Wednesday, February 20, 2013

The Evolving Labor Market: Hiring Trends

Economists still insist on discussing the labor market as if such a thing exists in the form found in ancient textbooks: increase the cost of labor and unemployment will rise; decrease the cost of labor and employment will rise. Given the current glut of unemployed people looking for work, employers seem to have become more inventive in filtering out applicants using factors not directly related to cost. It is a buyer’s market and they seem determined to take advantage of it. These are trends that could render a large class of people unemployable.

Peter Cappelli has an article in the Wall Street Journal: Why Companies Aren’t Getting the Employees They Need. He warns us that we should not take too seriously the oft-heard claim that companies have jobs, but there are no qualified people to fill them.

"With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time."

"In other words, to get a job, you have to have that job already. It's a Catch-22 situation for workers—and it's hurting companies and the economy."

This is a fundamental change in the way companies have traditionally conducted business. Cappelli uses the dot-com boom of the 1990s to make his point. At that time any warm body that could tap on a keyboard was considered an acceptable hire.

"Only about 10% of the people in IT jobs during the Silicon Valley tech boom of the 1990s, for example, had IT-related degrees."

Paul Krugman likes to use World War II to make the same point. All the trained people were sucked up by the Armed Forces, leaving behind the old, the young, and women—all mostly untrained. This "second string" managed the incredible surge in war material output.

Catherine Rampell provides an article in the New York Times: It Takes a B.A. to Find a Job as a File Clerk. She discusses the trend towards using a college degree as essentially a character filter. If one has what it takes to complete a four year college program then that person has probably demonstrated the characteristics companies are looking for in new employees.

"The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job."

"Economists have referred to this phenomenon as "degree inflation," and it has been steadily infiltrating America’s job market. Across industries and geographic areas, many other jobs that didn’t used to require a diploma — positions like dental hygienists, cargo agents, clerks and claims adjusters — are increasingly requiring one, according to Burning Glass, a company that analyzes job ads from more than 20,000 online sources, including major job boards and small- to midsize-employer sites."
"This up-credentialing is pushing the less educated even further down the food chain, and it helps explain why the unemployment rate for workers with no more than a high school diploma is more than twice that for workers with a bachelor’s degree: 8.1 percent versus 3.7 percent."

When there are hundreds of applicants for positions, employers can afford to be highly selective.

Peter Coy has produced an article in Bloomberg Businessweek: The Sting of Long-Term Unemployment. He points out that having a college degree and experience providing a perfect fit for a given position may still not be good enough. Coy discusses another disturbing trend: disdain for the long-term unemployed.

"The rate of short-term unemployment—six months or less—is almost back to normal. In January it was 4.9 percent of the labor force. That’s only 0.7 percentage point above its 2001-07 average. But the rate of long-term unemployment, 3 percent in January, is precisely triple its 2001-07 average, according to a Bloomberg Businessweek calculation based on Bureau of Labor Statistics data. (Those two rates—4.9 percent and 3 percent—add up to the overall unemployment rate of 7.9 percent.) A striking statistic: The long-term unemployed make up 38 percent of all workers without jobs, double the average share and just a few notches down from the 2010-11 peak of 45 percent."

Those unemployed for less than six months seem to be able to find jobs. Those unemployed for more than six months are having a difficult time finding work. Isn’t that interesting? Coy reports on the investigation by Rand Ghayad and William Dickens, economists from Northwestern University.

"Ghayad sent out fictitious résumés to employers in 50 metro areas to see how they reacted to long spells of unemployment. He found that an "applicant" out of work more than six months had little to no chance of being called back. The résumés of those out of work for less than six months drew more interest when they showed the applicants had relevant industry experience. At more than six months of no work, having industry experience didn’t help at all, Ghayad found."

Employers seem to be deciding that anyone unemployed for more than six months might have a problem that would make them a risky hire. If someone else wouldn’t hire them why should I? If there are plenty of others to choose from, why not take the easy way out.

All of these trends in hiring are legal and consistent with companies acting in their best interests.

But, now that corporations are people, couldn’t they show a little more respect for their fellow humans?

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