: The preoccupation with the males, I think, can be a little bit misleading because it gives you the impression that men were specifically targeted, but in reality, it's the choices—the occupations that men were in and the industries that men were in—those were the ones that felt the brunt of the recession. Therefore, because men were in those industries, then men were disproportionately affected. Construction, for example, is male-dominated. Of the 8.2 million jobs, 2 million of those were lost in construction, 2.1 million in manufacturing. So when we talk about where jobs were lost, it is true that men are the ones that suffered the most, because they were found in industries that lost a lot of workers. And women were concentrated in health care and education—or even government, for example, which also fared okay and weathered the storm during the recession.

Heintjes: So what I'm hearing is that this outcome is not really dissimilar from past downturns.

Smith: Well, not so much. When you look at the 2001 recession, for example, that recession was also largely led by manufacturing, with huge amounts of manufacturing losses. Manufacturing employed two out of every five American workers in 1979, and that number has now dropped to maybe one in nine workers, or one in ten workers. So manufacturing, although it continues to lose workers, it also is a very productive industry. That is often a difficult pill to swallow because we often say that manufacturing is a victim of its own success. Because it's been so successful at doing more with less workers, then the workers that remain—or at least the types of jobs that remain—are required to have a lot more skill than they did in the past, and those workers are extremely productive. Just to throw a statistic out there: in 1979—which is some of the research we have done on manufacturing—productivity per worker was about $100,000 to 1. For every worker out, that worker contributed about $100,000 per household. In 2008, the productivity per worker was about $300,000 to 1.

Heintjes: Wow.

Smith: And we moved from two in five to one in nine workers, so we were able to increase productivity substantially by using less and less workers.

Heintjes: That is remarkable. Nicole, I wanted to touch on something you mentioned earlier. As you noted, some of the hardest-hit groups during the recession were men, younger workers, the less educated, and some minority groups, especially blacks and Hispanics. How have these groups historically fared during economic recoveries, and is this recovery following similar patterns?

Smith: Well, historically, black unemployment levels have always been twice as high as that of whites, in and out of recession. Just to give you some examples in the recent past, if black or African-American unemployment rate was about 16 percent, you have a comparable 8 percent for whites. If I think of a ratio of three to one, that's the ratio of unemployment between those with a high school or a college degree. Three to one, young versus old workers. If one in five young white workers is unemployed, then two in five—or closer to three in five—young black workers are unemployed. So once you look at unemployment by race and unemployment by gender, African-Americans and Latinos are far more likely—especially if they are young, which we define as under 24—to be unemployed.

Your question is how is that different from the past. It's very, very similar to recessions we've seen in the past. There's a phenomenon we like to call "first fired, last hired" when we are describing what happens with African-Americans in recessions. And we found that by looking at recessions, you can often use the unemployment rate of African-Americans as an indicator of what will happen a few months down the road to the rest of the population. So we have an issue here that the unemployment data over the past recessions tell an interesting trend.

Heintjes: What are you able to infer from what you are seeing now?

Smith: What we are able to infer now is that once you look at the unemployment rate by race, you realize that all these months outside of the recession, you have a lot more minorities being rehired again. Their rate of rehiring only often lags that of white Americans by a few months, so this is actually giving us really good signs that we are in the recovery and that we are seeing a substantial amount of recovery here.

But I want to just answer a little bit of a question that you haven't asked, which is what we expect in the future. And we should really be concerned about the change in demography in the nation. By 2050, the Census Bureau has forecast that if you were to add up the number of Latinos and African-Americans in the country, their numbers collectively would be larger than the white population, so by 2050 the minority becomes the majority.

Well, why are we concerned about this? We are concerned because traditionally minorities have been less educated and have lower levels of attainment, and it's been much more difficult to attach to the labor force. Labor force participation rates are also different. So these can have really distinct outcomes for output overall and productivity. So my concern here would be, outside of this recession, how do we ensure that the long-term unemployed are better connected to the workforce? How do we retrain those who have lost their jobs, jobs that aren't coming back? How do we retrain them for new opportunities in the future? How do we retrain them for the jobs that return?

Heintjes: I can see where that is quite a challenge. Nicole, you mentioned earlier that young people were one of the hardest-hit groups during the downturn. How does missing out on work skills affect outcomes for them over the longer term?

Smith: Well, whether you're young or old, you don't want to sit on your skills. You don't want to sit on your old skills and not develop new ones. We have to consider ourselves now as living in a society where everyone is constantly learning. You're constantly ensuring that you are at the cutting edge of new technology, that you are useful, and that you can make a contribution. And part of that is through educating yourself. When we think about educating yourself, it's not necessarily going back to school as a 40-year-old or a 50-year-old to get a bachelor's degree, but you can consider stackable certificates, you could consider postsecondary vocational certificates and other industry-based licenses and certificates, something that better connects you to the marketplace, better demonstrates your abilities to do the skill, or better demonstrates your ability at the job.

If you have to consider the alternative—suppose I'm disconnected from the market for this amount of time—I think people should be thinking of how best to place themselves so that they can hit the ground running when the new opportunities arise. When we talk about retraining and postsecondary education and training, it's not necessarily a bachelor's degree. But we can talk about middle skills, postsecondary vocational certificates, industry-based licenses—anything like that, which shows or demonstrates that you now have the capacity to work on these new machines—you now have the capacity to attach yourself to the new type of technology that's out there.

Heintjes: Nicole, I want to thank you so much for you time and talking to us today. It was a really fascinating conversation.

Smith: Thank you.

Heintjes: Again, we've been speaking today with Nicole Smith of Georgetown University's Center on Education and the Workforce. This concludes our EconSouth Now podcast on the recession's effects on the workforce.

For more information, please see the first quarter 2012 edition of EconSouth. On our website, www.frbatlanta.org, you can read our article about the recession and its employment effects. Thanks for listening, and please return for more podcasts. If you have comments, please send us email at podcast@frbatlanta.org.