The nation has 3 million jobs going unfilled. And without retraining, U.S. workers may not be able to fill them

By Peter Coy

Surprising statistic: In the midst of the worst recession in a generation or more, with 13 million people unemployed, there are approximately 3 million jobs that employers are actively recruiting for but so far have been unable to fill. That's more job openings than the entire population of Mississippi.
Sound like good news? It's not. Instead, it's evidence of an emerging structural shift in the U.S. economy that has created serious mismatches between workers and employers. People thrown out of shrinking sectors such as construction, finance, and retail lack the skills and training for openings in growing fields including education, accounting, health care, and government. At the same time, the worst housing bust in decades has left the unemployed frozen in place. They can't move to get work because they can't sell their homes.

As bad as it is now, the mismatch will create bigger problems when the economy begins to expand again. First, the unemployment rate is likely to remain distressingly high because many people who want jobs will lack the appropriate qualifications. Second, inflation could pick up sooner than expected if employers are forced into bidding wars to recruit the few people who are qualified for the work. Third, if unemployment stays high it will put additional political pressure on Congress and the Obama Administration to push through fixes that could make matters worse in the long run, such as insulating workers from the cost of long-term unemployment to the point where they lose their appetite for work.


The danger is that the U.S. labor market will become less flexible at the very time that Europe's labor market is finally loosening up. To avoid that situation, both employers and governments will have to step up retraining. Meanwhile, workers and employers will have to accept harsh new realities: lower pay for workers starting new careers, and imperfect fits for employers filling vacancies.

All in all, not a pleasant prospect. Says JPMorgan Chase (JPM) Chief Economist Bruce Kasman: "It's been a pretty damaging recession. A lot of relatively skilled full-time workers are losing jobs that are just not going to be there again. There is likely to be an unusually large skills mismatch."
The U.S. economy has changed dramatically over the past couple of years—faster, it seems, than the workforce can adapt. The evidence is clear in an underappreciated report from the Bureau of Labor Statistics known as JOLTS, for Job Openings & Labor Turnover Survey, which has been issued monthly since December 2000. It contains a statistic called the job openings rate, which is the percentage of all jobs in the U.S. that are unfilled. An employer must be actively recruiting on the outside for an opening to be counted. On the last business day of February, 2.2% of all jobs in the U.S. were open—3 million altogether. That figure is corroborated by the Conference Board's report of 3.2 million online advertised vacancies as of March.

True, dislocation occurs in every recession (although not on quite this scale). True, too, the surplus of unfilled jobs is smaller now than it was at the beginning of the recession, according to both the Bureau of Labor Statistics and the Conference Board. At 2.2%, the JOLTS rate is down from 3% in February 2008. But some decline is to be expected. The surprise is how many unfilled jobs there still are given that, in the same year, the unemployment rate shot up from 4.8% to 8.1%.

Just as the unemployment rate measures problems in the labor market from the workers' perspective, the job openings rate measures the difficulty that employers have filling slots. While economists usually focus on the unemployment rate, in many ways the job openings rate is just as important.
To get a complete picture of the labor market, BusinessWeek constructed a new measure that we call the "jobs misery index." It is simply the sum of the unemployment rate and the jobs openings rate. This sum was stable at around 8% for years, including during the 2001 recession. But starting last spring it began a steep ascent to more than 10%. The question is whether it will return to the 8% range when the economy recovers or stay high for years to come.

One reason the jobs misery index is so high: The housing bust has reduced Americans' mobility. The Census Bureau reported on Apr. 22 that the percentage of the population that moved was the lowest since recordkeeping began in 1948. Home-owners, the Census found, were only one-fifth as likely to move as renters. The upshot is pockets of persistently severe unemployment—coincident with places such as North Dakota, where the 4.2% jobless rate is the nation's lowest. Sykes Enterprises (SYKE) plans to close a 200-person call center in Minot, N.D., on May 10 for lack of workers, and fast-food restaurants there are putting workers on overtime to cover shifts.

Immobility is sometimes a matter of choice. Dean Drako, the CEO of security and network appliance company Barracuda Networks, has been hunting for months for a vice-president of worldwide sales, as well as other key positions. Out of desperation he gave up a Friday night with his family in April to attend a mixer heavy on Ivy Leaguers at San Francisco's tony University Club, certain he could poach some talent there. When Drako handed his card to a potential recruit who had been out of work for six months, the person looked at the company's Campbell (Calif.) address and sniffed: "Oh, forget it, you're geographically undesirable." Says Drako: "He practically handed my business card back to me!"


Even some people from hard-hit cities such as Detroit and Cleveland have passed up well-paying jobs with medical device companies in places like North Carolina because they don't want to move, says Lisa Mesnard, an executive recruiter with the Wellington Group in Fuquay-Varina, N.C. "I find it daily," she says. "They're ingrained in the community. [Although] they don't have a job, they're willing to wait it out."

Where moving is not an issue, employers are nonetheless exasperated by the difficulty of filling jobs when so many people are out of work. Just ask Irina Lutinger, who is at wits' end trying to hire laboratory workers at NYU Langone Medical Center in Manhattan. The senior administrative director for clinical laboratories says 10% of the unionized jobs are unfilled, slowing down patients' lab work. Laboratory technologists earn from the mid-$40,000s to the high $60,000s a year, with good medical benefits and four weeks of vacation. Is that attracting career switchers who want to get retrained and take the licensing exam? Says Lutinger: "We haven't seen it yet here."

Labor advocates don't buy the argument that the U.S. is suffering from worker shortages. They say employers simply aren't willing to pay enough to attract workers. "Whenever employers want a more vulnerable workforce, they declare a labor shortage," says Ana Avendaño, chief counsel and director of the immigration worker program for the AFL-CIO. She has a point. For example, the shortage of primary care physicians that President Barack Obama has been talking about would likely work itself out if primary care doctors were paid anything close to what specialists get.

But higher pay is no panacea. Some jobs require specialized skills for which no amount of money will generate higher labor supply until a new generation can be trained. Demand for accountants, for example, is likely to stay strong even after the financial crisis. Right now, "the restructuring business, bankruptcy attorneys ... they all are incredibly busy. And it's not as if you can all of a sudden invent these people," says Brian Sullivan, chairman and CEO of CTPartners, a New York-based executive search firm.

IBM (IBM) is feeling the skills mismatch problem as it changes its focus to services and data analysis. On Apr. 28, Big Blue announced that it plans to add 4,000 specialists in what it calls "analytics." It hopes to get as many as possible by retraining, using some of its $1 billion-a-year training budget. Consultants who install software might learn to help companies spot patterns in their data to improve efficiency. But IBM is still laying off thousands of people who have no place in the new company. "It's really easy to find people that are 50% of what you are looking for," says Jim Spohrer, director of university programs at IBM. "It's really hard to find people that are 90% of what you are looking for. This is a real dilemma."


Good help can be hard to find at the bottom of the pay scale, too. In Maryland's Dorchester County, where the jobless rate is 11.5%, crab processors are trying to fill 300 jobs that pay $6.71 to $14 an hour depending on how quickly people can pick meat from crab shells. Most of the work is done by Mexican women on temporary work visas. Crab companies held a job fair in early April, but only two locals applied. "People don't want to go back down the economic ladder," says Bill Sieling, executive director of the Chesapeake Bay Seafood Industries Assn.

Does the persistence of job openings coupled with high unemployment mean that the U.S. is at risk of becoming like the Europe of the recent past, with its rigid labor markets? Could be. Obama's stimulus package improves U.S. jobless benefits, which while justifiable on humanitarian grounds do make workers less eager to jump at the first job offer. The housing crash has increased immobility. And the sheer length of this recession is making jobless Americans rustier and less employable, says economist Laurence M. Ball of Johns Hopkins University. To fight this sclerosis, the White House is using $3.5 billion of the stimulus for training, while boosting support for community colleges. Classes for factory workers seeking entry-level health-care careers have shown some success.

The truth is, displaced workers may have to move down a few rungs as they switch careers because their skills are irrelevant in their new roles, says David H. Autor, a labor economist at the Massachusetts Institute of Technology. Many laid-off Wall Street financial engineers still haven't absorbed that, says Fred Wilson, a partner in Union Square Ventures, a New York venture capital firm. "For them to take a job that pays a lot less, they have to make a meaningful change in their lifestyle. And that is an issue."

Employers need to bend as well, recognizing that the candidates they're seeking may not exist. Mark Mehler, co-founder of CareerXRoads, a staffing strategy consulting firm in Kendall Park, N.J., tells employers: "You're hiring potential....You've got to train them."

A mismatch of work and workers is never a good thing. But smart policy—combined with realism on the part of employers and job seekers—can minimize the disruption.


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