May 07, 2010

Economics Group

John Silvia, Chief Economist

john.silvia@wellsfargo.com ! 704-374-7034

Employment II: Structural Road Bumps on the Recovery Path

Today’s rise in the unemployment rate, particularly among those not completing high school, emphasizes the
structural challenges to the job market. The disconnect continues between economic recovery and jobs.

Breakdown in the Link between Growth and Labor Unemployment Rate by Education Level
April 2010
In recent weeks we have discussed the labor market and the question of the 17.0% 17.0%

breakdown of the link between growth and jobs. In our view, there are 15.0% 15.0%
three factors that have exacerbated this disconnect which has been growing
13.0% 13.0%
since the 1990 recovery and has been reinforced during the 2001 and the
current recovery. First, the U.S. economy has become increasingly 11.0% 11.0%

integrated into the global economy, and with the ending of a closed 9.0% 9.0%
economy for the U.S. production, jobs are being allocated globally, not just
7.0% 7.0%
in the U.S., for any given increase in production. Second, the imperatives of
both global competition and a bargain-hunting consumer has led to 5.0% 5.0%

increasing use of high-tech capital to replace low/semi-skilled workers as 3.0% 3.0%

routine tasks are increasingly automated. Third, employers are constantly
1.0% 1.0%
upgrading the demand for educated workers and as such the returns to No High School High School Some College College Degree
Diploma Diploma
education continue to rise over time. Therefore, the income gradations by
education continue to widen. Mean Duration Unemployment
Average Weeks Unemployed
Structural Unemployment: America’s Skill Mismatches. 34 34

Increasingly, employers need minds, not just bodies. This has been a major 32 32

30 30
source of economic as well as political unrest as increasingly many workers
28 28
realize that their skills do not meet the needs of the workplace. In the top 26 26
graph we can see a breakdown of unemployment by education. The cost of 24 24

a weak education shows boldly in the high unemployment rate for those 22 22

with no high school diploma. 20 20

18 18
In today’s data the rise in the unemployment rate to 9.9 percent was driven 16 16
by the jump in the unemployment rate to 14.7 percent for those without a 14 14
high school diploma as this group’s measure of the labor force rose. This is 12 12

the “hidden” unemployment that many have talked about in the past year. 10 Apr @ 33.0 Weeks 10

Here are the workers who stayed out of the job search and now have 8
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
8

reentered as they believe jobs are becoming available. Unfortunately, for

many of them the challenge will be daunting as the low/semi-skilled jobs Employed Part-Time for Economic Reasons
Non-Agricultural Industries, Thousands of Persons
they seek are becoming increasingly scarce. 9,500 9,500
Part Time Employees: Apr @ 9,049,000
Unemployment: Higher for Longer—Surprise
8,500 8,500
The duration of unemployment actually rose in April to 33.0 weeks and is
the highest of any month this year. This suggests that many job seekers are 7,500 7,500

not benefitting from a cyclical recovery because their issues are the
6,500 6,500
structural mismatch in jobs.
Permanent Part-Time: America’s New Worker 5,500 5,500

The series “workers employed part-time for economic reasons” has set new 4,500 4,500
highs during this recession/recovery and remains elevated. While
temporary help has historically been a leading indicator of jobs in this 3,500 3,500

cycle, the pattern may have changed as temporary jobs never evolve into
2,500 2,500
full-time jobs. This presents another challenge to the American worker. 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com

& Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wellsfargo.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wellsfargo.com
Jay Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wellsfargo.com
Scott Anderson, Ph.D. Senior Economist (612) 667-9281 scott.a.anderson@wellsfargo.com
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 eugenio.j.aleman@wellsfargo.com
Sam Bullard Senior Economist (704) 383-7372 sam.bullard@wellsfargo.com
Anika Khan Economist (704) 715-0575 anika.khan@wellsfargo.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wellsfargo.com
Adam G. York Economist (704) 715-9660 adam.york@wellsfargo.com
Ed Kashmarek Economist (612) 667-0479 ed.kashmarek@wellsfargo.com
Tim Quinlan Economist (704) 374-4407 tim.quinlan@wellsfargo.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wellsfargo.com
Yasmine Kamaruddin Economic Analyst (704) 374-2992 yasmine.kamaruddin@wellsfargo.com

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