A Perspective from Main Street: Long-Term Unemployment and Workforce
- Part I: Developing the Labor Force Supply
Part I: Developing the Labor Force Supply
The U.S. labor market is dynamic, constantly experiencing a series of transitions or "labor flows." Individuals move from one job to another, from an unemployed to an employed state and vice-versa, or out of the labor force entirely. Since the end of the recession, the rate at which workers are laid off has fallen dramatically and is near its pre-recession level. However, the transition rate from unemployment to employment remains well below its pre-recession level.5 Recent research also finds that of those transitioning out of unemployment to employment, individuals with higher levels of education are more likely to remain employed.6
The simultaneous increase in both unemployment and job openings that the U.S. is currently experiencing indicate changes in the matching efficiency of the labor market. An example of this might be fundamental technological change which creates a gap between the skills needed for open vacancies and the skill set of the unemployed.7 For 30 years, the notion of a skills mismatch has factored prominently in national thinking about the problems with the labor supply. The forum participants' description provided below is confirmed by employer surveys, anecdotal information, and media reporting. For instance, a 2011 study by The Manufacturing Institute found that, despite recent layoffs, an estimated 67 percent of manufacturers experienced a "moderate to serious" shortage of qualified job applicants during the recent recession.8 Nevertheless, a number of researchers have cited the need for more quantitative evidence to substantiate a skills mismatch. High unemployment despite increasing job vacancy rates supports the mismatch notion. Over the past three years, the job openings rate has increased somewhat more for manufacturing (from 1.1 percent to 2.3 percent), than for the economy as a whole (from 2.0 percent to 2.9 percent).9 However, there is no clear-cut evidence of a broad-based skills mismatch, and a number of competing theories exist that explain the poor job market.
Fragmented Workforce Development Systems
The goal of workforce development efforts is to foster more efficient transitions from job to job and from unemployment to employment. Many forum participants addressed the tangible benefits of or challenges to local workforce development programs. In theory, workforce development systems are designed to bring together employers, educators, and related service providers to supply a trained labor force that meets local industry needs. However, throughout the forums, a number of participants voiced concern that the programs and services in their regions are disconnected, or fragmented. Participants noted that, typically, there is no centralized agency or communication tool at the state or regional level to coordinate the various stakeholders involved in educational and training programs. As a result, workforce training providers and those seeking training must contend with multiple funding streams. For example, in the state of New Jersey, providers of government-funded employment and training services are hampered by the fact that there are more than 40 separate federal programs with separate funding streams and eligibility criteria.10
In many instances, forum participants expressed concerns about the inefficiencies that result from the multitude of training systems intended to assist unemployed persons. For example, in Maryland, forum participants remarked on the need to better align the Kindergarten through twelfth grade (K-12) education, technical and community colleges, workforce agencies, employers, and social services networks. Their comments indicated that these programs make positive contributions to education, trainings, and job linkages, but that the state needed to establish an integrated system in order for these programs to make a significant impact on unemployment in the region.11
Secondary Education Disconnected from Labor Market
In several forums, participants stated that the K-12 educational systems in their regions are too insulated from the demands of local labor markets. These individuals felt that secondary school curriculums typically focus on the students' progression to higher education, and not a job, and further, that many school systems do not consult local employers or economic developers when developing courses or curriculum. For example, participants in Texas noted that bridging the communication gap between education and employment should be a two-way street: While employers must take responsibility for communicating their labor needs, educators must be responsible for designing systems nimble enough to respond to employer demands.12
Several forum participants raised concerns about the loss of vocational training in public high schools, and indicated that schools need to present more vocational options in order for students to understand the requisite skills and income offered by these jobs. They stated that without adequate vocational training or counseling, students that do not matriculate to an institution of higher learning leave high school with few income-earning skills and a poor understanding of alternative career options.
Some forum participants indicated that many secondary schools have subordinated vocational training to college preparatory tracks and other secondary schools have eliminated vocational training completely. As a result, trade and manufacturing jobs in many communities are going unfilled due to a lack of qualified workers. For example, a participant in Alabama noted that his business could not invest in new, state-of-the-art machinery because he could not identify workers with the skills and experience needed to run the equipment.13
In general, participants expressed a need for high schools to offer a range of quality educational opportunities and recognize that not all students will earn a college degree. Furthermore, participants noted that perhaps students do not need to choose between vocational training and higher education. Vocational skills can provide a means to earn income while attending school. In fact, without vocational training in high school, students who eventually select a trade profession must often pay for additional education through trade schools or community colleges.14
As vocational training is reintroduced to secondary schools, some participants stressed that it is important to ensure that students are not "tracked" to vocational programs. Rather, the opportunity should exist for every student to make a determination regarding their appropriate path.
Community colleges are positioned to offer training for people at all stages of their work life. Broadly, this includes students entering the workforce for the first time as well as those seeking to improve skills because they have been displaced, are pursuing a new line of work, or are moving up a career ladder. That said, forum participants noted that some community colleges struggle to align course offerings with students' and employers' demands in times of change. As a result, in communities facing layoffs and high unemployment, some community colleges have not always been able to accommodate the large influx of students. For example, Concord, North Carolina, experienced substantial job losses with the closing of textile mills. Local forum participants noted that the number of students interested in re-training classes continually outpaces the capacity of the local community college. For example, prospective students can face a three-year wait for community college classes in nursing.15
Participants also noted that some community colleges are not able to provide the flexibility needed to accommodate student schedules. They suggested that traditional school schedules based on seasons be replaced with shorter periods that are more in line with business cycles and industry planning horizons. However, while programs that offer short-term "stackable credentials" often meet employer needs, these programs do not align with student funding sources.16 Currently, student financial aid, such as the Pell Grant, is tied to instruction that offers credit-hours towards degrees. Workforce programs that are more flexible and can qualify for financial aid are needed to meet changing labor demands. Part of this demand involves training more employees at a faster rate.17
Workforce development is often framed in a sector-based approach by focusing on the needs of a specific industry. Sectors are identified based on their likelihood to offer additional jobs, provide jobs that meet certain criteria, or contribute in other important ways to the local economy. A primary purpose of many sector projects is to improve the job prospects or quality of jobs for LMI wage workers, either by increasing their access to good jobs or improving the wages and benefits at jobs they already hold.18
Historically, the manufacturing sector has served as an employment base for many U.S. communities. The past 30 years have brought several significant changes, including the off-shoring of many low-skill jobs. The result is that a high percentage of the remaining positions require higher education or specialized training.
During the forums, several participants cited manufacturing as a sector where local workforce development efforts fall short. According to these participants, there are not enough appropriately-skilled workers to meet the specific labor demands in their communities. They noted that, as a result, jobs are left unfilled, and employers are hesitant to grow their companies. Some participants attributed the lack of available workers to a "skills mismatch," others commented on the challenges of attracting workers to a field that is perceived as unstable (with a tradition of layoffs), and still others noted a disconnect between educational curriculums and labor markets.
In Alabama, employers collaborated to address the skills gap they experienced when filling manufacturing jobs. According to these employers, some manufacturing businesses in the state found it difficult to fill job vacancies, many of which required a two- or four-year degree with technical or computer programming experience. Participants attributed the problem to a local workforce development pipeline that is ill-equipped to meet the demand for specific skilled labor, such as welders and technicians. Accordingly, many of these manufacturing jobs went unfilled due to the shallow pool of qualified applicants.19
Employers in Alabama came together under the Southwest Alabama Workforce Development Council (SAWDC) to address the skills gap. Although SAWDC does not provide direct training, the organization created an integrated, comprehensive, and dynamic workforce development system. This system provides a feedback loop between the business community and the K-12 educational system to identify skills that are in high demand and to provide guidance for curriculum development that will enable students to access the local job market. According to these employers, the result of this effort is 20 years of substantial growth in the local manufacturing sector.20
However, other communities have not seen similar sector growth. In Eden, North Carolina, participants discussed the community's struggle to re-train workers laid off by its primary industry, textiles, as it moved overseas. The community was hard hit by the closing of many mills in the 1980s. Nearly 30 years later, despite reported growth opportunities in manufacturing for skilled technicians, the community has struggled to align training with demands for labor. Forum participants stated that many industrial cities that experienced significant and widespread manufacturing layoffs continue to suffer from high rates of persistent unemployment.21
5. Bernanke speech (March 26, 2012). Return to text
6. José Mustre-del-Río, Didem Tüzemen, and Jonathan L. Willis (2012). "Heterogeneity in U.S. Labor Market Flows," unpublished manuscript, Federal Reserve Bank of Kansas City, Economic Research Department (May). Return to text
7. John Lindner and Murat Tasci (2010). "Has the Beveridge Curve Shifted?" Federal Reserve Bank of Cleveland, Economic Trends, August 10, www.clevelandfed.org/research/trends/2010/0810/02labmar.cfm (accessed December 18, 2012). Return to text
8. The Manufacturing Institute (2011), Skills Gap Report, www.themanufacturinginstitute.org/Research/Skills-Gap-in-Manufacturing/2011-Skills-Gap-Report/2011-Skills-Gap-Report.aspx . Return to text
10. Forum in Trenton, New Jersey, on February 28, 2012. Hosted by the Federal Reserve Bank (FRB) of Philadelphia. See Appendix A for a complete list of forums. Return to text
11. Forum in Baltimore, Maryland, on February 13, 2012. Hosted by FRB Richmond. Return to text
12. Forum in San Antonio, Texas, on January 26, 2012. Hosted by FRB Dallas. Return to text
13. Forum in Mobile, Alabama, on February 1, 2012. Hosted by FRB Atlanta. Return to text
14. Forum in Memphis, Tennessee, on February 23, 2012. Hosted by FRB St. Louis. Return to text
15. Forums in Eden and Concord, North Carolina, on January 31 and February 1, 2012, respectively. Hosted by FRB Richmond. Return to text
16. A "stackable credential" is part of a sequence of credentials that can be accumulated over time, allowing an individual to build their qualifications and move up a career ladder to different, and potentially higher-paying, jobs. See U.S. Department of Labor, Employment & Training Administration (2010), "Increasing Credential, Degree, and Certificate Attainment by Participants of the Public Workforce System," Training and Employment Guidance Letter No. 10-15, Attachment A (December 15), http://wdr.doleta.gov/directives/attach/TEGL15-10a2.pdf
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17. Forum in Kansas City, Missouri, on January 23, 2012. Hosted by FRB Kansas City. Return to text
18. Sunny Schwartz and Johan Uvin (2004), "Benefits of a Sector-Based Approach," Center for State Innovation, Research and Evaluation Brief, vol. 2, issue 3 (January), www.stateinnovation.org/Research/Economic-and-Workforce-Development/Sectors-and-Clusters/BenefitsofSectorbasedApproach.aspx . Return to text
19. Forum in Mobile, Alabama, on February 1, 2012. Hosted by FRB Atlanta. Return to text
20. Forum in Mobile, Alabama, on February 1, 2012. Hosted by FRB Atlanta. Return to text
21. Forums in Eden and Concord, North Carolina, on January 31 and February 1, 2012, respectively. Hosted by FRB Richmond. Return to text