Long-Term Unemployment, and the Skills Erosion Myth

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Whatever the direction of Friday's jobless number, it can't be stressed enough that unemployment of the kind we're suffering at the moment is a wholly unnatural phenomenon wrought by government distortion of wages and benefits, and sagging investment that results from policies in favor of a weak dollar. It will be addressed further along in this article, but joblessness today remains high largely for those two reasons.

But first, one aspect of Friday's report that is easy to predict concerns the long-term jobless. Whether coming from the left or the right, reportage on this subset of the unemployed will almost certainly read like this recent account from a national right wing political magazine:

"The longer people stay unemployed, the more they lose their skills, including the habits of work. Many of them become demoralized and drop out of the labor force altogether (an especially dangerous development when demographic trends are already shrinking our labor force). At that point they become immune to even the best countercyclical policies - which, in any case, we do not have."

Readers can take it to the bank that the above will inform nearly all analysis of Friday's number, and because it will, they should save what is precious time by skipping the commentary on the long-term unemployed. They should because it's quite a bit of nonsense.

The argument that seemingly supports this static view of the economy is that the longer individuals are out of work, the more they forget the skills that made them productive workers to begin with. At first glance this notion seems compelling in that we all know to varying degrees how difficult it is to resume prior productivity once back from a vacation.

Also, it could be argued that the long-term unemployed perhaps suffer a confidence problem. For having been out of work for quite some time they lack the self-belief to energetically seek new work, and then potential employers perhaps wonder why they were jobless for so long.

Both are initially intriguing, but don't stand up to greater realities. Put simply, unless we're the beneficiaries of large inheritances, great investors, or both, we all eventually have to find work. We may not get the kind of work that we love, but we all eventually find our way back into the workforce; time away from the office or plant not a factor.

After that, it should be said that the underlying beliefs about the impact of long-term joblessness assume a static economy where today's skills apply to tomorrow. The reality is of course much different from this most backwards of views.

Indeed, what's certain in a global economy happily defined by change is that we don't know which skills will be valued by the markets next week, let alone after 99 weeks of unemployment benefits. Without defending the latter for even one second, whatever skills employers require of the unemployed once back in the factory or office, those same workers will surely adapt to what's needed; something the academics who claim to understand unemployment can't possibly know.

When the 20th century began the horse, or a buggy propelled forward by the horse, was still the main mode of transportation for nearly every American. Fast forward 15 years and the formerly obscure automobile was ubiquitous; the latter profoundly changing the nature of labor and skills required (pumping gas?) of an ever adaptive labor force.

By the late 1930s the U.S. military was a hollow shell of its former self, but with a war on multiple fronts (the right or wrong of WWII something to be discussed - if at all - in another column) looming, the world's greatest fighting force was mobilized in fairly short order. Different weaponry, new fighting strategies, yet with necessity ever the mother of invention, Americans lacking war fighting skills soon developed them.

Massive, slow and not terribly relevant in the ‘70s, computers by the 1980s gradually became a part of the national discussion, and then by the ‘90s and beyond they were a fact. No one predicted what eventually came about, but by the ‘90s those lacking computer backgrounds adapted on the way to careers as software developers, not to mention their evolution as workers who used computers.

Internet giant eBay floated its shares to the public in the late ‘90s despite most Americans having never transacted on the Internet at all, but within a few years a growing number of Americans owed their livelihood to a mode of online retail that didn't much exist before eBay's creation. The late Steve Jobs has revolutionized telephony, music, and how we access movies and books, yet as we all know from his biography, his success was a function of giving people what they didn't yet know they wanted. Companies and industries have sprouted alongside Apple's rise, and while Jobs created that which no one had ever seen, a labor force reinvented to facilitate his vision has adapted with great speed.

Two weeks ago Facebook floated its own shares, and with "Facebook" so ingrained in our minds that it's now a verb and a noun, it's a certainty that this global behemoth will alter the makeup of labor yet again. When it does laborers will adjust as they always do. Commentators like to say that sidelined workers lose skills that can't be regained, but the greater truth is that no one - least of all those who presume to talk about the needs of employers - knows what skills will matter down the line. Of course we needn't worry given the happy truth that as workers we learn as much as we need to learn in order to prosper. Or, more to the point, whatever skills today's laborers lack, they'll quickly acquire owing to their desire to earn more.

Back to the real causes of unemployment, those are pretty basic. For one, unemployment is high because with 99 weeks of unemployment benefits, those not working are being paid not to work. Benefits for the jobless very basically raise the cost of luring workers from the sidelines. Also, the fact that Americans save quite a bit (the "savings rate" calculated by the feds a worthless joke) means they have cash cushions that allow them to delay their re-entry into the labor force.

And while it will offend Obama partisans, the imposition of Obamacare is a certain cost. Simply put, President Obama's health plan will - if implemented - force businesses to offer health plans for their employees, or pay a penalty if they fail to. In short, the cost of hiring is much greater today and this shows up in more of the able bodied not working.

Lastly, the economy suffers a weak dollar that is smothering the hiring process. This one is very basic, yet neither political party understands why. But to explain what should be obvious, there are no companies and there are no jobs without investment. Investment involves those with capital delaying consumption in order to buy future dollar income streams. Of course with the Bush and Obama administrations having both pursued weak dollar policies, there's no incentive for those with capital to save and invest in order to create jobs. The weak dollar weighs on the economy more than any policy today, but neither political party has a clue about the sagging dollar's cruel affects.

And so it goes. Distortion of wages and benefits and the weak dollar have unemployment unnaturally high. All of this could be fixed, eventually it will, and when it does all this mythical talk about the affects of long-term unemployment will quickly disappear. Thank goodness.

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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